ENRON'S Jeff McMahon


• Jeff McMahon, chief financial officer: Sold 39,630 shares for $2.7 million.

Blind Faith: How Deregulation and Enron's Influence Over Government Looted Billions from Americans


FOR IMMEDIATE RELEASE: Wednesday, October 24, 2001

HOUSTON – Enron Corp. announced today that it has named Jeff McMahon chief financial officer. McMahon had been serving as chairman and CEO of Enron’s Industrial Markets group. From 1998 to 2000, McMahon was Enron’s treasurer.

“Jeff has unparalleled qualifications and a deep and thorough understanding of Enron,” said Kenneth L. Lay, Enron chairman and CEO. “He has the trust and confidence of our investors and financial institutions.”

Andrew Fastow, previously Enron’s CFO, will be on a leave of absence from the company. “In my continued discussions with the financial community, it became clear to me that restoring investor confidence would require us to replace Andy as CFO,” Lay said.

McMahon, 40, joined Enron in 1994 and spent three years in the London office as chief financial officer for Enron’s European operations. Upon returning to the United States, McMahon was executive vice president of finance and treasurer for Enron Corp. In 2000, he was named president and chief operating officer of Enron Net Works, where he had responsibility for Enron’s e-commerce activities.

McMahon has a bachelor’s degree in business from the University of Richmond in Virginia. He is a Certified Public Accountant, SFA registered and is a member of the American Institute of Public Accountants and Association of Corporate Treasurers.



January 29, 2002, 5:15pm EST

Bankrupt energy giant Enron today selected Stephen Cooper, a business restructuring expert, to lead the company out of the largest corporate bankruptcy in U.S. history.

Cooper replaces former chief executive and chairman Kenneth Lay, who resigned last week under pressure from Enron's bankruptcy committee and multiple congressional investigations.

Enron's directors and bankruptcy committee will continue its search for a permanent company chairman, though Lay will remain on the board.

As a managing principal of New York restructuring firm Zolfo Cooper, Cooper has helped reorganize insolvent companies like Sunbeam, Federated Department Stores, and Morrison Knudson.

Cooper most recently served as chief restructuring officer and vice chairman of Laidlaw Inc., a financially troubled bus company.

Enron president and chief operating officer Lawrence

Whalley resigned on Tuesday and accepted a position with UBS Warburg, a large Swiss investment bank that recently purchased Enron's trading unit.

Whalley will be replaced by Chief Financial Officer, Jeff McMahon, while Treasurer Ray Bowen fills McMahon's shoes.

Despite the reshuffling of top management, Enron's board said it will focus on salvaging the company's main operations and reviving its financial status. At its peak, Enron reported the seventh-highest earnings of any U.S. company. It filed for bankruptcy on Dec. 2 after its stock plunged below eighty cents, causing thousands of Enron employees to lose their 401(k) retirement savings.
Analysts predict Enron's remaining assets will be sold off to its creditors or other energy companies.

Senate hearings begin
The selection of the new CEO came as the Senate Committee on Energy and Natural Resources opened its hearings on how Enron's bankruptcy could affect deregulated energy markets and how lawmakers could prevent a similar crisis. The heads of various regulatory groups, including the Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) attended the hearing.
FERC Chairman Patrick Wood III and CFTC Chairman James Newsome both testified Enron's sudden demise did not mean existing energy regulations had failed. Both men, along with several senators, said no new energy market laws appeared to be needed.

"[Enron's collapse] appears to be a story of lies, of deceit, shoddy accounting, corporate misconduct and cover-up," Sen. Frank Murkowski (R-Alaska) said. "But we can not lose sight of the fact that this is a business failure, not an energy market failure."
Several committee members voiced concerns about whether energy trading should be subjected to the same federal oversight as other traded commodities, noting the sudden drop in long-term energy prices one day after Enron declared bankruptcy.

"That certainly raises questions about whether Enron was manipulating the West Coast market," Sen. Ron Wyden (D-Ore.) said.
The majority of Enron's trading activities occurred in unregulated energy markets exempt from regulation by the CFTC, the watchdog of energy market transactions.

Robert McCullough, an consultant for large energy companies like Northwest Utilities, testified that the one-third drop in long-term energy prices was a "very clear implication... that Enron may have been using its market dominance to set forward [future energy] prices."
The Senate committee is exploring whether energy markets should face the same regulations as other commodities.

CFTC Chairman James Newsome testified that his commission had no evidence that Enron inflated energy prices on the futures market.
At least eight other congressional committees are investigating different aspects of Enron's collapse.



Former chief of Enron denies wrongdoing
Sunday, December 23, 2001

By RICHARD A. OPPEL JR., New York Times News Service

WASHINGTON — As government investigators look for the roots of Enron's demise, the Enron chief executive who quit just months before the company collapsed broke his silence on Friday to deny any responsibility or wrongdoing.
Jeffrey K. Skilling, who resigned as chief executive in August after a decade at the company, said in an interview that he had been stunned by Enron's subsequent descent and by revelations that his former chief financial officer and right-hand man made more than $30 million from dealings with investment partnerships related to the company.

Skilling said that he had never invested in such partnerships and disputed assertions by people close to Enron that he had been counseled against entering into them. But he said that the partnerships, now the subject of government investigations, were the idea of the former chief financial officer, Andrew S. Fastow.
While shareholders and employees who suffered big losses have filed suits against Enron, Skilling sold some of his holdings shortly before the collapse. Skilling disclosed that he sold about 500,000 shares of Enron stock on Sept. 17 — when the U.S. stock markets reopened after the terrorist attacks. Based on trading that day, the sale would have brought about $15 million. That was his only sale of Enron stock after his resignation, he said. Earlier in the year, Security and Exchange Commission filings show, he took in $15.6 million by selling 240,000 shares. Regulatory filings indicate that he still owns more than 600,000 shares, and many options.

"We're all trying to figure out what happened," Skilling said. "This was a tragedy. I had no idea the company was in anything but excellent shape."

In October, he offered to return to Enron to help the company weather its growing crisis, he said. While the chairman, Kenneth L. Lay, liked the idea, Skilling said, it was rejected because of concerns that "the press might not understand it and it would add to the confusion." Soon after, Enron became the biggest corporate bankruptcy ever.
Based on a conversation with a senior Enron executive after he quit, Skilling said that the company lost out on the opportunity to obtain $3.5 billion to $4 billion in financing when it was most needed because of provisions unusual in such contracts.

Skilling, a former consultant at McKinsey & Co., joined Enron in 1990 and helped transform it into the largest energy-trading company in the world. Until recently, Enron dominated the sale and marketing of natural gas, electricity and other commodities. It became a focal point in the California energy crisis, and its close ties to the Bush administration led to criticism that it had helped shape the administration's energy policy.
But the company began to unravel in October as it disclosed losses and reductions in equity partly because of dealings with investment partnerships involving Fastow.

The SEC soon began a formal investigation, and last month Enron said it had overstated almost $600 million in profits over the last five years. A rival Houston energy trader, Dynegy Inc., agreed on Nov. 9 to rescue Enron but called off the merger later that month. Enron collapsed in the face of looming debt payments and the refusal of many energy-trading customers to continue to do business with it.
Skilling, who has spent two days giving sworn testimony to the SEC, said he never exercised his Fifth Amendment right against self-incrimination before investigators. He also said he did not believe he would face sanction by the SEC or criminal charges. "I didn't do anything wrong," he said.

"In the last two months, I've gone through everything in my mind that was done while I was there that could have been related to this, and given the information available at the time, I think we made the right decisions," he said.
He added, "After much soul-searching, given the information at the time, I would not have done anything different."

An Enron spokeswoman, Karen Denne, declined to comment on what Skilling had to say. "I can't comment on what Jeff did or did not know. That's a question for Jeff to answer," she said. Lawyers for Fastow could not be reached for comment.

Skilling said that four things brought Enron down — none of which could have individually ruptured the company: Admissions of serious accounting errors, investor concerns about "suggestions of self-dealing," a "total loss of confidence by the financial sector in Enron," and what Skilling described as clauses unusual in routine financing arrangements that cut off access to loan facilities in the event of a "material adverse" change at Enron.
The result, he said, "was a classic run on the bank."

Skilling said he could not say exactly what the clause was that hurt Enron's ability to borrow more money, but that based on a conversation he had with Greg Whalley, who was named Enron's president and chief operating officer after Skilling resigned, the clause was an "unexpected" find in a routine financial document.
The comments from Whalley occurred in late October, he said, in a discussion about the possibility of Skilling returning to the company. "Greg seemed to think this was a pretty good idea," he said.

Enron officials have said the partnerships involving Fastow were a means to allow the company to hedge its exposure to some of its investments. Skilling said he did not have details about the partnerships, but he said the deals with Fastow were partly set up "to save Enron money." Fastow's group might be willing to give Enron a better price — or better terms — because it was more familiar with the assets being traded, he said.

The familiarity "reduced some of the uncertainty," he said.
But he said he was stunned when he read a regulatory filing by Enron on Nov. 8 that said Fastow had made more than $30 million off the deals. He said he was also surprised to learn that at least several other Enron executives had been investors in the partnerships. "I, along with a lot of people, were surprised when the 8-K was released," he said.

An Enron filing with the SEC last month reported that transactions with the Fastow partnerships added $517.9 million to Enron's pretax profits in 2000. The same filing said the company's restated after-tax net income for the year was $847 million, but did not give a pretax figure. Applying a normal tax rate to that figure would imply pretax income of about $1.3 billion, indicating that the Fastow partnerships provided about 40 percent of the company's profits.
However, Skilling said on Friday that the Fastow partnerships had a very small impact on Enron's profits last year. "I would guess it's de minimus," he said.

A special committee of Enron directors is now reviewing the partnership transactions, and in the Nov. 8 filing the company said it was reviewing whether controls ordered by the board were properly carried out.

"I think that's the question," Skilling said. "I don't know."
In late October, Fastow was ousted, and Enron named Jeff McMahon to replace him as chief financial officer. At the time, people close to Enron suggested that when McMahon was treasurer, he had told Skilling, then the chief operating officer, that he thought the partnerships involving Fastow presented a conflict of interest. After the discussion, McMahon switched jobs at the company.

In the interview on Friday, Skilling said the only objection raised by McMahon was a fear that he might get a smaller bonus because he was representing Enron on one side of the table in negotiations against people on the other side representing Fastow's partnerships. Fastow was higher in the organization at the time.
Skilling said that he reassured McMahon, who never raised broader concerns about the partnerships. He also said no one else ever came to him with such concerns.

According to a regulatory filing, the company's board required every transaction with the Fastow partnerships to be reviewed and approved by the office of the chairman — which Skilling said included him, the chief accounting officer and the chief risk officer. On Friday, Skilling could not say whether those approvals took place for every deal.
He also said that to his knowledge, no directors or public officials of Enron invested in or did business with any of the partnerships, and he said the structure of the initial Fastow partnerships were approved by the board.

Later, the reviews were "tightened and made better," he said, but "I'm sure they didn't know details of all the transactions."
Enron's longtime auditor, Arthur Andersen, has stated that Enron may have engaged in "possibly illegal acts" and misled it by withholding crucial information about a special-purpose entity called Chewco. Skilling said he did not know the details of those transactions and said he "would have expected Arthur Andersen to be very involved" in the partnerships.

One financing arrangement that undermined Enron was a provision that required $3.9 billion in debts not on the balance sheet to be paid if the stock price dropped below certain levels and Enron lost its investment-grade credit rating. Skilling said, "I did not know about that."

According to bankruptcy court documents, another special-purpose entity called Sequoia Financial Assets agreed at the beginning of each month to buy Enron's receivables and then to buy commercial paper from Enron with those proceeds as they came in. When Enron's credit rating was downgraded to junk status, Sequoia stopped the deals, depriving Enron of hundreds of millions of dollars in financing.

Explaining his resignation in August, Skilling said that the balance between his work and his personal life had become "increasingly untenable."
"I was ready to go," he said.

Skilling said that neither he nor his lawyers had been contacted by the Justice Department. Told that several U.S. attorneys have indicated interest in Enron's collapse, Skilling replied: "I would think they should be. I mean, it's a big company."

Asked to elaborate on what he meant, he said: "I take that back."