EXCLUSIVE: Former Enron President May Soon Be Indicted By Federal Investigators

What did Skilling know?
Evidence suggests that the former Enron president knew more than he led Congress to believe when he testified.

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By Jason Leopold
Salon.com


June 20, 2002  |  Now that federal prosecutors have secured a guilty verdict against accounting firm Arthur Andersen for shredding crucial documents related to Enron's finances, the Department of Justice is expected to turn its attention to Enron, with possible indictments against former executives coming soon for violating federal fraud statutes.

According to sources close to the Justice Department's probe, former Enron president Jeffrey Skilling is facing particular scrutiny. And Exhibit A against him could be testimony he gave before Congress in February, when he claimed he knew little about one of Enron's byzantine partnerships.

"Congressman, Enron Corporation was an enormous corporation. Could I have known everything going on everywhere in the company? I had to rely on the best people. We hired the best people. We had excellent, excellent outside accountants and law firms that worked with us to ensure," Skilling testified. "At no time did I enter into any transaction or was I personally involved in any transaction that I believed was not fully in the interest of Enron shareholders."

Next week, The Newsroom will report live from London and Paris. Do the French really hate Jews? Are the English just a bunch of wankers? Is Paris just a carbon copy of Washington Square Park? These and many, many other crucial questions about our European neighbors will finally be answered. Personally, being that this is my first time leaving the United States, I can't wait to find out.

Listen to an excerpt of National Public Radio's marketplace report on Enron. Included in the report is an interview with yours truly discussing the story I broke on Enron executives creating a phony trading floor to impress Wall Street analysts.

SECTION THREE

Allegory Number 3: NARCISSUS
Narcissus, handsome though he was, came to love looking at his reflection in the pool so much that he one day tried to kiss it -- and fell in the water.

"The Sting"
Jason Leopold, reporter for Dow Jones Newswires, says that Enron went to unbelievable lengths to paint a picture of success. In 1998, Enron executives staged an elaborate sting to convince analysts of Enron's worth by having secretaries pretend to be conducting business on phones that weren't even connected.

New Times Names Jason Leopold 'One Of the Most Aggressive Reports On California's Energy Crisis,' Leopold's Response: 'Aw Shucks. I'm Just a Mild Mannered Reporter,'"

By Jill Stewart
New Times

Dow Jones Newswires' Jason Leopold, one of the most aggressive reporters on the energy crisis, ticks off a crescendo of hits on Davis:

"Secretary of State Bill Jones revealed that Davis' top consultants bought stock in companies the state was negotiating with, and I could kick myself because those documents were there if I had done the legwork," he says. "State Controller Kathleen Connell announced she was not going to pay the $50,000 [monthly] salary to Davis' two political operatives, Chris Lehane and Mark Fabiani, because they weren't doing state business. Then Connell refused to pay an $11,000 bill for "emergency' meals for state negotiators, including $1,000 for sushi. For sushi! The L.A. Times broke the story about Davis' five consultants getting fired due to conflicts of interest in owning stock. I broke the story that Steve Maviglio, Davis' spokesman, bought stock in Calpine and Enron Corp. during contract negotiations."

ANDERSON GUILTY OF OBSTRUCTION OF JUSTICE IN ENRON COLLAPSE

HOUSTON –– Arthur Andersen was convicted Saturday of obstructing justice by shredding Enron-related documents in a verdict that could be the death knell for the shattered accounting firm and one that boosts prosecutors' efforts to get to the bottom of the Enron scandal.

Former Traders Say Enron Caused Blackouts

Enron linked to California blackouts
Traders said manipulation began energy crisis

By Jason Leopold
Last Update: 11:55 AM ET May 16, 2002

LOS ANGELES (CBS.MW) -- Two days of rolling blackouts in June 2000 that marked the beginning of California's energy crisis were directly caused by manipulative energy trading, according to a dozen former traders for Enron and its rivals.

The blackouts left more than 100,000 businesses and residential customers in the dark for parts of two days, trapped people in elevators and shut down some offices of high-tech companies such as Cisco Systems and Apple Computer, as well as chipmaking plants, costing millions of dollars in lost revenue.

The traders said that Enron's former president, Jeff Skilling, pushed them to "trade aggressively" in California and to do whatever was necessary to take advantage of the state's wholesale market to boost the price of Enron's stock.

White House Knew Of Enron's Financial Problems In August, Former Exec Says

By Jason Leopold
Salon.com

June 7, 2002 | According to a former Enron Corp. executive under congressional investigation in relation to the company's collapse last fall, an Enron lobbyist tipped off the Bush administration last August about the company's impending financial problems.

Enron lobbyist Pat Shortridge met with White House economic advisor Robert McNally Aug. 15, the day after Enron president Jeff Skilling resigned, to alert the White House that Enron could face a financial meltdown that could possibly cripple the country's energy markets, the former Enron executive told Salon this week.

"It was very well known that Enron faced a financial meltdown," the former executive said. "The day that Jeff resigned our stock plummeted. We knew it wouldn't rally. What we didn't know was how the financial problems at Enron would impact the energy markets in the U.S. That's why Pat met with Mr. McNally. To find out."

Energy Co. Records Traders Describing Ways To Manipulate Calif Power Market


By Jason Leopold


Traders for two of the country's largest power producers set out to "crush" California's electricity market in the summer of 2000 by congesting a key transmission line in the state with unneeded power so their companies could earn huge fees from the state's grid operator to free up the line, according to a transcript of a conversation a trader with Xcel Energy had with another trader at Southern Co.
The conversation between the two traders, recorded by Minneapolis-based Xcel, marks the first time evidence has surfaced that shows how energy companies that sold electricity in California colluded to manipulate the state's power market for financial gain. The conversation could boost California's pursuit for at least $9 billion in refunds and may result in criminal charges being filed against the Southern, which changed it's name to Mirant Corp. last year, and Xcel, state officials said.
The transcript of the conversation between an Xcel trader, who worked for Xcel utility Public Service Colorado, referred to as "Murph" and Jim Shandalov, a power trader with Southern Co., was part of a filing Xcel made with the Federal Energy Regulatory Commission May 23. A separate transcript between Murph, the Xcel trader, and another unknown trader also describes tactics the traders could employ to manipulate California's energy market.
In that conversation, the Xcel trader says Enron Corp., Duke Energy and Williams Cos. manipulate the market "all the time" by congesting transmission lines because they can earn more money from the California Independent System Operator by freeing up the lines than they would selling electricity into the market.
The earlier conversation between the traders describes two different ways to manipulate the market. The transcript reads like a script from a Hollywood movie
"You want to do an ex-post type of game or a congestion type of game plus ex-post or um?" Shandalov, the Southern Co. trader, asks the Xcel trader.
"Either/or," said the Xcel trader. "It doesn't matter?I don't want to crush the market to bad."
Shandalov then tells the Xcel trader that he will send power back and forth over the transmission lines, congesting one, and hopefully earn some money from relieving congestion on Path 26, another transmission line that is connected to Path 15.
"Does that sound alright (sic)?" Shandalov asks the Xcel trader. "I don't know how we're gonna split the money up yet."
"We'll figure it out," the Xcel trader says.
Some of the tactics described by the traders in the conversation are identical to the those used by Enron, with names such as "Fat Boy," "Get Shorty" and "Deathstar," to manipulate the California energy market. Xcel said in a May 22 filing with FERC that it did not engage in Enron-like trades, but the conversation between the traders contradicts that claim.
"Almost daily, there is further evidence that generators and traders engaged in illegal activities, intentional manipulation of the market, and a wanton disregard for the health and safety of Californians and our economy," Gov. Gray Davis said Friday.
But Paul Bonavia, president of Xcel Energy-Energy Markets, said the conversation between the traders is "confusing," adding that it does not necessarily mean they set out to manipulate California's power market.
"They talk about everything under the sun," Bonavia said Friday. "You have to go to the specific transaction and look at the accounting to ascertain what really happened. Based on that process, we have not found any indication to date that we engaged in market manipulation. However, we provided transcripts of the traders conversation to FERC and FERC could decide if it has any value."
Robert McCullough, an energy consultant based in Portland, read a transcript of the conversation between the two traders and said it's clear the traders set out to overschedule power on Path 15, a key transmission line and major bottleneck in California, and earn high fees for relieving the congestion.
"What we have here are two traders that are talking about a well known scheme to overschedule the Path 15 transmission line," McCullough said. "These are two market players attempting to combine their activities to game the ISO and probably split the profits."
McCullough said the tactics almost certainly resulted in skyrocketing wholesale prices and likely put the state's electric grid in jeopardy.
A spokesperson for the ISO was not immediately available to comment.

-By Jason Leopold; 310-551-9940; jasonleopold@hotmail.com

The Los Angeles Times got its first scoop in quite a while Wednesday when the paper reported that Perot Systems, an energy concern started by billionaire Ross Perot, the former presidential candidate, tipped off companies like Enron on how to exploit loopholes in California's electricity market to inflate power prices and boost profits. State Sen. Joe Dunn, a Democrat from Orange County, leaked the story to the Times. Wall Street got spooked by the news punishing Perot Systems shares Wednesday, which declined $3.53 or 19% on the news. I have a feeling Dunn is also leaking the news to hedge funds, which are shorting the stocks in hopes of reaping a windfall.

California's GOP Gubernatorial Candidate Denies He Did Busines With Enron

By Jason Leopold

Bill Simon, California's GOP gubernatorial candidate, is either a liar, just plain stupid or both. Despite the extensive business dealings Simon had with Enron Corp. while he was a member of Hanover Compressor's board of directors, he told the Los Angeles Times in an interview recently that he never engaged in any business dealings with Enron. Unfortunately, the Los Angeles Times took his word for it. A quick search of Hanover Compressor's Security and Exchange Commission filings from 1997 through 1999 lists Enron's stake in Hanover, the joint-venture projects between the two companies and Simon's signature on those filings. Did Simon mean that he personally did not do business with Enron? It's hard to tell because Simon has not been forthcoming about his relationship with Enron, which is being investigated by the federal government for allegedly manipulating California's power market and accounting scandals. Enron filed for bankruptcy in December. One of Enron's partnerships at the center of the federal probe, Joint Energy Development Investments, or JEDI, was Hanover's largest shareholder. Simon was a member of Hanover's board in 1995 when JEDI invested heavily in Hanover, an energy company founded by his father, William Simon, Sr. There's no doubt that Simon was involved in intimate business transactions with Enron, which makes me wonder whether he really is stupid and therefore unfit to serve as governor of California. Still, there's no excuse for lazy reporting and the Los Angeles Times has done an injustice by failing to disclose to its readers Simon's ties to Enron as highlighted in the SEC filings.