Many question Enron execs' knowledge

WASHINGTON - A Fortune 500 company adds more than $1 billion in profits through a complex set of deals that are difficult to comprehend. What do those in charge do?

Ask very few questions - if they are Kenneth Lay and Jeffrey Skilling from Enron.

That is the message former chairman Lay and ex-chief executive officer Skilling are sending Congress. Few on Capitol Hill believe their stories.

Assertions by the two executives that they did not know very much are difficult to accept, legal and financial experts say.

``I don't want to call anybody a liar because I don't know, but it's inconceivable to me that neither of them, particularly Skilling, knew something that profoundly important to the business,'' said John O. Whitney, professor of management at the Columbia Business School.

Lay was Enron's chief executive officer until about a year ago, when Skilling succeeded him.

While Lay took the Fifth Amendment before the Senate last week, he got out his version of events through company executive Sherron Watkins.

When she talked to Lay in August, ``it was my humble opinion that he did not understand the gravity of the situation the company was in,'' Watkins testified to Congress.

The problem she described to Lay: Enron improperly was using its own stock to bolster its balance sheet.

Eventually, the company would have to face the fact that the price of Enron stock was heading down in the recession. Highly volatile investments that Enron had transferred to its web of outside financial structures would have to be reported as heavy losses. Enron's own slumping stock was all that was backing up the investments.

Watkins said that ``my main point to Mr. Lay was that'' Raptor, which was part of the outside financial structure, ``owed Enron in excess of $700 million under certain ... agreements'' and ``I urged Mr. Lay to find out who lost that money.''

In turned out to be Enron.

The resulting wave of stock sales by nervous investors abandoning the energy trading company sent it into bankruptcy in December.

Skilling painted himself in the same light that Watkins painted Lay - as someone who had only a vague idea of what was going on.

``I was assured'' by others at the company that the deals ``were correct, so to the best of my knowledge there was not an issue,'' Skilling told Congress.

Experts question the two men's statements.

``Is it possible that they didn't know. Yes. Is it likely? No,'' said Andrew Ward, associate professor of organization and management at Emory University's Goizueta Business School.

``If you don't have knowledge of where that much of your income and your business is coming from, how do you make any plans for the future of the company?'' asked New York securities lawyer Marvin Pickholz, who has defended clients in Wall Street scandals over the past two decades.

University of Chicago accounting professor Roman Weil said ``You'd expect the top guy to understand the deal, but as time went by the magnitude of what was going on may have been hidden from him.''

The former Enron executives who could corroborate or contradict Lay and Skilling have all taken the Fifth Amendment: chief financial officer Andrew Fastow, who ran the outside partnerships; Michael Kopper, who collected $10 million from the arrangements; chief accounting officer Rick Causey; and chief risk officer Rick Buy.

``If there is one thing that these three individuals - Lay, Skilling and Fastow - would have spent a lot of time on it would have been what was happening with that stock and that would include major movements in the stock from one place to another,'' said Patricia Barron, a professor at New York University's Stern School of Business who specializes in corporate governance.

Skilling and Barron are both former employees of McKinsey & Co., based in New York, one of the premier management consulting firms in the world.

``You can't imagine Skilling with his background would take things on faith,'' said Barron. ``He would probably be asking three or four levels of what, why and how.''

Skilling insists that was not so.

``I absolutely, unequivocally thought the company was in good shape,'' he said.