Is former Enron CEO still ‘golden’?
With new venture, Skilling continues to find ways to fascinate
Jeffrey Skilling, the notorious former CEO of Enron, has resurfaced again, this time as he reportedly seeks backers for a venture that would combine the hallmarks of his former company: energy, technology and trading.
The recent report of Skilling’s overtures to investors by the wire service Reuters again sent the Houston business community buzzing, much as other reports of his activities. Seven years ago, Skilling recaptured the limelight when his sentence was reduced and again, five years later, when reports surfaced that Skilling was moved from a prison farm in Alabama to a halfway house in Houston.
Nearly 20 years after Enron collapsed, 14 years after he went to prison, and one year after he was released, Skilling continues to fascinate, a measure of the outsized role the company’s rise and fall played in the modern history and psyche of Houston. For years, Enron’s transformation from a small natural gas pipeline company to one of America’s most admired companies was a point of local pride, a success story entailing vision, risk taking and execution.
Its rapid plunge, which wiped out investors, employee retirement accounts and thousands of jobs, was just as much a point of shame as Enron’s financial and accounting fraud were exposed. As with fraudsters from Charles Ponzi to Bernard Madoff, the details of Enron’s massive deception and Skilling’s role in it have remained riveting as people continue to wonder how they got away with it, why so many savvy investors and analysts were blinded by the hype, and what, if any, lessons were learned from it.
“We are drawn to success,” said Thomas Dearden, assistant professor of sociology at Virginia Tech, “We often care little how they obtain that success.”
The news of Skilling’s venture — reportedly a new oil and gas
trading platform — rekindles memories of the Enron drama, including Skilling’s two-month highprofile federal trial; the sudden death of co-defendant Enron chairman Kenneth Lay; the succession of guilty pleas of other Enron executives; and the anguish of the suicide of another.
Houston was already an oil and gas town, but Enron was the magic elixir, creating new trading markets for electricity, broadband and water, rising to No. 7 on the Fortune 500 list and salving an inferiority complex of a city long overshadowed by the smaller Dallas. The Enron crowd had the glamour Houston was missing, too.
Enron executives were big spenders, buying lavish homes such as Skilling’s $5 million River Oaks mansion, renting racetracks and race cars for customer entertainment and owning a fleet of jets. Car dealers salivated at annual bonus time when executives would place their orders for expensive new sports cars.
“Skilling was a hero, the golden boy, the brilliant mastermind,” said Stephen Klineberg, sociology professor at Rice University and founding director of the Kinder Institute for Urban Research. “He was the businessman’s businessman.”
Skilling was convicted in 2006 of 12 counts of securities fraud, five counts of making false statements to auditors, one count of insider trading and one count of conspiracy for his role in hiding debt and orchestrating a web of financial fraud that ended in the Houston company’s bankruptcy.
He was sentenced to 24 years in prison and fined $45 million, the harshest sentence of any Enron executive, before it was reduced to 14 years in 2013 as part of a deal in which Skilling dropped his appeals and released the money to pay the fine. Skilling also was permanently barred from serving as an officer or director of a public company.
Skilling could not be reached for comment.
If you asked, most people in the Houston business community would invest again with Skilling, said John Zavitsanos, the Houston lawyer whose firm represented Enron whistleblower Margaret Ceconi.
Chalk it up to the same reasons that made Skilling a success the first time around: a quick mind that operates in the fast lane; confidence that can chew up competitors across the negotiating table; and a visionary who can look at a lump of clay and see exactly what the statue will look like, said Zavitsanos, who represented several clients against Enron.
“They had a swagger to them unlike any other company who we went up against,” he said. And that attitude likely came from the top.
What Skilling might do next is part of the local fascination. He has a similar personality to another famous financier who also took greed too far, said Zavitsanos, Michael Milken.
Milken, known as the junk bond king during the go-go 1980s, went to prison for securities fraud, but today is a respected philanthropist and founder of the Milken Institute, a public policy think tank. He was pardoned earlier this year by President Donald Trump.
“I think Skilling will be the next Milken,” Zavitsanos said.
Second act
Does Skilling have a second act? It’s possible, according to one expert who has written extensively on financial crimes.
People who lose money in fraudulent investment deals often cling to the hope they’ll get their money back, said Anne Wilkins, associate professor of accounting at the University of Tennessee at Chattanooga. In studies of victims of Ponzi schemes, investors tell interviewers they believe if the perpetrator was just let out of prison then he or she would be able to get the money back for them as promised.
“People do not want to admit to themselves that they trusted the wrong person,” she said.
Details of Skilling’s new venture are sketchy, but they appear to be capitalizing on increased investor interest in commodities, said Ed Hirs, an energy economist at the University of Houston who was on the Enron Task Force led by the Department of Justice. United States Oil, an exchange traded fund that invests in soon-to-expire oil futures contracts, was among the most frequently traded stocks in April on investing platforms used by individual investors.
Hirs, who heard a description of Skilling’s pitch to investors, said Skilling’s idea is to bundle up to 10 wells and sell ownership slices to investors, much as banks bundle mortgages and sell slices to investors. The commodities product would be sold to and traded among institutional investors through an online platform, essentially a newer version of the Enron model of taking advantage of technology to create a new trading platform, Hirs said.
Commodity trading is notoriously risky; the United States Oil Fund has lost nearly 73 percent of its value this year. But, Hirs said, investors may likely come out to see what Skilling is pitching because they’re curious.
After all, Andrew Fastow, the former Enron chief financial officer who spent six years in prison after admitting to two counts of conspiracy to commit wire fraud and securities fraud, has turned his Enron experience into a professional speaking career. His fee is between $10,000 and $20,000 per presentation, according to the Speaker Booking Agency of Florida.
‘Culture of excess’
For all its impact on Houston, the Enron story had broader ramifications around the nation. It led to passage of the SarbanesOxley Act that required more corporate financial disclosure, created an accounting oversight board and strengthened whistleblower protections. The law also imposed greater accountability of corporate executives and the accountants and auditors they hire.
The massive accounting fraud uncovered at Enron was followed by a wave of similar corporate fraud prosecutions, such as the accounting scandals at the telephone company WorldCom; rehabilitation hospital owner HealthSouth; and cable television company Adelphia Communications. In each case, top executives went to prison.
“Rightly or wrongly, in the minds of many Jeffrey Skilling came to epitomize a culture of excess and greed that plagued a large segment of corporate America in the late 1990’s and early 2000’s,” said Robert Mintz, a former federal prosecutor who followed the case.
Skilling will always be fascinating because his rise and fall affected so many people in Houston who lost their retirement savings, arts groups that lost their funding and civic leaders who were counting on the success of Enron, said Philip Hilder, a white-collar criminal defense lawyer. Hilder represented former Enron executive Sherron Watkins, the whistleblower who took her concerns about accounting shenanigans to Lay, the Enron chairman.
Skilling, Hilder said, was viewed as smart and talented — for a while.
“He was admired,” said Hilder, “until he was exposed.”