Jeffrey Skilling, Enron’s president and chief executive

analysisJeffrey K. Skilling began his career at Enron in 1990, when Kenneth Lay hired him to head an Enron subsidiary, as the U.S. Supreme Court recounted in 2010. Enron’s 2001 proxy statement described him as head of Enron North America and its predecessors from August 1990 to December 1996, President and Chief Operating Officer from January 1997 through February 2001, President and CEO since February 2001 and a director since 1997. He resigned on August 14, 2001, when Lay resumed the CEO post. The Senate Permanent Subcommittee report dated his board service from 1997 to August 2001 and listed him, as President and Chief Operating Officer and later CEO, among the senior officers whom Enron’s directors said they had trusted, together with Chairman and CEO Kenneth L. Lay and Chief Financial Officer Andrew S. Fastow. A 2017 federal court opinion, summarizing a complaint, gives his roles as president from 1997 to August 2001, chief operating officer from January 1997 to February 2001 and director from 1997. ^{1 2 3 4 5}

analysisIn its report of February 1, 2002 the Powers Committee, a special investigative committee of Enron’s board, found that Skilling personally supported the board’s decision to let Fastow proceed with LJM despite the conflict, gave little attention to his oversight duties, and bore substantial responsibility for the failure of the internal controls over the LJM relationship. It cited conflicting evidence that, if other employees’ accounts are accurate, he approved the March 2001 Raptor restructuring designed to conceal losses and withheld important information about it from the board. Skilling denied approving the restructuring, described his assigned oversight role as minimal, and told a House subcommittee that he “was not required to approve those transactions”. These are an internal board committee’s conclusions, not a judicial finding. Skilling was later indicted and convicted on 19 counts, and on June 24, 2010 the U.S. Supreme Court affirmed in part and vacated in part. ^{1 2 3}

analysisThe bankruptcy examiner Neal Batson concluded in his final report of November 4, 2003 that a fact-finder could find that Skilling, as president and chief operating officer, and Lay, as chairman and chief executive officer, breached their fiduciary duties as officers by failing to respond appropriately to “red flags” that senior officers were misusing special purpose entity (SPE) transactions to disseminate materially misleading financial information, and that as directors they breached their duty of good faith in approving the LJM1/Rhythms hedge and certain LJM2/Raptors hedges, which the examiner described as non-economic. He further found that Skilling failed adequately to inquire into red flags in the LJM1 and LJM2 transactions, including Fastow’s LJM compensation. These are conclusions that a fact-finder could so find, not a court judgment, and the examiner noted that the weight of evidence, defences and mitigating factors differ between Lay and Skilling. Skilling invoked his Fifth Amendment privilege and gave the examiner neither testimony nor an interview; Lay gave a one-day interview that was not under oath. ⁴

analysisOn February 19, 2004 the SEC charged Skilling, Enron’s former president, chief executive officer and chief operating officer, in an amended complaint in its action against Richard A. Causey (Litigation Release No. 18582). It alleged that Skilling and others manipulated Enron’s reported results through improper use of wholesale trading reserves, concealment of losses at Enron Energy Services through segment reporting, fraudulent promotion of the broadband unit and improper use of special purpose entities and the LJM partnerships, and that from April 2000 to September 2001 he sold over one million Enron shares while in possession of material non-public information, generating unlawful proceeds of approximately $63 million. These were allegations, not adjudicated when filed. The DOJ Enron Task Force filed related criminal charges, and the civil case was stayed from 2004; after his criminal convictions Skilling filed a statement of non-opposition to the SEC’s motion for summary judgment, and the case ended with summary judgment against him on December 8, 2015. ^{1 2 3}

analysisSkilling was added in February 2004 to the federal criminal case in Houston before U.S. District Judge Sim Lake against Richard A. Causey, who had been indicted in January 2004; a superseding indictment returned on July 7, 2004 joined Kenneth L. Lay to the case. Causey pleaded guilty on December 28, 2005, and the jury verdict against Lay and Skilling followed on May 25, 2006. In the U.S. Supreme Court’s description in its opinion of June 24, 2010, the government’s theory at trial was that Skilling profited from the fraudulent scheme through salary and bonuses and through the sale of approximately $200 million of Enron stock, which netted him $89 million; the Court noted that the government never alleged that he solicited or accepted side payments from a third party in exchange for his misrepresentations. That is the government’s theory as the Court described it, not a finding of the Court. ^{4 5 6 7}

analysisOn May 25, 2006 the Houston jury convicted Skilling on 19 of the 28 counts pending against him: conspiracy, 12 counts of securities fraud, one count of insider trading and five counts of making false statements to auditors. It acquitted him of nine insider-trading counts. At trial Lay and Skilling maintained that there had been no fraud at Enron and that negative publicity and diminishing market confidence caused its collapse, as a February 2006 press account reported. In its press release on the verdict, the Justice Department characterised the convicted scheme as one in which Lay, Skilling and other Enron executives, at various times between at least 1999 and 2001, deceived investors and the SEC about Enron’s true performance, artificially inflating its share price from about $30 in early 1998 to over $80 in January 2001 and stemming its decline during the first three quarters of 2001. Lay died on July 5, 2006 and a federal judge voided his conviction in October 2006. After several criminal appeals, including the U.S. Supreme Court’s decision of June 24, 2010 vacating the Fifth Circuit’s ruling on his conspiracy conviction, Skilling waived further challenges to his convictions and sentence under a May 2013 sentencing agreement and was resentenced to 168 months in prison. ^{1 2 3 4 5}

analysisOn October 23, 2006 U.S. District Judge Sim Lake in Houston sentenced Skilling to 24 years and four months in prison and ordered him to forfeit approximately $45 million to be applied towards restitution for the victims of the fraud. The Supreme Court later recorded the sentence as 292 months’ imprisonment, three years’ supervised release and $45 million in restitution. Skilling was resentenced in 2013 to 168 months in prison. ^{5 3 4}

analysisSkilling had moved in November 2004 to transfer the trial out of Houston, contending that hostility toward him there and extensive pretrial publicity had poisoned potential jurors, and renewed the motion after Causey’s guilty plea; the district court refused to transfer the trial. On appeal he challenged his convictions on fair-trial and honest-services grounds. On June 24, 2010 the U.S. Supreme Court (Skilling v. United States, No. 08-1394, opinion by Justice Ginsburg) affirmed the Fifth Circuit’s rejection of his argument that pretrial publicity and community prejudice in Houston denied him a fair trial. It held, however, that the honest-services fraud statute, section 1346, covers only bribery and kickback schemes; because Skilling’s alleged misconduct entailed no bribe or kickback, it vacated the Fifth Circuit’s ruling on his conspiracy conviction and remanded the case, leaving open whether the error was harmless. ¹

analysisUnder a criminal sentencing agreement reached in May 2013, in which Skilling waived challenges to his convictions and sentence and agreed to forfeit certain property, he was resentenced to 168 months in prison and three years of supervised release and ordered to pay approximately $42 million in restitution to the Enron Fair Fund for victims of the fraud, an amount the government collected by seizing and liquidating his assets. ²

analysisOn December 8, 2015 the SEC announced that Judge Melinda Harmon of the U.S. District Court for the Southern District of Texas had granted summary judgment concluding its civil case against Skilling, which had been stayed since 2004 pending the criminal proceedings. On the basis of the collateral-estoppel effect of his criminal convictions and his statement of non-opposition, the court found him liable on each claim in the SEC’s July 2004 complaint, permanently enjoined him from further violations of the antifraud and related provisions and permanently barred him from serving as an officer or director of a public company. Skilling was also named as an individual defendant in the suit that Silvercreek Management Inc. and affiliated funds, which had invested in Enron notes in October 2001, brought on November 7, 2002. He filed an answer, and on March 31, 2017 Judge J. Paul Oetken, ruling on a motion to dismiss brought by Credit Suisse, Deutsche Bank, Merrill Lynch and Skilling, did not dismiss the fraud claim against him. ^{1 2}