In a Feb. 13 interview with BusinessWeek, Hiler lambasted the Capitol Hill inquiry. "They have completely destroyed the ability of any of the parties involved to get a fair trial if they ever need it," he says. "They have set the fact-finding back by months."
Hiler says the congressional inquiries have failed to allow for "a detailed factual hearing." And he takes exception to some of the conclusions in a highly critical report on the Enron debacle by a special committee investigating the company's board. The committee concluded in the Feb. 1 report that some Enron insiders profited at the company's expense while improperly concealing losses and inflating earnings by almost $1 billion.
HOW MUCH WAS HIDDEN? In his congressional testimony, Skilling insisted that when he unexpectedly resigned from the company on Aug. 14, he believed that Enron "was in strong financial condition" and that the financial statements accurately reflected the company's position. Yet by Dec. 2, Enron had filed for Chapter 11 after an earnings restatement and disclosures about off-balance-sheet partnerships caused investors and trading partners to flee.
Despite all the talk about Enron's "hidden debt," Hiler says only $711 million worth of debt has been put back on the balance sheet as a result of restatements, a figure partially offset by $451 million in additional assets. Other transactions criticized by the special committee did not affect the company's cash flow, he claims. Daily reports from Enron's risk-management group showed plenty of short-term liquidity, says Hiler. But Skilling later learned that some of the credit lines were burdened by "material adverse change" clauses that prevented Enron from tapping them when the company was in its downward spiral.
The board committee and Enron whistleblower Sherron Watkins were highly critical of the so-called Raptor entities, set up by then Chief Financial Officer Andrew Fastow, to hedge the gains on some of Enron's most volatile investments. The special committee noted that because the Raptors were backed by Enron stock, the company was essentially hedging itself with no real outside counterparty at risk. Watkins says she believes the hedges had no real purpose other than income-statement manipulation.
SILVER LINING? Hiler insists that it's not that clear-cut. "There is accounting literature which clearly allows you to recognize earnings on your stock when you're using it in a derivative transaction," he says, noting that Arthur Andersen has yet to explain the accounting. He also argues that Enron was prevented from hedging these investments with a brokerage or investment bank because of "lock-up" provisions that Enron had agreed to when it bought the stocks.
Hiler sees a silver lining even in testimony that appeared to damage Skilling's credibility. For instance, an Enron lawyer, Jordan Mintz, says he tried to get Skilling to sign deal-approval sheets for Enron's "LJM" off-balance-sheet partnerships, but to no avail. Hiler notes no testimony shows that Skilling ever got Mintz's memo or had ever been presented with the deal sheets.
Nor had Mintz ever talked to Skilling directly about the subject. Mintz did say Chief Accounting Officer Richard Causey and Chief Risk Officer Richard Buy warned him against going to Skilling about Fastow, his protégé. That, says Hiler, "is probative that people are trying to keep things from" Skilling. And he notes that Mintz testified at one point that Fastow told him if Skilling ever knew how much he had made in one LJM deal, "he'd have no choice but to shut down LJM." Hiler calls that "the most exculpatory piece of evidence I heard."
COMPLAINTS. Even former Enron Treasurer Jeff McMahon, who testified about the warnings he gave Skilling regarding the partnerships, didn't contradict his client, Hiler argues. McMahon described telling Skilling about the difficulties he faced in negotiating with Fastow and his employees as LJM representatives and that he felt pressured to do things not in the interest of shareholders.
However, Hiler notes that McMahon never said he had seen or participated in a transaction that was unfair to Enron. And his own "talking points" for the Skilling meeting include two mentions about compensation, supporting Skilling's memory that McMahon was mainly complaining about how Fastow could affect his bonuses.
"There's nothing fundamentally at odds between Mr. McMahon and my client," Hiler asserts. McMahon testified that Skilling charged then-Vice-Chairman Joseph Sutton to look into his complaints, contradicting suggestions by the special board committee that Skilling had failed to take remedial action.
Says Hiler: "Nobody is getting this right in terms of basic, fundamental facts." No doubt, Skilling will have more chances to give his version of the facts -- and face more attacks from those who simply don't believe him. By Wendy Zellner in Dallas