The Story Behind The Damning Enron Videotape

The 1997 videotape that surfaced this week in which former Enron President Jeffrey Skilling jokes about the company using accounting sleight of hand so Enron could earn “a kazillion dollars” in earnings could prove to be more significant than the eerie parallels that eventually destroyed the high-flying energy company. That was the year that Enron may have first broken the law by setting up a controversial off-balance sheet partnership named after the furry “Star Wars” character Chewbacca to do for Enron’s bottom line exactly what Skilling joked about in the video.

Enron’s downward spiral last year was the result of a controversial off-balance sheet partnership named Chewco, which accounted for two-thirds of Enron's losses over a four-year period beginning in 1997. It is one of the complex partnerships that Enron employed to keep billions of dollars of debt off its books, boosting its profits and credit level along the way.

The legality of Chewco remains central to the examination of Enron and its bankruptcy. Joseph Bernardino, the CEO of Enron's auditor, Arthur Andersen, testified before Congress in December that Chewco's creation may have been illegal because it lacked the required three percent interest from an independent third party necessary for it to be treated as a separate company and not an Enron subsidiary.

In the nearly 30 minute video of a going-away party for former Enron President Rich Kinder, which was first reported by the Houston Chronicle and aired Tuesday on MSNBC, Enron executives parody songs and act in ridiculous skits. The video even featured testimonials by President Bush and his father, both of whom thanked Kinder for his support of the Bushies.

In fact, former Enron President Kenneth Lay (“Kenny Boy”) and Bush, who was governor of Texas at the time, corresponded with each other at least half-a-dozen times in 1997 about Enron business. Documents regarding the correspondence between Bush and Lay can be found at… http://www.thedailyenron.com/documents/

In April 1997, Lay sent a letter to Bush asking him to meet with the visiting ambassador from Uzbekistan where Enron had aspirations of oil and gas ventures. That month, Bush sent a birthday note to Lay saying he and Laura Bush, “value our friendship with you.”

Two months later, Lay sent another letter to Bush complimenting him on his work on deregulating the electricity industry in Texas and vowed that with Bush’s help, Enron would continue to lobby for deregulation nationwide. And many elements of Vice President’s Dick Cheney’s National Energy Policy released last year contain recommendations from Enron that were to benefit the company financially.

Since Enron’s collapse last year, Bush has distanced himself from Lay, even though the former Enron chairman contributed heavily to his presidential campaign.

But the most damning part of the videotape is when Skilling jokingly describes how Enron could pull off 600% revenue growth for the coming year.

“We're going to move from mark-to-market accounting to something I call HFV, or hypothetical future value accounting," Skilling jokes while reading from a script. "If we do that, we can add a kazillion dollars to the bottom line.”

Skilling abruptly resigned from Enron in August 2001, two months before the company’s collapse. He testified before judicial committees this year that he was unaware of the Byzantine partnerships that led to Enron’s collapse

Last month, the Financial Accounting Standards Board said that Enron abused the mark-to-market accounting rule, whereby profits from long-term energy contracts are booked immediately rather than when the money is actually received. This accounting trick allowed Enron subsidiaries to create an illusion of a profitable business despite the fact that the units, at least in Enron's case, was really a house of cards.

Now federal investigators with the House Committee on Government Reform and the Senate Permanent Subcommittee on Investigations are in the process of obtaining a copy of the tape to possibly use as evidence in the government’s investigation into Enron’s collapse, said spokespeople for both committees.

Former federal prosecutor Phil Hilder said that although the tape was a joke it could become evidence for federal investigators.

"There's matters on there that a prosecutor may want to introduce as evidence should it become relevant," Hilder said.

- Jason Leopold is an investigative journalist based in California, he is currently finishing a book on the California energy crisis. He can be contacted at jasonleopold@hotmail.com. This story is available for republication, please contact the author by email.

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