1 UNITED STATES GRAND JURY SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION GJ NO. 02-2 RE: INVESTIGATION OF ENRON BE IT REMEMBERED that on the 23rd day of October, 2002, beginning at 9:40 a.m., in the Federal Building, 515 Rusk, Houston, Texas, the United States Grand Jury convened, at which time the following proceedings were had and testimony adduced as hereinafter set forth. TESTIMONY OF SHERRIE GIBSON I * GOVERNMENT * EXHIBIT * 1015 25 (S 2) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 1 2 3 I, TIERNEY R. LEDBETTER , CSR, a Certified 4 Court Reporter and Notary Public in and for the 5 County of Harris, State of Texas, previously 6 appeared before the Foreman of the Grand Jury, 7 at which time I was sworn in as reporter for the 8 United States Grand Jury. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 2 3 AP P EARANC ES 4 5 6 Special Assistant United States Attorney 7 WILLIAM KIMBALL and Special Assistant United 8 States Attorney SAMUEL W. BUELL appearing for 9 the United States of America. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHERRIE GIBSON 4 1 INDEX 2 EX. NO. DESCRIPTION PAGE 3 KL-15 Repay Line of Credit with Options 57 4 KL-21 Sununaries of Repayments 61 5 KL-22 Memo 100 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHERRIE GIBSON 5 TESTIMONY OF SHERRIE GIBSON: FOREMAN OF THE GRAND JURY: solemnly swear or affirm that will answer truthfully such questions as may be propounded you by the Grand Jury or under direction, so help you God? THE WITNESS: I do. FOREMAN OF THE GRAND JURY: you. Do you you to its Thank WHEREUPON , the said SHERRIE GIBSON having been duly sworn, testified as follows: EXAMINATION BY SPECIAL AUSA BUELL: Q. Could you state your name and spell it for the reporter, please? A. My name is Sherrie Gibson, S-h-e-r-r-i-e. Q. Ms. Gibson, before I begin my questions this morning, I'd like to review with you your rights and obligations as a Grand Jury witness. Do you understand that your testimony here is being given under oath 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHERRIE GIBSON 6 1 today and a record is being made by a court 2 reporter? 3 A. Yes, I do. 4 Q. And do you know understand that, as any 5 witness before the Grand Jury, you have an 6 overriding obligation to tell the truth and 7 that you could be prosecuted for the crimes 8 of perjury and obstruction of justice if 9 you were to lie about anything material to 10 the Grand Jury's investigation? 11 A. Yes I do. 12 Q. Do you understand that you have a right to 13 be -- consult with an attorney in 14 connection with your appearance before the 15 Grand Jury? 16 A. Yes, I do. 17 Q. I need you to try to speak up so everyone 18 in the room can hear you, ma'am. 19 A. Oh, okay. 20 Q. Have you consulted with a lawyer in 21 connection with your Grand Jury appearance? 22 A. Yes. 23 Q. And who is your attorney? 24 A. George Murphy. 25 Q. Is Mr. Murphy with you in the Courthouse SHERRIE GIBSON 7 1 today? 2 A. Yes, he is. 3 Q. Do you understand that he can't be with you 4 in the Grand Jury room, but that if you 5 wish, you can ask to excuse yourself and 6 consult with him during your testimony? 7 A. Yes. 8 Q. Is there a Mr. Bennett from Mr. Ramsey's 9 firm also with you in the Courthouse today? 10 A. Yes. 11 Q. And do you understand that he represents 12 Mr. Lay in this case, Mr. Kenneth Lay? 13 A. Yes. 14 Q. Okay. Do you also understand that you 15 would have the right to refuse to answer 16 any question I put to you on grounds of 17 your Fifth Amendment privilege if you 18 believed in good faith that a truthful 19 answer would tend to incriminate you? Do 20 you understand you have that right? 21 A. Now I do, yes. 22 Q. Okay. All right, Ms. Gibson, how far did 23 you go in school; what degrees do you have? 24 A. I graduated from Texas A&M with a BBA in 25 finance and accounting, May of 1982, and SHERRIE GIBSON 8 1 then I obtained my CPA in 1987. 2 Q. Any graduate study? 3 A. No. 4 Q. What did you do between graduation from 5 college and when you obtained your CPA 6 license? 7 A. Out of college I went to work for Pete 8 Marwick for two years. After that I went 9 to work for a year with AMI, American 10 Medical International as a financial 11 analyst. Then I went to work for another 12 family here in Houston for 12 years. 13 Q. What family was that? 14 A. It was the Jerry Finger family. I was 15 their personal accountant. 16 Q. How do you spell the last name? 17 A. F-i-n-g-e-r. 18 Q. Were you employed by that family or by some 19 partnership or corporate entity doing 20 business -- 21 A. No, I was directly employed by the family. 22 Q. And what business was Mr. Finger in? 23 A. He was chairman of Charter Bank Shares at 24 that time. 25 Q. Okay. How are you currently employed? SHERRIE GIBSON 9 1 A. I'm currently self-employed. 2 Q. What are you doing? 3 A. I'm contracting on special projects for the 4 Lay family as needed. 5 Q. And was your last employment prior to that 6 a salaried position with the Lay family? 7 A. Correct. 8 Q. And when did that that employment stop? 9 A. May 31st of 2002. 10 Q. And when did you begin working for the Lay 11 family? 12 A. I began working for them in November of '97 13 and what I forgot to mention was that 14 between my employment with the Finger 15 family and the Lay family, I worked briefly 16 for a certified financial planner. 17 Q. Who was that? 18 A. The name of the company was Johnson, Bender 19 & Company. 20 Q. And what did you do for them? 21 A. Financial reports. 22 Q. How was it that you came to be employed as 23 a personal accountant for the Finger 24 family? 25 A. I had heard there was a -- my husband was SHERRIE GIBSON 10 1 friends with the person that was CFO of a 2 company, of Charter Bank Shares, and he 3 knew that I was looking for, you know, 4 something else and mentioned it and I 5 interviewed. 6 Q. And what kinds of -- just briefly, what 7 kinds of work did you do in your capacity 8 as a personal accountant for the Finger 9 family? 10 A. A little bit of everything. It's 11 everything you do on your own personal 12 level, just magnified, everything from 13 paying bills to compiling information for 14 tax returns, facilitating investments, 15 managing properties, coordinating meetings 16 regarding estate planning, preparing 17 reports, et cetera. 18 Q. And how did you become employed as a -- 19 well, what was your position with the Lay 20 family from '97 until 2002, May 2002? 21 A. My official capacity, I was controller of 22 the Lay family interests. I worked 23 directly for the family. 24 Q. And why do you say "official capacity"? 25 Was there other capacity as well? SHERRIE GIBSON 11 1 A. No, that was just my title. 2 Q. Okay. And were you -- what was the entity 3 that actually employed you? Was there a 4 partnership or a trust or a corporation or 5 anything like that? 6 A. No, it was -- it was an individual. In 7 fact, for the payroll tax reports, Linda P. 8 Lay was the official employer, and that's 9 also who appeared on my W-2. 10 Q. Okay. What were your duties and 11 responsibilities generally as controller 12 for the Lay family between '97 and '92 13 [sic]? 14 A. Very similar to what I had done for the 15 previous family. Payed bills. I acted 16 more as a facilitator of information, 17 prepared monthly financial statements, also 18 prepared any quarterly reports, just kept 19 the flow of information going. 20 Q. What about in connection with the taxes, 21 how did that process work? 22 A. Also I prepared -- there was another firm 23 that actually prepared the tax return. 24 Q. What firm was that? 25 A. Margolis, Phipps & Wright. Margolis is M- SHERRIE GIBSON 12 1 a-r-g-o-l-i-s, Phipps is P-h-i-p-p-s, and 2 wright is W-r-i-g-h-t. 3 Q. So what did you do in connection with the 4 tax returns? 5 A. I just -- I prepared like all the 6 workpapers. I would take the books and I 7 would do all the reconciliations, and as 8 tax docu.ments or 1099s or whatever would 9 come in, I would reconcile and present that 10 to the accounting firm for them to prepare 11 the tax return. 12 Q. Did the Lays file jointly or individually? 13 A. Jointly. 14 Q. Okay. In addition to Kenneth and Linda 15 Lay, were there any family entities that 16 you did work for, a foundation, a trust, a 17 partnership, anything like that? 18 A. Yes. There were two family partnerships. 19 One was KLL and LPL Investments, Limited, 20 and that was referred to as the investment 21 partnership. 22 There was another family partnership 23 known as KLL and LPL Family Partnership, 24 Limited. We refer to that as the family 25 partnership. SHERRIE GIBSON 13 1 There was also the Linda and Ken Lay 2 Family Foundation, which is a private 3 foundation. 4 Q. Okay. Before we start getting into more 5 detail on these various entities and your 6 work, I just want to ask you what your 7 salary was when you were hired in '97? 8 A. It was 55,000, but it was based on 30 9 hours. 10 Q. Okay. And how did that change over time 11 between '97 and May of 2002? 12 A. Well, I never really worked a 30-hour week. 13 Once I started getting into the job, it 14 just always -- it turned out to be more or 15 less a full-time job, but I was trying to 16 keep it at part time. That was the reason 17 I had accepted the job. 18 Q. Okay. Tell us how that kind of developed 19 in terms of your hours and salary and how 20 the job changed? 21 A. Well, as I, you know, worked more hours, 22 because I was -- I really wanted to stay at 23 30, but the job just wouldn't allow it. I 24 had really two decisions. I could, you 25 know, quit or keep going, and so for family SHERRIE GIBSON 14 1 reasons I kept working, and they would pay 2 me overtime then anything over -- well, it 3 was 30 hours and then we increased it to 35 4 hours in '98. 5 Q. And did the salary go up? 6 A. Yes, it went up. I don't remember exactly. 7 Q. What was your salary when you left in May 8 of 2002? 9 A. It was -- I believe it was 90,000. 10 Q. And by 2001 had the -- by the end of 2001 11 had the hours increased any further beyond 12 the 35? 13 A. Oh, yes. It started increasing -- it's a 14 blur, but it started increasing in 2000, 15 beginning of 2000, end of '99. There just 16 seems to be more activity. 17 Q. So what -- I'm sorry, what did it increase 18 to? 19 A. Well, it wasn't -- I mean it was 35 hours 20 and it was whatever it took to get the job 21 done, so it might have been, you know, it 22 could have been 30 hours one week or it 23 could have been 50 hours the next week. It 24 was whatever it took to get the job done. 25 Q. Were you compensated in any other fashion SHERRIE GIBSON 15 1 by the Lay family or any of the related 2 entities or any of the Lays with bonuses, 3 gifts, stock options, real estate, anything 4 of that nature? 5 A. Yes, I did get bonuses. I don't remember 6 for what year because it was usually the 7 next year for the prior year. I don't 8 remember exactly. Yes, I did receive 9 bonuses. 10 Q. Approximately how large were the bonuses? 11 A. Ten thousand. I think one was 15,000 and 12 one was 20,000. 13 Q. Okay. Any other compensation in -- 14 A. He -- a SEP was established for me, which 15 is a retirement plan. And 15 percent of my 16 salary was then contributed to this plan. 17 Q. Matched? 18 A. No. 19 Q. Okay. What else? 20 A. I received a gift in January of 2000 of 21 Enron stock. 22 Q. How much? 23 A. It was 143 shares. It was equivalent to 24 $10,000. 25 Q. Do you still have those shares? I sold SHERRIE GIBSON 16 1 them a week and a half ago for ten cents. 2 Q. Each or that was the total? 3 A. Well, that was per share. 4 Q. Okay. You hadn't sold any other shares? 5 A. No. 6 Q. Did you purchase any Enron shares yourself 7 at any time? 8 A. Yes, I did. 9 Q. When did you purchase Enron stock? 10 A. I don't remember exactly. I had 143 11 shares, so I purchased 57 shares when the 12 stock was about $47. Then I purchased -- 13 Q. On its way up or on its way down? 14 A. On its way down. It was in 2002 -- 15 Q. 2001? 16 A. Oh, I'm sorry. Yeah, 2001. July, August, 17 whenever the stock was at 47. 18 Q. Okay. 19 A. And then I purchased another 200 shares, I 20 think when the stock was $7 a share and 21 that was November, approximately. 22 Q. Okay. And have all those shares also been 23 sold? 24 A. Well, then I also purchased another 200 25 shares, like 75 cents a share in December SHERRIE GIBSON 17 1 if 2001, so I had a total of 600 shares, 2 and I sold all 600 shares October of this 3 year. 4 Q. Okay. Any other transactions in Enron 5 stock? 6 A. No, that's it. Well, I'm sorry, I do take 7 that back. My husband and I have a joint 8 account and I'm not as active in that. And 9 he purchased some shares and I think we're 10 still holding those. I think he purchased, 11 I think, 400 shares when it was 37 in 2001, 12 and I know we did not sell them in 2001. 13 So I don't know if we still are holding 14 them or not. 15 Q. As -- I'm sorry, go ahead. 16 BY SPECIAL AUSA KIMBALL: 17 Q. As far as you know, neither you nor your 18 husband sold any Enron stock during 2001? 19 A. No. I just did our tax return and I was 20 looking at our 1099B's. 21 BY SPECIAL AUSA BUELL: 22 Q. And did you discuss your transactions in 23 Enron stock with Mr. Lay at any time? 24 A. No. 25 Q. You didn't seek or obtain any advice from SHERRIE GIBSON 18 1 him, for example, about whether to purchase 2 Enron stock or when to purchase Enron 3 stock? 4 A. No. 5 Q. Did you have an understanding that it would 6 be inappropriate or not advisable for you 7 to discuss with Mr. Lay transactions in 8 Enron stock that you or your husband might 9 engage in? 10 A. I just thought that was a personal matter 11 and that was just something I didn't 12 discuss. 13 Q. Okay. You never had any conversations with 14 Mr. Lay, for example, about, "We shouldn't 15 discuss anything having to do with Enron 16 stock," or anything like that? 17 A. No. No. 18 Q. Okay. Have you ever been an employee of 19 Enron? 20 A. No. 21 Q. I'm sorry, I just want to back up for a 22 minute to make sure I finished the earlier 23 topic. Any other bonuses, compensation, 24 gifts in kind or cash or any other form 25 from the Lay family or any of their related SHERRIE GIBSON 19 1 entities? 2 A. Ms. Lay was -- paid for some of the camps 3 that my children went to. One year it was 4 about $400. One year approximately $1350. 5 At Christmas I got, you know, some gifts, 6 jewelry, bracelet, a Christmas ornament. 7 think that's -- I'm trying to remember. 8 Q. You don't remember any other large items? 9 A. No. The bonuses, the contribution to the 10 SEP, the gift of the stock in January of 11 2000, but then everything else -- I guess 12 it's everything's relative but that's -- I 13 mean, besides -- I was very appreciative of 14 the camps. 15 Q. Okay. Have you ever been an Enron 16 employee? 17 A. No. 18 Q. Did you have any friends who worked at 19 Enron? 20 A. No. 21 Q. Any relatives who worked at Enron? 22 A. No. 23 Q. Okay. Where did you work physically, and 24 if if changed over time, please explain 25 that for us? SHERRIE GIBSON 20 1 A. Well, when I originally started in November 2 of '97, there was not an office for me yet 3 in the family office, so I would go up to 4 the 50th floor in the Enron Building and I 5 would use the conference room for the first 6 month. And then December I moved to the 7 family office. 8 Q. Which was where? 9 A. It's in the River Oaks Bank Building. It's 10 2001 Kirby Drive. 11 Q. And is that where you remained through the 12 early part of this year? 13 A. Yes, I remained in the building. I would 14 though. I moved four times. I moved from 15 the 12th floor to the 8th floor to the 10th 16 floor to the 8th floor. 17 Q. And was part of your job also maintaining 18 records of the Lays' financial affairs? 19 A. Yes. 20 Q. And did you have any particular practice 21 with respect to record retention? Did you 22 keep things for a certain nu.mber of years? 23 Did you keep everything? 24 A. I kept everything. 25 Q. Okay. SHERRIE GIBSON 21 1 A. Which is one of the reasons I needed more 2 space was for the filing cabinets. 3 Q. All right. And have any or all of those 4 documents have been produced to any 5 government entity or litigant in connection 6 with any of the legal matters that have 7 flowed from Enron's collapse? 8 A. To my knowledge, they have. 9 Q. Okay. Have you been involved in that 10 process or have others handled that? 11 A. It's been a mix. There's been several 12 document requests and I was involved with 13 some. I physically copied some and since 14 then I've showed where everything is 15 located and I think others have then taken 16 over that process. 17 Q. Okay. And you were previously interviewed 18 by personnel of the SEC, FBI and Department 19 of Justice; correct? 20 A. Correct. 21 Q. Okay. Other than interview and your 22 appearance before the Grand Jury today, 23 have you been interviewed or have you 24 testified in any other setting other than 25 with your own lawyers? SHERRIE GIBSON 22 1 A. No. 2 Q. All right. I want to focus you -- I'm 3 going to try to break down the period you 4 worked for the Lays into segments of time 5 if I could, and I want to focus you -- 6 well, let me ask you this. There came a 7 time in approximately August of 1999 when 8 Ken Lay's stepson Beau Herrold was hired to 9 also work for the Lay family on financial 10 matters; correct? 11 A. Correct. He started August 15th of '99. 12 His capacity was as an investment advisor. 13 Q. Okay. Prior to that, had there been any 14 other employee of the family other than you 15 who worked on financial matters? 16 A. No. I was it. 17 Q. Okay. I want to focus you first then on 18 the period before Mr. Herrold was hired, so 19 '97 till August '99. Can you just tell us 20 a little bit about what your routine was 21 either daily, monthly, quarterly or 22 annually? 23 A. I'm sorry, could you repeat the question? 24 Q. Could you just give us a general 25 description of what your routine was, SHERRIE GIBSON 23 1 whatever way is easiest for you, daily, 2 monthly, quarterly or annually in terms of 3 the significant tasks you performed for the 4 Lays? 5 A. Monthly, probably the most significant was 6 the preparation of financial statements 7 because that involved, you know, obtaining 8 all the different statements and 9 reconciling it and then being able to 10 produce it. They were very detailed 11 statements. 12 Q. Who did those statements go to? Who were 13 they produced for? 14 A. They went to Mr. and Ms. Lay. A copy went 15 to Margolis, Phipps & Wright. A copy would 16 go to Rocky Emergy Financial Group. And 17 various copies, depending on who it was 18 for, would go -- some would go to the kids. 19 Q. And would there -- 20 A. I'm sorry. And a copy would also go to 21 Beau. 22 Q. Were there -- were those statements 23 intended to include all the assets and 24 liabilities and cash flow for the Lay 25 family? SHERRIE GIBSON 24 1 A. Yes. 2 Q. And were there separate statements produced 3 for the Lays personally, for the investment 4 partnership, for the family partnership, 5 and for the foundation? 6 A. Yes. 7 Q. And did you prepare all of those? 8 A. Yes. 9 Q. And was there a monthly statement for every 10 one of those? 11 A. Yes. 12 Q. Were there any kind of different reports 13 that were prepared quarterly? 14 A. No. 15 Q. Or was it just monthly? 16 A. They were monthly. 17 Q. Were there annual reports? 18 A. No, there were just monthly. 19 Q. All right. Now you also prepared something 20 additionally for tax purposes on an annual 21 basis, or did you just provide the monthly 22 reports to the accountant who did the 23 returns? 24 A. No. Then at the end of the year I would 25 reconcile -- as statements would come in SHERRIE GIBSON 25 1 from the stockbrokers or from any third 2 party, I would reconcile those statements 3 to the books and then make adjustments for 4 the books, so that, for instance, since we 5 were on a cash basis and, you know, might 6 have received money that first week the 7 following year, then I had to make an 8 adjustment to match the 1099, so the books 9 were more or less on a tax basis. 10 Q. By the way, were there ever any other 11 employees of the family other than you and 12 Mr. Herrold through 2001? 13 A. Yes. There was Christopher May. He 14 handled some of the properties and then an 15 additional role that he undertook in 2001 16 was that he sold the -- well, he handled 17 the investments of the foundation, or 18 monitored them. 19 Q. And that was Robyn Lay's husband? 20 A. Husband, correct. 21 BY SPECIAL AUSA KIMBALL: 22 Q. When you say "the foundation," do you mean 23 the charitable foundation? 24 A. The Linda and Ken Lay Family Foundation, 25 yes. SHERRIE GIBSON 26 1 Q. And what was his salary; do you know? 2 A. Sixty thousand. 3 BY SPECIAL AUSA BUELL: 4 Q. Now, did each of these entities, Kenneth 5 and Linda Lay personally, the investment 6 partnership, the family partnership and the 7 foundation, each have their own investment 8 accounts? 9 A. Correct. 10 Q. And were there multiple accounts for each 11 entity? 12 A. Correct. 13 Q. Okay. What was your role in relation to 14 the investment accounts and the people who 15 were managing those accounts at the 16 financial firms that handled them? 17 A. I -- if an investment was made, I was in 18 charge of moving the money to cover the 19 cost of the investment. I more or less 20 just moved the money and then I was also 21 responsible for accurate accounting. 22 Q. Did you relay directives to the investment 23 account managers on behalf of the Lays or 24 did they deal directly with those people, 25 or was it a combination? SHERRIE GIBSON 27 1 A. It was a combination. There was only one 2 money manager that I remember that he 3 would, you know, give me information and 4 then I would either write it down or tell 5 Mr. Lay and that was before Mr. Herrold was 6 hired. 7 Q. Who was that? 8 A. That was Don Sanders of Sanders Morris 9 Monday, and he had discretionary abilities. 10 So he might, to the best of my knowledge, 11 or from what I remember, is he would tell 12 me perhaps why he was investing it, and I 13 did talk to him at the end of the year for 14 tax planning purposes to see if there were 15 any stocks that he would recommend to be 16 sold, et cetera. 17 Q. But you didn't have regular dealings with 18 any of the other investment advisors or 19 managers? 20 A. Besides the administrative side, no. 21 Q. Okay. And when Mr. Herrold came on in 22 August of '99, he took even a more active 23 role -- 24 A. Correct. 25 Q. -- in dealing with those folks? SHERRIE GIBSON 28 1 A. Correct. 2 Q. Okay. How about Enron personnel? What 3 Enron personnel did you have dealings with 4 in your duties for the Lay family? 5 A. I talked -- 6 Q. And what was the nature of those dealings? 7 A. I talked to Pam Butler. She was in charge 8 of compensation. I would talk to Elain 9 Overturf. She prepared SEC reports for 10 Enron, and occasionally I would talk to Rex 11 Rodgers -- well, I shouldn't say 12 "occasionally." A handful of times I would 13 talk to Rex Rodgers. 14 Q. And what was his job at Enron? 15 A. He was SEC counsel for Enron. 16 Q. And he was an in-house lawyer; correct? 17 A. Correct. 18 Q. What would be the nature of your dealings 19 with Ms. Butler? Why would you need to 20 speak to her or why would she need to speak 21 to you? 22 A. Whenever I had a question about a program, 23 a benefit at Enron, she would walk me 24 through it or answer questions. 25 Q. Would it be fair to say that like most SHERRIE GIBSON 29 1 chairmen of large corporations in America, 2 Mr. Lay's compensation from Enron was 3 fairly complicated and had a lot of 4 different aspects to it? 5 A. Correct. 6 Q. There were stock options, for example; 7 correct? 8 A. Correct. 9 Q. There was salary? 10 A. Correct. 11 Q. There was so-called deferred compensation? 12 A. Correct. 13 Q. There were retirement benefits? 14 A. Correct. 15 Q. There were bonuses? 16 A. Correct. 17 Q. There was a line of credit with the company 18 during a certain period of time? 19 A. Correct. 20 Q. Were there other items as well? Have I 21 covered the main ones or were there others? 22 A. Those are primarily the ones I dealt with. 23 Q. Okay. And Ms. Butler would have been your 24 contact in terms of understanding how these 25 various parts of his compensation were SHERRIE GIBSON 30 1 structured and what types of payments would 2 be coming and how they should be handled 3 and so forth? 4 A. Correct. And there were like some plans 5 that had change over the years and I wanted 6 to make sure that I understood all the 7 plans and that I had properly documented on 8 the financial statements. 9 Q. All right. And what about Ms. Overturf, 10 why would you need to speak to her or she 11 to you? 12 A. Elain Overturf prepared the Form 4s and 5s, 13 which are SEC reports that disclose the 14 sale of Enron stock, or any -- and also 15 exercise the stock options. 16 Q. All right. And so why would you and her 17 need to speak to each other about that? 18 A. Well, she would really -- she would like -- 19 she wanted me to review the reports to make 20 sure that our nu.mbers were the same. It 21 was another checks and balances. She would 22 get her nu.mbers from one source. I would 23 get mine from another source. So we would, 24 you know, check each other and that was a 25 way for me to determine whether that I had SHERRIE GIBSON 31 1 an accurate number. 2 Q. And who prepared those SEC reports? 3 A. Elain Overturf did. 4 Q. Did you give her the data that she used to 5 prepare them or did she get the data from 6 someone else, prepare them and -- 7 A. She received the data and then I would 8 compare it against my records and she 9 prepared the report. 10 Q. Okay. Did you know an employee of Enron 11 named Sally Keepers? 12 A. Correct. 13 Q. And what was Ms. Keepers job at Enron? 14 A. Sally would handle the travel for, I know, 15 Mr. Lay; also his agenda. She also would 16 handle some of the -- of his personal 17 affairs. 18 Q. Was she a secretary or administrative 19 assistant, executive assistant? What was 20 her title? 21 A. I don't know her correct -- I don't know 22 her title. 23 Q. And was she working in that capacity at 24 Enron for Mr. Lay throughout the period you 25 were working for the Lays? SHERRIE GIBSON 32 1 A. She had been with him for -- I know for 2 like 14 or 15 years. I think she was with 3 him since '86. 4 Q. All right. Did you know an Enron employee 5 named Rosalie Fleming? 6 A. Correct. 7 Q. And what was Ms. Fleming's job at Enron? 8 What did she do? 9 A. She is the executive assistant to Mr. Lay. 10 Q. How did her job differ from Ms. Keepers? 11 A. Rosalie would do the scheduling for Mr. 12 Lay, answer the telephones, have 13 secretarial duties. 14 Q. What dealings, if any, would you need to 15 have with Ms. Keepers or she with you? 16 A. During her personal dealings, we may -- she 17 also would pay some bills as well, and she 18 would handle turning in the receipts for 19 any medical expenses. 20 She would also make the deposits or 21 prepare the deposits. If I received any 22 checks, then she would prepare the 23 deposits. 24 Q. Why would she handle that as opposed to 25 you? SHERRIE GIBSON 33 1 A. She was closer to the bank. 2 Q. Okay. Where did Mr. Lay bank for cash 3 purposes? 4 A. At Bank of America. 5 Q. All right. Anything else Ms. Keepers would 6 do in relation to your job? 7 A. Besides the -- having questions about 8 checks or -- she handled the insurance on 9 the personal properties. And I just don't 10 remember at this time. 11 Q. All right. What about Ms. Fleming? What 12 need would you have to deal with her or she 13 with you? 14 A. She was would just call me about -- if -- 15 to set up a meeting or -- that's really the 16 only dealings I had. 17 Q. All right. And you mentioned that you had 18 a handful of dealings with Mr. Rodgers. 19 A. Correct. 20 Q. What were the occasions for those 21 interactions? 22 A. Mr. Lay asked me to call Mr. Rodgers to see 23 whether a transaction, whether he was able 24 to sell stock at a certain time and I did 25 that. That was early on in '98 or so. SHERRIE GIBSON 34 1 Also I talked to Mr. Rodgers. We were 2 doing a transaction and the appraisers -- a 3 transaction that involved getting an 4 appraisal of a partnership that had some 5 Enron stock, and I was asked to find out 6 the window or some information about when 7 -- just in general when Enron stock could 8 be sold. So I called Mr. Rodgers and asked 9 what the policy was on trading stock. 10 Q. Do you remember when that was, 11 approximately? 12 A. Yes. That was November, December of '98 13 and then the end of November, beginning of 14 December of 2000. 15 Q. Which was which? I'm sorry, I lost you. 16 thought you were talking about one 17 conversation about appraising a 18 partnership. 19 A. Well, it was two separate times. I 20 apologize. 21 Q. All right. The second time was when? 22 A. Was December of 2000. 23 Q. Okay. By the way, how do you know those 24 dates? Do you have some records that have 25 shown that to you or do you just remember? SHERRIE GIBSON 35 1 A. Well, it was -- this transaction just took 2 a lot of time and it was around Christmas 3 and I just for -- just remember those 4 dates. 5 Q. What partnership was this? 6 A. This had to do with the KLL and LPL 7 Investments. 8 Q. All right. Why was that being appraised? 9 Was it being used as collateral for 10 something? 11 A. No. They were going to do a redemption. 12 They were appraising the partnership and 13 then Mr. Lay was going to redeem part of 14 his interest. And in order to do that, you 15 had to get an appraisal of the partnership. 16 And once it was -- the value was 17 ascertained, then he would redeem a certain 18 part of his partnership and then they would 19 draw out -- he would get some assets and as 20 an end result, he would have less interest. 21 Q. Okay. What else do you recall discussing 22 with Mr. Rodgers? 23 A. I might have had more than one 24 conversation, but it was always around 25 about the same thing, about the window. I SHERRIE GIBSON 36 1 did talk to him -- I think one time was 2 discussed about when the stock was sold 3 back to Enron, if we needed to contact him. 4 Q. And when you say that, you're referring to 5 transactions in which Mr. Lay repaid his 6 line of credit with stock option? 7 A. Of credit with Enron stock; correct. 8 Q. Okay. We'll come back to that a little 9 later, but other than that, do you remember 10 any conversations specifically with Mr. 11 Rodgers at any time about any particular 12 time frame or transaction? 13 A. No. 14 Q. Okay. Now, why was -- what was your 15 understanding as to why Mr. Herrold was 16 hired in August of '99, and what was he 17 hired to do? 18 A. He was hired to coordinate or get the big 19 picture. I was so caught up in the detail 20 in trying to reconcile and get everything 21 that I couldn't stand back and look to see 22 what was really going on. I was just more 23 focused on trying to get all the detail, so 24 people receiving the reports could then 25 make, you know, make what decisions they SHERRIE GIBSON 37 1 needed to or -- that the information was 2 accurate. 3 So Mr. Herrold was hired to take more 4 of a global approach or look at the big 5 picture and to coordinate any investments 6 with the investment advisors. 7 Q. And after Mr. Herrold came on, did you 8 participate in any kind of like regular 9 meetings with him and Mr. Lay or did he 10 deal directly with Mr. Lay without you? 11 A. He would deal directly with Mr. Lay. 12 Q. By the way, did you ever have any dealings 13 with Mr. Derrick at Enron? 14 A. No. 15 Q. Okay. Focusing your attention for the 16 moment on the year 1999, how much 17 approximately, if you can give us a rough 18 number, was Mr. Lay's net worth in 1999 19 between the family and the investment 20 partnership? I mean, him and Linda and the 21 investment partnership, leaving aside the 22 family partnership. 23 A. I don't remember. 24 Q. Do you have any approximate nu.mber you can 25 give us, in the hundreds of millions or SHERRIE GIBSON 38 1 tens of millions? 2 A. I would be speculating. I mean, that's 3 two, three years ago. 4 Q. Okay. More or less than a billion? 5 A. Oh, less than a billion. 6 Q. More or less than 500 million? 7 A. Less than 500 million. 8 Q. Okay. More than a hundred million? 9 A. Between -- more -- well... A hundred to 10 two hundred million. But that is really an 11 estimate at this time. 12 Q. Okay. That's all I was asking you for. 13 What about in '99 a rough estimate of the 14 amount of debt that Mr. Lay had? 15 A. I really don't remember. 16 Q. Okay. What about the year 2000? Can you 17 recall either a rough estimate of net worth 18 or debit for the year 2000? 19 A. Just from working on, I guess, production 20 requests from the government, around 80 21 million of debt. 22 Q. And the net worth, do you recall that being 23 essentially different than what it would 24 have been in '99? 25 A. I'm going to estimate or speculate about SHERRIE GIBSON 39 1 250, 300 million. 2 Q. Now, the Lay Family Partnership, had that 3 already been created when you began working 4 for the Lays in '97? 5 A. Correct. 6 Q. And was it making distributions to the 7 family already at that time? 8 A. To the best of my knowledge, I don't think 9 so. 10 Q. Did there come a time when it began making 11 distributions? 12 A. It did. 13 Q. And do you remember when that was? 14 A. Oh, I would estimate 1998 or '99. 15 Q. Do you remember approximately what the 16 distribution -- the distributions were 17 monthly; correct? 18 A. Correct. 19 Q. Do you remember approximately what they 20 were when they began? 21 A. I cannot remember. 22 Q. Do you remember what they were at their 23 most? 24 A. At their most... 25 Q. I'm just asking for approximate amounts, SHERRIE GIBSON 40 1 Ms. Gibson. We're not going to hold you to 2 a specific nu.mber here. 3 A. I know. It's just in my profession, you 4 know, I try to be exact and it's just -- I 5 always like to refer back to docu.ments 6 before I give answers. 7 Q. We understand that you're -- we understand 8 you to be saying that you could be more 9 precise if you had docu.ments, and so no one 10 is going to hold to you to a specific 11 number. 12 A. Okay. 13 Q. We're just asking you to give us an 14 approximate amount for purposes of our 15 discussion today? 16 A. Approximately 30,000 a month. At the 17 beginning we're talking -- there were two 18 different partnerships and the family 19 partnership had an interest in the 20 investment partnership. 21 So when the investment partnership 22 would make distributions, it would be, you 23 know, to all the partners and one of the 24 partners was this family partnership. 25 Q. And then it would flow through the -- SHERRIE GIBSON 41 1 A. Correct. So when you -- you know, the 2 family partnership didn't always have to 3 give, you know, distributions. So that's 4 why I was having trouble because it was -- 5 whenever I'd make the distribution, it 6 would be like three or four different 7 checks or ways I would do it because of how 8 it would flow through. So in total, I'd 9 say approximately 30,000. 10 Q. Okay. By the way, who made all the 11 decisions about how to structure these 12 partnerships and set up the amount of the 13 flows and all that. Who's -- 14 A. To my knowledge, it was some estate 15 planning done by Stacy Eastland, an 16 attorney who had worked with Baker & Botts. 17 Q. Who gave you all the information that you 18 needed in terms of how this structure was 19 supposed to operate? Who did you get that 20 from? 21 A. I would review the docu.ments. There was a 22 consultant that worked prior to me and she 23 would assist me because she was there when 24 it was being set up. And then I also had 25 -- the CPAs at Margolis, Phipps & Wright SHERRIE GIBSON 42 1 would also assist me. And then if I had 2 any detailed questions, I would call the 3 law firm. 4 Q. Baker & Botts? 5 A. Correct, I'm sorry. Yes. Stacy Eastland's 6 assistant. 7 Q. Focusing your attention on the year 2000 8 or, say, the end of the year 2000, could 9 you give us an approximation of the net 10 worth of the family partnership at that 11 time? 12 A. There was a redemption of -- in December, 13 so the net worth was less at the end of 14 December than it would have been at the end 15 of November. 16 Q. And what was it approximately at the end of 17 November? 18 A. I want to say it was approximately, from 19 what I can remember, a hundred million. 20 Q. Did you have occasion to deal with Rocky 21 Emery at all? 22 A. Correct. I did. 23 Q. And what was Mr. Emery's role in Mr. Lay's 24 financial affairs? 25 A. Mr. Emery was his -- was one of the SHERRIE GIBSON 43 1 investment advisors -- or I should say, he 2 was the investment advisor. His firm or 3 team would actually monitor the performance 4 of other money managers chosen. 5 Q. Would it be fair so say that Mr. Emery was 6 Mr. Lay's stockbroker? 7 A. Correct. 8 Q. And what firm was he at? 9 A. He was at PaineWebber and then in -- 10 approximately in July of 2001, he move to 11 First Union Securities. 12 Q. How did Mr. Emery become Mr. Lay's broker, 13 if you know? 14 A. Approximately -- well, in about 1998, Mr. 15 Lay started interviewing different advisors 16 or was seeking to diversity his portfolio. 17 So I remember sitting in a few meetings and 18 he would interview various firms. 19 Q. But you don't know of any particular reason 20 why Mr. Emery was selected as Mr. Lay's 21 broker? It wasn't a prior relationship or 22 some mutual -- 23 A. Well, I do know why he was one of those 24 invited originally, was because his 25 affiliation with -- PaineWebber handled the SHERRIE GIBSON 44 1 stock options for Enron and through that 2 affiliation, or I guess he was known, he 3 was invited to talk with the group. 4 Q. Okay. Now I'm focusing your attention for 5 the moment on the period from '97 until 6 just prior to when Mr. Herrold became 7 involved in the family finances. 8 What role, if any, did you have in 9 transactions at which Mr. Lay was 10 purchasing, selling or otherwise 11 transacting in Enron stock? 12 Would you be, for example, involved in 13 relaying directives about that to the 14 broker or would you be involved in any of 15 the discussions with Enron personnel about 16 whether that was cleared or not cleared, 17 what reports should be filed, would not be 18 filed? 19 A. All the above at different times. 20 Q. Okay. Was there any particular routine 21 that was followed when Mr. Lay transacted 22 in Enron stock? 23 A. Could you given a specific transaction and 24 then I could -- 25 Q. Well, I guess I'm not asking about any SHERRIE GIBSON 45 1 specific transaction at this point. I'm 2 just asking if generally -- 3 A. Or type of transaction? 4 Q. Well, if Mr. Lay wanted to sell Enron 5 shares that he held in any of his 6 investment accounts, what role, if any, 7 would you play in that process? 8 A. He might have asked me to -- well, that 9 would be speculating. I would say prior to 10 Mr. Herrold being hired, I would speak to, 11 you know, Mr. Rogers whether or not that 12 that window was open. 13 Q. What do you mean by that? Could you just 14 explain that to the Grand Jury? When you 15 use the phrase "the window open," what are 16 you referring to? 17 A. There's certain times that, I guess, people 18 that are executives are not allowed to sell 19 their stock, so I would need to call the 20 attorney because there was not a formal 21 window -- I mean a formal policy. Then I 22 would call the attorney and he would say 23 whether or not it was possible to do that 24 transaction. 25 Q. Was that always Mr. Rogers? SHERRIE GIBSON 46 1 A. Yes, that's who I would talk to. 2 Q. And what about if Mr. Lay wanted to 3 exercise stock options, would that be 4 handled any differently? 5 A. No. He was the same. He was the same 6 person I would talk to. 7 Q. And it was still a process of determining 8 whether or not, with the attorneys at Enron 9 whether or not the window was open? 10 A. Correct. Well, if you would -- if Mr. Lay 11 would exercise his stock options, that's 12 when a stock option would become a share of 13 stock, and you didn't sell it but just they 14 call if exercise to hold, then you wouldn't 15 need to call Mr. Rogers. It wouldn't be 16 until you actually sold the share. 17 Q. And what would be the reason to exercise to 18 hold as opposed to exercise and sell? 19 A. If you wanted to accu.mulate more shares and 20 you think the stock is going up -- I'm 21 looking at this from a tax point. You 22 would exercise to hold. You would lock in 23 at a certain price and then if you held the 24 stock for a year and sold it, then you 25 would pay a long-term capital gains rate. SHERRIE GIBSON 47 1 So instead of paying a 40 percent, you'd 2 pay a 20 percent, if you're -- depending, 3 you know, what tax bracket you were in. 4 Q. Do you recall -- prior to Mr. Herrold's 5 involvement in August of '99, do you recall 6 any occasions when you sought to determine 7 from Mr. Rodgers or anyone else at Enron 8 whether the window was open because Mr. Lay 9 wanted to engage in a sale of some sort and 10 you were told he could not or it was not 11 open? 12 A. No. 13 Q. Are you pretty sure that never happened? 14 A. I don't know -- I mean, if it ever -- when 15 I asked, but I don't know if, you know, 16 Mr. Lay had asked him or anything else. 17 Q. I mean to limit the question to your 18 personal knowledge. My question was simply 19 intended to determine whether you were 20 saying you don't remember whether or not it 21 happened or you were saying you know it 22 didn't happen, to your knowledge? 23 A. Oh. To my knowledge, when I asked Mr. 24 Rodgers, I was never told that no, that the 25 window was closed -- well, I was told the SHERRIE GIBSON 48 1 window was closed. 2 Q. Okay. After Mr. Herrold joined in August 3 of '99, was there any change in the process 4 in terms of when Mr. Lay wanted to dispose 5 of Enron stock, in terms of your 6 involvement in the process? 7 A. He would contact Beau directly and then 8 Beau would call me. 9 Q. Okay. To your knowledge, did Beau 10 sometimes deal directly with the people at 11 Enron as well, such as Mr. Rodgers? 12 A. Yes. 13 Q. How often during the period '97 through 14 '99, if you, you know, can recall, how 15 often would you estimate Mr. Lay engaged in 16 a transaction in which he sold Enron stock? 17 Was this a frequent or a common occurrence? 18 Was it rare, monthly, weekly? 19 A. Would that include cashless stock option 20 exercises? 21 Q. Yes. 22 A. Occasionally -- is this '97 through '99? 23 Q. Yes. 24 A. End of '99? 25 Q. Yes. SHERRIE GIBSON 49 1 A. I don't remember the exact occurrence. 2 There were some transactions that are 3 called cashless stock option exercises and 4 that is when you will exercise a stock 5 option but then you sell the stock 6 immediately and you get the net proceeds, 7 the difference between whatever the price 8 of the stock is and the strike price. 9 That -- to the best of my knowledge, 10 and I'm estimating, approximately less than 11 eight times in '98, '99. 12 Q. Okay. And were those the most -- to the 13 extent he did engage in transactions where 14 he sold shares or otherwise disposed of 15 shares or options, were those the most 16 common type -- 17 A. Correct. 18 Q. -- those cashless option exercises? 19 A. Correct. 20 Q. Okay. 21 BY SPECIAL AUSA KIMBALL: 22 Q. And for a cashless exercise, you'd have to 23 get permission from Rex Rodgers first, 24 because that's like a -- 25 A. To my knowledge, yes. SHERRIE GIBSON 50 1 Q. Because that would be like an exercise to 2 sell? 3 A. Correct. 4 BY SPECIAL AUSA BUELL: 5 Q. Okay. At some point did you become aware 6 -- and I think you mentioned this earlier 7 in your testimony, that Mr. Lay had a line 8 of credit with the company? 9 A. Yes. 10 Q. And was that something that was in 11 existence at the time you began working for 12 him in '97? 13 A. Yes. 14 Q. And was that a so-called revolving line of 15 credit, meaning that Mr. Lay could draw it 16 down, pay it back, draw it down, pay it 17 back? 18 A. That was my understanding of it. 19 Q. Okay. And there was always a cap on the 20 amount that could be drawn down at any 21 given time; correct? 22 A. Correct. 23 Q. And was that during '97, '98, '99, 2000, $4 24 million, or did it change? 25 A. To the best of my knowledge, it was four SHERRIE GIBSON 51 1 million. 2 Q. Okay. During the period -- well, let me 3 ask you this. Did you ever see any 4 documents from Enron that evidenced to you 5 what the rules were on this line of credit 6 or how it had been approved by the company, 7 or were you just told orally about it? 8 A. I did not have any documents, but it was in 9 existence before I started. 10 Q. You didn't see, for example, the board 11 minutes approving it or any resolution that 12 had been adopted by the company that put 13 terms on it, explained how it could be 14 used, or anything like that? 15 A. Not in the time frame you're asking. 16 Q. Yeah, and I'm asking you about the period, 17 say, prior to 2001? 18 A. Correct. I did not have that. 19 Q. Okay. 20 A. Well, prior to that there was a change in 21 the -- or amendment to that where instead 22 of repaying the line of credit with just 23 cash, you were able to repay it with 24 shares. 25 Q. Okay. When did that happen? SHERRIE GIBSON 52 1 A. That happened in May of '99. 2 Q. And did you see any documents about that 3 aspect of the line of credit at or around 4 that time? 5 A. Yes, I did. There was some compensation 6 committee minutes. 7 Q. Compensation committee being a committee of 8 Enron's board of directors? 9 A. Yes. 10 Q. All right. And you saw the minutes that 11 talked about the approval for the repayment 12 of the line of credit with options? 13 A. Correct. 14 Q. And what was the occasion for you to be -- 15 I mean, what was the purpose for you to be 16 looking at those or for someone to provide 17 you with those? 18 A. I had received a copy of a letter that Mr. 19 Lay had written instructing that he was 20 going to pay -- use some shares to pay down 21 his line of credit. 22 And that hadn't occurred before and so 23 I called Pam Butler and asked her how to 24 handle it. 25 Q. All right. SHERRIE GIBSON 53 1 A. Or what was the occasion or what was the 2 next step I needed to do. 3 Q. Okay. And tell us about that conversation 4 and what flowed from it? 5 A. I asked like if there were any restrictions 6 and so she faxed to me like two pages -- I 7 don't know if it was just a resolution. It 8 wasn't a complete set of minutes -- that 9 just dealt with the amendment in order for 10 him to repay the line of credit with 11 shares. And in that it gave some 12 guidelines. 13 Q. What do you recall about the guidelines? 14 A. The most pertinent fact that I remember is 15 that you had five days to deliver the 16 shares. 17 Q. Five days from when? 18 A. Day of notification, five business days. 19 Q. Date of notification that you were drawing 20 down the line or notifying that you were 21 paying back? 22 A. That you were going to pay back, that you 23 were going to pay back the line of credit 24 with shares. 25 Q. All right. Anything else you remember SHERRIE GIBSON 54 1 about the provisions of the approval for 2 this? 3 A. I was focusing on the delivery aspect 4 because I was -- that was my job, is to 5 make sure that it was done. So then I was 6 reading the minutes and to me they were 7 somewhat vague, so I wrote kind of a list 8 of guide -- like a checklist for myself on 9 what to do. 10 And I faxed Pam Butler a copy and I -- 11 of these guidelines. I said, "Is this your 12 understanding? If I do this, will I meet 13 the criteria?" And they say, "Yes." 14 Q. What do you recall about what you put on 15 those guidelines? 16 A. First, that there were be notification of 17 when the payment would be made and then it 18 would go to different individuals. 19 Q. Who? 20 A. Pam Butler. I think a copy to Elain 21 Overturf and a copy to an individual -- it 22 changed -- in accounting. And I might -- I 23 mean, that's the best of my knowledge. 24 They may be different names or different 25 departments. I don't -- there may have SHERRIE GIBSON 55 1 been another one. 2 And then the second thing after 3 notification was done, then -- well, I 4 would call accounting and they would accrue 5 interest and then they would fax that to 6 Elain Overturf, who would then take the 7 amount that was due plus the accrued 8 interest and then she would calculate the 9 number of shares needed to pay back the 10 line of credit. 11 Q. And when would she take the share price to 12 determine that? 13 A. It would be the closing price of that day. 14 Q. Okay. And then would she then given that 15 information back to you? 16 A. Yes. Then she would given it to me and 17 then it was my job then to, you know, look 18 at his shares and then to select which 19 shares that we would -- that would be used 20 to repay that line of credit. 21 Q. And how would you choose which shares to 22 use? In other words, Ms. Overturf would 23 tell you you needed X amount of shares 24 priced at this price in order to meet this 25 amount that's due of principal and SHERRIE GIBSON 56 1 interest. Then how would you pick which 2 shares to use to meet that share amount? 3 A. Well, I would select the shares that would 4 result in the lowest tax gain. 5 Q. Okay. So you would want to use the shares 6 that had the highest tax basis? 7 A. Highest -- correct. 8 Q. Okay. And what would you do after that? 9 A. Well, once those shares were identified, 10 the shares were all used as collateral or 11 were at different places. So then, 12 depending on where they were, then I would 13 notify the institution that I was 14 withdrawing those shares and then I would 15 coordinate the delivery of the shares to 16 Enron. It could have been electronicly. 17 It could have been stock certificates. 18 They are all different types of ways to do 19 it. 20 Q. What understanding did you have, if any, at 21 the time as to why this had been set up, 22 that Mr. Lay could repay the line of credit 23 with options? 24 A. I don't know. 25 Q. Were you ever told -- SHERRIE GIBSON 57 1 A. No. 2 Q. -- that information? 3 A. No. 4 Q. You don't know who had requested it, who 5 initiated this proposal to the board of 6 directors or what the motivation was for 7 it? 8 A. No. 9 Q. Well, let me show you a docu.ment, which I'm 10 going to ask you to refer to at various 11 points in my questions here. It's marked 12 Grand Jury Exhibit KL-15. This is at Tab 13 15 of the Grand Jurors binders. 14 [Grand Jury Exhibit No. KL-15 15 marked for identification and 16 made a part of the record.] 17 BY SPECIAL AUSA BUELL: 18 Q. Without going through this in detail right 19 now, does this appear to be a collection of 20 documents -- if you want to just flip 21 through some of them -- a collection of 22 some of the documents relating to the 23 process of -- that you have just described 24 that was followed when Mr. Lay sought to 25 repay his line of credit with stock SHERRIE GIBSON 58 1 options? 2 A. Correct. 3 Q. All right. I want to focus your attention, 4 if I could, on the first portion of those, 5 and they're ranked in chronological order. 6 And if you could just leaf through the ones 7 that bear dates, mainly in the year 1999, 8 and just if you could take a minute and 9 leaf through those for yourself. 10 My question when you're finished is 11 going to be whether those documents, the 12 ones dated '99, appear to you to be 13 reflective of what all of the transactions 14 of this type that Mr. Lay conducted in the 15 year 1999? 16 A. These particular docu.ments appear to -- 17 will involve the repayment of the Enron 18 shares to the line and there also is a gift 19 he made. 20 Q. All right. What's the date on the document 21 you're referring to? 22 A. Well, the gift -- 23 Q. Is that the June 30th? 24 A. June 30th; right. 25 Q. And that's the University of Missouri? SHERRIE GIBSON 59 1 A. Correct. 2 Q. Okay. And the other documents from '99 are 3 repayments of the line of credit with 4 options? 5 A. Correct. 6 Q. Okay. Directing your attention to the 7 first one, the one dated May 12th of '99, 8 does that letter appear to you to relate to 9 the first such transaction that you 10 described as being the impetus for your 11 discussions with Ms. Butler and your 12 creations of procedures? 13 A. Correct. Correct. 14 Q. All right. Is that your handwriting at the 15 bottom of that page? 16 A. No, it's not. 17 Q. Do you know whose handwriting that is, 18 where it says, "See Pam Butler for 19 details"? 20 A. No. 21 Q. Okay. Do you recall there being any 22 additional such transactions in '99 other 23 than the ones that are reflected on these 24 documents? 25 A. No. I've taken an opportunity to review in SHERRIE GIBSON 60 1 my mind and no, there was just two in '99. 2 Q. Two in 99? 3 A. Yes. 4 Q. The one in May and then the one in 5 November? 6 A. November, correct. 7 Q. Okay. 8 A. And I think before when you asked me if 9 there were any more transactions in Enron 10 stock, I did not mention the contributions 11 or the gifts of stock he made. That was an 12 oversight. 13 Q. Okay. I wasn't -- yeah, I didn't mean my 14 questions to include gifts. 15 A. Oh, okay. 16 Q. I meant to include transactions in which 17 Mr. Lay would have realized any gains or 18 income from Enron stock. 19 A. Okay. 20 Q. By the way, what did you -- well, let me 21 ask you this first. These procedures that 22 you wrote out and faxed to Ms. Butler, have 23 you seen that document recently? Does it 24 still exist? 25 A. Yes. SHERRIE GIBSON 61 1 Q. Okay. Has it been produced to anybody? 2 A. Mr. Kimball. I think I showed it during 3 our meeting. 4 Q. You did? Okay. And the documents that you 5 reviewed to refresh your recollection in 6 preparation for your testimony here about 7 the line of credit transactions, what 8 documents did you look at? 9 A. The only one I really was a sunimary of all 10 the advances and paybacks. 11 Q. For what period? 12 A. Just for 2001 and I looked at it very 13 briefly because in '99 there were two and 14 then in 2000 there were four. 15 Q. Okay. I'm going to show you a document 16 that summarizes transactions in 2001, and 17 ask you if this was the document you 18 reviewed in preparation for your testimony. 19 It's marked Grand Jury Exhibit KL-21 and 20 it's at Tab 21 of the Grand Jurors' 21 binders. 22 A. Correct. That's the one. 23 Q. That's the document you reviewed? 24 A. Yes. 25 Q. Okay. And having reviewed that, is that SHERRIE GIBSON 62 1 document, the activity reflected on that 2 document, consistent with your 3 recollection about the nu.mber and frequency 4 of the transactions in 2001? 5 A. Correct. 6 Q. Okay. I'll leave that here. So two such 7 transactions in '99 and then your 8 recollection is there were only four in 9 2000? 10 A. Correct. 11 Q. All right. I'm going to ask you to leaf 12 through on Grand Jury Exhibit KL-15 and 13 continuing, if you could leaf through the 14 pages that bear dates ending in the year 15 2000, and let me know whether those appear 16 to reflect the four transactions that you 17 recall from the year 2000. 18 A. Correct. 19 Q. They do? 20 A. Yes. 21 Q. Okay. And so what were the approximate 22 dates of the four transactions in which Mr. 23 Lay repaid the line of credit with stock 24 options in the year 2000? 25 A. With shares of stock? SHERRIE GIBSON 63 1 Q. Yes. 2 A. February of 2000, August of 2000, November 3 of 2000, and December of 2000. 4 Q. Okay. Do you see on the letter that it's 5 dated February 15th, 2000? Again, they are 6 arranged in chronological order. 7 A. Yes. 8 Q. Do you see a note at the bottom, a 9 handwritten note saying, "Do not report 10 until 2/14/01"? Do you see that note? 11 A. I see that. 12 Q. Is that your handwriting? 13 A. No. 14 Q. Do you know whose handwriting that is? 15 A. I would have to speculate. 16 Q. Okay. I don't want you to speculate on 17 that. 18 A. I mean, because there's some docu.ment I'd 19 recognize handwriting because I've -- but 20 no, I don't know. I'm sorry. 21 Q. All right. Let me ask you this. Prior to 22 2001, during '99 and 2000, from the time in 23 May of '99 when up first learned about 24 these transactions of repaying the line of 25 credit with stock through 2000, did you SHERRIE GIBSON 64 1 have any conversations with anybody, Mr. 2 Lay, anyone else in the family, or anyone 3 at Enron about any reporting rerequirements 4 or issues, SEC reporting requirements or 5 issues relating to these transactions? 6 A. Who -- could you please repeat that 7 question? 8 Q. Yeah. I mean, it was a fairly broad 9 question. If you want, I can break it 10 down, but what I was asking you was whether 11 you had any conversations in '99 or 2000 12 with Mr. Lay, anyone in the family, or 13 anyone at Enron, including all the people 14 we've talked about so far about SEC 15 reporting issues relating to these 16 transactions, repaying the line of credit 17 with stock? 18 A. The only person that I discussed this with 19 was Elain Overturf, and how that occurred 20 is when I was reconciling the number of 21 shares per the books to the nu.mber of 22 shares being reported on the Form 4, which 23 is a monthly filing, I had a discrepancy. 24 And this occurred in May of '99 because 25 my books were reflecting less shares than SHERRIE GIBSON 65 1 the Form 4. So I called Elain and I wanted 2 to see, you know, what I had missed or why 3 we were different. 4 Q. And how did -- I mean, you were just 5 talking about the numbers on the Form 4? 6 A. Correct. 7 Q. All right. Did you have any conversation 8 with Ms. Overturf about how SEC rules would 9 require or not require this activity to be 10 reported? 11 A. I don't know that I would have talked to 12 her at that time. 13 Q. Okay. I mean to limit you for now to '99 14 and 2000. Ms. Overturf or anyone else 15 about whether this had to be reported, 16 didn't have to be reported, which form it 17 should go on? 18 A. I did discuss it would Elain, but I don't 19 remember the time period. 20 Q. Okay. What do you recall about your 21 discussion with her? 22 A. Well, another item that would not appear on 23 the monthly Form 4's was if gifts were made 24 and so the gifts and the shares sold back 25 to Enron were going to be reported at the SHERRIE GIBSON 66 1 end of the year on an annual form which was 2 a Form 5, or they could have been also 3 filed on a Form 4 for January of the 4 following year. 5 Q. Okay. This is all information that Ms. 6 Overturf was conveying to you about the SEC 7 rules or was this something that you 8 independently had made a determination of? 9 A. Someone relayed this information to me. To 10 the best of my knowledge, it was Ms. 11 Overturf. 12 Q. Okay. Anything else you recall about 13 discussions about SEC reporting 14 requirements as it affected the line of 15 credit transactions? 16 A. Well, the common thread with the delay in 17 reporting was that they were not over the 18 -- it was not an open market transaction. 19 Q. Okay. When you say "the delay in 20 reporting," you had an understanding from 21 these conversations that these transactions 22 didn't need to be reported on the so-called 23 Form 4's, which are the monthly reports of 24 stock transactions by company executives 25 witih the SEC, but rather could be reported SHERRIE GIBSON 67 1 on the so-called Form 5's, which are annual 2 reports for executive stock transactions? 3 A. That was my understanding per my discussion 4 with Ms. Overturf, based upon either her or 5 the company's review of the rules, SEC 6 rules. 7 Q. And you were made to understand that the 8 reason these transactions qualified for 9 Form 5 annual reporting as opposed to Form 10 4 monthly reporting was that they were 11 viewed as transactions with the company as 12 opposed to transactions on the open market? 13 A. Correct. 14 Q. All right. Directing your attention to the 15 second docu.ment marked "Draft," also dated 16 February 15th, 2000 -- I mean, the second 17 document that bears the date February 15th, 18 2000. There are two February l5ths and I'm 19 directing your attention to the second one 20 that has handwritten on the top draft and 21 typed at the top Ken's letterhead. Have 22 you located that document? 23 A. Yeah, that's -- I actually typed that. 24 Q. Okay. That document also bears handwriting 25 at the bottom that says, "Do not report SHERRIE GIBSON 68 1 until 2/14/01." And then next to it, "Told 2 Sherrie it was okay 2/16/00." Do you know 3 whose handwriting that is? 4 A. No. I'm not a hundred percent certain, but 5 it appears to be Ms. Overturf's, but I'm 6 speculating. 7 Q. Okay. And the note, "Told Sherrie it was 8 okay," do you know what that's a reference 9 to? Does that prod any recollection in 10 your own mind or thought about what that 11 might be a reference to? 12 A. No, because sometimes I would fax Elain 13 these letters to make sure that I was 14 wording things properly, that I was giving 15 clear direction since, you know, that I was 16 explaining myself well, and so I don't know 17 why. 18 Q. Okay. Now do you see that on some of these 19 documents we've been looking at there's a 20 Deanna Taylor on the cc list? 21 A. Yes. 22 Q. Who's she? 23 A. To the best of my knowledge, she was 24 someone someone in accounting. 25 Q. At Enron? SHERRIE GIBSON 69 1 A. Correct. 2 Q. Okay. Now directing your attention to the 3 Enron memorandum dated August 24th of 2000. 4 A. Oh, okay. 5 Q. Interoffice memorandum dated August 24th of 6 2000. Do you see that document? 7 A. Correct. 8 Q. From Mr. Lay, "Subject: Enron Line of 9 Credit." Do you see at the bottom the cc 10 list include Elain Overturf and then Mary 11 Joyce, Bob Butts and then Rocky Emery; do 12 you see that? 13 A. Yes. 14 Q. Who's Mary Joyce and why would she have 15 been copied on the documents relating to 16 these transactions? 17 A. From what I remember, I think Mary Joyce is 18 also in compensation. She worked with Pam 19 Butler at Enron. I don't know why -- that 20 was one of the departments. I guess I would 21 have to speculate. 22 Q. Okay. Someone at Enron decided to copy her 23 on this? 24 A. Correct. Yeah. 25 Q. What about Bob Butts? Who is he and if you SHERRIE GIBSON 70 1 know, why was he copied on docu.ments 2 relating to these transactions? 3 A. Bob Butts was a controller of Enron in 4 accounting. It appears to me -- I mean, 5 I'm speculating, but it's the same 6 departments but just different people. 7 SPECIAL AUSA BUELL: Okay. Why 8 don't we take a break for 10 9 minutes. 10 [Witness out, 11:05 a.m.] 11 [Recess.] 12 [Witness in, 11:21 a.m.] 13 FOREMAN OF THE GRAND JURY: We 14 have a quorum. 15 BY SPECIAL AUSA BUELL: 16 Q. Ms. Gibson, you understand that you're 17 still under oath? 18 A. Yes, sir. 19 Q. Okay. Backing up for a moment to my 20 questions at the outset regarding your 21 salary, was there something you could 22 clarify for us with respect to how you were 23 compensated for overtime above that 90,000 24 salary for the 35 hours? 25 A. Yes. The 90,000, from what I remember, to SHERRIE GIBSON 71 1 the best of my knowledge, it was 90,000, 2 was based on 35 hours and anything over 35 3 hours I was paid time and a half. 4 Q. Okay. And as you said before, there were 5 some weeks when you worked more than 35 6 hours? 7 A. Correct. 8 Q. All right. Now I want to move forward to 9 the year 2001. Would it be fair to say 10 that there was an increase in 2001 in the 11 number and frequency of these transactions 12 in which the line of credit was repaid with 13 stock? 14 A. Yes. 15 Q. All right. Directing your attention again 16 to that sunimary, which is exhibit KL-21, 17 Tab 21 in the Grand Jurors' binders, is 18 that a summary that reflects each advance 19 on the line of credit and payback with 20 shares that occurred during 2001? 21 A. Yes. 22 Q. And would it be fair to say that there was, 23 as reflected on this sheet numerous such 24 transactions during the year? 25 A. Correct. SHERRIE GIBSON 72 1 Q. And that many or most of them included a 2 drawdown on the line of credit in the full 3 amount of $4 million, which was then 4 repaid? 5 A. Correct. Looking at this, you know, in 6 February and April of 2001, those three 7 combined made 4 million. 8 Q. So there was an advance in January of 4 9 million that was repaid? 10 A. Correct. 11 Q. Then three advances totaling 4 million in 12 February and April that were repaid in 13 April? 14 A. Correct. 15 Q. And then there were a series in May and 16 June of $4 million advances, each repaid in 17 the full amount of 4 million? 18 A. Correct. 19 Q. And there were some more August, one in 20 July and then some more in August? 21 A. Correct. 22 Q. Each the full amount? 23 A. Correct. 24 Q. And then there was an advance on September 25 6th and then there were some further SHERRIE GIBSON 73 1 advances in late October; correct? 2 A. Correct. 3 Q. And the last payback occurred with shares 4 on October 26th? 5 A. Correct. 6 Q. And would it be fair to say that the total 7 amount of such transactions during the year 8 2001 was in the tens of millions of 9 dollars? 10 A. Correct. The total is at the very bottom. 11 Q. The total at the very bottom is over 77 12 million? 13 A. Correct. 14 Q. Okay. Now directing your attention to 15 January of 2001, again I'm just asking for 16 approximate numbers, if you recall. Do you 17 remember approximately how much debt Mr. 18 Lay had in January of 2001? 19 A. I think as I said before it was 20 approximately 80 million. 21 Q. And as -- I'm sorry? 22 A. Maybe we should clarify because I think 23 before when we talked about debt, there's 24 the personal debt and then there's the 25 debt on the partnership. SHERRIE GIBSON 74 1 Q. Uh-huh. I mean to include both. 2 A. Okay. I cannot remember if the 80 million 3 would include both or not. 4 Q. Okay. Did you know in January of 2001 that 5 Mr. Lay had a lot of loans that were 6 collateralized with his Enron stock 7 holdings? 8 A. Correct, yes. 9 Q. And these were bank loans; correct? 10 A. Correct. And then there was also a line of 11 credit at PaineWebber. 12 Q. All right. And the moneys that Mr. Lay was 13 receiving from these bank loans and his 14 line of credit at PaineWebber, was he using 15 those moneys for investment purposes, or 16 for expenses, or both? 17 A. Well, money is fungible, so if you traced 18 it, it could be probably both for, you 19 know, whatever outflows of cash you have. 20 Q. Okay. Did you -- let me ask you this 21 question. Did you ever develop an 22 understanding that Mr. Lay had an 23 investment strategy which included as a 24 component essentially seeking to diversify 25 his holdings by borrowing -- rather than SHERRIE GIBSON 75 1 selling his Enron stockholdings and 2 investing in other things, borrowing money 3 using his Enron stockholdings as 4 collateral, and then taking that money and 5 investing it in other things? Did you 6 understand that to be a component of his 7 overall strategy? 8 A. I don't know if it was a strategy, but 9 that's what appears to have happened. 10 Q. Okay. And it wasn't part of your job to 11 participate in those kinds of discussions 12 with Mr. Lay; is that correct? 13 A. No. 14 Q. All right. Now, would it be fair to say 15 that during the early part of 2001, Enron's 16 share price began to decline from its high 17 point? 18 A. Correct. 19 Q. Did you understand that to have any 20 relationship to Mr. Lay's debt structure? 21 A. Well, it affected me in that one of the 22 parts of my job was to, you know, look to 23 see how the collateral was doing or the 24 value of the collateral was doing to the 25 outstanding balance of the line of credit. SHERRIE GIBSON 76 1 Q. And why was it your job to do that? Why 2 was that important? 3 A. As the amount -- as the market went down or 4 as Enron price went down, then there could 5 be -- there could be margin calls if the 6 collateral wasn't in compliance with the 7 lines of credit. 8 Q. All right. And can you explain to the 9 Grand Jury what a margin call is? 10 A. Behind every line of credit there were 11 certain shares. It could be Enron, it 12 could be any liquid asset that was held as 13 collateral, and depending on the 14 institution or whatever, they would give 15 you -- it would be something called a loan- 16 to-value ratio. 17 Let's say if it's a 70 percent loan-to- 18 value ratio, they give you -- I'm just 19 going to use a hypothetical situation. If 20 you had $10,000 worth of collateral, then 21 you got like 70 percent or 7,000 worth of 22 credit. 23 So if you had borrowed $7,000, you 24 still were okay. But if you had borrowed 25 like 8,000 and the collateral is now worth SHERRIE GIBSON 77 1 $7,000, the bank would issue or you would 2 get a call that you had a margin call or a 3 house call. 4 And there were two ways to make it up. 5 You either would pay down with money or you 6 would add more collateral. 7 Q. Okay. So there is a relationship between 8 the amount of outstanding debt or the 9 amount of outstanding loan collateral, and 10 when the gap gets too large, you get one of 11 these calls? 12 A. Correct. 13 Q. And then you -- 14 A. Or when it goes over that -- I mean, as 15 soon as it would get to over 70 percent, 16 you would get a call; right? 17 Q. Okay. And then you have two ways to deal 18 with that. One is to bring the collateral 19 up; the other is to pay back some of the 20 loan, bring the outstanding debt down? 21 A. Correct. 22 Q. Okay. Did there come a time in 2001 when 23 these house calls or margin calls became a 24 more prominent issue than they had been in 25 the past? SHERRIE GIBSON 78 1 A. Yes. 2 Q. Around when was that? 3 A. From what I remember, I want to say end of 4 April. 5 Q. Okay. And what involvement did you have in 6 that process? 7 A. I guess I kind of want to give some 8 background. 9 Q. Sure. 10 A. Mr. Lay had asked me to start, you know, 11 monitoring this in early 2001. And I would 12 prepare a spreadsheet that would just show 13 what the amount of debt was, the 14 approximate, you know, value of the 15 collateral, and, you know, if there was any 16 amount left available or if there was a 17 house call or margin call. So it was a 18 summary like a snapshot of where we were at 19 a certain time. 20 Q. And how often would you prepare that? 21 A. I tried to prepare it once a week. 22 Q. And you'd provide it to Mr. Lay? 23 A. Correct. And I -- to the best of my 24 knowledge, I remember starting it, you 25 know, early 2001 February-ish. SHERRIE GIBSON 79 1 Q. And then you recall that it was around 2 April when there started to be substantial 3 issues about meeting potential margin 4 calls? 5 A. Well, it was starting. It was starting. 6 Q. Okay. And did it get worse in those 7 ensuing months? 8 A. Yeah. And then I also -- and I don't 9 remember when I started this or if I was 10 consistent. I would give a copy to Beau 11 Herrold as well. 12 Q. All right. Now, was there, to your 13 knowledge, a relationship between these 14 Enron line of credit transactions on Grand 15 Jury Exhibit KL-21 and this issue of the 16 margin calls on Mr. Lay's other loans? 17 A. There was. I'd have to go back and review 18 and, you know, actually look at what I 19 prepared and see what matched to this. 20 Q. Yeah. My question is not intended to ask 21 you to link any particular transaction here 22 to any particular margin call or anything 23 of that sort. 24 I'm just asking you generally whether 25 the increased frequency of these line of SHERRIE GIBSON 80 1 credit transactions in 2001 had to do with 2 this issue of margin calls on the other 3 debt? 4 A. Yes, they did. 5 Q. Okay. And how so? What was the 6 relationship there and how did you learn 7 that? 8 A. Well, just by, you know, providing the 9 spreadsheet, when you look at all your 10 lines and you have this is the amount 11 that's drawn down, this is what you can and 12 you either have a negative or a positive, 13 you just look to see where you would have 14 money, if that was available, you know, 15 that was just another option. 16 Q. Okay. To your knowledge who made the 17 determination to make more frequent use of 18 the Enron line of credit for purposes of 19 dealing with the house calls or margin 20 calls or preventing house calls or margin 21 calls on the other debt? 22 A. Well, Mr. Lay would make those decisions. 23 Q. Did you ever have a discussion with him 24 about that as a general matter, as an 25 approach? SHERRIE GIBSON 81 1 A. No. No. 2 Q. Did he ever say anything like, you know, 3 "Sherrie, we're going to start to use the 4 line of credit more to deal with this," or, 5 "I want to, you know, let me know any time 6 there's going to be a potential house call 7 and we'll do one of these line of credit 8 transactions to prevent it," anything like 9 that? 10 A. No. 11 Q. All right. Did you ever have any 12 conversations like that with Mr. Herrold 13 about general approach to using the line of 14 credit to deal with the margin calls? 15 A. No. 16 Q. But you did have an understanding that that 17 was the impetus for the increased frequency 18 of this? 19 A. Well, it's my understanding that that was, 20 you know, a source of cash and that was 21 what was used. 22 Q. Okay. You do know that the moneys that 23 were drawn down on this line of credit 24 during 2001 were used to deal with 25 maintenance of other debt? SHERRIE GIBSON 82 1 A. Paying down other lines; correct. 2 Q. Okay. Now, prior to 2001, had you had any 3 conversation with Mr. Lay or anybody at 4 Enron, Mr. Herrold, anyone else about 5 whether there were any rules about how 6 frequently Mr. Lay could use the line of 7 credit and repay it with shares? 8 A. No. 9 Q. Did that issue ever come up? 10 A. No. 11 Q. Did you see anything in those documents 12 that you saw in early '99 that dealt with 13 that issue at all? 14 A. I don't remember. 15 Q. Did you have any conversations with Mr. Lay 16 or Mr. Herrold or anyone else that would 17 have helped you understand how it was that 18 Mr. Lay came to have such a large amount of 19 debt in early 2001? 20 A. I mean, I was preparing the financials, so 21 I could -- I just -- could you repeat the 22 question? 23 Q. You had a -- okay. Let me see if I can 24 break it down a little bit. You did 25 prepare the financial statements? SHERRIE GIBSON 83 1 A. Correct. 2 Q. So you had a complete picture of Mr. Lay's 3 financial status at any given time? 4 A. Yes, but I was so engrossed in the detail 5 and providing to make sure that whoever 6 reviewed it, that I didn't always stand 7 back and look at the whole picture. 8 So I get sometimes so caught up in the 9 detail and there were others to look at the 10 whole picture, so I don't feel 11 comfortable... 12 Q. It wasn't part of your job to evaluate the 13 wisdom of any strategy that Mr. Lay was 14 employing with his money? 15 A. My primary -- I felt like my primary job 16 was to make sure that they had accurate 17 information on which others could then make 18 decisions. 19 Q. All right. Understanding that, did you 20 have any conversation with Mr. Lay or 21 anyone else at any time about why Mr. Lay 22 was carrying such a large amount of debt? 23 A. No. 24 Q. All right. Did you have any understanding, 25 understanding you generally didn't make it SHERRIE GIBSON 84 1 a practice to sort of step back and think 2 about the big picture, did you nonetheless 3 have any understanding from reviewing the 4 financials every month as to how it was 5 that this came about that Mr. Lay in early 6 2001 had such a large amount of debt? 7 A. From making investments, diversifying his 8 portfolio and -- 9 Q. And borrowing in order to do that? 10 A. To do that; correct. 11 Q. And using in many case Enron -- his Enron 12 stockholdings as collateral for those 13 loans? 14 A. Correct, because if you look as his 15 financials, Enron stock made up at least 80 16 percent or more the value of his whole 17 holdings -- I mean, of his asset base. 18 Q. And did it appear to you over the course of 19 this period of years, that as a general 20 matter in making choices about investments, 21 that Mr. Lay appeared to prefer to borrow 22 against his Enron stockholdings rather than 23 liquidate them? 24 A. Could you repeat the question? 25 Q. Did it appear to you from looking at Mr. SHERRIE GIBSON 85 1 Lay's financial picture over this period of 2 years that -- understanding you didn't talk 3 to him about this, but did it appear to you 4 that he preferred to borrow against his 5 Enron stockholdings rather than to 6 liquidate them? 7 A. Correct. 8 Q. Did there come a time in 2001 when the line 9 of credit was increased from four million 10 to seven-and-a-half million? 11 A. Yes. 12 Q. When did that happen? 13 A. I don't remember the exact date. 14 Q. Do you remember approximately when in the 15 year it was? 16 A. It was the latter part of 2001. 17 Q. Okay. Let me ask you this. Was it before 18 or after this period on Grand Jury Exhibit 19 KL-21 in June when there is a large number 20 of transactions? 21 A. No. It -- 22 Q. Was it after that? 23 A. To the best of my knowledge, it was in 24 October. I just don't remember when in 25 October. SHERRIE GIBSON 86 1 Q. Did you ever see any docu.ments reflecting 2 the authorization for that or the rules 3 about it? 4 A. To to be quite honest, I thought I did and 5 then when I tried to find it to give it 6 during our meeting, I couldn't locate it, 7 SO I don't know if it was just... 8 Q. When you say "it," are you referring to -- 9 A. To a document. 10 Q. From the board of directors reflecting -- 11 A. Or some type of documentation authorizing 12 this increase? 13 Q. Enron documentation? 14 A. Correct. I'm sorry. 15 Q. All right. Do you know why that was either 16 sought or approved at that time? 17 A. No. 18 Q. Did you ever discuss that with Mr. Lay? 19 A. No. 20 Q. Did you ever discuss it with Mr. Herrold? 21 A. No. 22 Q. Okay. Directing your attention again to 23 KL-21 and the period during June, July and 24 August when there's a large nu.mber of these 25 transactions, did you have any discussion SHERRIE GIBSON 87 1 with anybody during 2001 about the -- any 2 limits that did or didn't exist on the 3 frequency with which Mr. Lay could do this? 4 A. Yes. 5 Q. Who did you talk to about that? 6 A. I talked to Bob Butts in accounting. He 7 was a controller for Enron. My job was to 8 -- well, to make sure that Enron received 9 the shares when they were used to pay back 10 the line of credit. 11 And from my previous questioning, I 12 guess, by Mr. Kimball and others, they 13 focused on June. So I'd try to go back and 14 remember, you know, why I called him during 15 that period of time. 16 And from what I discussed before, you 17 had five business days to deliver the stock 18 to Enron for repayment. Before there was, 19 you know, there was always long periods of 20 time or the five days wasn't an issue, but 21 in June, there was a payback and an advance 22 and, again, the stock was held at all these 23 different places and one of my jobs was to 24 select the stock. 25 Well, if the stock that had the highest SHERRIE GIBSON 88 1 cost basis was held as collateral, you know 2 at a bank who kept it out of state, that 3 would affect my delivery time. So whenever 4 there was a payback on June 12, it -- I 5 went back and I looked at this. I reviewed 6 this -- the stock was at PaineWebber, so it 7 was easy -- it was not a stressful -- it 8 was easier to get the stock on a timely 9 manner to Enron, and I did it prior to the 10 July -- I mean, to the June 15th and, you 11 know, I didn't know June 15th was going to 12 happen until it had happened or the 13 advance was requested. 14 So just -- I just wanted to make sure 15 that I was doing my job and I was in 16 compliance. I called -- I called Bob 17 Butts, the controller, and I asked him, I 18 said, you know, "When we do a payback, we 19 give you notification, and then there's 20 five business days to deliver the stock, 21 but what would happen if we notified you 22 and then there was another advance? You 23 know, I know that we notify you we're 24 paying back. Is there something I should 25 be aware of?" I just -- SHERRIE GIBSON 89 1 Q. In other words, what happens if you notify 2 of a payback and -- 3 A. And the interest stops then. 4 Q. And then before that five days runs for the 5 delivery of the shares, he's already taken 6 another advance? 7 A. Correct. 8 Q. Or can he do that or would that be 9 considered drawing it down beyond the 10 limit? 11 A. Correct. I wasn't real clear on that 12 because the docu.ment weren't of assistance. 13 So being -- you know, so then I asked him 14 four days and I asked him three days and I 15 asked him two and I said I just wanted to 16 know every situation. 17 I said, what if, you know, we did 18 advancement, payback, you know, 19 advancement, would that affect -- would we 20 be -- you summarized it very well. Would 21 we be over the limit? I mean, we have 22 notified where we're paying back, but you 23 don't actually have the shares in hand. 24 Q. All right. What was Mr. Butts' response 25 to your inquiries? SHERRIE GIBSON 90 1 A. He said yes, that may be done. 2 Q. Did he explain how he had determined that 3 that was appropriate? 4 A. No. 5 Q. Did he answer that question on the spot or 6 did he say he had to consult with someone 7 or look at something first? 8 A. He answered me on the spot, from what I can 9 remember. 10 Q. Okay. Other than -- anything else you 11 remember about your conversation with Mr. 12 Butts? 13 A. No. 14 Q. All right. Other than the conversation 15 with Mr. Butts, did you have any 16 conversation with anybody at any time 17 during 2001 about any issues relating to 18 the frequency of Mr. Lay doing this, any 19 limits on it, any reporting implications of 20 it, SEC rules, anything of that nature? 21 A. No. 22 Q. Do you recall receiving some instruction at 23 some point in 2001 were either Mr. Lay 24 or Mr. Herrold to speak to Mr. Rodgers 25 about Mr. Lay transacting in Enron stock? SHERRIE GIBSON 91 1 A. I know I did, but I don't remember when. 2 Regarding that particular transaction when 3 I called Mr. Butts, I just -- I also asked 4 Mr. Herrold to call Mr. Rodgers because, 5 you know, I was looking at the accounting 6 and I just wanted to make sure it wasn't a 7 legal issue. I was just trying to cover 8 all bases. 9 Q. Did you given Mr. Herrold any specific 10 issue that you thought he ought to talk to 11 Mr. Rogers about or did you just say 12 generally just see if there were any legal 13 issues? 14 A. Well, I just -- any legal issues on 15 delivery. 16 Q. What do you mean "on delivery"? 17 A. Well, delivery of the shares. The same 18 issue that I was having with Mr. Butts. 19 Q. In other words, the lag between -- 20 A. If you would be over -- 21 Q. -- the notification of repayment and the 22 actual delivery of the shares? 23 A. Correct. Correct. 24 Q. Whether that created any legal issue? 25 A. Correct. SHERRIE GIBSON 92 1 Q. So just specifically that question? 2 A. Correct. 3 Q. Anything else you asked Mr. Herrold to talk 4 to Mr. Rodgers about? 5 A. Not that I remember. 6 Q. Did Mr. Lay or Mr. Herrold ask you to speak 7 to Mr. Rodgers about anything having to do 8 with Mr. Lay's transacting in Enron stock 9 during 2001, in these transactions or 10 otherwise? 11 A. I might have. 12 Q. Why do you say you might have? 13 A. Occasionally, you know -- but I don't know 14 if it was in 2001. I remember one or two 15 instances where Mr. Lay asked me to call 16 Mr. Rodgers to verify that stock, Enron 17 stock, could be sold back to Enron. 18 Q. Are those the same conversations you 19 referenced earlier in your testimony about 20 the window being open? 21 A. No. The one in December of '98 and 22 December of 2000, that was having to do 23 with kind of the partnership window. I 24 just know that I did talk to Mr. Rodgers, 25 but I don't remember which year. It's a -- SHERRIE GIBSON 93 1 you know, somewhere between '98 and 2001. 2 Q. Do you recall ever speaking to Mr. Rodgers 3 about the subject of Mr. Lay selling or 4 transacting Enron stock back to the 5 company? 6 A. I have, but I don't remember when. I might 7 have remembered it when I talked to Mr. 8 Kimball, but I don't remember now. 9 Q. Do you recall anything about the substance 10 or content of that conversation? 11 A. Well, I remember that he told me -- I don't 12 remember if he told me or when Beau got 13 back -- well, Mr. Herrold got back when he 14 talked to Mr. Rodgers, that we did not need 15 to get back with again because this was an 16 exempt transaction. 17 Q. "This" being what? 18 A. Selling Enron stock back to Enron 19 Corporation, back to the company. 20 BY SPECIAL AUSA KIMBALL: 21 Q. When you say "exempt," exempt from what? 22 A. That was a legal -- it was a term he used. 23 Q. It was a term that -- 24 A. Well, I guess -- well -- 25 Q. Who used that term, Mr. Rodgers or Mr. SHERRIE GIBSON 94 1 Herrold? 2 A. It would have been Mr. Rodgers. 3 BY SPECIAL AUSA BUELL: 4 Q. And what did you -- what do you understand 5 that to mean? In other words -- 6 A. And I don't know who -- and that's why I'm 7 trying to be as exact as possible. My 8 understanding is that exempt meant that 9 it's not an over the -- it's not a market 10 -- over-the-market transaction. 11 Q. Meaning what? 12 A. That you're not selling on the market. 13 Q. Therefore? 14 A. That it doesn't apply to the window. 15 Q. Okay. Drawing your attention to that 16 Exhibit KL-21 again, the records reflect 17 that there was a, you know, as we have 18 pointed out, some significant frequency of 19 the these transactions during the su.mmer 20 and then the records would appear to 21 reflect, do they not, that there were no 22 such transactions between early September 23 and late October? 24 A. Correct. 25 Q. Do you have any knowledge as to why the SHERRIE GIBSON 95 1 frequency of the transactions slowed 2 between early September and late October? 3 A. I remember that there was an inflow of cash 4 in the -- in September that could have had 5 a bearing on this. 6 Q. Tell us about that. 7 A. Mr. Lay sold his Manulife annuities to 8 Enron Corporation for $10 million. There 9 were two annuities at $5 million each. 10 Q. Was that a transaction that was provided 11 for because of something related to his 12 compensation that had changed because he 13 had resumed the position of CEO? 14 A. That's what I was told. 15 Q. And so there was a 10 million influx -- 16 A. Dollar influx of cash. 17 Q. In September? 18 A. Correct. 19 Q. And to your knowledge, was some or all of 20 those funds used to service other debt? 21 A. To the best of my knowledge, yes. 22 Q. Did you have any discussions with Mr. Lay 23 or Mr. Herrold or anyone else about not 24 needing to do these transactions for a 25 period of time because of that influx of SHERRIE GIBSON 96 1 cash? 2 A. No. 3 Q. All right. You're just concluding that 4 because you know of that event? 5 A. Well, I'm concluding that because I was 6 looking at because we had cash. 7 Q. Okay. 8 A. I mean, I -- 9 Q. From your own review of the financial 10 records, that's just an observation that 11 you would make? 12 A. Correct. 13 Q. That there was other money available -- 14 A. Correct. 15 Q. -- during that time? 16 A. Yeah. 17 Q. Okay. Now, do you notice on these records 18 that the last payback of the line of credit 19 occurs on October 26th? 20 A. Correct. 21 Q. There are some additional advances after 22 that but no further paybacks in 2001? 23 A. Correct. 24 Q. Do you know why there were no further 25 paybacks with stock after the 26th of SHERRIE GIBSON 97 1 October? 2 A. No. 3 Q. Did you ever discuss that with anyone? 4 A. No. 5 Q. Is there any conclusion that you can draw 6 from your own knowledge and review of 7 financial records as to why the paybacks 8 with stock would have stopped on the 26th 9 of October? 10 A. No. 11 Q. Did you have any occasion -- have you had 12 up until today any occasion after the 26th 13 of October of 2001 to discuss with Mr. Lay 14 the subject of his use of Enron's line of 15 credit? 16 A. No. 17 Q. Or his paypack of the line of credit with 18 Enron shares? 19 A. No. 20 Q. Ms. Gibson, did you have occasion in the 21 course of your ordinary duties to discuss 22 at any time Enron's business with Mr. Lay? 23 A. No. 24 Q. Did he make it a practice not to discuss 25 those matters with you or was it just not SHERRIE GIBSON 98 1 something you would have needed to talk to 2 him about? 3 A. Whenever we discussed, it was just very 4 direct and it had a purpose, a personal 5 purpose, maybe a question on the 6 financials, but no, we did not discuss the 7 company. 8 Q. Mr. Lay wouldn't share with you 9 observations about the company's prospects 10 or it's averages or it's stock price or 11 anything of that nature? 12 A. No. No. 13 Q. You didn't have occasion, for example, to 14 discuss with Mr. Lay at or around the time 15 it occurred Mr. Skilling's resignation? 16 A. No. 17 Q. Did you have occasion to discuss with Mr. 18 Lay at any time what have come to be known 19 as the Sharon Watkins' allegations; is that 20 something that he shared with you? 21 A. No. 22 Q. Did you know -- and I'm just using these as 23 examples, but did you know prior to its 24 release that Enron was preparing to 25 announce bad financial results for the SHERRIE GIBSON 99 1 third quarter of 2001? 2 A. No. I was still buying stock. 3 Q. Okay. So it would be fair to say as a 4 general matter that you just didn't discuss 5 Enron business with Mr. Lay? 6 A. No. That's correct to say. 7 Q. Did there come a time in December of 2001 8 when the Lays paid off the mortgage on 9 their home in Houston? 10 A. Yes. 11 Q. And why was that done, to your knowledge? 12 A. To my knowledge, it was done on the -- 13 based on an attorney's advice to them. 14 Q. And who told you about that? 15 A. I don't remember. I just know it. 16 Q. Directing your attention to early 2001, and 17 again I'm not trying to hold you here to 18 exact details. I just want a general 19 sense. What real estate holdings did the 20 Lays have? 21 A. Well, they had some properties in 22 Galveston, some in Aspen, and then some 23 rental properties in Houston. 24 Q. Commercial or residential rental 25 properties? SHERRIE GIBSON 100 1 A. Residential. 2 Q. How many properties in Aspen? 3 A. I don't remember exactly in the beginning 4 of 2001; three or four. 5 Q. And in Galveston? 6 A. There were -- again I don't remember 7 exactly the beginning of -- there were two 8 lots, three homes, but I don't know when 9 that last home was purchased. I don't 10 remember. 11 Q. And how many rental properties in Houston? 12 A. Five or six, to the best of my knowledge. 13 Q. Okay. I want to show you a document marked 14 Grand Jury Exhibit KL-22. 15 [Grand Jury Exhibit No. KL-22 16 marked for identification and 17 made a part of the record.] 18 BY SPECIAL AUSA BUELL: 19 Q. You don't need to read through that in 20 detail but if you could just leaf through 21 it and let me know if you recognize that. 22 That's actually a set of documents. 23 There's a memo and then there's some other 24 documents attached. 25 A. Oh, okay. [Reviews documents.] SHERRIE GIBSON 101 1 Q. Do you recognize those? 2 A. Yes. 3 Q. Okay. did you become aware at some point 4 in 2000, late 2000, that Mr. Lay had 5 adopted a stock sales plan with the 6 company? 7 A. Yes. 8 Q. And how did you learn, first learn about 9 that? 10 A. I don't remember exactly. 11 Q. Did you have any role in the process of 12 putting that plan together or implementing 13 it? 14 A. No. I just -- 15 Q. Did it affect any part of your job, the 16 trading plan? 17 A. No. No. The only thing it affected was my 18 reporting. I mean, how -- just because of 19 the volume -- well, just because of the 20 transactions. 21 Q. Do you know why -- and by the way, there 22 was a trading plan both for Mr. Lay and 23 also for the family partnership; is that 24 correct? 25 A. Investment partnership. SHERRIE GIBSON 102 1 Q. The investment partnership. I'm sorry. 2 A. That's okay. 3 Q. And do you know why those plans were 4 adopted? 5 A. For some -- I know that the SEC had changed 6 the rules and allowed this. It was a 7 change in SEC rules that allowed companies 8 to adopt these types of plans. 9 Q. "These types of plans" being plans where 10 you would essentially commit in advance to 11 sell a certain number of shares 12 periodically? 13 A. Yeah. They're called scheduled sales 14 plans, and from my understanding, once you 15 got a scheduled sales plan, you couldn't 16 alter it. 17 Like for instance, you could decide to 18 sell so many shares every day, so many 19 shares once a week, so many shares, you 20 know, on a -- just whatever you would 21 specify in your plan, and that regardless 22 of what the stock was doing, it just would 23 be done. 24 Q. Okay. Do you know of any other reason why 25 Mr. Lay adopted these plans at the time he SHERRIE GIBSON 103 1 adopted them? 2 A. I'm trying to be, you know, very exact in 3 my answers and I don't know where I -- I 4 remember the source, but as part of this 5 sales plan, because it has to be approved 6 by the SEC up front, this sales plan can go 7 through even though a window is closed. 8 So even though, you know, let's say, in 9 an isolated case, you would not be able to 10 sell, because you had already this in 11 place, it still was acceptable or in 12 compliance. 13 Q. Okay. But you don't know who you got that 14 from? 15 A. No. 16 Q. Okay. Did you become aware that Mr. Lay 17 terminated these sales plans in or about 18 July of 2001? 19 A. Yes. 20 Q. What do you know about why that was done? 21 A. Mr. Herrold mentioned to me that they -- or 22 Mr. Lay thought the price was too low and 23 that -- that he terminated the plan. The 24 price of Enron stock was too low. 25 BY SPECIAL AUSA KIMBALL: SHERRIE GIBSON 104 Q. If I can just briefly go back to Exhibit 21, which is the schedule. SPECIAL AUSA BUELL: it back to her. BY SPECIAL AUSA KIMBALL: Q. I just want to make sure that I understand kind of the grand totals here. And Ms. Gibson, I'm sorry if you got asked this question before, but is this a docu.ment that you prepared? A. No. Q. Do you know who prepared it? A. Yes. Joanna Cortez in accounting prepared it. Q. Joanna Cortez in accounting at Enron? A. Correct. She was my last contact person at Enron. Whenever we would notify that there was going to be a payback, she would calculate the interest due. Q. Did she prepare it because you asked her to prepare it? A. No. Q. Do you know who did? A. Well, she told me she prepared it because she wanted to doublecheck herself on Let me give 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHERRIE GIBSON 105 1 interest. 2 Q. Okay. And just so I understand, the grand 3 totals there under "Daily Activity," 4 there's "Advances" and a "Paybacks" total. 5 The figure at the very bottom, bottom 6 $77,500,025? 7 A. It's five hundred twenty-five thousand. 8 Q. $525,000? 9 A. Yes. 10 Q. Approximately $77 million. 11 A. Right. 12 Q. That represents the amount of money that 13 Mr. Lay borrowed from Enron on his 14 revolving line of credit in 2001? 15 A. Correct. 16 Q. And the $70 million figure, approximately 17 $70 million figure in the next column, that 18 represents, I guess, the fact that Mr. Lay 19 repaid that debt with approximately $70 20 million worth of his stock? 21 A. Correct. 22 Q. Is that correct? 23 A. Correct. 24 SPECIAL AUSA KIMBALL: Okay. 25 That's all. SHERRIE GIBSON 106 1 SPECIAL AUSA BUELL: Okay. We're 2 going to ask you to step in the 3 hall if you could for a minute, 4 Ms. Gibson. We'll see if we have 5 any other questions? 6 [Witness out, 12:07 p.m.] 7 [WHEREUPON, at 12:10 p.m., the 8 investigation in the above- 9 entitled matter was recessed.] 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHERRIE GIBSON 107 1 2 3 4 5 6 I, TIERNEY LEDBETTER, CSR, a Certified 7 Court Reporter and Notary Public in and for the 8 State of Texas, having been duly sworn in as the 9 Grand Jury Reporter, hereby certify that the 10 foregoing pages constitute a true and correct 11 transcript of the proceedings had and testimony 12 adduced in said cause at the time and place as 13 hitherto set forth; that the interrogatories and 14 answers by the witness were taken down by me in 15 shorthand and thereafter reduced to typewriting. 16 AS WITNESS MY HAND AND SEAL OF OFFICE this 17 _______ day of ____________, 2002. 18 19 20 ___________________________________ 21 Tierney Ledbetter, Certified Court 22 Reporter and Notary Public in and 23 for the State of Texas. 24 25