Conspiracy of Fools (103 page)

“Well, but we have concerns,” Watson began again.

Everyone in the room knew where this was going. Watson wanted to knock down the price again, and there was nothing they could do. They just had to take it. They waited for him to lower the boom.

“And that’s why we’ve decided,” Watson said, “that we’re not going to pursue this merger.”

The room went silent.

Lay argued. The deal was dead? Over the same problems everyone already knew about?
That
was why everyone had come to New York, he said, to help work through Dynegy’s concerns. Jimmy Lee joined in, scolding Watson; the term sheet had just been signed, he said. Watson didn’t back down, but he agreed to speak again with his team and consult his board. He promised to get back to them by morning.

The Enron team trudged back to the airplane. It was over. Their company, their careers. All of it was over.

As the plane took off, Lay heard a crack in his ear. The changing cabin pressure, combined with his cold, had caused some damage. He had just lost not only his company but his full hearing as well.

The next morning, November 28, Dynegy’s traders stopped doing business with Enron. At 8:30, a desperate call came to Dynegy from Susan Pereira, an Enron trader.

“You’re cutting us off!” she shouted. “Everyone has cut us off! I don’t even know why I’m here.”

The comments circulated through the trading room and quickly spilled out into the market. The world was waking up to the fact that Enron was on its last legs.

Less than two hours later, Lay and his senior management were waiting in the Enron boardroom for final word from Chuck Watson, hanging on to what they knew was a false hope for a miracle. No one was speaking.

At Dynegy, Watson had convened a board meeting by conference call and informed the directors that there had been some dramatic changes in the Enron deal.

“We don’t believe we can proceed,” Watson told the directors. Liquidity at Enron was drying up, its disclosure of information was repeatedly proving to be inadequate, and its top management was not exiting gracefully.

Steve Bergstrom took it from there. “It’s not clear what we’ll be getting if we buy them now. Their trading business has evaporated. Europe is just gone. We will be taking a significant risk, for very little benefit.”

The discussion was brief. And the vote unanimous.

The phone rang in the boardroom. Lay hit the button on the speakerphone. Watson was on the line.

“I’ve tried really hard, and I’ve talked to my board,” he said. “But I’m just not comfortable …”

That’s it
. Without waiting to hear another word, Ray Bowen hustled over to another phone in a corner. There was no need to hear any more; Enron, he knew, was bankrupt.

He had to move fast. Some $400 million was sitting in accounts at Citibank, which would now be owed far more than that in the bankruptcy. The bank might seize the money as its own. Bowen needed to move it. Enron owed basically nothing to Goldman Sachs. That’s where it would go. He dialed the number for Mary Perkins, the assistant treasurer.

“Pull every penny we’ve got out of Citibank and wire it over to Goldman Sachs,” he said. “Do it now.”

McMahon immediately called the ratings agencies to let them know. Standard & Poor’s was the first to downgrade the company. Its debt was now rated at junk levels. Trading in Enron shares was suspended. When it resumed, the price plummeted 75 percent, to just above one dollar.

———

Computer-support technicians at Enron watched as the commands went through. Millions and millions of dollars were moving out of Enron’s bank accounts. They had no doubt what was going on. Someone was stealing all of Enron’s cash.

One executive made a decision. He had to stop it. He telephoned the first reporter he could think of.

Goldman Sachs didn’t want Enron’s money. The case was too high-profile. The executives at the firm worried they were going to be dragged into something they weren’t part of: the biggest bankruptcy in American history.

At first, Goldman refused to credit Enron’s account. Instead, it parked the money while its executives anguished over what to do. Enron rattled its saber, threatening to sue if Goldman didn’t deposit the cash.

The next morning, November 29, Ted Leh, an executive with the firm who handled the Enron account, telephoned Enron to announce that Goldman was getting out.

“We want your cash out of here by the end of the day,” he said. “You guys are too hot. We don’t want your money here. Take it somewhere else.”

The rumblings in Houston were just beginning to shake the nation’s capital. The Enron fiasco was already shaping up as a classic business scandal, one that raised fundamental questions about securities and accounting rules—and involved a close friend of the President’s to boot. Suddenly, political reporters who rarely followed business news were questioning the nation’s leaders about Enron.

The opening salvo came that Thursday during a regular press briefing held by Tom Daschle, the Senate Majority Leader. One reporter mentioned that Enron was teetering on bankruptcy. Would the Senate investigate? And should that change the public’s view of electricity deregulation?

“Well, we’re certainly going to try to find answers to the questions involving the collapse of Enron,” Daschle replied. “I don’t think that anybody knows yet just how this happened, and how it happened so quickly. I think we need to find as much information as possible.”

Some $400 million was burning a hole in Ray Bowen’s pocket, and he couldn’t find a financial institution anywhere that was willing to take it.

Some people at Enron had a relationship with senior executives at Frost Bank, a sizable regional company, and arranged for an account to be opened there. But once everything was lined up, the bank’s board of directors got skittish. Late that night, they nixed the arrangement.

Finally, Bowen found a tiny bank in Houston, a subsidiary of the International Bank of Commerce, that would take the money. Enron wired it over immediately.

People at Enron needed to be paid a lot more, just to make sure they didn’t jump ship when the company filed for bankruptcy. If they did bolt, there was no way it would be able to come close to repaying its creditors.

The payment of so-called retention bonuses to senior managers at collapsing companies is a common practice, serving to lock them in place; if they accept, they are forbidden to leave for a period of time. Enron’s board approved the immediate distribution of fifty-five million dollars to key executives, hoping to stem a tide of departures.

Now all the payments would have to come out of the tiny branch of the International Bank of Commerce. But Enron didn’t even have checks for the account, and didn’t want to risk having them bounce. It would have to pay the bonuses with cashier’s checks.

That same night, Bowen got a call from Charles Delacey, the Enron executive working with the bank to assemble the fifty-five million dollars in cashier’s checks. The bankers were on edge, he said, worried that something fishy was going on.

Now, Delacey said, there was a new problem. The new head of Enron’s wholesale division, John Lavorato, was insisting on coming out to the bank to supervise the check writing. Lavorato was a typical trader—rambunctious, loud, and demanding—exactly the sort of personality that should be kept away from a bunch of edgy, starched-shirt bankers.

“I’m worried he’s going to make them more nervous, Ray,” Delacey said. “It could be a problem.”

Bowen promised to call the man off. He hung up, then tracked down Lavorato’s number.

“Hey,” Bowen said, “I hear you’re planning to show up at IBC tomorrow. I think that’s a bad idea.”

Lavorato stiffened. “I just want to make sure things are going okay,” he said.

“John, don’t go. These guys are already nervous.”

“I just want to make sure it goes well.”

Bowen sighed. “John, one bank has already thrown us out. If you go there and start throwing a temper tantrum and make these guys even more nervous, everybody’s going to get screwed here. We’re not going to have a bank to house our money. We’re not going to be able to pay our people.”

Lavorato paused. “Well, can I sit in the parking lot?” he asked.

“John, you can do whatever you want. But if they know you’re there, I’ll kill you.”

Lavorato’s voice broke. “I’m sorry, Ray, I’m sorry,” he said. “I just want my money. I’ve never had a big payday. I just want my money.”

Bowen almost gagged. Lavorato was a division leader. He had hundreds of people depending on him. And all he was talking about was his own cash.

“John, I don’t give a shit,” Bowen said. “I don’t care about you.” He hung up.

The next morning, the lobby at the International Bank of Commerce was jammed with Enron executives. The paperwork seemed to last forever, but eventually the bankers produced a small box, filled with cashier’s checks.

A portion of the bonuses was going to be paid another way. But these checks for the remainder had to be purchased; they couldn’t be used to draw down a specific client account. The bank president came toward Bowen, carrying another blank check, the kind that any of the local customers would receive when opening a new account.

“You need to fill out this check for the cashier’s checks,” the president said.

Bowen looked down at the check. Blank, nothing. No name, no logo. Just an account number. He started writing.

$38 million. Thirty-eight million and 00/100
.

It was the largest check he had ever seen, much less written. He handed it to the bank president. The box of cashier’s checks was turned over to David Oxley, an executive from Enron’s human-resources division.

Oxley looked at Bowen. “See ya,” he said.

He and a colleague, Robert Jones, ran out to their car, so they could deliver the checks to Enron’s top employees.

Jones and Oxley parked their car and were hustling toward the Enron building. Before they could even get in, they stumbled across Lavorato and another division president, Louise Kitchen, who were waiting for them. They both demanded their checks right away. Oxley fished them out of the box and handed them over.

Kitchen and Lavorato hurried away. They wanted to get to their banks and deposit the checks while there was still a chance they would clear before Enron went under.

During the afternoon briefing that day, Ari Fleischer, the White House Press Secretary, pointed to a reporter midway back in the rows of seats filling the room.

“Senator Daschle is calling for an investigation into the collapse of Enron,” the reporter said. “Does the President support that?”

Congress has an oversight role, Fleischer responded. “That includes anything that, in a case like this, the Senate sees fit, in terms of an investigation into the collapse of a company,” he said. “That’s the purview of the Congress.”

Next question.

“All right,” Lay announced. “I’m calling this meeting of the Enron board to order.”

It was 8:12 the next night, December 1, a Saturday. Most directors were taking part in the meeting by phone. None had much stomach for what they had to do.

“All right, Greg,” Lay said, looking at Whalley. “Please update us on the efforts being made to maximize the value of our wholesale-trading division”

Whalley nodded. Enron was in negotiations to strip wholesale trading out of the company and hand it off to UBS Securities. Enron would get basically nothing for the division, other than a piece of future profits. There were a few questions. Then Whalley stood and walked out. There was no better signal that he no longer considered himself responsible for anything other than the trading operations.

McMahon gave the final presentation on the company’s cash position. It ended the week with $424 million in cash—practically nothing in the corporate world.

“All right,” Lay said. “We now have to consider our option here for Enron to file for bankruptcy. Does anyone have any thoughts?”

The room was silent for a moment. “Who would’ve thought this?” Pug Winokur said. “I just can’t believe this is happening.”

There was little other discussion. “All right, do I hear a motion for that recommendation?” Lay asked.

John Duncan raised a hand. “So moved,” he said.

“All in favor?” Lay asked.

Unanimous. “The motion carries,” Lay said.

Tom Roberts, the Weil, Gotshal partner who had worked at Enron for just over a month, caught up with Bowen outside the boardroom. He and his partner, Glenn West, looked solemn.

“I guess you’re the lucky guy,” Roberts said.

Bowen shot him a look. “What do you mean?”

Roberts held up a document. “You need to sign the bankruptcy filing,” he said.

Hours later, on the morning of December 2, the miracle of broadband finally transformed Enron, but not in the way the company’s executives had once dreamed.

The lawyers worked for hours perfecting the paperwork before handing it off to their staff to convert into a digital format. In the Houston office of Weil, Gotshal, the records were provided to Steven Vacek, a paralegal.

Vacek signed on to his computer, using his high-speed connection to call up the Internet site for the United States Bankruptcy Court in New York. The Weil, Gotshal lawyers had urged Enron to file there; New York had the most sophisticated bankruptcy judges, they argued, and this was going to be one of the most complicated cases of all time.

Moving the mouse for his computer, Vacek clicked on the words “Document Filing System,” then entered a password. At 4:28 in the morning, Vacek clicked the “submit” button, sending the papers to New York. Enron was officially bankrupt.

IT WAS MONDAY MORNING
, December 3, and Enron’s offices were like a tomb. Armed guards roamed every floor, keeping watchful eyes on employees whose remaining time at the company could be counted in hours. Word was out that mass layoffs would be announced that very day. Already some division chiefs, nervous about confronting angry employees in the office, had simply fired them at home by phone.

Ray Bowen was responsible for eliminating jobs in two divisions: the treasury operations, which he now ran, and Enron Industrial Markets, where he had worked weeks before. In that second group, he had to let hundreds of people go, and he summoned them all together to deliver the bad news. Some wept. Others cursed. A woman in front raised a hand.