Conspiracy of Fools (109 page)

Taking part in the festivities were a number of executives, bankers, and lawyers who had been swept up in the Enron catastrophe. This year, there was no pressing business, no burning of the midnight oil at the end of the quarter to keep them away. And there would be no Christmas bash at Enron either. This event was as close to a corporate holiday reunion that any of them would see.

More than a year had passed since Enron had filed for bankruptcy, and for almost everyone touched by the scandal, the world had transformed into a radically different place.

Whatever doubts might have persisted about the magnitude of the deep problems within the company had been obliterated in February, ten months before, by Bill Powers’s final report to the Enron board. It spelled out in painful detail how the now-infamous off-books entities—Raptor, LJM, Chewco, Southampton—had been used by Fastow and his accomplices both to enrich themselves and to deceive investors about Enron’s finances. The revelations swept away the final vestiges of Enron’s former management. Rick Causey and Rick Buy, who had been responsible for managing the conflicts with LJM, had been ushered out the door, never to return. Even Ken Lay had been forced to relinquish his last, frayed connection to the company, stepping down as a director just weeks after resigning from management.

The Powers Report set the stage for what became a national spectacle—the congressional hearings on Enron. The House Energy and Commerce subcommittee took the lead, issuing subpoenas to all of the primary players in the Enron saga. Almost everyone—Fastow, Kopper, David Duncan, Causey, Buy—declined to testify, citing their Fifth Amendment rights. With the release
of the Powers Report, even Lay heeded his lawyers’ advice and declined to appear before the committee. When a Senate committee subpoenaed him weeks later, he, too, took the Fifth.

Skilling chose a different path, testifying under oath and assuring members of Congress that he had done nothing wrong. He was not, Skilling insisted, an accountant, and had relied on Andersen and Causey to provide him with the proper judgments.

Sherron Watkins also appeared, playing the role of Enron heroine. Watkins, who by then had agreed to co-author a book on Enron, was an eager witness who ventured beyond her actual knowledge in her testimony. She accused Skilling of working with Fastow to dupe the board and portrayed Lay as a scapegoat of underlings’ manipulations without citing evidence to justify her allegations. No one on the committee pressed her for details.

Other executives who had attempted to unmask Fastow and his collaborators and expose their partnerships’ dealings did not fare as well. Jordan Mintz was praised, but also challenged by some committee members who seemed not to understand the role he had played. Jeff McMahon was at first lauded for standing up to Fastow, but soon after condemned for his role in the Nigerian barge transaction. Vince Kaminski and Carl Bass, the executive and the accountant who had campaigned the loudest and longest against the partnership dealings, were never called to testify. And the name of Kevin Kindall, the Enron executive who discovered the threat to Enron’s survival and tried to stop it, was never mentioned in any public hearing.

By May, another bombshell emerged. The memo about the California trading strategies—crafted largely by Stephen Hall of Stoel Rives in Portland, under the direction of Christian Yoder at Enron—was turned over by the company to federal energy regulators, who promptly made it public. The document once intended to notify senior Enron management of bad doings by traders instead became smoking-gun evidence of the illegal trading.

Some politicians jumped on the trading strategies as proof that the California energy crisis was solely caused by manipulation—a position largely dismissed by reputable economists, who considered trading abuses a contributing factor to a problem fueled mostly by supply and demand mismatches. Hall and Yoder entered the Enron media firestorm, were hauled before Congress, and ultimately celebrated for their integrity.

As time passed, executives and professionals with ties to Enron worked to move on with their lives. A number of them—including Rebecca Mark, Amanda Martin, and Jeff McMahon—found quiet spots in business, handling family-related ventures, doing consulting work, or managing their own investments. Greg Whalley, the short-lived president of Enron, moved to
Connecticut to join his traders then at UBS; as the investigations of Enron heated up, he would eventually leave and return to Houston.

Professional survival often seemed to depend on how far Enron executives and others had managed to move from the epicenter of the scandal—either through the objections they raised at the time or their wisdom in getting out when the getting was good.

After her celebration in Congress, Watkins went on to form her own career as a speaker and corporate ethics consultant; she would ultimately be named as one of
Time
magazine’s people of the year. Mintz leaped from his job at Enron to a position on the legal staff of a major American homebuilding company. Kaminski found work as a risk analyst with another financial firm, but changed jobs as the tumult in the energy markets left by Enron’s collapse roiled the industry.

But no one walked away from Enron with less damage than the man whose departure cleared the way for the elevation of Jeff Skilling. Rich Kinder, the onetime Enron president whom board members feared would be unable to move the company forward, became the richest and most successful of the bunch. Now a billionaire, Kinder transformed the small energy company he cofounded, Kinder Morgan, Inc., into a steadier, more reliable, and more profitable enterprise than Enron ever was. From 2000 to the end of 2002, Kinder Morgan shareholders saw a 113 percent return; Enron’s investors, of course, lost everything.

The efforts by Arthur Andersen to limit the fallout from the document destruction proved fruitless. After urging the Enron Task Force to quickly resolve the matter, Berardino and his legal team were shocked when the prosecutors came back with a decision to file criminal charges. With the firm already under a court injunction as part of the Waste Management settlement, prosecutors felt that, given the role of Andersen’s legal department in the document destruction, they had little choice but to push this case into the criminal realm.

Andersen sought to settle but fumbled. The government demanded an admission of criminal liability, and at one point the two sides seemed close to a deal. But in the end Andersen balked, and the government walked away from the negotiating table.

By that time a top prosecutor on the Enron Task Force, Andrew Weissmann, had secured a secret weapon: David Duncan. After mulling the matter for months, Duncan acknowledged that he must have destroyed documents with the knowledge that he would be keeping them away from the SEC. He agreed to plead guilty to one count of obstruction, and to serve as the chief witness against his former employer.

The Andersen indictment for obstruction of justice ended the company’s last hope of survival. Clients fled in droves, unwilling to allow a firm charged with a crime to serve as their financial watchdog. Around the globe, Andersen partners jumped to competing firms. By the time of Andersen’s conviction in June, only a small shell of the once great firm remained, and it announced that it would cease auditing public companies.

The fates of Andersen’s partners varied. Berardino resigned from the top post in a futile attempt to forestall its indictment; after Andersen’s collapse, he opened his own consulting firm. Duncan would still be awaiting sentencing for his crime some three years after his guilty plea. John Stewart, Andersen’s expert on accounting rules, remained with the firm for many months, finally leaving to also set up a consulting shop. And Carl Bass, who made so much trouble for Enron that he was forced to end his dealings with the company, was snapped up by a competing accounting firm, where he works when not being consulted as one of the government’s favorite witnesses.

The death of Andersen triggered public criticism that the prosecutors had gone too far in charging the firm. But within days of its conviction, it became apparent that, had this fatal blow not fallen, another would have: WorldCom, the telecommunications giant, announced the discovery of its own massive accounting fraud, involving billions in unreported expenses. The accounting firm that missed the scam was none other than Arthur Andersen.

Until that moment, the Bush Administration had been resisting calls from Congress for sweeping corporate reform. But the one-two punch of Enron and WorldCom changed all that. Within weeks, new rules for corporate America would be adopted by Congress and signed by the President. Called Sarbanes-Oxley, after its chief sponsors, the act represented the most dramatic overhaul of securities laws since the aftermath of the Depression.

The exposure of so much corporate skulduggery also proved the undoing of Harvey Pitt. His ill-timed “kinder and gentler” speech served as red meat to Administration opponents, and, despite his aggressive moves against Enron and WorldCom, he made repeated political missteps that undercut his role in the Administration. The night of the midterm elections, with the Republicans winning a decisive victory, Pitt resigned under pressure from the White House.

By that time, it had become clear that the criminal investigation into Enron was going to penetrate deeply into the company’s executive ranks. The government started in what seemed an unusual place—at Greenwich NatWest. Grand jury subpoenas had uncovered the e-mail traffic among the three bankers who had first proposed to Fastow and Kopper what eventually
became Southampton. But for the most part, it was Kopper’s name, not Fastow’s, all over the documents.

Leslie Caldwell and her team decided to send a strong message to Kopper. In late June, they filed a criminal complaint against the bankers, loaded with damning evidence of their misbehavior—and of Michael Kopper’s as well.

Kopper took the hint. Within weeks he came in, eager to cut a deal. He told the prosecutors everything—about the front investors in RADR, the kickbacks from Chewco, the rigged LJM deals, even the Global Galactic agreement. Topping it off, he told of the laptop he had used to track his deals with Fastow, the one that, at his boss’s behest, now rested in a garbage dump somewhere in Texas.

A deal was reached, and in late August, Kopper pleaded guilty in a Houston federal courtroom to two felonies related to Chewco, RADR, and Southampton. As part of the deal, he surrendered twelve million dollars to the government; more than two years later, he had yet to be sentenced.

Five weeks afterward, on October 2, it was Fastow’s turn. Early that morning, he arrived at the FBI’s Houston office and surrendered to agents there. He was handcuffed and led to the courthouse, where he was charged in a criminal complaint with securities and wire fraud, money laundering, and conspiracy. Fastow pleaded not guilty.

The rush of prosecutions and revelations weighed heavily on a number of the partygoers attending the Sprague celebration. Just a few days earlier, a mid-level nobody, Larry Lawyer, had pleaded guilty to a tax crime for failing to report money he made on a Fastow partnership. Now prosecutors were hitting hard on Broadband executives, accusing them of lying to investors about the business’s prospects. Ken Rice, Joe Hirko, and a number of others had already been informed that they stood to be indicted soon.

Amid the laughter and tinkling of glasses, Ray Bowen, now Enron’s CFO, was standing near the mansion’s vast multistory entryway, just feet from a large staircase. He felt a tap on his shoulder. He turned to see Rebecca Carter behind him. His face registered a moment of shock.

“I just wanted to say hi,” she said. “How are you doing?”

“We’re okay.”

“Still at Enron?”

Bowen nodded. “Yeah.”

Carter shrugged. “Well, we can’t talk about that.”

Bowen understood. The criminal case. Longtime friends hadn’t spoken to each other for months. Certainly acquaintances couldn’t discuss Enron, not without the conversation likely being recounted to a grand jury.

“Well, I’m glad to see you’re doing well,” she said.

Bowen thanked her, his anxiety growing. Carter was at the party.
Is Skilling here, too?
The thought made him uncomfortable. He hadn’t seen Skilling since he resigned. He had heard the man was telling everyone that he had done nothing wrong, and Bowen didn’t want to listen to his protests. Like a lot of Enron executives, he was angry at Skilling.

Then he saw him. Bowen had just walked down a hallway to pick up a beer and, with drink in hand, was on his way back when Skilling emerged from the dining room.

“Ray,” Skilling boomed, “how are you doing?”

Bowen stopped. Skilling looked awful. He had aged and gained weight. Bowen muttered a greeting.

“Why don’t you want to see me?” Skilling asked.

What?
It was true, but Bowen hadn’t told anyone that night. Maybe Carter had read it in his face.

“I don’t think I ever said that,” he responded.

“Do you not want to see me because you think I did something wrong? Is that it?”

How can that be answered?
“Jeff, I don’t know.”

Skilling pressed in. “Do you think I did something wrong?” he repeated. Bowen backed into a corner. “Jeff, I don’t know,” he repeated. “I have no idea.”

“I didn’t do anything wrong!” Skilling shouted. “I didn’t know about any of this stuff!”

Skilling’s tone was emotional. Unbeknownst to anyone, he had just received a letter from the federal prosecutors, notifying him that he was likely to be indicted.

“Jeff,” Bowen said, “I don’t think we should be talking about this.”

“I didn’t know about Andy and all that stuff,” Skilling said. “I didn’t know about the kickbacks from Kopper. You worked for him! Did you know about this?”

This was becoming a scene. “Absolutely not!” Bowen responded. “I didn’t work for Andy for two years.”

Skilling wouldn’t let it go. “I need to know, do you think I did something wrong?”

Bowen stood up straight, feeling angry. “I’ll tell you what I do know, Jeff,” he said. “I know that the financial position of this company wasn’t anywhere close to what the world was led to believe. And that happened on your watch. Was that right or wrong? I don’t know.”