Conspiracy of Fools (110 page)

“You’re not answering the question, Ray. Do you think I did anything wrong?”

Bowen stiffened. “I don’t know, Jeff. And that’s what I’m telling everybody that asks me. But again, I don’t think we should be talking about this.”

“Okay,” Skilling said. “Okay.”

There was a pause. Bowen stared at him for a moment. “How are you doing, Jeff?” he asked.

Skilling cleared his throat. “Well, Ray, if you want to know the truth, it’s god-awful. It just sucks.”

“I can’t imagine,” Bowen said. “This is a big tragedy. Lots of people are getting fucked in this thing.”

Skilling looked him in the eye. “I know, I feel bad about that. But, Ray, I didn’t do anything wrong.”

Bowen didn’t want to hear it. Whether Skilling had committed a crime or not, Bowen still held him accountable. He had created a get-rich-quick culture and failed to control it, he thought. Then, at the end, he abandoned them all. He blamed Skilling.

“I gotta go,” Bowen said, taking a step forward. “I wish you the best.”

The party wound down, and the crowds moved to the front of the house, milling about as valets brought their cars around on the long driveway. Bowen and his wife, Jennifer, found themselves behind Skilling and Rebecca Carter. Like four old friends, they chatted until a black Mercedes coupe arrived. Skilling and Carter climbed in and drove off.

Jim Timmins, the Enron executive who left in protest over LJM, happened to be behind Bowen. As the Mercedes pulled away, his own anger at Skilling boiled over.

“Can you believe that asshole had the fucking gall to show up at this party?” Timmins sneered.

His eyes followed the departing car. “Hope you have a good time in jail!” he called out.

The others in line laughed.

In the year that followed, the walls closed in on Andy Fastow. By early 2004 any hopes he harbored for an acquittal had been shoved aside.

By then, he had been formally indicted by a grand jury on ninety-eight counts, including one for obstruction of justice stemming in part from his role in the destruction of Kopper’s laptop. All of his closest allies had taken plea deals. Ben Glisan had pleaded guilty the previous September to conspiring to commit fraud, admitting that the Raptors were structured in ways that violated accounting rules so that Enron could exaggerate its financial performance. He was sentenced to five years in prison.

But the real trap was of Fastow’s own creation. In constructing the RADR
scheme, he had secured the help of his wife, Lea. The money siphoned by Kopper from the bogus investors had been delivered in the names of Fastow’s wife and children. And then the Fastows failed to declare it as income, leaving Lea open to a criminal tax charge.

Prosecutors informed Fastow that they would shelve plans to charge Lea if he would plead guilty. Fastow refused and Lea was indicted. Suddenly, the Fastows faced the prospect that their two young sons would have to be raised by others while they served lengthy prison terms. The time had come for Fastow to admit the truth.

“All rise.”

At 2:05 on the afternoon of January 14, 2004, U. S. District Judge Kenneth Hoyt walked past a marble slab on the wall as he made his way to the bench of courtroom 2025 in Houston’s Federal District Courthouse. Scores of spectators attended, seated in rows of benches. In front of the bar, Leslie Caldwell, the head of the Enron Task Force, sat quietly watching the proceedings as members of her team readied themselves at the prosecutors’ table.

Judge Hoyt looked out into the room. To his right sat an array of defense lawyers surrounding their client, Andy Fastow, who was there to change his plea. Fastow, whose hair had grown markedly grayer in the past year and a half, sat in silence as he waited for the proceedings to begin.

Minutes later, under the high, regal ceiling of the courtroom, Fastow stepped before the bench, standing alongside his lawyers.

“I understand that you will be entering a plea of guilty this afternoon,” Judge Hoyt asked.

“Yes, your honor,” Fastow replied.

He began answering questions from the judge, giving his age as forty-two and saying that he had a graduate degree in business. When he said the last word, he whistled slightly on the
s
, as he often did when his nerves were frayed. He was taking medication for anxiety, Fastow said; it left him better equipped to deal with the proceedings.

Matt Friedrich, the prosecutor handling the hearing, spelled out the deal. There were two conspiracy counts, involving wire fraud and securities fraud. Under the deal, he said, Fastow had agreed to cooperate, serve ten years in prison, and surrender $23.8 million worth of assets. Lea would be allowed to enter a plea and would eventually be sentenced to a year in prison on a misdemeanor tax charge.

Fastow stayed silent as another prosecutor, John Hemann, described the crimes he was confessing. In a statement to prosecutors, Fastow acknowledged
his roles in the Southampton and Raptor frauds and provided details of the secret Global Galactic agreement that illegally protected his LJM funds against losses in their biggest dealings with Enron.

Hemann finished the summary, and Hoyt looked at Fastow. “Are those facts true?”

“Yes, your honor,” Fastow said, his voice even.

“Did you in fact engage in the conspiratorious conduct as alleged?”

“Yes, your honor.”

Fastow was asked for his plea. Twice he said guilty.

“Based on your pleas,” Hoyt said, “the court finds you guilty.”

The hearing soon ended. Fastow returned to his seat at the defense table. He reached for a paper cup of water and took a sip. Sitting in silence, he stared off at nothing, suddenly looking very frail.

His hands cuffed behind him, Jeff Skilling was led by FBI agents into the backdoor of Houston’s federal courthouse. It was early in the morning of February 19, the day the Enron Task Force unsealed its forty-two-count criminal indictment against him.

In the weeks since the Fastow plea, the corporate dominoes at the top of Enron’s former management team had begun to fall as the former corporate CFO provided prosecutors with evidence against his onetime colleagues. Already Rick Causey had been charged with fraud for his role in a number of Fastow dealings, including Global Galactic. Now Skilling was being added to the Causey indictment, charged with a broad array of crimes.

Escorted by the FBI, Skilling was brought to the elevator banks in the courthouse. The doors opened, and inside stood a man dressed in a prison-issued jumpsuit, wearing handcuffs. Skilling recognized him instantly. It was Ben Glisan, being brought from prison for an appearance before the Enron grand jury.

“Hey, Ben!” Skilling said jovially as he climbed onto the elevator. “How you been doing?”

“Hey, Jeff,” Glisan said uncomfortably. “Guess I’ve been better.”

Skilling was escorted to a holding cell, where he was left alone for almost half an hour. He stewed; all of this, he was convinced, was just some mind game the government was playing with him—the appearance of Glisan, the time alone. He made a decision. He wasn’t going to show any weakness. He wouldn’t let them win.

At 9:20, Skilling was brought to room 704, where he sat at a table with his lawyers, including Bruce Hiler and a new member of the team, Daniel Petrocelli. Sam Buell, a lead prosecutor in the case, stood before Magistrate
Judge Frances Stacy and was soon joined by Skilling and his lawyers. Magistrate Stacy began to recite Skilling’s rights and mentioned that he had a right to an attorney.

“It looks like you have an embarrassment of riches in that regard,” she said.

The magistrate then turned to Buell, who recited the charges that Skilling faced. It was a grab bag of allegations, the most serious involving Fastow and his dealings. It charged that, along with Causey, he knew that the LJM funds were being used to manipulate Enron’s earnings through deals like the Raptors and Cuiabá sale. He was also charged with fraud for what the government said was his involvement with Causey and Fastow in Project Grayhawk, the transaction designed to allow Enron to profit from the increase in its own stock price following the 2000 analysts’ conference.

But most of the allegations had nothing to do with Fastow and instead were spread across a wide range of Enron’s businesses. In the wholesale division, Skilling and Causey were charged with manipulating earnings in 2000 and 2001 through the establishment of the reserves to hold the profits from California trading. In retail, they were charged with disguising losses by shifting the division’s trading book into the wholesale division in early 2001. And in Broadband, Skilling was charged with lying to investors about its prospects and technology.

As Buell spoke, Skilling turned to face the prosecutor, clasping his hands in front of him. He didn’t flinch when Buell said that the charges could bring a maximum of 325 years in prison.

Magistrate Stacy asked Skilling for his plea.

He stood up straight. “I plead not guilty to all counts,” he said.

Five months later, on July 8, the final domino fell.

Early that morning, a silver Crown Victoria pulled into space 35 in the parking area behind the Houston courthouse. Special Agent Paula Schanzle pushed open the front passenger-side door and emerged from the car. She opened the back door, reaching inside and grasping a man beneath the arm. He turned and stepped out of the car.

It was Ken Lay. After three years of investigation, he had been indicted. He was dressed in a blue sports coat and red tie, and seemed relaxed despite the handcuffs binding his arms behind him. As Schanzle escorted him toward the courthouse, reporters called out from behind a fence, asking if Lay had anything to say.

“A little later today I will,” he said, sounding almost nonchalant. He was the thirtieth defendant. By then, executives from Broadband had been indicted, including Ken Rice, who would soon plead guilty to
misleading analysts about the state of the company’s technology at the 2001 conference. Six executives from Merrill and Enron who participated in the Nigerian barge deal had been indicted—and five of them would eventually be convicted. Only a lowly Enron accountant named Sheila Kahanek would be cleared.

With criminal cases pushed forward following the discovery of the Stoel Rives memos, federal prosecutors stepped up their efforts in investigating possible illegal trading in the California energy markets. Ultimately, the three Portland electricity traders most involved in the California manipulations—including Belden and Forney—would plead guilty.

But all of those cases would be little more than a sideshow to this day: the opening salvo in the criminal prosecution of Ken Lay.

Lay was taken inside the courthouse. He was placed in a holding cell with two men in leg irons, both charged in the smuggling-ring deaths of nineteen undocumented workers.

One of his cell mates looked at Lay curiously. “I think I saw you on TV last night,” he said.

For three hours, Lay waited in the cell, where he emerged as the jailhouse celebrity. One prisoner hit him up for some investment advice.

“Well, I’ve not really thought much about that recently,” Lay responded.

Later, at 11:40, he was brought into courtroom 701. Standing alone, he glanced around the gallery, looking for a moment at his wife, Linda. He walked to the defense table, sat down, and slowly rocked in his chair.

Everyone stood when Magistrate Judge Mary Milloy strode into the room. Lay walked before the bench with his lawyers. He stood nervously, swaying on his heels. Again the procedure was the same, including the discussion of the criminal charges.

Lay had been added as the third defendant to the indictment of Causey and Skilling, but the case against him was markedly different. He was not charged with involvement in or knowledge of the Fastow manipulations; indeed, the case focused on what he said and did in the final weeks before Enron’s bankruptcy. His statements of confidence in the company and its prospects, the indictment said, had been a lie. He was charged with misleading Arthur Andersen that fall about Enron’s plans for its Wessex Water plant, in an effort, the government said, to minimize the impact of an accounting change. And he was accused of lying to the banks that lent him money, by improperly using some of the cash to purchase stocks on margin.

Lay was asked for his plea. “Not guilty, your honor.”

But the day didn’t end there. Ken Lay and his lawyers decided to take his case public right away. They arranged for a press conference at the
DoubleTree Hotel, down the street from what had once been Enron headquarters.

Reporters, family members, supporters, and former employees packed the room. Lay, accompanied by his wife, stepped onto a makeshift stage, with Linda taking a seat in the back. Lay strode up to a podium lined with microphones.

“Ladies and gentlemen, number one, we’re pleased that you came over to spend a few minutes with us,” he began. “It has been a tragic day for me and my family. But we also know that an indictment came down that should not have.”

He accepted responsibility for what happened at Enron, he said, but added that did not mean he committed any crime. “I firmly reject any notion that I engaged in any wrongful or criminal activity,” he said.

He had believed in the company, he said. He had never lied. Now he wanted a speedy trial. “We are anxious,” he said, “to prove my innocence.”

He invited questions and answered everything thrown at him, insisting repeatedly that he had done nothing improper. After thirty minutes he signaled that he was done.

He and his legal team were ready to keep answering questions in the days and weeks to come, Lay said.

“We are entering into this new period,” he said. “You will be hearing quite a bit from us.”

He thanked everyone and walked over to Linda. As the couple headed off the stage, a group of supporters on one side of the room stood and applauded, cheering on Lay as he entered into his last and most desperate battle.

THIS BOOK HAS PLENTY OF UNSUNG
heroes. It’s time to sing about them.

At
The New York Times
, Brent Bowers played the essential role of primary reader, adviser, editor, and sprinkler of magic. His keen insights and suggestions found their way onto every page. From the first day that I made the long jump from tracing terrorist financing to covering Enron’s demise, Glenn Kramon, then the business editor, was an enthusiastic supporter. Jim Schachter, then deputy business editor, was with me every step of the way, fielding innumerable late-night and weekend phone calls from me as we wound our way through the Enron morass.