Conspiracy of Fools (111 page)

Rich Oppel was the first to introduce me to players in the Enron tale, and his wise counsel has been an important asset for me ever since. David Barboza, a top-notch reporter, ripped up Houston as he delved into aspects of the story; during this project, Dave was always available with thoughts, advice, and assistance. And, as always, Floyd Norris was there, serving as a guide to Enron’s complex financial machinations. He is, quite simply, the smartest financial reporter in the business today.

As the years passed, new players took over at the paper, and I owe them my thanks. In particular, Larry Ingrassia, who arrived as business editor during my work on this book, has been endlessly patient and encouraging. As deadlines passed with no end in sight, his support was critical in allowing the manuscript to finally see the light of day. Others at the
Times
to whom I owe thanks include Tom Redburn, Dan Niemi, Diana Henriques, Donna Anderson, and Maureen Balleza.

I also had the support of numerous researchers and document managers. In Texas, David Wethe, now at the
Fort Worth Star-Telegram
, was an eager and top-notch investigator, with both the skills to conduct a penetrating interview and the work ethic to dig through thousands of pages of documents rapidly. In California, Nick Grudin, now a graduate student at the Kennedy School, dove into projects with an endless enthusiasm, digging up sources and records at a blinding pace. More than a few times, I was delighted to see
a giant box of new documents arrive at my home, courtesy of Nick’s dogged efforts.

When I hired him, Jordan Wolf was a seventeen-year-old with a willingness to handle the unenviable task of placing tens of thousands of documents in chronological order. After he demonstrated an industriousness and maturity far beyond his years, his responsibilities soon branched out to more complex research tasks. Now in his first year at Yale University, I have no doubt that all of us will be hearing great things of Jordan in the future. When Elizabeth Keeler, a dynamo and a friend, stepped in to take over for Jordan, I was astonished at her alacrity, good cheer, and efficiency. Elizabeth, you made so much possible. Thank you.

Finally, I had two assistants who provided endless support. Diane Obara, with me on a book for the third time, was always available during the hard slogging, ready to take on any task I threw at her. And this go-round, she was joined by Debra Piedra, who amazed me with her ability to jump in on any last-minute assignment, providing not only what I needed but also tossing in special extras from name indexes to additional research. She is an absolute delight.

Friends played key roles. Tim Perkins was my resident computer genius, directing me to software I needed and teaching me to download thousands of Enron documents stored on compact discs. Others read the manuscript and offered suggestions, including Denton Watumull, Deborah and David Michel, Robert Keeler, and Margie Tippen.

I also want to thank (and apologize) to Elva Eichenwald, Tim and Samantha Durst, Laurence and Alma Alden, Margie and Terry Tippen, Greg and Cynthia DeMars, Marcia Jones and Jeannie Caldwell, Linda and Joe Altick, Katherine and David Stewart, Magdelana Malczyk, and Errington Thompson. The guys of
2010 Blues
—David, Denton, Greg, Robert, and Terry—were amazingly patient with my troubled schedule and frequent exhaustion. And Freya Manston was once again there for me, offering her keen insights as this book moved from idea to manuscript.

My agent, Andrew Wylie, was an enthusiastic supporter of this project from its inception and, along with Jeff Posternak, was always available with solutions to problems I encountered. Andrew and Jeff were an absolute delight.

At Doubleday Broadway, my editor Stacy Creamer suffered through experiences that are sure to be cited in some future nomination for sainthood. Her fabulous assistant, Tracy Zupancis, was always there to gently nudge me along to meet my next obligation. And Ingrid Sterner put in what was simply the most amazing performance I have ever witnessed by a copyeditor.
She saved me in more ways than I could express. Meanwhile, Sean Mills, the production editor, served as my air traffic controller inside the publishing house, bringing us all in for a safe landing. There are far more people in the Doubleday Broadway family to whom I owe my gratitude; put simply, they are total pros who made this experience enjoyable. I thank you all.

I’m at a loss how to express my debt to my family. My wife, Theresa Eichenwald, never wavered in her support—bucking me up, assuming extra workloads, keeping me sane. I love her dearly, and cannot thank her enough. Theresa, you are the greatest gift in my life—with the possible exception of our three boys, Adam, Ryan, and Sam. Their endless patience and support made all of this possible. Guys, I love all of you and cannot thank you enough. Now, let’s start having game night, just like I promised.

THIS BOOK GREW OUT
of my three years of covering the Enron scandal for
The New York Times
. It is based on more than one thousand hours of interviews with more than one hundred participants in these events, as well as thousands of documents. Every person who plays a significant role in this story was contacted—either directly or through a representative—and given the opportunity to be interviewed.

The primary documents for this book filled more than two hundred thick three-ring notebooks. Secondary documents took up twenty file-cabinet drawers. The records included notes of interviews prepared by various government bodies, including the Federal Bureau of Investigation and the Securities and Exchange Commission, as well as secret testimony before a federal grand jury investigating the Enron and Andersen debacles, the SEC, the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission, and the bankruptcy examiner in the case. In addition, notes of interviews conducted by various other groups and bodies, including congressional investigators and lawyers, were obtained.

Other documents included e-mails and memos, internal government records, personal diaries and notes, schedule books, expense and travel records, telephone logs, SEC filings, board minutes, bank documents, video and audio tapes of described events, contemporaneous transcripts, reports, and presentations, an array of other investigative records, books, and newsclippings.

All of the interviews—with both principals and others whose names are not generally known but who witnessed specific events—took place during the time of ongoing criminal and regulatory investigations as well as untold numbers of civil suits. As a result, those who agreed to speak with me, almost without exception, did so on the condition that their identities not be revealed.

At times, recollections and documents conflicted. To resolve these problems, I established standards of credibility: Tapes and transcripts of events trumped all other recollections and documents. Second were contemporaneous
documents: expense records, e-mails, travel documents, diaries, notes, memos, schedule books, phone logs, and so on. Following that were sworn testimony or statements provided to government investigators. Last were interviews. In essence, the story was built on a foundation of documents, then fleshed out with information from interviews that was corroborated by those records. No one got a free ride; the renditions in this book are the events in which the interviews and the documents are in agreement or are consistent.

Some dialogue comes from direct transcripts of conversations. However, most of them were reconstructed with the help of participants or witnesses to conversations, or documents that describe the discussion. In a few instances, secondary sources were informed of events or conversations by a participant. If the secondary sources agreed on what they were told, and it was corroborated by documents, the dialogue was used. The dialogue and events reconstructed with secondary sources were never incriminating.

Because of the many sources used in reconstructing dialogue, readers should not assume that any individual participant in a conversation is the source of the statements or even among the sources. When a person is described as having thought or felt something, it comes either directly from that individual, from a document written by that individual, from notes or other records of that individual’s comments to a third party, or from others to whom the individuals in question directly described their experiences.

Of course, I am not claiming that the dialogue in these pages is a perfect transcript of events dating back some twenty years. It does, however, represent the best recollection of these events and conversations by participants, and more accurately reflects reality than mere paraphrase would. Invariably, subjects of interviews would find that my pressing them for ever more detailed descriptions and dialogue—at times aided by documents I placed before them—led to greater recall of the events.

In some instances I was unable to determine the exact date that an event occurred. In those cases I have presented the relevant scene at the point in the narrative that is most consistent with the information contained in related documents and interviews. In such scenes I give no indication of the event’s date. For ease of reading, if a scene was moved a few days out of order to allow for a theme in one chapter to be completed, the next chapter moved back in time to an unrelated event, launching a new story line. Such instances are described in these notes.

Descriptions of individual settings come from interviews, documents, or personal observation. Most details of weather conditions come from records on file with the National Climatic Data Center.

1.
Details of Ken Lay’s car from records on file with the Texas Department of Transportation, Vehicle Titles and Registration Division, for a 1993 Mercedes-Benz 600 SL Roadster, vehicle identification number WDBFA76EXPF079413.

2.
Information about River Oaks from personal observation, and from Claudia Feldman, “Casas Grandes,”
Houston Chronicle
, Oct. 27, 2002, Lifestyle section, 1.

3.
Details of Fastow’s Oct. 24, 2001, e-mail to his wife from the original document.

4.
Details of Jazid from observation of the location and interviews. Also see Ben Crandell, “Rubies and Jade in a Perfect Setting: A Cool Night at Jazid,”
South Florida Sun-Sentinel
, Nov. 23, 2001, 58.

1.
Date of the meeting between Lay and the internal auditors from documents prepared for the presentation, and details from Woytek’s schedule book.

2.
Weather conditions of that morning from the National Climatic Data Center of the National Oceanic and Atmospheric Administration. The data were collected on the morning of Feb. 2, 1987, at the William P. Hobby station in Houston, which climatologists said was most reflective of the conditions in the downtown area.

3.
Details of the Mastroeni and Borget account at Eastern Savings Bank from an internal memo at the bank’s successor, Apple Bank for Savings, Jan. 29, 1987. The memo relates to account no. 0704101069 in the name of InterNorth International Oil. It lists transactions in the account, showing $4.8 million wired in and some $2.25 million disbursed in Mastroeni’s name. Also, some details from an investigative memo prepared Feb. 1, 1987, detailing questions that the Enron internal-audit department wanted to have answered.

4.
The traffic and related conditions of Houston as of Feb. 1987 in the wake of the oil bust from David Maraniss, “Houston Learns There’s More Than Growth to Growing Up,”
Washington Post
, Feb. 4, 1987, A3.

5.
Details of the contents of the packet of documents provided by Borget from the original records, headed “CONFIDENTIAL/Memo for the File: Enron Oil Corp. Banking Program,” Feb. 2, 1987. This includes purported Teletypes to Isla Petroleum, Southwest Oil, and the other bogus entities.

6.
Copies of both the original and the forged bank statements for account 0704101069 at Eastern Savings Bank, a.k.a. Apple Bank for Savings, were obtained by the author.

7.
The Borget explanation, in part, from the Feb. 2, 1987, memo headed “CONFIDENTIAL/Memo for the File: Enron Oil Corp. Banking Program.”

8.
The transactions involving the oil trader from the original banking records, with supporting details from the trader’s personnel records and a Feb. 6, 1987, memo written by Mark van den Dries, an executive in the oil-trading division, to David Woytek and John Beard. Additional information from certain tax records of the trader, as well as a June 1, 1984, memo written by Thomas Mastroeni about the conditions of the trader’s employment. Details are also from a preliminary report, “Reporting of $250,000 Payment to Former Employee,” Feb. 9, 1987, which was prepared by the internal-audit group.

9.
Certain details of the 1948 truck accident from current residents of Raymondville, Missouri. The truck accident was first written about publicly by Bryan Gruley and Rebecca Smith, “Anatomy of a Fall: Keys to Success Left Kenneth Lay Open to Disaster,”
Wall Street Journal
, April 26, 2002, A1.

10.
Some details of the Lays’ early life first came to the author’s attention from Gruley and Smith, “Anatomy of a Fall.” Other articles providing information included Kyle Pope, “Big Business May Not Be Big Enough for Enron Chairman,”
Houston Chronicle
, Oct. 13, 1991. Also see Loren Fox,
Enron: The Rise and Fall
(Wiley, 2003), 7–11; Mimi Swartz with Sherron Watkins,
Power Failure
(Doubleday, 2003), 21–30; and Bethany McLean and Peter Elkind,
The Smartest Guys in the Room
(Portfolio, 2003), 4–14.

11.
Some details regarding the end of Lay’s first marriage from civil action no. c1-61-4126, captioned
In re the Marriage of Kenneth L. Lay and Judith A. Lay
, filed in Orange County State Circuit Court.

12.
Some information relating to Lay’s trip to Zurich from the original itinerary.

13.
Some details of Lay’s move to HNG from “Houston Natural Gas Chairman Resigns Under Pressure,” Dow Jones News Service, June 6, 1984.