Conspiracy of Fools (114 page)

18.
Some details of the Sept. 8, 1997, meeting from handwritten notes prepared by Bob Baird, as well as a sworn statement given by Astin to the bankruptcy examiner on July 18, 2003, 57–62. Also see the notes of the Dec. 11, 2001, interview with Astin by Wilmer, Cutler, as well as the Batson Report, vol. 4, app. C, 111–112. Also see notes of the Wilmer, Cutler interviews with Mordaunt on Jan. 11, 2002.

19.
The decision to substitute Kopper for Fastow is described in the Wilmer, Cutler interviews with Mordaunt on Jan. 11, 2002, as well as the firm’s interview with St. Clair on Dec. 6, 2001. See also the facsimile, including a structure of the proposed Chewco deal, sent by St. Clair to Vinson & Elkins on Oct. 31, 1997.

20.
Some details of Fastow’s meeting with Skilling from a transcript of Skilling’s nonpublic testimony before the SEC, Dec. 5, 2001.

21.
The effort to arrange the Barclays “consulting agreement” from minutes of the Oct. 20, 1997, Barclays operations committee meeting, as well as a Sept. 10, 1997, memo from John Meyer of Barclays to Helen Calvelli, Richard Williams, and John Sullivan—all from the bank—relating to the structure of the deal. Also see the Batson Report, vol. 3, app. F, 43–44.

22.
Some details of the Chewco tax-indemnification agreement from “Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp.” (the Powers Report), Feb. 1, 2002, 64–66. Also see the Wilmer, Cutler notes from the Jan. 9, 2002, interview with John E. Lynch, a partner with the Vinson & Elkins tax group, and the notes from the law firm’s Nov. 15, 2001, interview with Mintz.

23.
Some details of Brown’s potential role in Chewco, and his discussions about the negotiations with Fastow, from the notes of his Wilmer, Cutler interviews of Dec. 5, 2001, and Jan. 5, 2002. Also see Brown’s undated memo to Fastow and Kopper “1997 Accomplishments,” which describes his work on the negotiations for Project Chewbacca, and Kopper’s Jan. 7, 1998, memo to Rocky Jones of Enron’s human-resources department, “Bill Brown.”

24.
Some details of the Enron management committee meeting from a distribution office memo from Vanessa Groscrand of Enron, “1997 Enron Management Conference, November 5–7, 1997,” issued in late Oct. 1997.

25.
Some details of the changes relating to the company’s European business from a memo issued by Lay and Skilling, “European Responsibilities,” Nov. 19, 1997.

26.
Ephross’s role in drafting the side letter from his Dec. 16, 1997, memo to Kopper, Mike Edsall, George McKean, and Sarah Ward. A copy of the Chewco side deal, signed by Kopper and Blachman, was obtained by the author.

27.
Terms of the deals completed that night from the closing documents. Also see the original subscription agreement, “Subscription Agreement Among Joint Energy Development Investments Limited Partnership, Enron Capital Management Limited Partnership, and Chewco Investments, LLC,” Nov. 6, 1997. Also see the Aug. 11, 1997, letter from Barry Gonder of Calpers to Enron Capital Management.
Moreover, additional details are provided by the Aug. 20, 1997, confidential presentation from Enron to Calpers, “JEDI II: Investment Opportunities,” and an investment term sheet sent by Ron Astin of Vinson & Elkins to Dulcie Brand of Jones, Day, Reavis & Pogue on Oct. 31, 1997. Some details of the EES investments from Fastow’s Aug. 19, 1997, letter to Gonder; the Sept. 15, 1997, document “Bylaws of Enron Energy Services”; the Aug. 21, 1997, presentation from Enron to Calpers, “Enron Energy Services”; and a package of documents, sent by Blachman on Sept. 30, 1997, to Calpers, the Pacific Corporate Group, and J. P. Morgan with an attached memo headed “EES Due Diligence Questions.” Details for both transactions were found in a Sept. 22, 1997, letter prepared by Calpers’s lawyers with Jones, Day for Gonder’s signature, and addressed to Enron Capital Management. Additional details were found in a Sept. 15, 1997, presentation by Calpers’s staff to the system’s investment committee and in a term sheet sent to the Pacific Corporate Group by Jim Timmins of Enron on Oct. 3, 1997.

28.
The structure of Chewco was clearly explained both in the Powers Report, 60–65, and in the Batson Report, vol. 4, app. C, 108–14. Additional information from the handwritten notes of St. Clair, Dec. 11, 1997, and undated notes apparently from that same month. Also see the July 18, 1997, memo from St. Clair to the Chewbacca Working Group, “Registration Rights and Procedures.” Also, some details from the FBI 302 from the agency’s Feb. 15, 2002, interview with Patricia Grutzmacher.

29.
The decision to create the file on the laptop computer was first disclosed by Kopper in his discussions with the government in anticipation of his plea deal. The existence of the laptop, with few details about it, was revealed in the government’s April 30, 2003, superseding indictment of Fastow.

30.
A copy of the “Top 10 Reasons” parody was obtained by the author.

31.
Details of the second-quarter write-off caused by J-Block and MTBE from the Enron press release “Enron Corp. Reports 1997 Second Quarter Earnings Per Share from Operations of $0.40, Announces Reduced Earnings Expectations, and Plans a 10 Million Share Repurchase by Year End,” July 15, 1997. Also see the June 3, 1997, analyst report by Curt Launer, then of Donaldson, Lufkin & Jenrette, “Enron Corp. Settles J-Block Contract,’ Second Quarter 1997 Earnings Per Share Indication Below Consensus.”

32.
The fifty-one million dollars in profits from the Bonneville power contract were later restated in Enron’s 8-K of Nov. 8, 2001.

33.
The overstatement of income to EES from the Batson Report, vol. 2, app. O, 13–16. Also see the Feb. 7, 1998, e-mail from John Stewart, of the Arthur Andersen Professional Standards Group, to Grutzmacher on the Enron engagement team.

1.
Some details of Levitt’s personal background and of the early days of the accounting wars from his book
Take on the Street
(Pantheon Books, 2002), 3–7, 105–24.

2.
Details of Stewart’s e-mail from the original document.

3.
Details of Skilling’s visit to Washington from entries in his daily schedule.

4.
Some details of the finance meeting with Fastow from unsigned, handwritten notes taken during the discussion. Additional information, and details of the Moody’s presentation, in the document “Enron Rating Agency Presentation to Moody’s Investors Service,” Feb. 17, 1998. Also see the Dec. 17, 1998, document from Toronto Dominion, “Toronto Dominion Speedy Review,” which states that Enron has informed the bank it is entering into prepay transactions with it to satisfy its commitments to the ratings agencies to decrease its debt; such deals lowered on-books debt while raising total debt.

5.
Some details of Skilling’s meetings over these days from entries in his schedule book.

6.
Details of the Rhythms purchase and Skilling’s approval from the document “Enron Capital Management Deal Approval Sheet” with “Deal Name: Rhythms,” March 3, 1998, which was signed by Skilling two days later.

7.
A copy of the announcement e-mail was obtained by the author. Also see a copy of the personal letter to Fastow from James F. Burgoyne, managing director for GE Capital Services, March 24, 1998.

8.
Some details of Buy’s background from notes his confidential Jan. 17, 2002, interview with staff members of the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations. The notes are incorrectly dated as having been taken on Jan. 17, 2001.

9.
Details of the use of the “management fee” accounting gimmick from the Powers Report, 57–58.

10.
Some details of McMahon’s assumption of the treasurer’s position, and his meeting with Fastow about it, from the notes from his Jan. 21, 2002, interview with Wilmer, Cutler.

11.
Some details of the Ashcroft fund-raiser from documents on file relating to his presidential bid and “Spirit of Victory” political action committee.

12.
The weather details from records on file with the National Climatic Data Center, from William P. Hobby station in Houston, April 17, 1998.

13.
Some details of the April 17 finance committee meeting from the official minutes.

14.
Some details of the discussion between Tilney and Fastow are described in an April 18, 1998, memo from Tilney and Rick Gordon of Merrill to Herb Allison in the firm’s New York headquarters.

15.
The telephone call from Allison was recorded on a call log that morning.

16.
Copies of the Tilney faxes—from April 28, April 30, and May 4—were obtained by the author.

17.
Some details of the Kopper and Fastow trip to England to visit with the executives of Greenwich NatWest from a copy of Kopper’s travel itinerary for May 17–20, 1998, and a May 15, 1998, memo issued by Kelly Boots to Fastow, “Greenwich NatWest Meeting.” Also see Fastow’s itinerary issued for the week of May 18, 1998.

18.
Terms of Olson’s firing from an internal Merrill document, “Termination Authorization Form,” with a proposed firing date of June 1998. Also see a May 25, 1998, e-mail from Susan Preli of Merrill global research to Margot Leffler of the firm’s human-resources division regarding Olson’s termination. Finally, other details came from Olson’s May 22, 1998, e-mail, “Last Wednesday’s Events,” to Andrew Melnick of the research department. In his testimony before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations on Feb. 7, 2002, Olson alluded to, although he did not discuss explicitly, Enron’s efforts in his case and its attempts to reward analysts who spoke favorably of the company and punish those who did not.

19.
Some details of the presentation to Lay were identical with those later presented on June 22, 1998, to the board of directors in the report “Project Trident: Creating a Global Water Company.”

20.
The time and place of the Martin meeting with Skilling from an entry in Skilling’s schedule book.

21.
A copy of the proposal presented to Skilling regarding the Elektro deal, “Project Hubcap Update,” was obtained by the author.

22.
Some details of the July 14, 1998, executive committee meeting from the official minutes.

23.
Some details of the auction for Elektro from “Elektro Auction Should Be Model for Integral Subsidiary,” Gazeta Mercantil Invest News, July 16, 1998; Geoff Dyer, “Elektro Stake Bids to Start at $744 Million,”
Financial Times
, 40; “Enron-Led Consortium Wins Elektro Auction,”
Business News Americas
, July 16, 1998; and Karen Santos, “Enron Buys into Utility in Brazil,”
Houston Chronicle
, July 17, 1998, Business section, 1.

24.
Some details of the special meeting of the Enron board of directors held on July 21, 1998, from the official minutes. Also see the July 24, 1998, “Letter to All Employees” written by Lay and Skilling. The Marlin financing is described in a March 18, 1999, memo written by Roger Willard of Andersen for the Azurix Corp. and Atlantic Water Trust files, “Pushdown Requirements for Azurix and the Atlantic Water Trust.” Also see a series of e-mails between Bass and Stewart of Arthur Andersen, Aug. 7–8, 1998, e-mails between the two men of Aug. 13–14, 1998, as well as the Sept. 22, 1998, Andersen e-mail, with attachments, from Michael Patrick to Richard Petersen and John Stewart.

25.
The efforts to work through the financing of Elektro are reflected in a 1998 memo from Bowen, copied to Fastow and McMahon, “Elektro—Debt Refinancing and Equity Syndication Action Plan.”

26.
Timing of Olson’s dismissal from his official notice of termination.

27.
McMahon testified about his efforts to bring in an outside person to manage an Enron equity fund in his appearance at hearings before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations on Feb. 7, 2002. He discussed certain specifics of his efforts to recruit Jakubik in his Jan. 21, 2002, interview with Wilmer, Cutler, which are reflected in the notes of that session.

28.
Details of Levitt’s “numbers game” speech from a transcript and video of the event. He also described this speech in
Take on the Street
, 118–19.

29.
Data about the performance of the Dow Jones Industrial Average from
www.djindexes.com
.

1.
These events occurred on September 11, 1998, seventeen days before the Levitt speech that closed Chapter Seven. However, for the sake of clarity and because the two closely set events are completely unrelated, I reversed the order of their presentation. This allowed for the chapter about Levitt to come full circle, and for the main arc of the Jakubik story to start in this chapter.

2.
Details of the effects of Tropical Storm Frances from Eric Berger, “Frances Catches Area by Surprise,”
Houston Chronicle
, Sept. 12, 1998, A1.

3.
Some details of the timing of these events from entries in Skilling’s schedule book for Sept. 11, 1998.

4.
Some details of the audit committee meeting of Oct. 12 from the official minutes, the unofficial handwritten notes taken during the discussions by the corporate secretary, and a copy of the formal presentation made by Duncan and Causey.

5.
Some details of the subsequent board meeting from the official minutes, the unofficial handwritten notes taken during the discussions by the corporate secretary, and a copy of the formal presentation made by Skilling.

6.
Details of the guarantee authority granted to Fastow from a copy of the resolutions presented to the board on the morning of Oct. 13.

7.
Timing of the meeting with the Chase bankers from entries in Skilling’s official schedule as well as an Oct. 21, 1998, memo to Fastow and Skilling from Kelly Boots regarding the meeting. Also see the Oct. 23, 1998, memo from Rick Walker of Chase to Jimmy Lee regarding the upcoming meeting with Fastow and Skilling.