Conspiracy of Fools (24 page)

Skilling listened politely. He had a lot more on his plate to worry about. He didn’t have time for this.

“Okay, okay,” he said. “But damn it—do everything you can to minimize the loss.”

The Martin deal went forward; Fastow’s was shelved.

The rumblings inside Enron began almost immediately.

Fastow was furious
. Martin and her team couldn’t understand it.
What was this? Why did it matter so much?
Hundreds of deals came out of Enron every year. Why was Fastow taking this one so personally?

Then threats started. Kopper delivered the message to Mark Miles, who worked with Martin. Everyone on the Calpine deal would pay. Fastow was going to make sure of it.

“He’s going to get everybody who worked on it,” Kopper said. “He’s going to nail you.”

This was insane, but Fastow had the power to do it. Skilling’s Performance Review Committee allowed for it. Every senior executive participated in the PRC; several days of ranking and debate decided everyone’s bonuses and
promotions. Skilling had pushed it on the theory that wide input meant an executive couldn’t be held back by a single boss. But it didn’t always work that way. Most members of the PRC didn’t know employees in other divisions. If someone like Fastow came along, tearing down the people on the Calpine deal, he could have a real impact. Doing the right thing for Enron in the end could cost Martin’s team in their wallets.

Miles hunted down Martin. “Fastow’s fit to be tied,” he told her, spelling out everything he had heard.

Martin was furious. “This is just bullshit”

It wasn’t supposed to work like this. Skilling needed to know. She made an appointment to see him.

“Okay, Jeff,” she said, “Andy’s out of control. He’s announcing that he’s going to get the guys who worked on the Calpine deal. This is a great deal, it was the right deal for Enron. This shouldn’t be happening.”

Skilling listened impatiently.
Somebody said that somebody said that Andy said
. More rumors. Baxter was always in his office, hacking away at Fastow. Now Martin seemed to have joined in. He didn’t think Fastow could hurt her team in the PRC even if he tried; Fastow rarely said much of anything there except about his own guys.

Skilling held up a hand. “Amanda, your work is great, and of course I’ll cover for you. Andy’s bright, but he’s got a temper, and we need to get that under control. But trust me on this. I’ll take care of you. I’ll talk to him”

It sounded okay. Martin thanked Skilling and headed back to her office.

Two weeks later, Martin was in her office, feeling confused. She still had heard nothing directly from Fastow. But the rumors had gotten uglier; now he was supposedly attacking her directly, accusing her of purposely trying to discredit him with the banks involved in his deal.

How did things get to this point? Andy had been her friend for so long. Now all this fury over a deal. It was like she had gotten in the way of some big plan—but what? Maybe Fastow had painted himself into a corner and had too much pride to end the feud. One of them needed to take the first step and get their friendship back on track.

Martin reached for the phone and dialed Fastow.

“Andy,” she said, “I need to talk to you”

“Fine. Come up.” His voice was cold.

When she walked into his office a few minutes later, he stayed behind his desk, rigid and unsmiling.

“So,” he said, “you wanted a meeting”

Martin took a breath. This was going to be bad.

“Andy, I’ve been hearing things that I’m really, really bothered about,” she said.

Fastow stared at her, saying nothing.

“You know, I don’t understand what it is about this,” she said. “You worked on a deal. We worked on a deal. Cliff made a decision. Jeff made a decision—”

“Jeff never made a decision,” Fastow snapped.

God. “Fine. A decision was made that ours was better for the partnership. It was approved, and we did it.”

Martin paused. Fastow sat motionless.

“I don’t understand where all this stuff is coming from about me trying to discredit you,” she continued. “We go back a long way. It shouldn’t be like this.”

She kept at it for another minute or so, but he just stared at her. She fell silent. Fury twisted Fastow’s face. He thrust his hand forward, jabbing a finger on his desk.

“We worked on this deal. I went out to the banks. They believed they were closing with us in three weeks. I promised them the deal. You made me look like a liar to them. You damaged Enron because these are Enron’s banks.”

He glared at Martin. “You sabotaged my deal.”

Martin didn’t know what to say.

“Andy, I don’t have the authority to sabotage—”

Fastow interrupted again. “You sabotaged me. You went to Skilling and attacked me.”

Martin closed her eyes. Her complaints to Skilling had gotten back to Fastow. “Andy …”

Fastow shook his head. “You undermined my deal,” he said angrily. He paused, leaning up in his chair.

“If I were you,” he threatened, “I would be very, very careful.”

A MARILYN MONROE LOOK-ALIKE
, draped in a red dress with faux diamonds, giggled and cooed as she walked by the second-floor ballroom at the Hyatt Regency hotel in downtown Houston. Just inside, an Elvis impersonator in a white jumpsuit wandered near an actor decked out like Clark Gable. Music blared through speakers and colorful lights flashed, creating the illusion of a movie premiere for the hundreds of Enron employees milling about the room.

Despite the early hour—eight o’clock on the morning of January 14, 1997—the mood in the room was jubilant. The big announcement was at hand. The planning had been very hush-hush, but now the employees were about to see the unveiling of Enron’s new image for the world.

On the far side of the room, Lay and Skilling walked across the stage, stopping beside a large object covered by a massive cloth. Lay held up his hands, making barely audible shushing noises until he had everyone’s attention.

“Well,” Lay said, “we’ve come a long way since 1985, when we were just a pipeline company with a vision—a vision of becoming the premier natural-gas company.”

A smattering of applause.

“We have become much more,” he said. “We’re a force the world can be proud of, for everything we’re doing. Deregulating markets. Providing alternative services. Making markets more efficient.”

Applause again, louder this time.

“So we tried to develop a new logo that would reflect the dynamic company Enron has become,” he said. “It will be recognized as the logo of a company leading the energy industry into the next century, into the next millennium.”

The loudest applause yet.

“It’s a logo we’ll all be very proud of”

Lay gestured to the covered object. “And here it is!”

Recorded trumpets blared. Lights flashed. Smoke enveloped the stage. Someone pulled a rope, lifting the covering cloth. On the stage rested a
giant sculpture—a single tilted
E
. Multicolored lights surrounded each prong of the letter. The crowd loved it.

They celebrated the logo’s birth for an hour, then trickled back to the office, where delightful surprises awaited. The logo was posted in hallways; new letterhead and business cards were at their desks. It was official: Enron had a cool new icon to show the world.

Within hours, the world would laugh it off the stage. Houston faxed the logo to Enron’s offices in Europe. But in transmission the middle, yellow prong disappeared, leaving the new design meant to celebrate Enron’s triumphant ascension looking more like an electric plug. Worse, to the Italians it resembled an obscene hand gesture, one that meant about the same thing as shooting a middle finger at an American. The European executives roared with laughter:
now
they had a unique way to win Italian customers.

Back in Houston, dismay grew; the yellow prong also vanished when run through the copying machine. Somehow, Enron had spent millions of dollars on a new business logo without bothering to check if it worked in business. Soon the hallway signs went down, the new cards and letterheads were shredded. With no fanfare, another logo was introduced, replacing the yellow prong with a green one.

The symbol meant to carry Enron into the next millennium hadn’t lasted a week.

They arrived at almost the same time: A new chief operating officer. A new logo. And then, a new accountant.

Since 1990, Stephen Goddard at Andersen had overseen Enron—meeting the board, reviewing deals, auditing financials. Goddard wasn’t Hollywood’s idea of an accountant; this was no boring technocrat with green eyeshades. He was a specialist in client services, a backslapper who maintained a close relationship with the managers whose numbers his team reviewed.

Thanks in part to that familiarity, Andersen and Enron developed an unusually close relationship. The firm was both its auditor and its consultant. Veterans of Andersen’s Houston office jumped to Enron as internal auditors; even Rick Causey, Enron’s top accounting guru, had been an Andersen manager. The relationship couldn’t have been cozier.

But by February 1997, things had to change. Andersen rotated partners on accounts every seven years, and Goddard’s time was up. Some partners lobbied to move up Tom Bauer, a top-notch accountant, who audited Enron’s trading operations. But Goddard thought there was only one candidate—David Duncan, a thirty-six-year-old who had worked on Enron for years. With Goddard’s support, Duncan got the nod.

Duncan rarely impressed anyone as a towering intellect, and his background was unremarkable. Born in Lake Charles, Louisiana, and raised in Beaumont, Texas, Duncan attended Texas A&M, where he studied accounting. In college he had been something of a party boy; he and a group of friends had formed what amounted to a co-op for illicit drugs, purchasing large quantities of marijuana that they divided among themselves. Often, Duncan and his pals could be found around campus laughing it up, stoned.

In 1981, straight out of college, Duncan joined Andersen’s Houston office but didn’t change his ways. For years, he and his friends kept up their mass drug buying. Several days a week he would leave the staid accounting world and head home to toke up; sometimes he branched out to cocaine. But a few years after starting on the Enron engagement, Duncan straightened up. He hadn’t used illegal drugs since.

Enron seemed the ideal assignment. In his early days at Andersen, Duncan struck up a friendship with Causey, then just another accountant in the Houston office. The two became close, often lunching, golfing, or going out with their wives. Now his buddy was Enron’s top accountant.

Clearly, Duncan was no accounting whiz, but nobody worried about that; like most partners, he would rely on the experts in the firm’s Professional Standards Group to rule on tough issues. But he struck some partners as top-flight where it mattered—his familiarity with Enron and a close relationship with its executives. His good looks and disciplined organization didn’t hurt, either.

In early February, Goddard and Duncan had an appointment with Lay, to notify him of the coming change. Lay was polite, if not particularly interested; he vaguely knew Duncan and thought he seemed competent enough.

“I’m very excited about the opportunity to work more closely with Enron,” Duncan said. “It’s really an honor.”

Lay smiled. “We’ll have a lot of fun,” he said.

By any measure, Duncan seemed a man on the precipice of big things. But it was not to be; the great opportunity at Enron would be his last high-profile accounting job.

Steve Goddard pulled out a pen as a group of Andersen accountants took their seats. It was later that month, and the accountants were gathering for their annual client review. Andersen partners liked to think of themselves as selective, representing only the best, and this exercise was aimed at weeding out clients that fell short.

One at a time, the partners ranked their clients based on the risk in their accounting practices. Eventually, the discussion turned to Enron.

On one side of the room, Carl Bass listened skeptically. Unlike some colleagues, Bass didn’t see his job as helping clients weave through the accounting requirements, twisting transactions for the desired result. His was a purer view: the client puts together a deal, the accountant figures out the financial effect. In his mind, accountants were referees; they weren’t supposed to join the team huddle with ideas on how to run the ball.

His approach made Bass something of an eccentric among his flashier colleagues. He was never going to be a David Duncan, glad-handing clients over a game of golf. But what he lacked in kowtowing skills he made up for with intellectual firepower. Bass was a technician with an encyclopedic knowledge of the profession’s rules. He even spent some years with the Financial Accounting Standards Board, or FASB, the primary rules setter for the profession.

Since returning from FASB in 1994, Bass had spent a lot of time on Enron and hadn’t liked what he saw. Its executives struck him as sloppy, always seeking shortcuts, often pushing Bass to be “creative” in finding favorable results. Bass refused, usually because Enron wanted accounting results divorced from economics. If the company wanted to report revenue, the deals had to produce revenue. Simple as that.

Bass firmly believed he knew the source of Enron’s unrealistic expectations: Rick Causey, who had spent his Andersen years handling straightforward pipeline accounting. Now he was making judgments on derivatives, structured deals—the tough stuff. Problem was, Bass never considered Causey to be all that sophisticated; he didn’t even seem to understand basic concepts, like when revenue could be recorded. Enron was in the outer reaches of the accounting universe with a pilot who, in Bass’s mind, didn’t understand what all the knobs on the control panel were for. But as his fellow partners discussed Enron, it was clear few shared his doubts. Causey’s lunch and golfing partners had a much higher opinion of his skills than Bass did.