Conspiracy of Fools (44 page)

McMahon felt pretty good. This was the benefit of the pre-meeting, so finance could beat back these kinds of attacks. McMahon tossed out some more details about Brown’s work to justify his ranking. He glanced over at Fastow, waiting for him to voice his support.

Fastow cleared his throat. “Well, you know,” he said slowly, “I think there’s a big difference between Cheryl compared with Bill and Barry.”

McMahon’s jaw dropped.
That wasn’t the deal
.

“So,” Fastow continued, “I would keep Cheryl at two and bump Bill and Barry back to three.”

“
What?”
McMahon blurted out.

Fastow glanced at him, looking smug. “You know, Jeff, we’ve got to make something happen here.”

McMahon stared at Fastow in a cold fury.
You son of a bitch
. McMahon had fallen for a setup. He had been conned into putting his guys behind Glisan. Now that he’d already pushed them as twos rather than ones, he couldn’t start all over, lobbying for them as ones but settling on twos. It all became clear. Their little tête-à-tête the day before hadn’t been called to manage the PRC; Fastow had used it to manage McMahon.

Minutes later, as the debate moved on, McMahon stormed across the room and cornered Fastow.

“You fucked me!” he whispered in a fury. “Not only did you fuck me, you fucked these two people!”

Fastow shrugged. “Well, we’ve got to move forward.”

Kopper noticed the commotion. He wandered over.

“Why did we have yesterday’s meeting if we’re going to do this?” McMahon pressed.

“Well,” Fastow said, “I think Cheryl is above them.”

“Yeah,” Kopper interjected. “I think that’s right.”

McMahon shot Kopper a look. “Thank you very much, Michael. You
would
think so. She works for you!”

He turned back to Fastow. “You screwed me, Andy. They’re at the same level. We agreed.”

“We had to move on, Jeff,” Fastow said simply.

McMahon clenched his jaw. He threatened to refuse to vote for the results, blocking the required unanimous approval. But Fastow knew it was all just bluster. McMahon wasn’t going to keep everyone locked up in a room, trying to get them to overrule the CFO. Maybe if he had recommended his guys for category one to begin with. But of course, he hadn’t.

Fastow had played the corporate chess game all too well and had checkmated McMahon. He had co-opted the PRC process, shown it for the political sham it could be. All to reward Kopper and his favorites.

On July 27 in Birmingham, England, a room at the Centre City Tower filled with the chattering of reporters waiting for a press conference. A door opened and a group of British officials walked in. A thin man stepped to the front—Ian Byatt, the government’s top water regulator. He was flanked by John Prescott, the Deputy Prime Minister. The signal was clear: whatever Byatt was going to say in the next few minutes had the full backing of the government’s senior ranks.

“I’ve got good news for customers,” Byatt began.

Regulators had completed their review of rates charged by British water companies, he said, and prices would be cut. Wessex Water, for example, would have to drop prices by 14 percent. At the same time, he said, companies would be required to spend more money to improve water quality.

Questions came quickly. Many water utilities had recently been privatized, a reporter said. What will this mean for the companies that bought them?

“There is no doubt that profits will be lower,” Byatt said. “They will come down, and they will stay down.”

At Azurix, shell shock.

The company had been public less than seven weeks—
seven weeks!
—and now Wessex, its revenue machine, had been kneecapped by this new ruling. They had known something was coming, but hadn’t really believed that it would be
this
bad. Coupled with Buenos Aires, the Wessex situation brought Azurix dangerously close to disaster.

Rebecca Mark called an emergency meeting. Looming over the conference table was a painting of two cowboys on horseback, deep in conversation. It was titled
True Lies;
Mark had hung it as an unspoken barb at Enron’s culture of mendacity. Mark glared at the speakerphone, connected to Colin Skellett, the top executive at Wessex.

“How the hell did this happen?” she snapped. “Why didn’t the utilities get together, negotiate against it? What can we do about it?”

“It’s a done deal, Rebecca,” Skellett replied. “There never was much we could do.”

Mark closed her eyes, trying to control her fury.

“I want you to file a protest,” she said.

“No, no. You don’t want to make them angry.”

“Well, what’s our recourse? We don’t just have to live with it. Can we appeal?”

“Rebecca, it’s done. We have to live with it.”

Mark sank into her chair.

Seven weeks
.

The glow from his television and computer screens bathed Ray Bowen in flickering light. He was in his home office, his chair pulled up to the credenza, typing at his computer as his eyes darted occasionally to the TV screen. The phone rang, and Bowen’s wife answered in another room. “Ray!” she called. “It’s Andy Fastow.”

Bowen grabbed the receiver. Fastow’s voice was stern.

“Ray, you and I need to talk. I hear you’ve been making a lot of noise that you don’t like LJM.”

LJM. This wouldn’t be pleasant. Ever since he had heard of the deal, Bowen had bad-mouthed it to anyone who would listen. Now apparently his words had gotten back to Fastow.

“After all the things I’ve done for you, I can’t believe you would go around behind my back!” Fastow raged.

He raised his voice, his anger snowballing. Bowen had heard it before. They were headed for a blowup.

“I’m doing this because it’s good for Enron, not for me!” Fastow shouted. “Goddamn it! I am sick and tired of people attacking this! It’s good for you, it’s good for your business! So fuck you guys!”

Bowen hadn’t said a word.

“I’ll tell you what!” Fastow yelled, careening out of control. “We’ll shut it down! And you
fucking
guys won’t be able to get your
fucking
deals done because you won’t have the
fucking
capital. So just figure it out on your own!”

Bowen held the phone away from his ear as the screaming escalated. Finally, a break in the tirade.

“Andy,” Bowen said, “I’m not going to deny I’ve had issues with this. But my big failure here is not being man enough to talk about it to your face. Talking behind your back was unfair, I grant you. And I apologize for that.”

Fastow deflated. “Look,” he said, calming down. “Come by and I’ll explain it for you. Maybe you’ll be okay with it.”

Bowen agreed, but the conversation gnawed at him. In bed, he tossed and turned, replaying the diatribe in his head. It seemed so out of proportion, almost as though Fastow had more at stake in LJM than it appeared. Bowen pushed the thought aside. He must be reading too much into things.

Kopper and Glisan strode into the London offices of Greenwich NatWest on the afternoon of August 5. They were there ostensibly on business for Enron, which was paying for their airfare and hotel. But in truth, they had come to discuss a deal to help Fastow earn more money from LJM.

They were greeted by David Bermingham and taken to a conference room filled with bankers from Greenwich and Credit Suisse First Boston, LJM’s outside investors. Before getting started, the group telephoned Houston, bringing Anne Yeager, another Fastow favorite, into the meeting.

CSFB made the presentation. The bankers noted that Enron had restricted LJM from hedging the stock it had contributed to the fund; after all,
hedging ultimately requires short sales, which can drive down the price. But CSFB had come up with a complex transaction, called Sails, which would allow the fund to hedge the Enron stock anyway.

With Sails, LJM would lock in a guaranteed minimum return on the Enron stock while still getting a ten percent cut of any future increase. Better for Fastow, LJM would receive a payment of tens of millions of dollars. Even though the outcome was exactly like a sale, there were plenty of bells and whistles attached, all to give everyone the ability to argue that something else had happened. While Enron stock would be converted to cash, CSFB and Greenwich agreed that they would deem it a new capital contribution, not a sale.

The semantic game didn’t affect the fundamentals, but it opened up a world of opportunity for Fastow. Since he was prohibited by the board from benefiting from LJM’s Enron stock, he could only profit from the sixteen million dollars in cash contributed by the fund’s investors. But with Sails, Fastow would have a kitty of tens of millions in new cash for personal profits. All they needed to do was spend a few months putting the deal together.

Everyone laughed. “Boy,” Glisan said.
“This
is a great day at the office.”

After months of effort, Karen Denne from Enron’s public relations office landed the big fish:
CFO
magazine had selected Fastow as one of the year’s best chief financial officers. Now the final push. The magazine was writing an article about Fastow, and Enron’s top executives needed to participate in interviews. Skilling and Lay readily agreed.

But first, Fastow. Denne stopped by his office on August 11 to brief him about the interview, explaining that it would be conducted by Russ Banham, a freelance writer.

Fastow laid a sheet of paper on his desk. “I’ve got several points I want to discuss on this,” he said.

Minutes later, they were on the phone with Banham from his home office in Missoula, Montana. After some initial discussion, Banham asked something specific about Fastow’s work.

“Let me take a step back and raise a few points to explain that,” Fastow replied.

Point one … Point two …

“Well,” Banham said, “that raises another question.”

Fastow listened for a moment as Banham spoke.

“Point three,” he began, ignoring the question.

The next morning, Denne stopped by Skilling’s office to prepare him for the Banham interview. He was in high spirits, obviously happy that his guy was
being recognized by his peers. By the time Banham was on the line, Skilling was in a jolly mood.

“Hey, Russ, how ya doing?” he said. “Glad you’re taking the time to talk to us.”

Banham, who had interviewed plenty of corporate CEOs, was struck by Skilling’s warm banter. Most corporate types were standoffish; Skilling treated him almost like a drinking buddy. And he was effusive in his praise of Fastow.

“Andy has the intelligence and youthful exuberance to think in new ways,” Skilling said. “He deserves every accolade tossed his way.”

That day, a letter from Fastow went out to his LJM investors, informing them that he had just paid himself $550,000 from LJM in a semiannual management fee.

His million-dollar commitment to the fund had been in place forty-two days; now more than half the money was back in his bank account. He’d get the rest in six months, with the payment of his next fee. And he would still own a million dollars’ worth of LJM. It was a no-lose deal.

Wearing shorts and a T-shirt, Fastow jogged toward the Enron building. He pushed through the door and began walking across the lobby. Suddenly he noticed Jim Timmins coming toward him. He had been avoiding Timmins for weeks, ever since hearing his ideas for a huge investment fund. Nothing he could do to put him off now.

Timmins wasted no time in getting to the point. “Andy,” he said, stopping Fastow, “I’ve been trying to reach you. Do you like this equity-fund idea at all?”

“Yeah,” Fastow said. “We’re going to do it.”

“Really?” Timmins asked. “Who’s going to run it?”

Fastow shrugged. “I am.”

Was this a joke?
“Really. Now, how do you do that?”

“The board has given me a code-of-ethics waiver to set up these kinds of partnerships.”

Timmins scarcely knew what to say. “Are you
kidding
me? You’re the CFO!”

“Well, yeah, there it is.”

Fastow thought for a second. Now was the time to start snagging what he could from Timmins.

“So I’ll tell you what I want from you,” he said. “I want your top-ten institutional contacts.”

Too few. That wasn’t the way it was done. “I’ll give you twenty-five,” Timmins said.

Fastow shook his head. “Nah. Just boil it down to the top ten.”

———

On an afternoon in September, Dave Duncan dropped by to visit Carl Bass. Enron had reorganized the international division, with the result that Bass had little accounting work to do there. Duncan wanted to redeploy him and believed he had come up with the perfect solution.

“So here’s my thought, Carl,” he said. “Why don’t you come work with me on Enron’s structured-finance deals?”

A warning light went off in Bass’s head. He knew structured finance was where Enron played the loosest on the accounting rules. No matter what objections Bass might raise, Dave Duncan was driving the bus and was going to do pretty much whatever Causey wanted.

Fortunately, he had a way out. John Stewart, Andersen’s top accounting guru, had been trying to recruit him for the Professional Standards Group. He promised Bass he could stay in Houston and could even continue working with Enron—advising the Andersen accountants rather than directly dealing with the client. Until now, Bass hadn’t made up his mind whether to accept. But Duncan’s suggestion made his choice easier.

“I don’t know, Dave,” Bass said. “I’ve got this opportunity to work with the PSG.”

Duncan shrugged. “Well, if that doesn’t work out, let me know. Then you can work with me on structured finance.”

Before the week was out, Bass called Stewart to say he would love to come aboard.

Kent Castleman was puzzled.

He had recently moved to Brazil for Enron but was still involved in selling a stake in its Cuiabá plant to LJM. He now knew the fund was Fastow’s and had called the office to find out who was handling the deal. Cheryl Lipshutz, a Kopper and Fastow favorite, got on the phone.

Castleman paused. “You’re negotiating for LJM?”

“That’s the assignment,” Lipshutz responded.