Conspiracy of Fools (78 page)

“It only has to be reported in the proxy for the year that you’re in,” Rogers said. “There’s no need for a formal Form 4, because it’s a private transaction between Ken and the company.”

Satisfied he understood, Herrold consulted his stepfather about the idea.
Getting his approval, he set to work using the revolving credit line to pay down some debt.

The next day, June 21, protesters in pig masks shouted and marched outside the Commonwealth Club in San Francisco, eager to show their contempt for the afternoon’s featured speaker, Jeff Skilling. On the street, a black sedan pulled by. Behind tinted windows, Skilling and two other executives watched as the protesters raged about Enron and corporate greed. It infuriated Skilling;
they
hadn’t created the mess in the state, the politicians did.

He clenched his jaw. “I wish we didn’t have to do business in the state of California,” he muttered.

Minutes later, Skilling was on a platform in the club’s main room. The place was already packed with ticket holders awaiting the discussion about the energy crisis.

From the back of the room, a blond woman in her early thirties walked up to the third row. Skilling noticed her; she seemed to be staring at him. He figured she knew him from somewhere, but he couldn’t place her face.

After several more minutes, the time of the speech finally arrived, and an officer of the club stood up to deliver the introduction.

In the third row, Francine Cavanaugh tried to move slowly. She had just sneaked past security without anyone detecting the item she had smuggled in.

Asking permission, she moved up to an empty seat in the front row. Then she reached inside her black book bag, pushing aside a brown paper bag she had put there as camouflage. She drooped her shoulders a bit to mask what she was doing; she didn’t want anyone to alert security before she had the chance to take her shot at Skilling.

The club official droned on as Cavanaugh watched Skilling; he crossed his legs, seeming distracted, then took a breath. Cavanaugh stood and started running toward him.

Skilling was annoyed. He thought the introduction was a little obnoxious, with all sorts of innuendo that Enron had something to hide. He didn’t like it.

Suddenly, at the edge of his field of vision, he detected something. A blur. A commotion. He turned to look.

A woman was running toward him, screaming something. She brought her arm back. Then, he felt a sharp pain in his head.

———

“Jeff, that could have been a gun.”

It was a couple hours later. Rebecca Carter was standing in Skilling’s house back in Houston, hearing about the protester at the Commonwealth Club who had hit him in the face with a pie. The attack had left his head bleeding slightly, but Skilling brushed off the incident as just one of those things. Carter wouldn’t have it.

“I thought they had all these security people there.”

“They did,” he replied.

“But this woman got close enough to put a pie in your face?” Carter said sharply. “You could’ve gotten shot.”

Skilling put up a feeble argument but realized she was right. It could have been a gun. Nothing was worth this.

About that same time, in Islamorada, Florida, Lea Fastow took a seat in a spa chair at Paul Joseph’s Tiki Salon and slipped off her shoes. She placed her bare feet on the towel in front of an older woman, who proceeded to soak, trim, and shape her toenails.

Lea and Andy had just arrived in the Florida Keys on Enron’s Hawker 800XP. It was a personal trip, but their use of the plane had been approved by Skilling, so long as they each paid a fourteen-hundred-dollar round-trip fare. That would come on top of the cost of a few days at the Cheeca Lodge and Spa, an oceanfront resort. But Fastow didn’t mind the expense. After all, it was being picked up by the Fastow Family Foundation, the charitable group set up with the $4.5 million he stole from NatWest in the Southampton deal.

Lea and Andy weren’t the only ones relaxing on the foundation’s dime. It was also paying to fly in two other couples—Andy’s brother Peter and his wife, Jana, along with Lea’s brother Michael and his wife, Lilly. Together, they would enjoy a weekend of spa treatments, personal massages, fly-fishing, and tennis lessons—all on the foundation’s tab.

The siblings had been appointed trustees of the foundation, and this luxury trip was dubbed their first annual meeting. But, legally, the couples couldn’t just party and relax, not if the foundation was going to pay the bill. So over dinner on the evening of Friday, June 22, the official meeting was held—for all of thirty minutes.

They reviewed the foundation’s “investments”; almost all of the cash was sitting in a money-market account. Still, with so much on deposit, the foundation had earned interest of almost $280,000. The amount going to charity was far less. In 2000, the foundation had made grants—many for as little as a few hundred dollars—of less than $63,000. By far the largest went to the Fastows’ place of worship and to local museums—just at a time when Lea
was striving to reach an elite rung among Houston’s art patrons. So far in 2001, just over $34,000 of the interest on the money had gone to charity, again mostly to museums.

The patterns seemed to belie a true purpose of the foundation: to avoid paying taxes on the stolen money by taking advantage of the exemptions for charitable groups. And the money the Fastows did give away advanced their position in the most exclusive reaches of Houston society.

But this slush fund of cash had other uses, and not just financing tax-free vacations to posh resorts. On the night of the official meeting, the family members voted to hire a fund administrator, who would receive both a salary and relocation costs. The perfect candidate? Andy Fastow’s dad Carl, who would soon be flown down with his wife at foundation expense to live in the Houston house Kopper turned over when he purchased the LJM funds. The stolen money could help keep Fastow’s parents comfortable in old age.

Life was good.

Hoisting a carry-on bag over his shoulder, Skilling, along with his teenage son Jeffrey, bounded down a ramp at Houston Intercontinental Airport. Their flight to Madrid was scheduled to leave in just a few minutes, and Skilling could hardly wait; another three-week vacation about to begin.

As they approached the plane the morning of June 27, Skilling’s cell phone rang. He pulled it out of his pocket.

“Jeff, it’s Joe Nacchio.”

Skilling sighed. Nacchio, the chief executive of Qwest Communications International, and several of his executives had been riding his tail for days. Qwest had its own broadband division and was struggling like the rest of the industry. Weeks before, Qwest and Enron had begun negotiating a fiber-swap deal; essentially, Enron hoped to sell much of its network to Qwest, which in turn would sell back rights on the system. Skilling liked the idea; Enron could dump its network and all the associated costs while still having the capacity available that it needed to serve customers.

But the terms Qwest wanted made no sense. If Enron was going to keep its customers, it would need to schedule capacity instantaneously. Qwest said it couldn’t provide that service but still wanted a deal. Skilling refused; why sell the network if Enron would have to find another one?

Qwest kept pushing, and soon it became obvious to Skilling why. They wanted to pay what Skilling considered a ridiculous price for the network, Enron would in turn pay a ridiculous price for the rights to use it, and everybody would book revenues. Nothing much would really change hands; the entire transaction looked to Skilling like an accounting gimmick.

Skilling made his lack of interest clear innumerable times. Nothing could be done, he told them. But still Nacchio kept calling. Skilling was sick of it. “Joe,” he said, “I’m heading down the ramp for my plane to Madrid.”

“You’re going on vacation?” Nacchio asked.

“Yeah.” Skilling reached the door of the plane.

Nacchio didn’t relent. Skilling should call back as soon as he reached Madrid, he said. The two sides resumed negotiations, but nothing came of it. For that quarter, Qwest and Enron weren’t able to report the revenues that, in truth, would have brought both companies nothing but trouble.

What the hell is this?

Sherron Watkins looked through the Enron assets listed on an Excel spreadsheet, trying to comprehend what she was seeing. She had recently started working for Fastow on the corporate-development side and now was spending her days on work she considered demeaning.

Watkins had been digging through Enron’s records, looking for assets that could be readily sold. Plenty had lost value, like Elektro in Brazil, but could bring in cash. Then there were other investments—in companies with names like New Power, Avici, and Hanover Compressor—that were hedged by entities called the Raptors.

What Watkins saw made little sense. The losses in the Raptors were gargantuan, totaling hundreds of millions of dollars. A lot, if not all, of that money was owed to Enron. How could any company make good on a commitment that was so huge?

Stumped, Watkins decided that to do her job, she needed to understand these entities. She called Causey’s office and asked for someone to teach her about the Raptors.

In Spain, Skilling gripped the steering wheel of his rented car, passing vineyards on both sides of the road. It was his second day of vacation, and he and his son were driving southward on the first leg of a trip from Madrid to Morocco. Their conversation was free-flowing, and Skilling was grateful to be alone at last with the boy.

There was a pause in the conversation. Skilling decided to broach a new topic. “Jeffrey,” he began slowly, “would it bother you if I weren’t CEO of Enron?”

This was Skilling’s last fear, that leaving Enron would cost him his children’s respect. But Jeffrey had no idea what his father was talking about. “No,” he replied.

“It wouldn’t make you think any less of me?”

“No, it would be good, because then I’d get to see more of you.”

Skilling thought about that. “Well, I’ve decided—don’t tell anyone, don’t tell your mother or brother—but I’ve decided to leave Enron.”

Jeffrey glanced at his father. “Oh, good.”

As June rolled to an end, it was clear that cutting costs and redeploying staff wouldn’t hold back the tide of red ink at Enron Broadband Services. The division, which had been introduced with such fanfare just two years before, couldn’t stand on its own. Senior managers decided to fold it into energy trading. The glory and the hope were dead, the plans for an intelligent network shelved, the push to build a broadband-trading effort scaled down dramatically.

But Fastow saw the division’s collapse as just another opportunity. The general counsel of Broadband, Kristina Mordaunt, had long been a favorite. Plus, she had shown her ability to play in the gray zone; she had invested fifty-eight hundred dollars in Southampton and hadn’t said a word when Kopper surprised her with a million-dollar payday weeks later. If Fastow was going to handle corporate development, he wanted somebody like Mordaunt as his general counsel.

Mordaunt was game. She spoke with Jim Derrick about the idea and was persuaded. This was a great opportunity.

Even as Fastow was giving Mordaunt a push up the career ladder, he was moving her further into his illegal conspiracies. The RADR deal—where Fastow, through Kopper, had set up bogus “investors” as fronts in the purchase of some wind farms—was still producing cash. One front investor, Kathy Wetmore, was holding $750,000 generated from the fraud scheme. Fastow instructed Kopper on the next move.

Kopper called Wetmore with the details: the money was to be wired to account HS-75406-EJ at UBS Paine Webber. On July 2, the money was sent on its way. Mordaunt, Fastow’s new lawyer, had been gifted another $750,000.

Kaminski couldn’t let it rest. Kevin Kindall might be gone, but his former underling’s report about the dangers Enron faced was still there and as damning as ever. Glisan apparently didn’t care, so Kaminski decided to try again, this time with somebody else.

Nobody knew more about trading, or the risks it faced, than Greg Whalley, who had worked in wholesale for years. Kaminski dropped in to see him. Point by point, he laid out Kindall’s findings.

“Greg, we have huge exposures that we don’t understand,” Kaminski said after several minutes of explanation. “We have to analyze them and understand them.”

Kaminski looked Whalley in the eye. He could tell he wasn’t getting through. The trader seemed to be treating his exposé as some sort of academic exercise.

Whalley stood up. “Let me think about it,” he said. “I’ll get back to you.” It was the same answer Glisan had given. Kaminski didn’t expect things to turn out any better this time.

It was a sultry evening in Houston, with the sounds of chirping crickets filling the screened-in porch behind Skilling’s new mansion. It was July 9. Skilling had just returned from Spain and was now relaxing over cigarettes with Rebecca Carter, talking about life after Enron.

He would tell Lay that week, he said. After that, travel for months at a time. He had no money worries; between compensation and stock sales, he had socked away more than fifty million dollars. There was no need to rush a new job. He could take his time.

Carter listened to the plans with alarm. His plans for world travel and adventure didn’t seem to hold a place for her. Maybe, she feared, she wasn’t part of his grand strategy.

“So where does all this leave me?” she asked.

Skilling glanced at Carter and saw the torment on her face.
Uh-oh
. He had hoped to wait a while. Her birthday was just nine days away; that had been the date he had selected to tell her. Obviously, he couldn’t wait that long.

“Okay,” he said, standing. “I better do this now.”

He walked inside the house, through the kitchen toward a study in the back. There, he picked up the small box he had hidden away weeks ago, then headed back to the porch.

He stood in front of her. “Okay, so you wanted to know where this leaves you. Here’s how I’m thinking about it.”

He opened the box, pulling out an engagement ring. He got down on one knee. “Will you marry me?” he asked.