Conspiracy of Fools (96 page)

The Chewco paperwork was a shambles. No one seemed to have a complete set; documents were filed haphazardly all over the place. The secrecy imposed around Chewco had allowed everyone to be slipshod in handling the records. Now Enron was paying the price.

Even so, the fragments that had been assembled painted a gruesome picture. It appeared Kopper may have invested in Chewco, but it wasn’t clear yet how much. And Dodson, Kopper’s lover … How did the accounting rules view homosexuality? If Dodson was Kopper’s
wife
, they both would have been considered related parties to Enron. That would obliterate the three percent outside equity.

Worse, Kopper had presented the cash put into Chewco by Barclays as independent equity. But there were problems. When Enron repurchased Chewco for thirty-five million dollars, Kopper took a ten-million-dollar cut. Barclays, which put up all the real cash, got its money back, plus a bit. The money from Barclays sure
looked
like a loan.

Then there were Kopper’s instructions on where to send some Chewco distributions. Not to Barclays. Not to the general partner created. Instead, to the attention of Lea Fastow. At her home address. Causey shuddered.

Was it possible there was
no
outside equity in Chewco?

It was early evening in Houston, and Ken Lay was sitting at his desk, building up to his next move. He had no choice. He called to his secretary. “Rosie, I need to talk to Alan Greenspan.”

Within minutes, Lay was connected to the Fed chairman.

“Alan, I was calling to update you on our situation,” Lay said. “We’ve had a pretty rough ten days or so.”

“Yes, Ken, I’ve been reading in the papers,” Greenspan replied. “Sorry you’re going through all this.”

“Thank you,” Lay replied. “Well, things are still very rough. We’re beginning to see troubles with our trading partners.”

He gave a rundown of the events of the last few days and of Enron’s desperate attempts to shore up its liquidity.

“I think it would be a good idea for the Fed and the Treasury to begin monitoring what’s going on,” Lay said, “just to see what might happen if we don’t pull this out.”

Of course, Lay said, he fully expected Enron would survive. “But,” he said, “I think it’s best to have an effort to monitor things, just to prepare for the worst.”

By early that evening, Lay had tried to alert every top finance official in the government of Enron’s precarious state. In addition to Greenspan, he had phoned his friends Don Evans, the Commerce Secretary, and Paul O’Neill, the Treasury Secretary. Neither had been in, but an O’Neill assistant had suggested that Lay phone the Secretary on Sunday at his Washington apartment in the Watergate complex.

Lay didn’t have big plans for the calls. He wouldn’t explicitly ask for government assistance, but he would let his old friends know how dire Enron’s situation was. If one of them offered to extend a lifeline, all the better.

At seven o’clock, Lay walked down the hallway to Jim Derrick’s office. His general counsel had just called him to say that they needed to meet. Causey was there, looking distraught.

“You need to hear this, Ken,” Derrick said.

Causey explained that they had been reviewing Chewco. They hadn’t yet drawn definitive conclusions; they still needed more documents. Lay felt the anxiety creeping over him. This was too much throat clearing.

“Okay,” he said. “So what do we suspect?”

Causey glanced at the floor, then looked at Lay.

“We may have a serious problem,” he said.

The lockout began that same night. After weeks of warnings to employees, both in home letters and in e-mails, Enron’s retirement plan was officially changing administrators. Now, scheduled for weeks to come, employees could make no changes in their retirement accounts until all of the paperwork was transferred. That day, Enron’s share price had closed just below fourteen dollars.

After passing the security gate at the Huntingdon condominiums, Chuck Watson drove toward the parking area. It was the morning of October 27, a
Saturday. The meeting that day with Lay probably wouldn’t amount to much, Watson figured; a merger between Dynegy and Enron seemed far-fetched.

On the elevator, Watson pushed the button for the thirty-third floor. A minute or so later, the doors opened; the entire floor was Lay’s. Watson stepped off, and Lay appeared. The two men greeted each other and headed to a kitchen area.

“Would you like some coffee?” Lay asked. “I made it myself.”

Soon they were in the living room, loaded up with coffee and sweet rolls. Watson brought out a handwritten list of issues he wanted to discuss. Lay had a typed version of the same thing. Watson quickly took charge.

“If this happens, Ken, it’s going to have to be as a merger of equals, with no premium,” he said.

Lay was taken aback. Watson was talking about buying Enron at its current market price, with no added cash for shareholders. That, he thought, just wasn’t right.

“This is a company that not long ago was trading at ninety dollars a share,” Lay protested. “The only reason our share price has fallen so far, the only reason we’ve had recent problems, is because of short sellers and the media”

Watson studied Lay. His voice was strong and emphatic. Lay either believed everything he was saying, Watson thought, or was the most accomplished liar he had ever met.

“Ken,” Watson said, “if you want me to step in front of the train, this is the only way it’s going to happen.”

They reached several understandings. A deal had to happen quickly; Enron was fading fast. Watson also wanted Lay to formally stand behind the company’s numbers, including its projections for 2002. Lay agreed.

Dynegy wasn’t going to take everything. The international projects looked like dogs; in fact, Watson wanted nothing outside of North America, except London trading.

“I have to ask you, Ken,” he said. “Is there another shoe to drop?” Lay shook his head. “The banks, the lawyers are all over the company. They haven’t found anything.”

What about the name of the new company? “I believe it should be called Enron-Dynegy,” Lay said.

No way, Watson retorted. “Ken, the Enron name has to go,” he said. “It just has become too sullied.”

Lay protested. If not Enron-Dynegy, what about Dynegy-Enron? Again,
no. After a few more times at the plate, Lay gave in, for now. He tentatively agreed to plain “Dynegy.” Watson said he would run the merged company; Lay could stay on the board, perhaps as chairman emeritus. As for management, Watson said he would keep Whalley. But that was it.

After hours of fighting for scraps, Lay had had enough for one day. Now they were both getting hungry. Lay glanced at the kitchen.

“Nobody left any food,” he said.

Later that day, a contingent of Andersen accountants trooped into Causey’s office for a Chewco update. The group, including Duncan, Bauer, and Deb Cash, was shown a whiteboard where a sketch of the Chewco structure had been drawn. Bauer took out a piece of paper and copied it down.

Causey laid out the details, beginning with Kopper’s possible control and the role of his lover, Bill Dodson. Bauer was astonished; he had worked on Chewco, and this was the first time he had heard about Dodson’s connection.

From there, Causey described the issues that had emerged relating to Barclays, the failure of the bank to receive a significant return from the Chewco purchase, and the decision to send distributions to Andy Fastow’s wife.

Causey looked stricken. “I didn’t know about any of this until I spoke with Ben,” he said. “I promise.”

The room was heavy with tension. “This is deeply troubling, Rick,” Duncan said.

Bauer agreed. “Based on this information, it looks like Enron may have actually sponsored Chewco,” he said.

But they still didn’t have enough evidence to prove it.

The first team of lawyers from Weil, Gotshal arrived in Houston that afternoon. Tom Roberts and Mary Korby, a partner from the Dallas office, were led through Enron, meeting executives in the trading division.

From the beginning, some things seemed oddly out of whack. For one, the lawyers still hadn’t met with Derrick, the general counsel—and effectively, they never would. The trading division was in revolt, struggling to salvage itself, regardless of what happened to the rest of the company. That made Mark Haedicke, the top lawyer in that division, Weil, Gotshal’s primary contact.

Then the executives themselves seemed almost psychologically damaged by the past few weeks. One top trader kept pulling his shirt over his head in the middle of conversations. Other corporate chieftains spoke in too rapid a clip, racing after solutions that weren’t there.

Finally, Roberts and Korby were taken to a conference room, where they
met with Whalley, McMahon, and the trading team. The executives spent hours describing Enron’s structure, communicating a strong message: the traders cared only about saving their operation, the rest of Enron be damned.

One suggested finding an equity fund, like the Blackstone Group, to inject a few hundred million into trading. Another brought up the idea of borrowing money against company assets. But there wasn’t a lot to choose from. All of the international projects were underwater, worth less than the amount already borrowed against them.

Then someone raised an idea that had been knocking around for days. The pipelines! The assets at Enron’s foundation that threw off hundreds of millions in cash every year, that had been treated with such derision by Skilling’s acolytes. They could borrow against the pipelines.

The meeting dragged on, and Roberts and Korby missed the last flight back to Dallas. This was going to be a lot harder than either had imagined. The two of them headed out to a local Target Superstore. They hadn’t planned to stay in Houston. They needed to buy some toiletries and clothes to get through the weekend.

That night at the Delano Hotel in Miami Beach, Rebecca Carter rushed out of her hotel room, crying. Earlier in the evening, their first in Florida, Skilling had fallen apart at a jazz club and had just thrown Carter out, telling her to get away from him. This debacle at Enron was wrecking him. He was drunk, unsteady. Carter couldn’t leave. She had to wait, to see how he was after he sobered up.

She headed to the lobby and approached the front desk. “Do you have another room available this evening?” she asked shakily.

The next morning, the hotel room telephone was ringing. Bleary-eyed, Skilling struggled to pull himself across the bed and reached for the receiver.

“Jeff? It’s Rebecca.”

He sighed. Why was she calling him from Houston? “I don’t want to talk to you,” he grumbled. “Stay away.”

Then he hung up.

For the top players at Enron, there was no escape from the unending grind of work. There were no weekends, no evenings. Just hour upon hour of crisis management.

The only visible hopes, as far as McMahon was concerned, were the pipeline solution, a Dynegy merger, or both. Potential lenders and Dynegy had to be briefed on the state of the company. It was a process known on
Wall Street as performing due diligence, a fancy term that meant little more than examining a company real hard. McMahon couldn’t handle the task; he had other roles to play. Plus, he was assembling a presentation for Enron’s banks, hoping to persuade them to give Enron some breathing room.

Glisan, he decided, had to take over the job of helping everyone with their due diligence for the merger. But McMahon had concerns. Had Glisan allowed himself to get embroiled in Fastow’s schemes? If so, he couldn’t be trusted to take on the responsibility.

There was only one way to deal with this. He called Glisan into his office and told him to take a seat.

“Ben,” he said, “I need to know where you were on all this partnership stuff.”

McMahon’s face was stern. “I want to know if you’re involved in LJM or any of these other partnerships,” he said. “I cannot afford to have you working on deals to save the company if you’ve been compromised. So I need you to assure me. Do you have any involvement in any of this?”

Southampton
. Glisan had received a million dollars from Fastow and Kopper just weeks after making a fifty-eight-hundred-dollar investment. He had been compromised.

“I’m not involved in anything,” he said. “I have no interest in LJM or any of these other things.”

McMahon studied Glisan as he answered. “You understand, Andy’s out because he had conflicts. We need to be the new guys coming in who aren’t involved in any of that.”

“I’m fine with that,” Glisan said, holding up his hands. “I’m not involved in any of it.”

A few hours later, Paul O’Neill, the Secretary of the Treasury, was enjoying a Sunday afternoon in his apartment at the Watergate. The telephone rang, and he walked over to answer. “Please hold for Ken Lay,” a woman’s voice said.

The line clicked. “Paul,” Lay said, “I appreciate you letting me call you at home today.”

“It’s fine, Ken. Good to hear from you.”

“I’m just calling to update you on what’s been going on at Enron,” Lay said, “and to recommend that you have somebody at Treasury monitor what’s going on here.”

Given the size of Enron in the energy and financial markets, Lay said, it would make sense for the government to have contingency plans in place.

“Things have moved very fast in the past ten days or so,” Lay said. “We’re hoping all the bad stuff’s out, and if it is, maybe we’ll start stabilizing.”

O’Neill reflected for a moment. “I think the perfect person to monitor this will be Peter Fischer,” he said. Fischer was one of his top people at Treasury and had helped manage the government’s response to the collapse a few years back of Long-Term Capital Management, a giant hedge fund.

Probably the best contact for dealing with Fischer was Greg Whalley, Lay said. He knew all about trading.

It was afternoon, and Skilling had finally sobered up when the phone rang. Rebecca again. He made a comment about her return to Houston.

“I’m still in Miami,” she said. “I’m in the hotel.”

“You’re kidding,” Skilling replied.

“No, I’m not.”

Skilling needed Carter with him. “Okay,” he said, choking back tears. “Come on up.”