0 00:00:33,801 --> 00:00:36,235 What's he building in there? 1 00:00:37,972 --> 00:00:40,941 What the hell is he building in there? 2 00:00:43,244 --> 00:00:45,872 It had taken Enron 16 years to go 3 00:00:46,113 --> 00:00:47,842 from about 10 billion of assets to 4 00:00:48,048 --> 00:00:50,448 65 billion of assets. 5 00:00:50,718 --> 00:00:52,948 It took them 24 days to go bankrupt. 6 00:00:53,153 --> 00:00:56,020 What the hell is he building in there? 7 00:00:56,223 --> 00:00:59,351 This company collapsed so quickly and so entirely. 8 00:00:59,493 --> 00:01:02,519 I mean it was into bankruptcy within a matter of weeks. 9 00:01:02,730 --> 00:01:04,459 It just immediately had 10 00:01:04,665 --> 00:01:07,600 all the makings of a gigantic scandal. 11 00:01:07,801 --> 00:01:10,463 He's hiding something from the rest of us. 12 00:01:10,738 --> 00:01:12,831 The fatal flaw at Enron 13 00:01:13,073 --> 00:01:15,667 if there is one, you say it was pride 14 00:01:15,876 --> 00:01:18,242 but then it was arrogance, 15 00:01:18,512 --> 00:01:20,537 intolerance, greed, 16 00:01:21,415 --> 00:01:23,645 So many of them were blinded by the money 17 00:01:23,917 --> 00:01:24,849 that they didn't see that 18 00:01:25,119 --> 00:01:26,484 they were sinking their own life boat 19 00:01:26,687 --> 00:01:28,552 We have a right to know. 20 00:01:29,256 --> 00:01:31,349 It just got hungrier and hungrier. 21 00:01:31,659 --> 00:01:33,490 Sooner or later they were doomed to go off 22 00:01:33,694 --> 00:01:35,389 that cliff at 90 miles an hour. 23 00:01:36,597 --> 00:01:39,657 It's astounding that they got away with it for so long. 24 00:01:40,267 --> 00:01:42,827 In reality, Enron was a house of cards. 25 00:01:43,137 --> 00:01:44,764 What we didn't know was that the house of cards 26 00:01:45,105 --> 00:01:47,972 had been built over a pool of gasoline 27 00:01:48,809 --> 00:01:51,607 It all sort of became smoke and mirrors. 28 00:01:54,214 --> 00:01:56,205 Committee will come to order. 29 00:01:56,417 --> 00:01:59,944 This is a case of America's largest corporate bankruptcy. 30 00:02:00,220 --> 00:02:01,812 The question here is what happened, 31 00:02:02,056 --> 00:02:03,921 who was responsible for it happening, 32 00:02:04,124 --> 00:02:05,614 and what can we do to prevent this sort of thing 33 00:02:05,859 --> 00:02:06,848 from happening again. 34 00:02:08,162 --> 00:02:10,323 I think the Enron story's so fascinating 35 00:02:10,564 --> 00:02:12,862 because people perceive it as a story 36 00:02:13,067 --> 00:02:14,125 that's about numbers. 37 00:02:14,335 --> 00:02:17,463 That it's somehow about all these complicated transactions. 38 00:02:17,638 --> 00:02:19,469 But in reality it's a story about people 39 00:02:19,640 --> 00:02:21,870 and it's really a human tragedy. 40 00:03:38,285 --> 00:03:39,809 On this date, at 2:23 am, 41 00:03:40,087 --> 00:03:42,647 Sugar Land police discovered John C Baxter 42 00:03:43,557 --> 00:03:44,717 located inside his vehicle 43 00:03:44,958 --> 00:03:47,051 with an apparent gunshot wound to the head. 44 00:03:47,327 --> 00:03:49,921 Ah... at this time there has been a suicide note located. 45 00:03:50,230 --> 00:03:52,095 Sir, can you give us any indication whether 46 00:03:52,399 --> 00:03:54,526 this was related to Enron's bankruptcy. 47 00:03:54,768 --> 00:03:56,497 We do know that he was and Enron employee, 48 00:03:56,637 --> 00:03:58,935 but as far as any other indications of why 49 00:03:59,173 --> 00:04:00,538 he committed suicide, no we do not. 50 00:04:07,548 --> 00:04:08,173 Mr. Skilling, 51 00:04:08,482 --> 00:04:10,507 let me touch on something that's sort of sad 52 00:04:10,751 --> 00:04:13,652 and that's of course the suicide of Cliff Baxter. 53 00:04:13,887 --> 00:04:15,821 And you mentioned he was your best friend 54 00:04:16,023 --> 00:04:17,456 in your opening statement. 55 00:04:17,791 --> 00:04:20,316 Before he died, 56 00:04:20,527 --> 00:04:22,461 did you have many conversations with him? 57 00:04:23,530 --> 00:04:24,519 Yes. 58 00:04:24,765 --> 00:04:27,962 And were any of them relative to Enron? 59 00:04:30,637 --> 00:04:32,002 Yes. 60 00:04:34,374 --> 00:04:36,103 There's no one that knew Cliff, 61 00:04:36,343 --> 00:04:37,674 toward the end, that didn't realize that 62 00:04:37,945 --> 00:04:40,846 he was heartbroken by what had happened. 63 00:04:42,082 --> 00:04:44,175 And Cliff came over to my house 64 00:04:44,785 --> 00:04:47,583 and he said 'They're calling us child molesters.' 65 00:04:47,788 --> 00:04:50,552 He says, 'That will never wash off.' 66 00:04:51,792 --> 00:04:53,589 But Mr. Skilling you don't believe that. 67 00:04:53,794 --> 00:04:54,818 I don't believe what? 68 00:04:55,062 --> 00:04:59,089 You don't believe that the press and everybody 69 00:04:59,600 --> 00:05:02,865 calling Cliff Baxter or yourself or anybody 70 00:05:03,103 --> 00:05:04,798 on the Board of Directors, 71 00:05:05,038 --> 00:05:06,630 denigrating or tainting you, 72 00:05:06,907 --> 00:05:08,101 you don't think it's accurate 73 00:05:08,342 --> 00:05:10,037 is what you're saying to us here today. 74 00:05:10,244 --> 00:05:12,303 I do not believe... 75 00:05:12,679 --> 00:05:16,308 I did not do anything wrong that was not in the interest 76 00:05:16,550 --> 00:05:18,745 In all the time that I worked for Enron Corporation, 77 00:05:18,952 --> 00:05:21,011 it was in the interest of the shareholders of the company. 78 00:05:22,155 --> 00:05:26,353 Ultimately, who was responsible for the downfall of Enron? 79 00:05:30,664 --> 00:05:31,926 Only a few years ago, 80 00:05:32,132 --> 00:05:35,158 Enron was the nation's seventh-largest corporation, 81 00:05:35,369 --> 00:05:37,803 valued at almost 70 billion dollars. 82 00:05:38,505 --> 00:05:41,736 Pundits praised the company as a new business model. 83 00:05:42,910 --> 00:05:46,778 This trading floor was manned by America's best and brightest, 84 00:05:46,980 --> 00:05:49,676 charting the futures of energy and power. 85 00:05:50,784 --> 00:05:53,685 And high above each with a private staircase, 86 00:05:53,921 --> 00:05:55,718 Ken Lay and Jeff Skilling 87 00:05:55,989 --> 00:05:58,514 had built their own plush staterooms. 88 00:05:58,759 --> 00:06:00,989 They were known as the smartest guys in the room. 89 00:06:01,228 --> 00:06:05,164 Captains of a ship too powerful to ever go down. 90 00:06:05,599 --> 00:06:07,931 In the Titanic, the captain went down with the ship. 91 00:06:08,235 --> 00:06:12,001 In Enron, it looks to me like the captain first gave himself 92 00:06:12,205 --> 00:06:13,433 and some friends a bonus, 93 00:06:13,640 --> 00:06:15,904 then lowered himself and the top folks down in the lifeboat 94 00:06:16,143 --> 00:06:17,235 and then hollered up and said, 95 00:06:17,477 --> 00:06:19,445 by the way, everything is going to be just fine. 96 00:06:20,047 --> 00:06:20,979 Like Skilling, 97 00:06:21,248 --> 00:06:23,944 Ken Lay said he hadn't done anything wrong. 98 00:06:24,484 --> 00:06:25,712 Could we have a word with you real quickly? 99 00:06:25,953 --> 00:06:26,920 We're with CNN. 100 00:06:27,187 --> 00:06:28,449 Really not this morning, thank you. 101 00:06:28,655 --> 00:06:29,986 Beyond the financial issues, 102 00:06:30,257 --> 00:06:32,919 some suspected a political conspiracy. 103 00:06:33,193 --> 00:06:35,661 Enron had been the largest corporate contributor 104 00:06:35,862 --> 00:06:39,491 to the first presidential campaign of George W. Bush. 105 00:06:39,866 --> 00:06:42,528 This is not a political issue, it is a business issue. 106 00:06:42,936 --> 00:06:44,995 You know Enron had made contributions to 107 00:06:45,205 --> 00:06:47,639 a lot of people around Washington D.C. 108 00:06:48,508 --> 00:06:50,601 And if they came to this administration looking for help 109 00:06:50,844 --> 00:06:51,970 they didn't find any. 110 00:06:52,212 --> 00:06:55,113 To say no help had is like, 111 00:06:55,549 --> 00:06:58,017 'I did not have political relations 112 00:06:58,352 --> 00:07:00,582 with that man, Mr. Lay.' 113 00:07:00,821 --> 00:07:02,448 What about the fact that George W. Bush 114 00:07:02,656 --> 00:07:04,419 calls Ken Lay, Kenny Boy? 115 00:07:04,658 --> 00:07:06,250 That's my nickname for my husband, 116 00:07:06,460 --> 00:07:07,620 which he overheard. 117 00:07:07,861 --> 00:07:09,419 So it wasn't original, with the President? 118 00:07:09,663 --> 00:07:10,857 It certainly wasn't. 119 00:07:11,365 --> 00:07:12,593 According to published reports, 120 00:07:12,833 --> 00:07:16,633 your husband earned about 300 million dollars in, 121 00:07:16,870 --> 00:07:18,701 in compensation, in stocks 122 00:07:18,905 --> 00:07:20,805 from Enron over the last four years. 123 00:07:21,108 --> 00:07:22,837 What happened to all that money? 124 00:07:23,076 --> 00:07:25,101 It's gone. It's gone. 125 00:07:25,379 --> 00:07:26,539 There's nothing left. 126 00:07:30,584 --> 00:07:33,781 This is the shredded evidence we got that came out of Enron. 127 00:07:34,287 --> 00:07:37,552 We very quickly determined that the insiders had sold off 128 00:07:37,791 --> 00:07:41,454 a billion dollars of their stock in the preceding several months. 129 00:07:41,628 --> 00:07:45,155 Did you convert stock worth 66 million dollars? 130 00:07:46,366 --> 00:07:47,856 I don't know, but... 131 00:07:48,135 --> 00:07:48,692 I don't have the records with me... 132 00:07:48,969 --> 00:07:50,493 Would that be surprising to you to learn that you did that? 133 00:07:50,737 --> 00:07:52,466 No, that would not be surprising. 134 00:07:52,973 --> 00:07:54,463 Mr. Fastow 135 00:07:54,708 --> 00:07:57,905 got only 30 million in stock proceeds from Enron, 136 00:07:58,278 --> 00:08:00,803 but he took another 30 million out, 137 00:08:01,515 --> 00:08:03,176 with his side deals. 138 00:08:03,450 --> 00:08:07,511 I think there was just an immediate sense of outrage 139 00:08:07,821 --> 00:08:11,587 at Lay and Skilling and Fastow 140 00:08:11,825 --> 00:08:14,794 when people realized how much they had profited, 141 00:08:15,028 --> 00:08:17,053 and how completely artificial 142 00:08:17,297 --> 00:08:19,162 the appearance of this company had been. 143 00:08:21,101 --> 00:08:23,831 News of shredding at Enron raised more questions. 144 00:08:24,638 --> 00:08:27,539 What answers were lost in the torn documents? 145 00:08:28,108 --> 00:08:31,305 20,000 employees had lost their jobs. 146 00:08:31,712 --> 00:08:35,876 $2 billion in pensions and retirement funds had disappeared. 147 00:08:36,550 --> 00:08:39,314 Was Enron the work of a few bad men 148 00:08:39,553 --> 00:08:42,454 or the dark shadow of the American dream? 149 00:08:47,861 --> 00:08:53,128 Lay comes to the story of Enron from very humble roots. 150 00:08:56,203 --> 00:08:58,763 My father was a Baptist minister and, 151 00:08:59,072 --> 00:09:00,539 and he was ordained a Baptist minister 152 00:09:00,774 --> 00:09:04,767 while I was very young probably two, three years old. 153 00:09:04,978 --> 00:09:07,412 Ken Lay was a Baptist Preacher's son in a family 154 00:09:07,547 --> 00:09:09,014 that had been poor all it's life 155 00:09:09,249 --> 00:09:12,650 and he, throughout his life, worked several jobs as a kid 156 00:09:13,120 --> 00:09:16,283 and clearly had in mind that things could be better... 157 00:09:16,523 --> 00:09:17,319 and wanted things to be better. 158 00:09:17,591 --> 00:09:20,651 He had a huge ambition to make wealth for himself. 159 00:09:20,894 --> 00:09:23,419 He told a story later about sitting on a tractor, 160 00:09:23,597 --> 00:09:25,121 dreaming about the world of business 161 00:09:25,332 --> 00:09:26,526 and how different it could be from the way 162 00:09:26,767 --> 00:09:28,200 things were for him and his family. 163 00:09:30,637 --> 00:09:33,105 Lay was a PhD in economics and he became, 164 00:09:33,306 --> 00:09:35,706 very early on, a real apostle for deregulation. 165 00:09:35,976 --> 00:09:37,876 He was way ahead of the curve on this. 166 00:09:38,111 --> 00:09:39,635 He was thinking about energy markets 167 00:09:39,880 --> 00:09:42,246 that would be deregulated. And in particular, 168 00:09:42,482 --> 00:09:45,576 the natural gas industry that was shackled by regulation. 169 00:09:45,786 --> 00:09:49,620 And he pushed aggressively in Washington to change all of that. 170 00:09:54,761 --> 00:09:55,352 In Washington, 171 00:09:55,629 --> 00:09:57,529 Lay became part of a new crusade 172 00:09:57,831 --> 00:09:59,924 to liberate businessmen from the rules 173 00:10:00,167 --> 00:10:02,192 and regulations of government. 174 00:10:02,469 --> 00:10:05,700 Government is not the solution to our problem. 175 00:10:06,106 --> 00:10:08,040 Government is the problem. 176 00:10:08,275 --> 00:10:10,675 The societies which have achieved the most spectacular, 177 00:10:10,877 --> 00:10:14,108 broad-based economic progress in the shortest period of time 178 00:10:14,614 --> 00:10:16,445 are not the most tightly controlled, 179 00:10:16,650 --> 00:10:18,845 not necessarily the biggest in size, 180 00:10:19,119 --> 00:10:21,747 or the wealthiest in natural resources. 181 00:10:22,222 --> 00:10:25,089 No, what unites them all is their willingness to believe 182 00:10:25,292 --> 00:10:27,852 in the magic of the marketplace. 183 00:10:35,569 --> 00:10:37,696 The magic power of deregulation 184 00:10:37,938 --> 00:10:41,203 pushed Ken Lay to found Enron in 1985. 185 00:10:41,808 --> 00:10:45,244 Through a merger of vast networks of natural gas pipelines, 186 00:10:45,579 --> 00:10:47,877 Lay thought Enron would be poised to take 187 00:10:48,081 --> 00:10:50,106 advantage of the government's decision 188 00:10:50,350 --> 00:10:53,717 to let gas prices float with the currents of the market. 189 00:10:55,889 --> 00:10:59,086 Ken Lay had a view of deregulation 190 00:10:59,292 --> 00:11:00,623 from the standpoint of all the money 191 00:11:00,861 --> 00:11:02,294 that he thought could be made. 192 00:11:02,529 --> 00:11:03,791 Ken Lay wasn't alone. 193 00:11:04,064 --> 00:11:06,532 A couple of Texas oilmen shared his views 194 00:11:06,766 --> 00:11:09,530 on how to get government out of the energy business. 195 00:11:09,736 --> 00:11:11,897 I think they could sort of understand each other. 196 00:11:12,138 --> 00:11:13,571 It was a professional courtesy 197 00:11:13,840 --> 00:11:16,331 between a sidewinder and a timber rattlesnake. 198 00:11:16,576 --> 00:11:18,237 Lay was closer to the father. 199 00:11:18,511 --> 00:11:20,479 But while he was governor of Texas 200 00:11:20,647 --> 00:11:22,638 George W. Bush was only too happy to 201 00:11:22,849 --> 00:11:25,010 make phone calls for Ken Lay. 202 00:11:25,919 --> 00:11:28,080 This absolutely has no precedent. 203 00:11:28,321 --> 00:11:31,256 This is by far and away the most important, 204 00:11:31,625 --> 00:11:34,685 major relationship of a Presidential family 205 00:11:34,928 --> 00:11:37,192 with a single corporation in American history. 206 00:11:37,530 --> 00:11:38,394 When Rich Kinder, 207 00:11:38,665 --> 00:11:40,997 one of Enron's Executives, left the company, 208 00:11:41,234 --> 00:11:43,794 Lay arranged for a video valentine. 209 00:11:44,104 --> 00:11:47,596 Rich, I've... been asked to think of one thing 210 00:11:47,908 --> 00:11:49,500 I could say to you on your departure from Enron. 211 00:11:49,743 --> 00:11:52,268 It'd be this, 'Don't leave Texas.' 212 00:11:52,579 --> 00:11:55,514 Rich, you have been fantastic to the Bush family. 213 00:11:55,882 --> 00:11:57,509 I don't think anybody did more than 214 00:11:57,717 --> 00:11:59,241 you did to support George and, 215 00:11:59,486 --> 00:12:00,919 of course, in this stage of my life, 216 00:12:01,154 --> 00:12:03,452 and Barbara's too, that's what really matters. 217 00:12:03,690 --> 00:12:05,453 Your family and your friends. 218 00:12:06,159 --> 00:12:08,150 Early on, George Bush, Sr. 219 00:12:08,495 --> 00:12:10,986 Helped secure billions in government subsidies 220 00:12:11,231 --> 00:12:12,721 for Enron International. 221 00:12:12,999 --> 00:12:15,024 And he helped promote Lay as 222 00:12:15,302 --> 00:12:17,770 deregulation's Ambassador-at-Large. 223 00:12:18,505 --> 00:12:19,904 Enron is a company... 224 00:12:20,240 --> 00:12:23,471 that deals with everyone with absolute integrity. 225 00:12:23,677 --> 00:12:25,804 We want people to leave the transaction with Enron 226 00:12:26,046 --> 00:12:27,274 thinking that they've been dealt with 227 00:12:27,647 --> 00:12:29,911 in the highest possible way 228 00:12:30,183 --> 00:12:32,344 as far as integrity and truthfulness. 229 00:12:32,585 --> 00:12:35,486 He always wrapped himself in the cloak of moral rectitude. 230 00:12:35,789 --> 00:12:37,723 But there was one episode, early on, 231 00:12:37,991 --> 00:12:39,982 that raised questions about whether he was actually 232 00:12:40,260 --> 00:12:43,627 walking the walk This was the Enron oil scandal, 233 00:12:43,863 --> 00:12:45,490 also know as the Valhalla Scandal. 234 00:12:46,433 --> 00:12:47,866 While you were at Arthur Anderson, 235 00:12:48,101 --> 00:12:50,934 were you involved in an investigation 236 00:12:51,204 --> 00:12:53,399 at a company called Enron Oil?" 237 00:12:53,974 --> 00:12:54,963 Yes, I was. 238 00:12:55,175 --> 00:12:57,507 The issue with the company in 1997 239 00:12:57,677 --> 00:13:01,272 involved the misappropriation of moneys by two traders. 240 00:13:01,982 --> 00:13:05,884 In 1987 two oil traders made bets for Enron 241 00:13:06,152 --> 00:13:08,586 on whether the price of oil would rise or fall. 242 00:13:09,689 --> 00:13:11,281 Oil trading is like gambling: 243 00:13:11,524 --> 00:13:14,049 Sometimes you win, sometimes you lose. 244 00:13:14,494 --> 00:13:17,463 But Enron Oil always seemed to win, 245 00:13:17,630 --> 00:13:19,530 much to Ken Lay's delight. 246 00:13:19,733 --> 00:13:21,462 I tried to explain to Ken Lay 247 00:13:21,634 --> 00:13:24,762 the tremendous risk that you have in that market. 248 00:13:24,971 --> 00:13:26,165 You can lose... 249 00:13:26,506 --> 00:13:28,565 ten times your original investment. 250 00:13:29,042 --> 00:13:30,976 A veteran trader, Mike Muckleroy, 251 00:13:31,177 --> 00:13:34,476 was suspicious of Enron Oil's steady high profits. 252 00:13:35,181 --> 00:13:37,012 Well this oil trading business had profits 253 00:13:37,250 --> 00:13:38,842 that nobody could really understand and in fact, 254 00:13:39,185 --> 00:13:41,119 that many of Ken Lay's lieutenants questioned. 255 00:13:41,388 --> 00:13:42,616 They said this business can't be making 256 00:13:42,822 --> 00:13:44,050 this much money legitimately. 257 00:13:44,290 --> 00:13:45,917 Something weird is going on. 258 00:13:46,326 --> 00:13:48,487 Something weird was going on. 259 00:13:48,962 --> 00:13:51,055 The first hint came from an anonymous tip 260 00:13:51,297 --> 00:13:52,992 about the president of the company, 261 00:13:53,233 --> 00:13:54,530 Louis Borget. 262 00:13:54,768 --> 00:13:57,737 Mr. Borget had taken some three plus million dollars 263 00:13:58,004 --> 00:14:01,201 of corporate funds and put it in a personal account of his. 264 00:14:01,474 --> 00:14:04,068 There were offshore accounts phony books 265 00:14:04,277 --> 00:14:06,472 and a trail that led from the company's treasurer, 266 00:14:06,746 --> 00:14:07,644 Tom Mastroeni, 267 00:14:07,881 --> 00:14:11,282 to a mysterious Lebanese speculator no one could find: 268 00:14:11,518 --> 00:14:12,883 M. Yass. 269 00:14:13,386 --> 00:14:14,876 What name did you suspect that was? 270 00:14:15,121 --> 00:14:16,486 My ass, you know. 271 00:14:16,890 --> 00:14:19,358 And M Smart, well so that's Maxwell Smart. 272 00:14:19,592 --> 00:14:21,321 I mean, these guys are playing games 273 00:14:22,095 --> 00:14:24,563 Borget and Mastroeni were summoned to Houston. 274 00:14:25,098 --> 00:14:28,261 First, they presented falsified bank records to Enron. 275 00:14:28,668 --> 00:14:30,659 Then they admitted they had diverted company 276 00:14:30,904 --> 00:14:32,895 profits to personal accounts. 277 00:14:34,007 --> 00:14:35,565 It was brought to the attention of the Enron Board. 278 00:14:35,775 --> 00:14:37,538 Auditors were brought in as well, 279 00:14:37,777 --> 00:14:38,869 to look at the whole thing. 280 00:14:39,112 --> 00:14:40,079 At the board meeting, 281 00:14:40,280 --> 00:14:42,771 the auditors told Lay that Borget and his traders 282 00:14:43,016 --> 00:14:46,042 were manipulating earnings destroying daily trading records, 283 00:14:46,286 --> 00:14:49,585 and probably gambling way beyond their limits. 284 00:14:49,823 --> 00:14:51,188 The next day we found out that 285 00:14:51,424 --> 00:14:54,120 Lay's decision was to basically change nothing 286 00:14:54,360 --> 00:14:56,328 as far as the operation's concerned. 287 00:14:56,629 --> 00:14:59,325 And the reason he gave was that this was 288 00:14:59,532 --> 00:15:01,432 the only part of the combined company 289 00:15:01,668 --> 00:15:04,034 that was making any money and that he could not, 290 00:15:04,370 --> 00:15:06,600 you know, kill the golden goose. 291 00:15:07,207 --> 00:15:09,971 The traders weren't fired, or even disciplined. 292 00:15:10,343 --> 00:15:13,210 Instead, Enron sent a telex to Borget: 293 00:15:13,580 --> 00:15:16,276 Please keep making us millions. 294 00:15:17,050 --> 00:15:19,143 Instead of reducing Enron's risk, 295 00:15:19,486 --> 00:15:21,977 Lay encouraged his traders to gamble more. 296 00:15:22,689 --> 00:15:24,816 But then their luck changed. 297 00:15:26,292 --> 00:15:27,259 Two months later, 298 00:15:27,494 --> 00:15:29,462 here I got this panic call that they had 299 00:15:29,596 --> 00:15:32,963 drawn down 90 million dollars in the previous five days. 300 00:15:33,166 --> 00:15:34,861 What we could do is just try and find out 301 00:15:35,101 --> 00:15:37,899 what kind of guerilla we had loose up there. 302 00:15:38,671 --> 00:15:41,231 Muckleroy hopped on the next plane to New York. 303 00:15:41,508 --> 00:15:44,102 He knew Mastroeni had another set of books, 304 00:15:44,344 --> 00:15:47,313 and he would do whatever it took to get them. 305 00:15:48,314 --> 00:15:50,373 I basically stood over Tom 306 00:15:50,650 --> 00:15:53,118 and I told him that one of two things was going to happen. 307 00:15:53,319 --> 00:15:55,184 Either one of the trading partners 308 00:15:55,522 --> 00:15:56,989 that was crooked with Borget 309 00:15:57,257 --> 00:15:59,885 who was a German arms dealer was going to kill him, 310 00:16:00,293 --> 00:16:02,693 or I was. I said 'I'll track you down 311 00:16:03,029 --> 00:16:05,088 and find you no matter where you go. 312 00:16:05,465 --> 00:16:07,194 And sooner or later, I'll get you.' 313 00:16:08,368 --> 00:16:11,303 The next day, Mastroeni came in with the real books. 314 00:16:11,571 --> 00:16:14,870 The traders had gambled away all of Enron's reserves. 315 00:16:16,142 --> 00:16:19,009 By acting fast, Muckleroy bluffed the market, 316 00:16:19,279 --> 00:16:21,304 and managed to save the company. 317 00:16:23,082 --> 00:16:25,550 After Valhalla Ken Lay maintained that 318 00:16:25,752 --> 00:16:26,980 he had been shocked that the traders 319 00:16:27,253 --> 00:16:28,447 had gambled so recklessly. 320 00:16:28,621 --> 00:16:30,179 But Ken Lay had known all along 321 00:16:30,490 --> 00:16:32,048 about the risks that were taken. 322 00:16:32,258 --> 00:16:34,123 He had seen the reports warning him 323 00:16:34,327 --> 00:16:35,954 about the traders' behavior. 324 00:16:36,863 --> 00:16:39,161 Since the fall of Enron, Ken Lay has said that 325 00:16:39,365 --> 00:16:40,627 he can't be responsible for things 326 00:16:40,833 --> 00:16:42,061 he didn't know about. 327 00:16:42,302 --> 00:16:44,133 Sounds like what he said about Valhalla. 328 00:16:44,671 --> 00:16:46,468 Do you believe that he didn't know?" 329 00:16:46,706 --> 00:16:50,107 I can answer only for one. I can answer for Valhalla 330 00:16:50,310 --> 00:16:52,471 because Ken Lay did in fact know about this thing. 331 00:16:52,645 --> 00:16:53,873 Because I had told him myself. 332 00:16:54,147 --> 00:16:57,378 The auditors adamantly told Mr. Ken Lay 333 00:16:57,850 --> 00:17:01,081 that the two rogue traders should be fired. 334 00:17:01,454 --> 00:17:03,513 Lay read the report and he read his budget 335 00:17:03,723 --> 00:17:07,159 and estimated how much they, the two rogue executives made 336 00:17:07,460 --> 00:17:09,553 and if they were fired what he could lose. 337 00:17:09,862 --> 00:17:12,729 My conclusion was that this guy is a guy who puts earnings 338 00:17:12,966 --> 00:17:14,433 before scruples rather than reacting 339 00:17:14,634 --> 00:17:16,568 to the dishonesty right in front of him. 340 00:17:17,036 --> 00:17:19,436 Mastroeni received a suspended sentence. 341 00:17:19,639 --> 00:17:23,097 Borget was convicted of fraud, and spent one year in jail. 342 00:17:23,977 --> 00:17:26,468 With his biggest moneymaker now behind bars, 343 00:17:26,746 --> 00:17:28,213 Ken Lay had a problem: 344 00:17:28,481 --> 00:17:31,143 Who could he find to make money for Enron? 345 00:17:32,552 --> 00:17:34,110 Every year, every day, 346 00:17:34,354 --> 00:17:36,549 every week you have to come up with new ideas. 347 00:17:46,332 --> 00:17:48,664 Ken Lay saw in Jeff Skilling the guy who had the answer to 348 00:17:48,868 --> 00:17:51,860 what the future of the natural gas business was supposed to be. 349 00:17:52,138 --> 00:17:54,663 Ken Lay is also a guy who considers himself a visionary 350 00:17:54,941 --> 00:17:57,466 and he liked other people he thought of as visionaries. 351 00:17:57,644 --> 00:17:58,804 He liked people with big ideas. 352 00:17:59,178 --> 00:18:02,147 And Jeff Skilling was a person with the biggest ideas of all. 353 00:18:03,116 --> 00:18:05,778 Jeff Skilling's biggest single idea was find 354 00:18:06,019 --> 00:18:07,987 a new way to deliver energy. 355 00:18:08,221 --> 00:18:11,315 Rather than be bound by the physical flow of the pipeline, 356 00:18:11,624 --> 00:18:15,253 Enron would become a kind of stock market for natural gas. 357 00:18:15,528 --> 00:18:17,519 It was a magical new idea: 358 00:18:17,797 --> 00:18:20,561 Transform energy into financial instruments 359 00:18:20,800 --> 00:18:23,291 that could be traded like stocks and bonds. 360 00:18:23,770 --> 00:18:25,533 So that was the one good idea. 361 00:18:25,805 --> 00:18:27,966 In 1992 using that good idea, 362 00:18:28,174 --> 00:18:30,472 we became the largest buyer and seller of natural gas 363 00:18:30,677 --> 00:18:31,701 in North America. 364 00:18:31,944 --> 00:18:33,309 Jeff was like the prophet. 365 00:18:33,579 --> 00:18:36,241 He came in and said There's a whole new world out there. 366 00:18:36,482 --> 00:18:38,109 Forget about this pipeline stuff, 367 00:18:38,351 --> 00:18:39,943 you know the staid pipeline in the ground and... 368 00:18:40,253 --> 00:18:41,720 gas in and gas out. 369 00:18:41,988 --> 00:18:45,719 We can recreate this entire industry. 370 00:18:46,492 --> 00:18:48,221 An attorney from Vinson & Elkins, 371 00:18:48,528 --> 00:18:51,258 Amanda Martin was one of the first executives hired 372 00:18:51,531 --> 00:18:54,523 by Jeff Skilling and became part of his inner circle. 373 00:18:55,568 --> 00:18:57,126 The excitement was palpable. 374 00:18:57,370 --> 00:19:00,567 You cannot imagine how proud we all were to be there. 375 00:19:00,807 --> 00:19:03,901 And then, of course, we had a leader who imbued us 376 00:19:04,143 --> 00:19:06,543 with a sense of confidence that if we were smart, 377 00:19:06,779 --> 00:19:10,510 anything could be accomplished And then the bottom line 378 00:19:10,750 --> 00:19:12,479 we began to make money. 379 00:19:13,252 --> 00:19:15,152 And that in and of itself, 380 00:19:15,355 --> 00:19:18,847 was a re-affirmation that this could be big. 381 00:19:21,661 --> 00:19:24,186 Skilling saw the opportunity to build an industry new 382 00:19:24,464 --> 00:19:25,988 and to start a business from scratch. 383 00:19:26,232 --> 00:19:28,462 But he had one specific condition 384 00:19:28,701 --> 00:19:30,498 that had to be met before he'd join Enron, 385 00:19:30,737 --> 00:19:32,864 and it was that he be allowed to use 386 00:19:33,072 --> 00:19:35,438 a certain kind of accounting known as mark-to-market. 387 00:19:35,742 --> 00:19:38,336 Arthur Andersen signed off, and the SEC approved it. 388 00:19:38,978 --> 00:19:40,946 I remember walking in and going 'What's going on? ' 389 00:19:41,214 --> 00:19:42,545 And Causey and everybody, 390 00:19:42,749 --> 00:19:44,649 I mean every one was so excited and then came the champagne 391 00:19:44,884 --> 00:19:47,148 and We had got Mark-to-market accounting treatment. 392 00:19:47,487 --> 00:19:50,945 And I often think about how clear my memory was about that event. 393 00:19:51,224 --> 00:19:54,921 And that was the beginning of a major cog 394 00:19:55,128 --> 00:19:56,857 of the downfall ultimately of Enron. 395 00:19:59,766 --> 00:20:02,234 Mark-to-market accounting allowed Enron 396 00:20:02,502 --> 00:20:04,766 to book potential future profits 397 00:20:05,004 --> 00:20:06,869 on the very day a deal was signed. 398 00:20:07,273 --> 00:20:10,265 No matter how little cash actually came in the door, 399 00:20:10,576 --> 00:20:13,545 to the outside world, Enron's profits could be... 400 00:20:13,813 --> 00:20:16,407 whatever Enron said they were. 401 00:20:17,250 --> 00:20:19,047 Very subjective. 402 00:20:20,753 --> 00:20:26,658 And very... it left it open to manipulation. 403 00:20:26,859 --> 00:20:28,588 And they were saying that we're going to sell 404 00:20:28,828 --> 00:20:31,991 power out of this power plant in ten years 405 00:20:32,231 --> 00:20:34,927 for X dollars per kilowatt. 406 00:20:35,668 --> 00:20:38,466 And there was no way anybody could prove that 407 00:20:38,738 --> 00:20:39,204 they could do it. 408 00:20:39,405 --> 00:20:40,269 Well... Hey Reg. 409 00:20:40,473 --> 00:20:41,167 Good morning. How are you? 410 00:20:41,407 --> 00:20:42,738 Finally. Great. Good to see you. 411 00:20:42,942 --> 00:20:44,432 Jeff. Good to see you. Todd, sit down. 412 00:20:44,744 --> 00:20:46,041 We've been working hard on this 413 00:20:46,245 --> 00:20:47,371 and we've really pulled out all the stops. 414 00:20:47,580 --> 00:20:49,377 Look what we got. Origination... 415 00:20:49,615 --> 00:20:50,912 We did 20 million last year, 416 00:20:51,184 --> 00:20:53,414 I think we can do 120 million dollars this year. 417 00:20:53,886 --> 00:20:55,877 Trading we did 10 million last year 418 00:20:56,122 --> 00:20:58,283 we think we can do 64 this year. 419 00:20:58,524 --> 00:20:59,388 This is the key. 420 00:20:59,625 --> 00:21:00,489 We're going to move from 421 00:21:00,693 --> 00:21:02,627 mark-to-market accounting to something 422 00:21:02,829 --> 00:21:05,354 I call H, F, V 423 00:21:05,598 --> 00:21:09,090 Hypothetical Future Value accounting. 424 00:21:09,502 --> 00:21:12,471 If we do that we can add a kazillion dollars 425 00:21:12,705 --> 00:21:13,797 to the bottom line. 426 00:21:14,006 --> 00:21:19,069 Whoa! Jeff... alright! That sounds fantastic. 427 00:21:19,312 --> 00:21:23,146 Oh Jeff, thank you. That's just supurb performance. 428 00:21:23,349 --> 00:21:25,146 And you're going to go far, my boy. 429 00:21:25,384 --> 00:21:27,215 Probably President of the company one day. 430 00:21:27,520 --> 00:21:28,782 You think so? I think! 431 00:21:28,988 --> 00:21:31,047 He really believed that the idea was everything. 432 00:21:31,257 --> 00:21:32,622 And that when you came up with an idea, 433 00:21:32,859 --> 00:21:35,191 you should be able to book the profits from that idea, 434 00:21:35,528 --> 00:21:36,495 right away. 435 00:21:36,696 --> 00:21:39,130 Because otherwise some lesser man was taking the profits 436 00:21:39,365 --> 00:21:40,855 from the idea that some greater man 437 00:21:41,100 --> 00:21:42,761 had come up with in the past. 438 00:21:44,170 --> 00:21:46,661 When Jeff Skilling applied to Harvard Business School, 439 00:21:46,906 --> 00:21:49,033 the professor asked him if he was smart. 440 00:21:49,275 --> 00:21:51,903 He replied, 'I'm fucking smart.' 441 00:21:53,112 --> 00:21:56,240 One of his favorite books was The Selfish Gene, 442 00:21:56,549 --> 00:21:59,211 about the ways human nature is steered by greed 443 00:21:59,452 --> 00:22:02,182 and competition in the service of passing on our genes. 444 00:22:03,289 --> 00:22:03,914 At Enron. 445 00:22:04,190 --> 00:22:06,750 Skilling wanted to set free the basic instincts 446 00:22:07,059 --> 00:22:08,890 of survival of the fittest. 447 00:22:11,764 --> 00:22:14,358 Jeff had a very Darwinian view of how the world worked. 448 00:22:14,634 --> 00:22:17,034 He was famous for saying once in Enron's early years, 449 00:22:17,303 --> 00:22:19,703 that money was the only thing that motivated people. 450 00:22:21,507 --> 00:22:23,634 Skilling's notion of how the world should work 451 00:22:23,910 --> 00:22:24,706 really trickled down, 452 00:22:25,011 --> 00:22:27,206 and affected everything about how Enron did business. 453 00:22:27,513 --> 00:22:29,208 He instituted the system know as the PRC, 454 00:22:29,415 --> 00:22:30,882 or Perfomance Review Committee. 455 00:22:31,117 --> 00:22:34,086 It required that people be graded from a one to a five. 456 00:22:34,287 --> 00:22:36,983 And roughly ten percent of people had to be a five. 457 00:22:37,189 --> 00:22:39,180 And those people were supposed to be fired. 458 00:22:39,425 --> 00:22:41,791 Hence, this came to be know as 'Rank and Yank.' 459 00:22:42,061 --> 00:22:43,392 I, personally, am convinced 460 00:22:44,530 --> 00:22:47,590 that the PRC process is the most important process 461 00:22:47,967 --> 00:22:49,935 that we conduct as a company. 462 00:22:50,136 --> 00:22:51,535 I've never heard of a company yet 463 00:22:51,771 --> 00:22:54,069 that would be successful terminating 15 percent 464 00:22:54,307 --> 00:22:55,706 of their people every year... 465 00:22:55,942 --> 00:22:58,376 just to satisfy the fact that the other employees 466 00:22:58,578 --> 00:22:59,636 had to vote on them. 467 00:22:59,845 --> 00:23:01,745 And so when you're being evaluated by that group, 468 00:23:01,948 --> 00:23:05,349 you are getting direct communication from Ken and me 469 00:23:05,585 --> 00:23:07,553 about what the objectives of the company are 470 00:23:07,753 --> 00:23:09,448 and how you fit with those objectives. 471 00:23:09,689 --> 00:23:11,452 It was a brutal process. 472 00:23:11,691 --> 00:23:14,785 The ability for a 25 year old to go in 473 00:23:15,061 --> 00:23:18,087 and to be reviewed and to be superior... 474 00:23:18,698 --> 00:23:22,134 and as a consequence get a five million dollar bonus. 475 00:23:22,702 --> 00:23:24,465 I don't think that's repeated in many places 476 00:23:24,637 --> 00:23:25,695 in corporate America. 477 00:23:25,938 --> 00:23:27,530 Our culture is a tough culture. 478 00:23:27,773 --> 00:23:30,742 It is a very aggressive culture. 479 00:23:33,079 --> 00:23:33,636 At Enron, 480 00:23:33,913 --> 00:23:36,711 no one was more aggressive than the traders. 481 00:23:37,917 --> 00:23:40,511 If I'm on the way to my boss's office 482 00:23:40,753 --> 00:23:42,152 talking about my compensation. 483 00:23:42,355 --> 00:23:44,152 And if I step on somebody's throat on the way 484 00:23:44,357 --> 00:23:45,119 that doubles it? 485 00:23:45,358 --> 00:23:47,053 Well, I'll stomp on the guy's throat. 486 00:23:47,627 --> 00:23:50,494 You know, that that's how people were. 487 00:23:51,731 --> 00:23:54,791 On the trading side we got to be the biggest, 488 00:23:55,067 --> 00:23:57,160 baddest house in town. 489 00:23:57,536 --> 00:23:58,525 And by necessity, 490 00:23:58,804 --> 00:24:00,237 if you wanted to be in the market, 491 00:24:00,506 --> 00:24:02,940 you had to deal with Enron. 492 00:24:05,144 --> 00:24:08,443 Enron's traders were like the super powerful high school 493 00:24:08,614 --> 00:24:11,105 clique that even the principal doesn't dare to reign in. 494 00:24:11,350 --> 00:24:13,682 They had become the major engine of 495 00:24:13,986 --> 00:24:16,454 at least reported profits at the company. 496 00:24:16,622 --> 00:24:19,318 They took Jeff Skilling and Ken Lay's belief in free markets 497 00:24:19,592 --> 00:24:21,560 and turned it into an ideology. 498 00:24:21,794 --> 00:24:25,195 But they pitch it almost as a new economic religion. 499 00:24:28,501 --> 00:24:31,061 Enron on-line will change the markets 500 00:24:31,303 --> 00:24:32,930 for many many commodities. 501 00:24:33,239 --> 00:24:37,073 It is creating an open transparent marketplace 502 00:24:37,343 --> 00:24:40,471 that replaces the dark blind system that existed. 503 00:24:41,313 --> 00:24:42,905 It is real simple. 504 00:24:43,282 --> 00:24:45,944 You turn on your computer and it's right there. 505 00:24:46,185 --> 00:24:46,810 That's our vision. 506 00:24:47,086 --> 00:24:48,781 We're trying to change the world. 507 00:24:53,959 --> 00:24:56,189 I think Jeff Skilling had a desperate 508 00:24:56,529 --> 00:24:58,156 need to believe that Enron was a success. 509 00:24:58,397 --> 00:25:00,058 I think he identified with Enron. 510 00:25:00,299 --> 00:25:02,790 He proclaimed, at one point,' I am Enron'. 511 00:25:04,370 --> 00:25:06,235 The other thing about people at Enron is, 512 00:25:06,472 --> 00:25:09,669 a lot of them were former nerds and including Jeff Skilling. 513 00:25:09,909 --> 00:25:11,774 He had been paunchy. He had big glasses. 514 00:25:12,011 --> 00:25:13,239 He was losing his hair. 515 00:25:13,479 --> 00:25:15,538 And Jeff Skilling one day kinda woke up 516 00:25:15,781 --> 00:25:17,009 and decided to change himself. 517 00:25:17,249 --> 00:25:19,240 And he started working out, lost a lot of weight. 518 00:25:19,518 --> 00:25:20,849 But he really did remake himself 519 00:25:21,053 --> 00:25:24,147 through sheer will and force of personality. 520 00:25:24,924 --> 00:25:28,451 When Jeff got Lasik on his eyes, everybody at Enron got Lasik, 521 00:25:28,694 --> 00:25:30,855 so nobody was wearing glasses. 522 00:25:32,498 --> 00:25:34,989 I think Jeff Skilling is really a tragic figure, 523 00:25:35,234 --> 00:25:36,496 in a classic sense of the word. 524 00:25:36,769 --> 00:25:39,795 He's a guy that people describe as incandescently brilliant. 525 00:25:40,072 --> 00:25:42,734 But he's also a guy who is radically different 526 00:25:42,942 --> 00:25:44,102 than he at times portrays himself. 527 00:25:44,310 --> 00:25:46,244 He's portrayed himself as somebody who has 528 00:25:46,512 --> 00:25:48,912 very tightly-monitored risk. In reality, he's a gambler. 529 00:25:49,115 --> 00:25:52,107 He gambled away huge sums of money before he was 20 years old, 530 00:25:52,351 --> 00:25:54,546 by making wild bets on the market. 531 00:25:57,690 --> 00:25:59,419 To Jeff Skilling, risk was glamorous. 532 00:25:59,592 --> 00:26:00,786 He was a huge risk taker. 533 00:26:00,993 --> 00:26:03,655 He actually talked about wanting to go on trips that 534 00:26:03,863 --> 00:26:05,888 were so perilous that someone could actually die. 535 00:26:10,503 --> 00:26:13,734 This manifested itself in trips that Jeff Skilling led 536 00:26:14,006 --> 00:26:16,236 for a small group of friends and customers. 537 00:26:21,180 --> 00:26:23,910 A core cadre of Enron guys used to go on 538 00:26:24,183 --> 00:26:25,810 these wild adventures: 539 00:26:26,018 --> 00:26:28,680 Andy Fastow would go; Ken Rice would go. 540 00:26:29,155 --> 00:26:30,679 The trips were legend. 541 00:26:30,890 --> 00:26:33,552 You know, we can sit and think about what strange insecurities 542 00:26:33,826 --> 00:26:35,453 they were trying to overcome. 543 00:26:35,628 --> 00:26:37,687 But it made them feel good as men. 544 00:26:38,564 --> 00:26:40,964 And they took a particularly memorable trip to the Baja 545 00:26:41,267 --> 00:26:44,168 twelve hundred miles of very rugged terrain in Mexico. 546 00:26:48,040 --> 00:26:50,838 This is a trip where people crashed bikes. 547 00:26:51,177 --> 00:26:51,939 Ken Rice was on the trip, 548 00:26:52,244 --> 00:26:55,475 and he busted a lip and required a bunch of stitches. 549 00:26:55,681 --> 00:26:57,012 People broke bones. 550 00:26:57,216 --> 00:26:59,810 One guy flipped a jeep and almost got killed. 551 00:27:00,319 --> 00:27:02,844 Those sorts of stories at Enron became legend. 552 00:27:03,322 --> 00:27:05,813 And it fed the whole macho culture of the place. 553 00:27:16,001 --> 00:27:18,595 Jeff Skilling had a way of describing people that he liked. 554 00:27:18,804 --> 00:27:20,237 He said, 'I like guys with spikes.' 555 00:27:20,472 --> 00:27:23,066 He liked somebody with something extreme about them. 556 00:27:26,011 --> 00:27:27,706 Ken Rice was one of the Men with Spikes. 557 00:27:27,947 --> 00:27:29,642 He was the salesman of the group. 558 00:27:29,849 --> 00:27:32,477 Very amiable, fun, man's man. 559 00:27:32,685 --> 00:27:36,451 And was the guy out selling deals to energy companies. 560 00:27:36,622 --> 00:27:39,318 In the case of Cliff Baxter, the company's chief dealmaker 561 00:27:39,558 --> 00:27:42,083 he was extraordinarily talented at just doing a deal. 562 00:27:42,494 --> 00:27:43,984 But he was a manic depressive. 563 00:27:45,664 --> 00:27:47,564 Baxter was a very bright guy, 564 00:27:47,766 --> 00:27:50,234 very blunt would tell Skilling whatever 565 00:27:50,502 --> 00:27:52,663 he thought was closest to Skilling, personally, 566 00:27:52,872 --> 00:27:54,134 than anyone else in the company. 567 00:27:54,540 --> 00:27:56,235 There was a guy named Lou Pai, 568 00:27:56,508 --> 00:27:58,203 who was a key Skilling lieutenant; 569 00:27:58,410 --> 00:27:59,809 helped build the trading business in the early years; 570 00:28:00,045 --> 00:28:02,275 went on to run Enron's doomed 571 00:28:02,481 --> 00:28:04,005 effort called Enron Energy Services. 572 00:28:04,283 --> 00:28:07,309 What was the job of EES, as you ran it? 573 00:28:07,586 --> 00:28:11,886 Ah, it was to sell energy services to end users, 574 00:28:12,157 --> 00:28:13,624 industrial end users. 575 00:28:13,893 --> 00:28:15,417 Lou Pai is the guy that Skilling 576 00:28:15,561 --> 00:28:16,994 tapped to run the EES business. 577 00:28:17,229 --> 00:28:17,888 Because this was, 578 00:28:18,097 --> 00:28:19,462 this was so important to the company, 579 00:28:19,665 --> 00:28:20,632 and to Skilling's future. 580 00:28:20,866 --> 00:28:22,629 He called Lou Pai 'my ICBM.' 581 00:28:23,102 --> 00:28:24,933 And Lou Pai dispatched his enemies 582 00:28:25,170 --> 00:28:26,831 with incredible skill. 583 00:28:27,039 --> 00:28:29,439 And if that meant leaving bodies behind him, 584 00:28:29,608 --> 00:28:31,075 Skilling was certainly fine about that. 585 00:28:31,543 --> 00:28:33,477 I'm not feeling anything. 586 00:28:33,712 --> 00:28:35,737 Lou Pai was kind of a mysterious figure. 587 00:28:35,948 --> 00:28:39,213 He was kind of like the invisible CEO. 588 00:28:39,485 --> 00:28:42,045 For awhile he was located on the 7th floor. 589 00:28:42,354 --> 00:28:46,222 And there's a long office. 590 00:28:46,492 --> 00:28:49,655 And it was all glass-enclosed, and you would walk by there, 591 00:28:49,895 --> 00:28:52,363 and it was just almost all the time it was empty. 592 00:28:54,233 --> 00:28:56,758 Details didn't interest Lou Pai. 593 00:28:57,336 --> 00:28:59,600 Only two things seemed to motivate Pai 594 00:28:59,905 --> 00:29:03,841 money and a peculiar fascination with strippers. 595 00:29:04,510 --> 00:29:07,502 For Pai, it was all about the numbers. 596 00:29:13,886 --> 00:29:15,410 He was there every night after work 597 00:29:15,554 --> 00:29:17,988 and he usually brought some of the traders along with him. 598 00:29:18,290 --> 00:29:20,417 He spent quite a lot of money there as well. 599 00:29:20,826 --> 00:29:23,158 Much of it charged to the Enron expense accounts. 600 00:29:23,462 --> 00:29:25,089 There were rumors that he brought strippers up 601 00:29:25,297 --> 00:29:26,730 to the trading floor. 602 00:29:26,966 --> 00:29:28,797 Almost everyone knew the story. 603 00:29:29,068 --> 00:29:31,059 The story is that because he's kind of a mild, 604 00:29:31,637 --> 00:29:32,831 soft-spoken, 605 00:29:33,038 --> 00:29:36,496 almost meek individual that maybe these... 606 00:29:36,809 --> 00:29:39,972 these strippers didn't even believe he was the CEO. 607 00:29:40,179 --> 00:29:43,046 So he took them up to his office. 608 00:29:43,248 --> 00:29:44,180 And I guess they, 609 00:29:44,383 --> 00:29:46,544 they put on a little show for him there. 610 00:29:51,223 --> 00:29:53,020 One night he was at a club. And one of the guys said, 611 00:29:53,225 --> 00:29:56,058 you know, Lou, all the rest of us are single. 612 00:29:56,295 --> 00:29:57,455 You know, we don't have any problem. 613 00:29:57,596 --> 00:29:58,654 But how do you keep your wife 614 00:29:58,897 --> 00:30:00,865 from smelling the strippers' perfume on you? 615 00:30:01,333 --> 00:30:03,028 And Lou said, 'oh, I've got a secret'. 616 00:30:03,335 --> 00:30:05,462 He said, 'I stop in at a gas station on the way home. 617 00:30:05,704 --> 00:30:07,433 And I spill a little gasoline on myself 618 00:30:07,740 --> 00:30:08,798 and it kills the scent.' 619 00:30:09,041 --> 00:30:10,872 So the other guy shot back, he said, 'but Lou, 620 00:30:11,110 --> 00:30:11,872 doesn't your wife then think 621 00:30:12,077 --> 00:30:13,840 you're fucking the gas station attendant? ' 622 00:30:14,079 --> 00:30:16,343 In the context of Lou Pai, everyone was horrified, 623 00:30:16,615 --> 00:30:18,981 a pall fell over the table. 624 00:30:19,218 --> 00:30:21,243 Because Lou Pai was not a man to trifle with. 625 00:30:21,520 --> 00:30:23,715 Two days later, the guy who told the joke, 626 00:30:23,956 --> 00:30:25,082 as Enron legend... has it, 627 00:30:25,324 --> 00:30:27,519 was dispatched to Calgary, Canada. 628 00:30:31,930 --> 00:30:35,058 Lou Pai lost all interest in running EES 629 00:30:35,267 --> 00:30:37,599 as soon as the numbers got high enough. 630 00:30:39,571 --> 00:30:43,405 I netted approximately a hundred million dollars. 631 00:30:43,709 --> 00:30:46,269 I don't know if that number is accurate, 632 00:30:46,512 --> 00:30:47,843 plus or minus 20 million. 633 00:30:48,113 --> 00:30:50,172 He actually left Enron with more money than anybody, 634 00:30:50,416 --> 00:30:51,849 250 million dollars, 635 00:30:52,117 --> 00:30:53,880 because he sold all his stock in Enron 636 00:30:54,186 --> 00:30:56,518 after he got a divorce from his wife, 637 00:30:56,755 --> 00:30:58,416 in order to marry his stripper girlfriend, 638 00:30:58,624 --> 00:30:59,886 who had had his child. 639 00:31:03,495 --> 00:31:09,331 His exit from Enron was as mysterious as his presence there. 640 00:31:09,601 --> 00:31:11,262 Just sort of one day, 641 00:31:11,503 --> 00:31:17,237 we all learned that Lou Pai was no longer the CEO of EES. 642 00:31:19,244 --> 00:31:21,269 Though Lou Pai flew away from Enron 643 00:31:21,513 --> 00:31:23,640 with 250 million dollars, 644 00:31:23,849 --> 00:31:25,339 the divisions he left behind 645 00:31:25,617 --> 00:31:28,142 lost a total of nearly $1 billion. 646 00:31:28,620 --> 00:31:31,282 But Enron managed to disguise that fact. 647 00:31:31,690 --> 00:31:35,854 Lou Pai became the second largest landowner in Colorado. 648 00:31:39,031 --> 00:31:39,861 It was the number. 649 00:31:40,065 --> 00:31:41,327 It was always making those numbers, 650 00:31:41,567 --> 00:31:43,159 and looking, you know, it was, to me, 651 00:31:43,535 --> 00:31:45,969 the real mythology is high school mythology. 652 00:31:46,171 --> 00:31:46,569 That, you know, 653 00:31:46,805 --> 00:31:48,898 you wanted to be the most popular guy on Wall Street, 654 00:31:49,108 --> 00:31:52,509 and you were gonna do whatever you had to do to stay there. 655 00:31:52,678 --> 00:31:54,202 And Jeff understood those rules better than, 656 00:31:54,446 --> 00:31:55,606 I think, anyone else. 657 00:32:02,955 --> 00:32:04,946 Americans are making a lot of money in stocks. 658 00:32:05,157 --> 00:32:08,126 The stock market soared to near record highs yesterday. 659 00:32:08,327 --> 00:32:10,955 The stock market continued its bull run Thursday. 660 00:32:11,163 --> 00:32:13,495 The Dow rose nearly 61 points. 661 00:32:13,732 --> 00:32:16,326 Even the person with very little disposable income 662 00:32:16,635 --> 00:32:18,728 all of a sudden began to play in the stock market, 663 00:32:18,971 --> 00:32:19,960 because nobody could fail. 664 00:32:20,205 --> 00:32:22,833 Because stock prices were just going up and up and up. 665 00:32:23,041 --> 00:32:24,599 Another day, another record. 666 00:32:24,877 --> 00:32:26,276 And the internet technology stocks, 667 00:32:26,545 --> 00:32:27,204 just going wild. 668 00:32:27,513 --> 00:32:30,846 Gained more than 100 points to close at 7895.81, 669 00:32:31,083 --> 00:32:32,607 the highest finish ever. 670 00:32:32,951 --> 00:32:36,182 It was a time where we had the biggest bull market 671 00:32:36,522 --> 00:32:37,580 in the history of the world. 672 00:32:37,823 --> 00:32:41,486 Ken Lay was right there, acting as a cheerleader. 673 00:32:41,627 --> 00:32:43,492 Obviously our stock has been doing very well. 674 00:32:43,762 --> 00:32:44,956 I think there's a fairly good chance 675 00:32:45,197 --> 00:32:46,323 we could see the stock price double 676 00:32:46,532 --> 00:32:48,227 again over the next year to eighteen months. 677 00:32:57,543 --> 00:32:59,101 Enron mounted a campaign to capture 678 00:32:59,344 --> 00:33:02,905 the hearts and minds of stock analysts. 679 00:33:03,148 --> 00:33:05,173 The natural gas stocks include Enron... 680 00:33:05,484 --> 00:33:06,451 We're never satisfied 681 00:33:06,618 --> 00:33:08,643 and I don't want us to ever be satisfied 682 00:33:08,887 --> 00:33:10,445 with the stock price. It should always be higher. 683 00:33:10,722 --> 00:33:13,816 Enron posted a 30-percent jump in second-quarter profits, 684 00:33:14,092 --> 00:33:17,357 as Web-based trading boosted its wholesale energy business. 685 00:33:17,596 --> 00:33:19,757 The game was played on Wall Street in such 686 00:33:20,032 --> 00:33:22,694 an established way throughout the 1990's. 687 00:33:22,935 --> 00:33:24,869 As long as a company met or exceeded 688 00:33:25,103 --> 00:33:27,663 the analysts' projections for quarterly earnings per share, 689 00:33:27,906 --> 00:33:28,770 the stock went higher. 690 00:33:29,074 --> 00:33:31,269 The game was called 'pump and dump.' 691 00:33:31,944 --> 00:33:33,878 Top execs would push the stock price up 692 00:33:34,112 --> 00:33:37,673 and then cash in their multi-million-dollar options. 693 00:33:37,950 --> 00:33:40,680 People at Enron got paid, in large part, through stock. 694 00:33:40,986 --> 00:33:44,012 Everyone had a huge stake in seeing the stock price go up. 695 00:33:44,523 --> 00:33:46,252 And it was driven, very clearly, 696 00:33:46,525 --> 00:33:48,152 by the profits every single quarter. 697 00:33:48,393 --> 00:33:49,985 They were exceedingly conscious of that; 698 00:33:50,229 --> 00:33:51,560 Skilling was, and everyone else in the company was. 699 00:33:51,797 --> 00:33:53,594 They posted the stock price in the elevator. 700 00:33:53,832 --> 00:33:56,858 You were surrounded by the health of the company; 701 00:33:57,069 --> 00:33:58,696 what's the stock price doing? 702 00:33:59,037 --> 00:34:00,061 We were consumed by it. 703 00:34:02,908 --> 00:34:06,674 This company was fixated on its stock price 704 00:34:06,912 --> 00:34:11,440 and fixated on a massive public relations campaign 705 00:34:11,950 --> 00:34:15,477 to convince the investment community that they were new, 706 00:34:15,721 --> 00:34:16,983 different, innovative; 707 00:34:17,256 --> 00:34:20,885 almost heralding a new era of... of corporate enterprise. 708 00:34:23,629 --> 00:34:25,153 Come work for us. 709 00:34:25,797 --> 00:34:27,526 We encourage our people to do new things, 710 00:34:27,766 --> 00:34:31,463 try new things, experiment step out. 711 00:34:31,637 --> 00:34:33,264 We begin by attracting the kind of people 712 00:34:33,505 --> 00:34:35,473 that are more comfortable in an environment of change. 713 00:34:36,241 --> 00:34:38,141 You know when you work for Enron 714 00:34:38,377 --> 00:34:39,571 you're gonna see the newest thinking. 715 00:34:39,778 --> 00:34:41,678 You're going to see the newest markets opening up. 716 00:34:41,980 --> 00:34:44,813 Enron on-line, a fabulous, fabulous story. 717 00:34:45,017 --> 00:34:47,110 They were so good at their acting 718 00:34:47,352 --> 00:34:49,115 that they convinced corporate America 719 00:34:49,354 --> 00:34:50,912 that they were smarter than anyone else. 720 00:34:51,156 --> 00:34:53,647 Alan, with our sincere thanks and admiration, 721 00:34:54,126 --> 00:34:57,323 we are pleased and indeed honored to award you 722 00:34:57,529 --> 00:35:00,327 the Enron prize for distinguished public service. 723 00:35:07,306 --> 00:35:08,603 They continued to sell the company 724 00:35:08,840 --> 00:35:10,535 as being a very stable place 725 00:35:10,742 --> 00:35:12,767 where it could predictably increase profits 726 00:35:13,011 --> 00:35:14,342 10 to 15 percent a year. 727 00:35:14,613 --> 00:35:16,740 In fact, to get to those numbers Enron was doing 728 00:35:16,982 --> 00:35:19,450 all sorts of questionable things; 729 00:35:19,651 --> 00:35:20,982 taking enormous risks. 730 00:35:21,219 --> 00:35:22,277 We like risk. 731 00:35:22,554 --> 00:35:24,579 Because you make money by taking risk. 732 00:35:30,896 --> 00:35:33,456 By all accounts, Enron was soaring. 733 00:35:36,034 --> 00:35:38,867 But in reality, profits weren't going up; 734 00:35:39,104 --> 00:35:41,504 they were headed in the opposite direction. 735 00:35:42,274 --> 00:35:46,267 Enron had vast natural gas operations all over the world. 736 00:35:46,578 --> 00:35:48,478 They had cost billions to build 737 00:35:48,747 --> 00:35:50,977 and most were performing terribly. 738 00:35:51,516 --> 00:35:53,575 But in other places in the world, in India, 739 00:35:53,819 --> 00:35:56,083 great quarter and a great year in India. 740 00:35:56,521 --> 00:36:00,013 Phase one of Dabhol is in operation generating power. 741 00:36:00,258 --> 00:36:02,852 Phase two is financed and is under construction. 742 00:36:03,128 --> 00:36:06,154 My experience indicated there were certain places that you 743 00:36:06,465 --> 00:36:08,433 assiduously stayed away from. 744 00:36:08,633 --> 00:36:10,430 And one of them, as an example, was India. 745 00:36:10,602 --> 00:36:12,069 They built this power plant in India. 746 00:36:12,304 --> 00:36:13,896 Nobody else would do that at the time. 747 00:36:14,139 --> 00:36:15,902 They were terrified of investing in India. 748 00:36:16,174 --> 00:36:18,608 Enron did it, and did it in a big way. 749 00:36:19,544 --> 00:36:21,978 But Enron had failed to see something basic. 750 00:36:22,247 --> 00:36:24,613 India couldn't afford to pay for the power 751 00:36:24,883 --> 00:36:26,441 Enron's plant produced. 752 00:36:27,052 --> 00:36:29,486 Now Dabhol is a ruin. 753 00:36:31,256 --> 00:36:33,588 Though it lost a billion dollars on the project, 754 00:36:33,825 --> 00:36:35,918 Enron paid out multi-million dollar 755 00:36:36,128 --> 00:36:38,096 bonuses to executives based 756 00:36:38,330 --> 00:36:41,094 on imaginary profits that never arrived. 757 00:36:42,033 --> 00:36:44,467 Where was the real money going to come from? 758 00:36:45,370 --> 00:36:47,338 Of course the pressure was enormous. 759 00:36:47,539 --> 00:36:49,200 You had to come up with the next idea 760 00:36:49,508 --> 00:36:50,805 that would break through. 761 00:36:51,009 --> 00:36:53,102 Failure was not an option. 762 00:36:53,378 --> 00:36:55,073 A flurry of buy-outs in the corporate world... 763 00:36:55,414 --> 00:36:56,073 the biggest: 764 00:36:56,281 --> 00:36:58,647 Enron announcing a buy out of Portland General. 765 00:36:59,818 --> 00:37:03,652 The merger with PGE put Enron in the electricity business. 766 00:37:03,855 --> 00:37:06,415 And Portland General's position on the west coast 767 00:37:06,658 --> 00:37:11,027 gave Enron access to the newly deregulated market of California. 768 00:37:12,197 --> 00:37:13,221 The merger, we think... 769 00:37:13,465 --> 00:37:15,433 it uniquely positions us to ultimately 770 00:37:15,801 --> 00:37:19,259 become the largest marketer of electricity and natural gas 771 00:37:19,571 --> 00:37:22,438 at both the wholesale and retail level nationwide." 772 00:37:23,742 --> 00:37:25,801 What brought all this on was the deregulation 773 00:37:26,044 --> 00:37:27,773 they said that we would not survive, 774 00:37:28,013 --> 00:37:29,173 unless we joined forces. 775 00:37:29,481 --> 00:37:32,177 Enron, I'd never heard of 'em until they were gonna buy us. 776 00:37:32,484 --> 00:37:34,918 They slid in here, and when they purchased PGE, 777 00:37:35,220 --> 00:37:37,279 all the PGE stock became Enron. 778 00:37:37,589 --> 00:37:39,523 Just went through, stamped every one of 'em. 779 00:37:39,724 --> 00:37:40,452 I looked around me, 780 00:37:40,659 --> 00:37:41,819 and all the guys that were buyin' all this Enron, 781 00:37:42,060 --> 00:37:43,459 they were doublin' their money. 782 00:37:43,628 --> 00:37:45,960 And that whole time since then, I put the maximum 783 00:37:46,198 --> 00:37:48,996 I could into my 401 and savings. 784 00:37:49,234 --> 00:37:52,761 Portland General, again, good earnings and cash flow. 785 00:37:53,071 --> 00:37:55,369 It's what's they call on Wall Street a "trust me" story. 786 00:37:55,574 --> 00:37:57,132 People that had been gas pipeline workers who 787 00:37:57,409 --> 00:37:58,967 for decades kept all their money in the company 788 00:37:59,211 --> 00:38:01,543 because they thought it was this traditional and, 789 00:38:02,647 --> 00:38:04,911 you know, safe investment as it... as it had always been. 790 00:38:05,150 --> 00:38:06,515 And it was... it wasn't anything close to that. 791 00:38:06,785 --> 00:38:09,515 Should we invest all of our 401k in Enron stock? 792 00:38:09,721 --> 00:38:11,985 Absolutely. Don't you guys agree? 793 00:38:26,304 --> 00:38:27,862 Enron is a big winner today 794 00:38:28,106 --> 00:38:29,937 One of the things that fascinated me was that 795 00:38:30,141 --> 00:38:31,904 almost all of the Wall Street analysts 796 00:38:32,177 --> 00:38:33,940 who covered Enron had buy ratings 797 00:38:34,212 --> 00:38:35,839 or strong buy ratings on the company's stock. 798 00:38:36,081 --> 00:38:41,815 Why were the analysts blinded to the company's deceit? 799 00:38:42,020 --> 00:38:44,284 We relied on the information that was available at the time. 800 00:38:44,489 --> 00:38:47,117 I trusted the integrity of the company's certified 801 00:38:47,325 --> 00:38:48,189 financial statements, 802 00:38:48,493 --> 00:38:51,155 and the representations of the company's management. 803 00:38:51,396 --> 00:38:53,330 And we've been absolutely upfront with the analysts. 804 00:38:53,565 --> 00:38:55,897 Jeff Skilling was the critical component 805 00:38:56,101 --> 00:38:57,898 in creating the Enron illusion. 806 00:38:58,336 --> 00:39:00,930 Time and time again when we had a question 807 00:39:01,172 --> 00:39:04,073 to the sell-side analysts that they couldn't answer, 808 00:39:04,442 --> 00:39:06,842 the response was, 'I'll give Jeff a call; 809 00:39:07,112 --> 00:39:08,704 I'll run this by Jeff.' 810 00:39:08,947 --> 00:39:10,608 By giving Jeff a call, 811 00:39:10,815 --> 00:39:13,113 the analysts weren't 'analyzing' at all. 812 00:39:13,351 --> 00:39:14,784 They were willing to believe virtually 813 00:39:15,020 --> 00:39:16,920 anything Enron told them. 814 00:39:22,193 --> 00:39:24,753 Most of the analysts right now have a target price on us 815 00:39:25,030 --> 00:39:27,658 from a hundred to a hundred and fifteen dollars a share. 816 00:39:27,899 --> 00:39:29,799 Any analyst who didn't buy the company line 817 00:39:30,001 --> 00:39:31,992 became an enemy of Enron. 818 00:39:32,237 --> 00:39:34,432 Enron's CFO, Andy Fastow, 819 00:39:34,673 --> 00:39:36,664 had his eye on John Olson 820 00:39:36,942 --> 00:39:40,002 one of the only analysts skeptical of the Enron story. 821 00:39:40,245 --> 00:39:43,112 Enron loved analysts' strong buy recommendations. 822 00:39:43,481 --> 00:39:45,506 Merrill was informed by Fastow, 823 00:39:45,784 --> 00:39:49,720 either you get somebody who is on board with us as a strong 824 00:39:49,955 --> 00:39:54,051 buy recommendation and loves us at the same time 825 00:39:54,593 --> 00:39:56,288 or we don't do any business with you. 826 00:39:56,494 --> 00:39:59,395 I knew that my days were numbered. 827 00:39:59,698 --> 00:40:01,165 This is an abuse. 828 00:40:01,433 --> 00:40:03,799 Merrill Lynch fired John Olson. 829 00:40:04,069 --> 00:40:06,230 Soon after Fastow rewarded the bank 830 00:40:06,504 --> 00:40:08,301 with two investment banking jobs 831 00:40:08,640 --> 00:40:10,369 worth 50 million dollars. 832 00:40:10,609 --> 00:40:12,770 Analysts were routinely getting large bonuses 833 00:40:12,978 --> 00:40:14,741 from the investment banking departments to bring 834 00:40:14,946 --> 00:40:18,006 in investment banking deals. Ah... once that happens, 835 00:40:18,249 --> 00:40:21,275 you know, never was heard a discouraging word. 836 00:40:22,587 --> 00:40:25,021 While Enron's stock kept rising, 837 00:40:25,290 --> 00:40:27,315 its businesses kept losing money. 838 00:40:28,193 --> 00:40:30,855 Looking at the soaring stocks of the dot-coms, 839 00:40:31,129 --> 00:40:34,530 Skilling decided to take Enron into cyberspace. 840 00:40:35,467 --> 00:40:37,264 We're now in the process of seeing 841 00:40:37,502 --> 00:40:40,164 if we can create a bandwidth trading market. 842 00:40:40,405 --> 00:40:42,396 Enron is using its knowledge of trading gas 843 00:40:42,707 --> 00:40:44,766 to barter other forms of energy even space 844 00:40:45,076 --> 00:40:47,374 on the information superhighway called bandwidth. 845 00:40:47,846 --> 00:40:50,781 Ken Rice has worked at Enron for twenty years. 846 00:40:51,016 --> 00:40:53,883 Enron has found a way to stay ahead of the curve. 847 00:40:54,219 --> 00:40:57,484 From 7 PM to 7 AM we're paying for bandwith that 848 00:40:57,689 --> 00:40:59,486 we are not using. Why? 849 00:41:00,258 --> 00:41:01,452 Why? 850 00:41:01,760 --> 00:41:04,558 One of our themes around here is to always be asking why. 851 00:41:05,030 --> 00:41:06,930 Why something's done a certain way 852 00:41:07,165 --> 00:41:08,894 or why it's not done a different way. 853 00:41:09,200 --> 00:41:10,326 There's our market. 854 00:41:10,568 --> 00:41:12,934 Why can't we sell the bandwidth to other companies? 855 00:41:13,238 --> 00:41:16,469 Make it a commodity like a pork belly 856 00:41:25,150 --> 00:41:27,618 Just last week Enron captivated Wall Street 857 00:41:27,886 --> 00:41:29,854 with its bold move into broadband, 858 00:41:30,088 --> 00:41:33,080 teaming up with Blockbuster to deliver movies on demand. 859 00:41:33,391 --> 00:41:37,259 It was like being at a religious cult meeting. 860 00:41:37,529 --> 00:41:39,394 People started jumping up from their seats, 861 00:41:39,631 --> 00:41:41,326 with their cell phones and their Blackberrys, 862 00:41:41,700 --> 00:41:44,635 running out to the halls to call their bosses. 863 00:41:45,103 --> 00:41:47,071 One analyst summed up his recommendation 864 00:41:47,272 --> 00:41:49,240 to investors in one word 865 00:41:49,541 --> 00:41:54,501 Wow! Enron's stock soared 34 percent in two days. 866 00:41:55,046 --> 00:41:57,378 And you can tell from the response of the stock market 867 00:41:57,716 --> 00:41:59,741 that they like the strategy. It makes sense. 868 00:42:00,018 --> 00:42:01,610 They announced that they had developed the technology. 869 00:42:01,853 --> 00:42:03,582 It would be in test markets by the end of the year. 870 00:42:03,822 --> 00:42:05,119 And the technology works. 871 00:42:05,390 --> 00:42:07,881 The quality is great and the customers like this, 872 00:42:08,159 --> 00:42:09,490 so we've made a lot of progress. 873 00:42:09,761 --> 00:42:12,457 The truth was that Enron was just struggling 874 00:42:12,697 --> 00:42:15,063 with the technology for video on demand. 875 00:42:15,300 --> 00:42:17,234 The technology didn't work 876 00:42:17,502 --> 00:42:20,630 and the deal with Blockbuster soon collapsed. 877 00:42:20,939 --> 00:42:23,203 But with the magic of mark-to-market Enron 878 00:42:23,408 --> 00:42:28,004 used future projections to book $53 million in earnings 879 00:42:28,213 --> 00:42:30,579 on a deal that didn't make a penny. 880 00:42:30,782 --> 00:42:32,215 By the end of the year 2000, 881 00:42:32,517 --> 00:42:33,984 Enron was running out of ways to make 882 00:42:34,252 --> 00:42:36,049 the broadband business look successful. 883 00:42:36,287 --> 00:42:39,552 They'd tried every trick in the bag to try to create 884 00:42:39,758 --> 00:42:41,623 the illusion of a business where there was none, 885 00:42:41,826 --> 00:42:42,758 and the people who were working 886 00:42:42,961 --> 00:42:44,622 there were getting increasingly desperate. 887 00:42:45,130 --> 00:42:47,792 The executives started selling their stock. 888 00:42:48,066 --> 00:42:52,002 By Enron's collapse, Ken Rice had sold 53 million. 889 00:42:52,537 --> 00:42:55,233 Ken Lay had sold 300 million. 890 00:42:55,540 --> 00:42:57,599 Cliff Baxter 35 million. 891 00:42:57,842 --> 00:43:00,208 Jeff Skilling 200 million. 892 00:43:00,745 --> 00:43:02,736 As the fraud is perpetuated, 893 00:43:02,981 --> 00:43:05,609 all the various lies and artifices 894 00:43:05,850 --> 00:43:07,875 begin to convince the ringmaster, 895 00:43:08,086 --> 00:43:09,314 if you will, himself 896 00:43:09,621 --> 00:43:12,749 that it's thi own bizarre reality. 897 00:43:12,957 --> 00:43:14,447 That in fact, the fraud is the reality. 898 00:43:14,726 --> 00:43:16,318 The perception is the reality. 899 00:43:16,561 --> 00:43:18,461 As long as you can keep the perception going on, 900 00:43:18,696 --> 00:43:20,220 it really isn't fraud. 901 00:43:20,765 --> 00:43:22,232 You spoke about bandwidth trading, 902 00:43:22,500 --> 00:43:24,468 what about weather options or futures? 903 00:43:24,636 --> 00:43:26,126 How is that market developing? 904 00:43:26,371 --> 00:43:28,703 Yeah, we have a market in weather. 905 00:43:31,509 --> 00:43:34,842 When Enron announced its latest plan to trade weather, 906 00:43:35,079 --> 00:43:37,172 people wondered whether it was good science 907 00:43:37,515 --> 00:43:39,039 or science fiction. 908 00:43:40,718 --> 00:43:42,310 Do the weather guys get punished here 909 00:43:42,554 --> 00:43:43,486 if the weather is wrong? 910 00:43:43,721 --> 00:43:44,278 I mean they predict wrong? 911 00:43:44,522 --> 00:43:45,989 I don't know, do you have any whip marks on your back there? 912 00:43:46,291 --> 00:43:48,156 Well, it's unfortunate. That's a good call. 913 00:43:50,028 --> 00:43:51,188 Jeff, as time went on, 914 00:43:51,529 --> 00:43:54,123 had a harder time admitting things were wrong. 915 00:43:55,066 --> 00:43:57,500 And I have to believe that, 916 00:43:57,669 --> 00:44:00,661 you know, when the lights went out at night, 917 00:44:00,905 --> 00:44:02,873 he knew what was coming. 918 00:44:07,612 --> 00:44:09,341 I would liken it to the Titanic, 919 00:44:09,581 --> 00:44:11,173 when you've got a captain who's saying, 920 00:44:11,482 --> 00:44:12,471 'maintain full speed' 921 00:44:12,717 --> 00:44:14,048 and they bump into a couple of icebergs, 922 00:44:14,352 --> 00:44:16,980 and then they still keep full speed going. 923 00:44:18,990 --> 00:44:21,288 The captain of this ship, Enron, 924 00:44:21,526 --> 00:44:23,255 he ignored all the warning signs. 925 00:44:23,494 --> 00:44:25,189 And there were plenty of them. 926 00:44:25,396 --> 00:44:26,624 And the captain of the ship was? 927 00:44:26,831 --> 00:44:27,991 Kenneth Lay 928 00:44:39,143 --> 00:44:41,475 It was one of the bloodiest days in Wall Street history. 929 00:44:41,980 --> 00:44:43,811 Shares plummeted thirty one percent. 930 00:44:44,082 --> 00:44:46,016 High tech stocks led Friday's fierce sell-off 931 00:44:46,217 --> 00:44:48,048 This is really a great wake-up call. 932 00:44:48,286 --> 00:44:50,220 Millions of nervous investors following 933 00:44:50,421 --> 00:44:52,582 the huge drop on Friday. The Dow Jones 934 00:44:52,824 --> 00:44:55,349 Enron was especially a big deal by the end 935 00:44:55,560 --> 00:44:57,289 of the year 2000 because by then, 936 00:44:57,528 --> 00:44:59,621 most Internet companies had already begun to fall, 937 00:44:59,831 --> 00:45:02,299 and everybody on Wall Street was looking for the next big thing. 938 00:45:02,567 --> 00:45:03,534 And here you had Enron, 939 00:45:03,801 --> 00:45:06,031 which appeared to be this shining star 940 00:45:06,271 --> 00:45:07,431 of a new-economy company. 941 00:45:07,572 --> 00:45:10,473 Its stock price went up 90 percent in the year 2000, 942 00:45:10,675 --> 00:45:13,337 and had gone up over 50 percent the year before that. 943 00:45:13,678 --> 00:45:15,475 It was an it' stock on Wall Street 944 00:45:15,680 --> 00:45:18,080 one of those companies that can seemingly do no wrong. 945 00:45:19,984 --> 00:45:22,077 We were the poster child for the new economy. 946 00:45:22,320 --> 00:45:25,153 We had this culture that had a lot of focus on 947 00:45:25,390 --> 00:45:27,324 reminding us how good we were. 948 00:45:27,592 --> 00:45:29,082 And as that culture emerged, 949 00:45:29,327 --> 00:45:31,261 then we get to Fortune magazine telling us 950 00:45:31,496 --> 00:45:33,464 we were the most innovative corporation in America. 951 00:45:33,665 --> 00:45:36,293 Then we really began to feel good about ourselves. 952 00:45:36,968 --> 00:45:38,560 Well, you all did it again. 953 00:45:39,070 --> 00:45:42,233 Enron was just recently chosen, again, 954 00:45:42,507 --> 00:45:44,304 for the sixth year in a row 955 00:45:44,542 --> 00:45:47,170 in the most-admired-company survey 956 00:45:47,412 --> 00:45:51,678 by Fortune magazine as the most innovative company in America. 957 00:45:52,717 --> 00:45:54,651 Well deserved. Well deserved. 958 00:45:55,520 --> 00:45:57,681 The sales pitch still sounded good. 959 00:45:57,956 --> 00:46:00,925 But one investor saw something in Enron's numbers 960 00:46:01,125 --> 00:46:03,423 that the stock analysts had missed. 961 00:46:03,761 --> 00:46:05,558 By and large, the analysts admitted to us, 962 00:46:05,763 --> 00:46:08,254 in person, 'it's a black box. You have to take it on faith. 963 00:46:08,466 --> 00:46:09,455 'Who knows where the earnings come from? 964 00:46:09,734 --> 00:46:10,564 They just pop out. 965 00:46:10,768 --> 00:46:12,133 And all we know is, they're always good.' 966 00:46:12,670 --> 00:46:14,331 And I kept pointing out, well, 967 00:46:14,539 --> 00:46:15,699 yeah, isn't that the whole point of... 968 00:46:16,007 --> 00:46:19,238 if the black box is there to fool you, 969 00:46:19,477 --> 00:46:20,444 the numbers are always going to be good, 970 00:46:20,611 --> 00:46:21,669 until they're not. 971 00:46:22,046 --> 00:46:23,274 I'm not a beat reporter, 972 00:46:23,548 --> 00:46:25,675 so I would have had no reason to look at Enron. 973 00:46:25,917 --> 00:46:28,545 But Jim Chanos mentioned to me that I should take a closer 974 00:46:28,753 --> 00:46:30,277 look at Enron's financial statements. 975 00:46:30,521 --> 00:46:32,853 And it wasn't clear from Enron's financial statements that 976 00:46:33,091 --> 00:46:34,217 there was fraud here. 977 00:46:34,525 --> 00:46:37,619 But what was clear is that something didn't add up. 978 00:46:37,895 --> 00:46:40,261 In March 2001, Bethany Mclean, 979 00:46:40,531 --> 00:46:42,226 a reporter with Fortune magazine, 980 00:46:42,500 --> 00:46:45,526 first raised questions about Enron's financial condition. 981 00:46:45,803 --> 00:46:47,100 She asked a simple question 982 00:46:47,338 --> 00:46:49,738 in the article that no one could seem to answer, 983 00:46:50,041 --> 00:46:53,636 'how exactly does Enron make its money? ' 984 00:46:55,513 --> 00:46:57,071 You got very upset with her, didn't you? 985 00:46:57,348 --> 00:47:01,216 I very specifically remember the telephone conversation 986 00:47:01,452 --> 00:47:03,784 that I had with... the Fortune reporter. 987 00:47:04,088 --> 00:47:06,420 She called up and started asking some very, 988 00:47:06,657 --> 00:47:09,524 very specific questions about accounting treatment on things. 989 00:47:09,761 --> 00:47:12,229 I am not an accountant. And I could not answer them. 990 00:47:12,463 --> 00:47:14,294 He became really, really agitated. 991 00:47:14,599 --> 00:47:16,829 He said that people who raise questions like this 992 00:47:17,068 --> 00:47:18,592 were just trying to throw rocks at the company. 993 00:47:18,803 --> 00:47:20,634 And that I was not ethical 994 00:47:20,905 --> 00:47:22,429 because I hadn't done enough homework. 995 00:47:22,640 --> 00:47:23,971 And if I had done enough homework, 996 00:47:24,175 --> 00:47:26,302 I would understand how off-base my questions were. 997 00:47:26,644 --> 00:47:28,475 Mr. Skilling, it appears as 998 00:47:28,713 --> 00:47:31,477 if you were trying to bully someone 999 00:47:31,783 --> 00:47:35,446 who was asking very basic questions about Enron. 1000 00:47:35,686 --> 00:47:36,983 I said... said to her 1001 00:47:37,188 --> 00:47:39,053 I have got six minutes left 1002 00:47:39,490 --> 00:47:40,855 before I have to be in a meeting. 1003 00:47:41,159 --> 00:47:42,990 And I can't get into the details. 1004 00:47:43,227 --> 00:47:44,455 And I'm not an accountant.' 1005 00:47:44,762 --> 00:47:45,888 And she said, 'well, that's fine. 1006 00:47:46,097 --> 00:47:47,189 We're going to do the article anyway.' 1007 00:47:47,498 --> 00:47:49,056 And I said, 'if you do that, 1008 00:47:49,300 --> 00:47:51,097 I personally think that's unethical.' 1009 00:47:51,302 --> 00:47:52,326 And then the next day... 1010 00:47:52,570 --> 00:47:53,798 Let me interrupt you. Our chief financial officer 1011 00:47:54,038 --> 00:47:55,471 and our chief accounting officer 1012 00:47:55,673 --> 00:47:58,471 flew to New York at Enron's expense, to sit down, 1013 00:47:58,709 --> 00:47:59,641 not with the editors, 1014 00:47:59,911 --> 00:48:02,607 but to sit down with the reporter on that story, 1015 00:48:02,847 --> 00:48:05,407 and help her understand the questions that she was asking. 1016 00:48:05,616 --> 00:48:07,243 And the next day we sat in this small, 1017 00:48:07,485 --> 00:48:09,612 dark, windowless conference room for about three hours, 1018 00:48:09,854 --> 00:48:12,789 going through the various aspects of the company's business. 1019 00:48:12,990 --> 00:48:14,218 And I'll never forget this. 1020 00:48:14,459 --> 00:48:16,086 When the interview was over, 1021 00:48:16,294 --> 00:48:17,226 the other two executives packed up 1022 00:48:17,528 --> 00:48:18,790 their things and had left the room, 1023 00:48:18,996 --> 00:48:21,658 and Andy Fastow turned around and looked at my editor and me, 1024 00:48:21,866 --> 00:48:24,096 and said, 'I don't care what you write about the company, 1025 00:48:24,302 --> 00:48:26,133 just don't make me look bad.' 1026 00:48:26,537 --> 00:48:31,133 And Fastow had good reasons for not wanting to look bad. 1027 00:48:32,276 --> 00:48:35,211 There were these partnerships that were run by Andy Fastow 1028 00:48:35,480 --> 00:48:37,004 that were doing business with Enron. 1029 00:48:37,248 --> 00:48:38,772 And these were disclosed 1030 00:48:38,983 --> 00:48:39,972 in the company's financial statements. 1031 00:48:40,184 --> 00:48:42,015 But I didn't mention them in the story I wrote, 1032 00:48:42,220 --> 00:48:42,743 because I thought, 1033 00:48:42,987 --> 00:48:44,181 well, the accountants and the board of directors 1034 00:48:44,388 --> 00:48:45,719 have said that this is okay. 1035 00:48:45,990 --> 00:48:48,857 So I must be crazy to think there's anything wrong with this. 1036 00:48:49,560 --> 00:48:51,494 The story I ran was actually pretty meek. 1037 00:48:51,762 --> 00:48:53,753 The title was 'ls Enron Overpriced? ' 1038 00:48:54,065 --> 00:48:56,363 But in the end, I couldn't prove that 1039 00:48:56,567 --> 00:48:58,296 it was anything more than an overvalued stock. 1040 00:48:58,503 --> 00:49:00,835 And I was probably too naive to suspect that it was anything... 1041 00:49:01,038 --> 00:49:02,198 anything more than that. 1042 00:49:02,440 --> 00:49:03,964 And was her article critical? 1043 00:49:04,275 --> 00:49:05,537 Yes it was. 1044 00:49:05,910 --> 00:49:08,504 The Fortune magazine article that's out the headline is, 1045 00:49:08,713 --> 00:49:10,408 'ls Enron's Stock Overvalued? ' 1046 00:49:10,681 --> 00:49:13,081 The gist of the article is that 1047 00:49:13,551 --> 00:49:15,576 Enron is sort of a black box... 1048 00:49:15,853 --> 00:49:17,252 which, sorry, it's true. 1049 00:49:17,455 --> 00:49:18,945 I mean, it's just difficult for us 1050 00:49:19,190 --> 00:49:22,853 to show people the specifics of how money flows through, 1051 00:49:23,060 --> 00:49:24,322 particularly the wholesale business. 1052 00:49:24,562 --> 00:49:27,122 The entire reason that this analysis 1053 00:49:27,365 --> 00:49:28,525 was done by Fortune magazine 1054 00:49:28,766 --> 00:49:30,996 is because Business Week had a favorable article 1055 00:49:31,235 --> 00:49:33,499 about Enron the week before. 1056 00:49:33,738 --> 00:49:35,467 And there's this competition with the news... 1057 00:49:35,706 --> 00:49:38,607 the news magazines have, where one says something good, 1058 00:49:38,809 --> 00:49:40,276 the other one has to come and find something bad. 1059 00:49:40,478 --> 00:49:42,446 So I think that was kind of the genesis of it. 1060 00:49:42,580 --> 00:49:45,572 So the criticism, I think, is kind of ridiculous. 1061 00:49:45,783 --> 00:49:48,775 When Bethany McLean at Fortune 1062 00:49:49,220 --> 00:49:50,847 started analyzing cash flows, 1063 00:49:51,088 --> 00:49:52,555 and she had this wonderful article saying, 1064 00:49:52,823 --> 00:49:55,257 'take a look at first quarter, second quarter, third quarter, 1065 00:49:55,493 --> 00:49:57,688 and end of year cash flows.' 1066 00:49:57,962 --> 00:49:59,554 There's a reason she didn't invest in Enron 1067 00:49:59,830 --> 00:50:01,764 'cause the financials didn't make sense. 1068 00:50:02,033 --> 00:50:04,024 But you have to be willing to say 1069 00:50:04,302 --> 00:50:06,065 that the emperor doesn't have any clothes. 1070 00:50:06,270 --> 00:50:09,501 And this emperor was pretty powerful. 1071 00:50:09,974 --> 00:50:12,033 We are going to unveil this morning 1072 00:50:12,276 --> 00:50:13,868 a new corporate vision. 1073 00:50:14,245 --> 00:50:17,612 Okay, you ready? One, two, three. 1074 00:50:20,351 --> 00:50:21,613 How's this? 1075 00:50:25,056 --> 00:50:26,080 It's really hard to know 1076 00:50:26,390 --> 00:50:29,917 when Enron first crossed the line into outright fraud. 1077 00:50:30,228 --> 00:50:31,320 But there isn't any doubt 1078 00:50:31,562 --> 00:50:33,359 about who the guy was who led them there. 1079 00:50:33,564 --> 00:50:35,191 It was a protege of Jeff Skilling's 1080 00:50:35,399 --> 00:50:37,196 by the name of Andy Fastow. 1081 00:50:44,809 --> 00:50:48,142 Andy Fastow was Enron's chief financial officer. 1082 00:50:48,446 --> 00:50:50,346 His job was to cover up the fact 1083 00:50:50,648 --> 00:50:54,106 that Enron was becoming a financial fantasyland. 1084 00:50:54,385 --> 00:50:56,853 Enron essentially was losing money on a cash basis, 1085 00:50:57,054 --> 00:50:58,112 year after year. 1086 00:50:58,422 --> 00:51:00,014 And yet it was reporting profits. 1087 00:51:00,291 --> 00:51:02,452 So it was defying laws of financial gravity. 1088 00:51:02,660 --> 00:51:03,649 And the way he was doing it 1089 00:51:03,961 --> 00:51:05,929 was with something called structured finance. 1090 00:51:06,230 --> 00:51:09,495 And the maestro of all that at Enron was Andy Fastow. 1091 00:51:10,001 --> 00:51:11,468 Andy was very young. 1092 00:51:11,736 --> 00:51:14,671 He was hired by Jeff Skilling probably before he was even 30 1093 00:51:14,972 --> 00:51:17,805 and he idolized Jeff Skilling. 1094 00:51:18,042 --> 00:51:21,102 And he certainly wanted to please the boss. 1095 00:51:21,646 --> 00:51:22,943 To please the Boss, 1096 00:51:23,180 --> 00:51:26,707 Fastow had to figure out a way to keep the stock price up 1097 00:51:26,951 --> 00:51:28,885 by hiding the fact that Enron was 1098 00:51:29,086 --> 00:51:31,179 thirty billion dollars in debt. 1099 00:51:31,922 --> 00:51:35,915 People pressured by the need to keep the stock price up 1100 00:51:36,160 --> 00:51:37,593 begin to cheat a little bit. 1101 00:51:37,828 --> 00:51:39,796 But then the next quarter comes along 1102 00:51:40,031 --> 00:51:41,896 and you have to cheat a little more to 1103 00:51:42,400 --> 00:51:46,598 do the new cheating to make up for the old cheating. 1104 00:51:46,871 --> 00:51:48,896 And before long, 1105 00:51:49,273 --> 00:51:54,575 you've created a momentum that now you can't stop. 1106 00:51:55,112 --> 00:51:57,637 Fastow created hundreds of special companies 1107 00:51:57,882 --> 00:51:59,543 to perform a magic trick... 1108 00:51:59,784 --> 00:52:03,242 prop up Enron's stock by making its debt disappear. 1109 00:52:04,121 --> 00:52:05,452 To outsider investors 1110 00:52:05,656 --> 00:52:07,681 it looked like cash was coming in the door. 1111 00:52:07,892 --> 00:52:11,953 In fact Enron was just stashing its debt in Fastow's companies 1112 00:52:12,163 --> 00:52:13,994 where investors couldn't see it. 1113 00:52:14,999 --> 00:52:17,058 It was black magic. It really was. 1114 00:52:17,301 --> 00:52:19,235 You were pulling some rabbits out of a hat. 1115 00:52:24,275 --> 00:52:27,073 They could bury debt; they could bury losses. 1116 00:52:27,311 --> 00:52:29,711 Many of the companies had exotic names: 1117 00:52:29,947 --> 00:52:32,814 Jedi, Chewco Raptors. 1118 00:52:33,217 --> 00:52:36,482 LJM was Fastow's most ambitious creation. 1119 00:52:36,620 --> 00:52:38,315 It would work magic for Enron 1120 00:52:38,622 --> 00:52:40,613 and it would allow Fastow to conjure 1121 00:52:40,858 --> 00:52:43,850 45 million dollars for himself. 1122 00:52:47,998 --> 00:52:49,659 Andy, in many ways, 1123 00:52:49,867 --> 00:52:53,735 was someone we all knew didn't have a strong moral compass. 1124 00:52:54,004 --> 00:52:55,699 It's almost like Jeff Skilling said, 1125 00:52:55,906 --> 00:52:57,840 'okay, we're hitting some troubled times. 1126 00:52:58,075 --> 00:53:00,942 Let's set up Andy so we can fill the earnings' holes 1127 00:53:01,212 --> 00:53:01,940 when we need to', 1128 00:53:02,146 --> 00:53:05,707 knowing that Andy would probably skim a little bit 1129 00:53:06,016 --> 00:53:08,450 off each transaction for himself. 1130 00:53:08,652 --> 00:53:12,349 There's a 'Body Heat' kind of angle to this, 1131 00:53:12,623 --> 00:53:15,456 you know, where Skilling is Kathleen Turner 1132 00:53:15,659 --> 00:53:17,456 and Andy is William Hurt. 1133 00:53:17,728 --> 00:53:18,752 You know, in the end, 1134 00:53:18,996 --> 00:53:21,863 he got suckered into helping all the executives 1135 00:53:22,099 --> 00:53:23,259 meet their earnings. 1136 00:53:23,501 --> 00:53:25,128 What I wish, I, you know, in retrospect? 1137 00:53:25,369 --> 00:53:26,700 I wish I'd never heard of LJM. 1138 00:53:26,937 --> 00:53:28,564 Is it your contention that you knew of it 1139 00:53:28,773 --> 00:53:29,296 and it was appropriate? 1140 00:53:29,507 --> 00:53:30,735 Arthur Andersen and our lawyers 1141 00:53:30,975 --> 00:53:33,034 had taken a very hard look at this structure 1142 00:53:33,244 --> 00:53:34,336 and they believed it was appropriate. 1143 00:53:34,545 --> 00:53:37,810 If the theory is that Fastow went rogue somewhere deep 1144 00:53:38,015 --> 00:53:39,539 in the jungles of Enron 1145 00:53:39,817 --> 00:53:42,513 and was the sole agent of the apocalypse, 1146 00:53:42,820 --> 00:53:44,117 I just don't buy it. 1147 00:53:44,422 --> 00:53:46,788 Skilling, Lay, and the Enron board 1148 00:53:47,024 --> 00:53:49,891 had signed off on Fastow's LJM funds. 1149 00:53:50,261 --> 00:53:52,354 They saw the benefits of letting Fastow 1150 00:53:52,630 --> 00:53:54,222 do deals with himself. 1151 00:53:54,598 --> 00:53:56,293 It is in Enron's best interest, 1152 00:53:56,534 --> 00:53:58,126 because Enron needs the capital, number one. 1153 00:53:58,369 --> 00:54:01,463 In a secret video tape that surfaced after the bankruptcy, 1154 00:54:01,672 --> 00:54:04,266 Fastow can be seen selling LJM 1155 00:54:04,542 --> 00:54:06,840 to a group of Merrill Lynch bankers. 1156 00:54:07,077 --> 00:54:09,511 He pitches them on the benefits of investing in a fund 1157 00:54:09,780 --> 00:54:12,146 that only buys assets from Enron. 1158 00:54:12,383 --> 00:54:15,011 Remember, I'm not sellling the assets to myself. 1159 00:54:15,286 --> 00:54:18,653 They own the assets. They're selling them to LJM2. 1160 00:54:19,023 --> 00:54:23,483 Fastow knew what kind of deal he was offering as Enron's CFO. 1161 00:54:23,828 --> 00:54:26,991 He could guarantee profits for LJM. 1162 00:54:27,398 --> 00:54:29,992 I think this is an extraordinary opportunity. 1163 00:54:30,267 --> 00:54:33,031 He has a sort of Cheshire Cat grin on his face as he talks 1164 00:54:33,237 --> 00:54:35,467 about all the ways that the fund is gonna profit. 1165 00:54:35,639 --> 00:54:37,470 And he talks about the informational advantages 1166 00:54:37,775 --> 00:54:41,370 that he is gonna have in his dual role as Enron's CFO 1167 00:54:41,612 --> 00:54:43,102 and as the head of these funds. 1168 00:54:43,414 --> 00:54:45,075 Isn't there a question of conflict of interest? 1169 00:54:45,316 --> 00:54:46,305 There is never any question that 1170 00:54:46,550 --> 00:54:48,279 I will be on both sides of the transaction. 1171 00:54:48,552 --> 00:54:50,713 I will always be on the LJM side of the transaction. 1172 00:54:50,988 --> 00:54:53,548 He was general partner of LJM, while at the same time, 1173 00:54:53,824 --> 00:54:55,121 being CFO of Enron. 1174 00:54:55,326 --> 00:54:56,554 You know, that's a whole 'nother ball of wax 1175 00:54:56,760 --> 00:54:58,523 when you want to talk about that conflict of interest. 1176 00:54:58,729 --> 00:55:03,325 Because no human being should be put in a situation where, 1177 00:55:03,868 --> 00:55:05,233 you know, every single transaction, 1178 00:55:05,469 --> 00:55:06,663 they decide whether they're looking 1179 00:55:06,871 --> 00:55:10,307 after Enron's best interests or their limited partners. 1180 00:55:10,574 --> 00:55:13,475 Because this LJM partnership existed 1181 00:55:13,711 --> 00:55:15,110 solely to do business with Enron. 1182 00:55:15,913 --> 00:55:17,244 As you would expect, 1183 00:55:17,481 --> 00:55:19,449 Andy as Chief Financial Officer of Enron, 1184 00:55:19,717 --> 00:55:22,914 is heavily banked, so to speak. 1185 00:55:23,187 --> 00:55:25,587 And as a result, 1186 00:55:25,856 --> 00:55:29,553 there are five or six of the name brand banks 1187 00:55:29,827 --> 00:55:32,352 who have stepped up and said they'll commit to this. 1188 00:55:32,897 --> 00:55:34,990 Commit they did. And why not? 1189 00:55:35,499 --> 00:55:38,696 Fastow was letting them gamble with Enron's chips. 1190 00:55:39,069 --> 00:55:41,663 Fastow was using Enron's stock 1191 00:55:41,906 --> 00:55:44,306 as collateral for a lot of these things. 1192 00:55:44,508 --> 00:55:46,499 They were betting their own company on the transactions. 1193 00:55:47,111 --> 00:55:48,874 With the prospect of returns 1194 00:55:49,113 --> 00:55:51,013 that would exceed two thousand percent, 1195 00:55:51,315 --> 00:55:54,944 96 individual bankers invested in LJM. 1196 00:55:55,185 --> 00:55:59,246 And America's major banks put up as much as $25 million each. 1197 00:55:59,456 --> 00:56:02,289 It's sort of the Who's Who of Wall Street: 1198 00:56:02,493 --> 00:56:07,157 JP Morgan Chase CS First Boston Citibank 1199 00:56:07,464 --> 00:56:11,059 Merrill Lynch, DeutscheBank... 1200 00:56:11,468 --> 00:56:15,905 These are some of the premier investment banks in the world. 1201 00:56:16,240 --> 00:56:18,435 It's hard for us to poke holes in this. 1202 00:56:18,576 --> 00:56:19,440 Good. 1203 00:56:21,879 --> 00:56:23,904 It's just amazing how skilled Enron 1204 00:56:24,148 --> 00:56:27,015 and Andy Fastow were at working Wall Street, 1205 00:56:27,251 --> 00:56:28,775 playing on Wall Street's greed, 1206 00:56:29,019 --> 00:56:30,953 in order to get money out of them. 1207 00:56:31,188 --> 00:56:34,282 To quote Lenin, 1208 00:56:34,692 --> 00:56:38,594 they were the investment bankers useful idiots. 1209 00:56:41,665 --> 00:56:43,724 As disturbing as Enron's own misconduct, 1210 00:56:43,968 --> 00:56:46,061 is the growing evidence that 1211 00:56:46,270 --> 00:56:48,363 leading U.S. Financial institutions 1212 00:56:48,639 --> 00:56:52,268 not only took part in Enron's deceptive practices, 1213 00:56:52,710 --> 00:56:57,044 but at times designed, advanced and profited from them. 1214 00:56:57,314 --> 00:57:01,410 The Enron fraud is the story of synergistic corruption. 1215 00:57:01,619 --> 00:57:04,417 There are supposed to be checks and balances in the system. 1216 00:57:04,622 --> 00:57:06,647 The lawyers are supposed to say no. 1217 00:57:06,890 --> 00:57:08,858 The accountants are supposed to say no. 1218 00:57:09,126 --> 00:57:10,957 The bankers are supposed to say no. 1219 00:57:11,195 --> 00:57:13,891 But no one who was supposed to say no said no. 1220 00:57:14,098 --> 00:57:15,656 They all took their share of the money, 1221 00:57:15,866 --> 00:57:17,697 from the fraud and put it in their pockets. 1222 00:57:17,901 --> 00:57:19,926 Enron paid its advisers well. 1223 00:57:20,204 --> 00:57:23,503 In 2001 the accounting firm Arthur Andersen 1224 00:57:23,741 --> 00:57:25,470 received one million a week. 1225 00:57:25,876 --> 00:57:28,106 Enron's law firm, Vinson & Elkins, 1226 00:57:28,479 --> 00:57:30,037 did nearly as well. 1227 00:57:30,481 --> 00:57:34,247 Everyone had their hand out at the table. 1228 00:57:34,485 --> 00:57:36,180 They were all being paid. 1229 00:57:36,487 --> 00:57:38,546 And as long as Enron continued, 1230 00:57:38,856 --> 00:57:40,721 they received their fees. 1231 00:57:41,158 --> 00:57:43,626 They were a part of the process. 1232 00:57:43,961 --> 00:57:45,451 So it's hard now to say, 1233 00:57:45,729 --> 00:57:47,287 'oh, we didn't know anything.' 1234 00:57:47,564 --> 00:57:50,829 Had we known then what we know now about Enron's practices, 1235 00:57:51,135 --> 00:57:53,763 we would not have engaged in these transactions with Enron. 1236 00:57:54,038 --> 00:57:56,233 The facts that we now have come to light about Enron, 1237 00:57:56,507 --> 00:57:57,974 however, were not known at the time. 1238 00:57:58,208 --> 00:57:59,835 I believe that the Citigroup professionals 1239 00:58:00,110 --> 00:58:02,977 involved with these transactions acted in good faith. 1240 00:58:03,247 --> 00:58:08,776 I'd like you here to look at one Citi email, 1241 00:58:08,852 --> 00:58:12,413 The email trail here is all too lurid. 1242 00:58:12,656 --> 00:58:14,681 Oh, for instance, one email I remember, 1243 00:58:14,892 --> 00:58:18,794 where the banker writes, 'Enron loves these deals. 1244 00:58:19,096 --> 00:58:20,427 They produce cash, 1245 00:58:20,664 --> 00:58:22,859 but they don't have to show the debt on the balance sheet.' 1246 00:58:23,100 --> 00:58:25,000 Now, a high school student can figure out that. 1247 00:58:25,235 --> 00:58:29,695 The banks were all knowing articipants in this wrong-doing. 1248 00:58:30,741 --> 00:58:33,801 Meryll Lynch assisted Enron in cooking it's books 1249 00:58:34,144 --> 00:58:37,545 by pretending to purchase an existing Enron asset 1250 00:58:37,781 --> 00:58:41,046 when it was really engaged in a loan. 1251 00:58:42,019 --> 00:58:44,544 The accounting sham involved the sale of an interest 1252 00:58:44,755 --> 00:58:46,552 in three Nigerian barges 1253 00:58:47,491 --> 00:58:50,119 Nigeria is a long way from Manhattan. 1254 00:58:50,360 --> 00:58:51,156 Yet for some reason, 1255 00:58:51,395 --> 00:58:54,455 toward the end of the fourth quarter in 1999 1256 00:58:54,631 --> 00:58:56,462 Merrill Lynch suddenly decided to buy 1257 00:58:56,734 --> 00:58:59,931 three Nigerian power barges from Enron. 1258 00:59:00,237 --> 00:59:02,432 Nigerian power barges have nothing to do 1259 00:59:02,673 --> 00:59:04,038 with Merrill Lynch's business. 1260 00:59:04,274 --> 00:59:06,265 It was a blatantly illegal transaction. 1261 00:59:06,844 --> 00:59:08,243 It was just taking the barges, 1262 00:59:08,512 --> 00:59:10,412 getting them off of Enron's books, 1263 00:59:10,614 --> 00:59:12,673 having Merill Lynch, if you will, 1264 00:59:12,950 --> 00:59:16,408 warehouse them for five months and then buying them back. 1265 00:59:16,587 --> 00:59:18,612 Mr. Martin, you... you've testified here today 1266 00:59:18,922 --> 00:59:22,414 that there was no guarantee. And you said that under oath. 1267 00:59:24,261 --> 00:59:25,785 Here's a document, 1268 00:59:26,029 --> 00:59:28,623 saying that the head of your whole division here 1269 00:59:29,099 --> 00:59:33,263 was going to confirm that understanding. 1270 00:59:36,974 --> 00:59:38,236 Over the year 2001, 1271 00:59:38,475 --> 00:59:40,705 Skilling became increasingly despondent. 1272 00:59:40,978 --> 00:59:42,445 He'd always been a moody guy, 1273 00:59:42,613 --> 00:59:44,080 but people who knew him said he became 1274 00:59:44,348 --> 00:59:46,316 just increasingly volatile. 1275 00:59:46,517 --> 00:59:48,576 Show up for work unshaven, looking blurry-eyed. 1276 00:59:48,819 --> 00:59:50,252 And I think it was the battle of holding these 1277 00:59:50,487 --> 00:59:53,650 two totally disjointed thoughts in his mind at... 1278 00:59:53,857 --> 00:59:54,619 at the same time. 1279 00:59:54,825 --> 00:59:56,759 One is Enron a super-star company 1280 00:59:56,994 --> 00:59:59,827 and the other of feeling like it was all crumbling away. 1281 01:00:00,597 --> 01:00:03,191 The first cracks in Skilling's public image 1282 01:00:03,433 --> 01:00:04,991 appeared in a conference call with 1283 01:00:05,235 --> 01:00:07,499 analysts in April, 2001. 1284 01:00:07,738 --> 01:00:09,467 And then Jeff Skilling took questions. 1285 01:00:09,940 --> 01:00:12,306 And about mid-way through the session... 1286 01:00:12,543 --> 01:00:13,771 there was a question. 1287 01:00:13,977 --> 01:00:18,141 It was sort of aggressively wondering out loud 1288 01:00:18,348 --> 01:00:19,610 why it was that Enron, 1289 01:00:19,883 --> 01:00:22,147 as a financial services company in effect, 1290 01:00:22,419 --> 01:00:24,717 could not release a balance sheet 1291 01:00:24,922 --> 01:00:26,184 with its earning statement, 1292 01:00:26,390 --> 01:00:28,153 like most financial institutions do. 1293 01:00:28,392 --> 01:00:30,690 You're the only financial institution that can't produce 1294 01:00:30,894 --> 01:00:33,192 a balance sheet or a cash flow statement with their earnings 1295 01:00:35,098 --> 01:00:37,032 Well, you, you... 1296 01:00:37,434 --> 01:00:41,700 Well, thank you very much. We appreciate it, asshole. 1297 01:00:43,073 --> 01:00:44,404 And then quite audibly 1298 01:00:44,641 --> 01:00:46,734 you could here Skilling say asshole! 1299 01:00:47,110 --> 01:00:48,873 And then he said, 'asshole'. 1300 01:00:49,112 --> 01:00:51,478 As I understand it, you called him an asshole. 1301 01:00:52,249 --> 01:00:54,217 And this just caused unbelievable 1302 01:00:54,451 --> 01:00:56,009 amounts of consternation all across Wall Street 1303 01:00:56,253 --> 01:00:57,345 because people thought, 1304 01:00:57,554 --> 01:01:00,045 'A Fortune 500 CEO losing it like this, 1305 01:01:00,257 --> 01:01:03,317 calling publicly an investor an asshole? ' 1306 01:01:03,560 --> 01:01:05,323 If I could go back and redo things, 1307 01:01:05,529 --> 01:01:09,761 I would not now, have used the term that I used. 1308 01:01:09,967 --> 01:01:12,026 Mark Palmer, Enron's chief PR guy, 1309 01:01:12,236 --> 01:01:14,500 Even ran a note up to Skilling, telling him to apologize. 1310 01:01:14,771 --> 01:01:16,466 And he just took the piece of paper 1311 01:01:16,607 --> 01:01:18,666 and tucked it under the pile of papers on his desk. 1312 01:01:18,942 --> 01:01:19,499 And afterwards, 1313 01:01:19,743 --> 01:01:21,301 Enron's traders who had erupted in cheers 1314 01:01:21,511 --> 01:01:23,979 when Skilling called this guy an asshole made him a sign. 1315 01:01:24,248 --> 01:01:25,647 It was a play off Enron's motto 1316 01:01:25,883 --> 01:01:28,317 'Ask Why' and the sign said 'ask why asshole.' 1317 01:01:30,420 --> 01:01:33,685 My personal feeling was that Jeff looked at the numbers 1318 01:01:34,324 --> 01:01:39,489 and he knew that we were in a massive hole. 1319 01:01:40,030 --> 01:01:42,521 It was the only time that I saw him truly, 1320 01:01:42,733 --> 01:01:46,225 truly worried about keeping the stock price up. 1321 01:01:46,436 --> 01:01:47,869 And he just kept saying to me, 1322 01:01:48,071 --> 01:01:50,232 'I don't know what the hell I'm going to do.' 1323 01:01:53,877 --> 01:01:56,175 The broadband business was in complete meltdown. 1324 01:01:56,546 --> 01:01:58,377 And there were all sorts of other problems 1325 01:01:58,615 --> 01:02:00,173 that Jeff Skilling as the company's Chief 1326 01:02:00,384 --> 01:02:01,976 Operating Officer was wrestling with. 1327 01:02:02,219 --> 01:02:03,618 And in the middle of all this, 1328 01:02:03,887 --> 01:02:06,185 Ken Lay walks in Jeff Skilling's office holding up 1329 01:02:06,490 --> 01:02:10,153 fabric swatches for the new G5 45 million dollar corporate 1330 01:02:10,360 --> 01:02:11,327 jet he wanted to buy. 1331 01:02:11,628 --> 01:02:13,562 And he said to Jeff, 1332 01:02:13,830 --> 01:02:15,263 asked him a very important question, 1333 01:02:15,532 --> 01:02:16,965 'which of these cabin configurations 1334 01:02:17,267 --> 01:02:18,461 do you like best, Jeff? ' 1335 01:02:19,836 --> 01:02:23,272 While Ken Lay was stressing over the corporate jet, 1336 01:02:23,607 --> 01:02:26,041 EES was headed for a crash landing. 1337 01:02:26,376 --> 01:02:28,936 Facing 500 million in losses, 1338 01:02:29,212 --> 01:02:31,373 Lou Pai's top leuitenant, Tom White, 1339 01:02:31,682 --> 01:02:34,082 wondered how EES could show a profit 1340 01:02:34,418 --> 01:02:35,885 by the end of the quarter. 1341 01:02:36,520 --> 01:02:39,751 One of the things that was always a strange 1342 01:02:39,990 --> 01:02:41,082 occurrence at Enron was 1343 01:02:42,125 --> 01:02:45,492 for weeks before a quarterly report 1344 01:02:46,229 --> 01:02:48,629 we would be under the impression that 1345 01:02:48,865 --> 01:02:50,594 we weren't going to make our numbers. 1346 01:02:50,867 --> 01:02:52,357 But then somehow, miraculously, 1347 01:02:52,836 --> 01:02:55,896 we always made the numbers, and then some. 1348 01:02:56,139 --> 01:02:59,404 But then a question was asked to Tom White, 1349 01:02:59,576 --> 01:03:02,238 'how is it that we made the numbers? ' 1350 01:03:02,546 --> 01:03:07,313 And his answer was, 'One word, California.' 1351 01:03:15,892 --> 01:03:18,258 The first clues to Enron's new strategy 1352 01:03:18,495 --> 01:03:20,463 hit California with a jolt. 1353 01:03:21,698 --> 01:03:24,132 It started at Noon rolling across the state. 1354 01:03:24,334 --> 01:03:26,632 Sacramento, San Francisco, Beverly Hills, 1355 01:03:26,870 --> 01:03:28,201 Long Beach, San Diego 1356 01:03:28,505 --> 01:03:31,804 Twenty six thousand miles of California power lines. 1357 01:03:32,109 --> 01:03:33,508 Enough to circle the Earth. 1358 01:03:33,877 --> 01:03:35,344 But for the second day in a row, 1359 01:03:35,579 --> 01:03:38,377 not enough electricity for America's largest state, 1360 01:03:38,615 --> 01:03:40,708 and the world's sixth largest economy. 1361 01:03:40,984 --> 01:03:42,474 The first thing we heard about this energy crisis is well, 1362 01:03:42,652 --> 01:03:44,210 our lights are going to go off in the middle of winter 1363 01:03:44,421 --> 01:03:45,854 when we're using half the electricity 1364 01:03:46,056 --> 01:03:47,387 we normally use during the summer. 1365 01:03:47,691 --> 01:03:49,283 The Bay Area got hit by not one, 1366 01:03:49,559 --> 01:03:51,117 but two rolling blackouts. 1367 01:03:51,361 --> 01:03:53,761 We only need twenty eight thousand 1368 01:03:53,964 --> 01:03:55,261 to thirty thousand megawatts in December. 1369 01:03:55,532 --> 01:03:58,194 We have an installed capacity in California at the time 1370 01:03:58,435 --> 01:03:59,925 forty-five thousand megawatts. 1371 01:04:00,137 --> 01:04:02,867 Plenty o' power to meet our electric demand. 1372 01:04:03,106 --> 01:04:05,165 Of course, we had blackouts in December. 1373 01:04:05,509 --> 01:04:07,977 The people who control California's power grid 1374 01:04:08,178 --> 01:04:10,339 say once again they're worried about having to blackout 1375 01:04:10,547 --> 01:04:12,139 the Northern half of the state. 1376 01:04:12,482 --> 01:04:14,450 When the rolling blackouts started hitting California 1377 01:04:14,651 --> 01:04:16,278 there was definitely a lot of excitement in the air. 1378 01:04:16,586 --> 01:04:17,678 It was something new. 1379 01:04:17,888 --> 01:04:19,549 It was something that hadn't been encountered before. 1380 01:04:19,756 --> 01:04:22,452 It was, 'how is this event going to 1381 01:04:22,626 --> 01:04:23,558 effect the price of power? ' 1382 01:04:23,794 --> 01:04:25,762 Control's rotating attitudes are being implemented. 1383 01:04:26,029 --> 01:04:26,961 I knew. 1384 01:04:27,230 --> 01:04:30,222 I knew that there was illegality going on. 1385 01:04:30,500 --> 01:04:31,728 I could feel it. I could smell it. 1386 01:04:31,935 --> 01:04:32,560 I could sense it. 1387 01:04:32,836 --> 01:04:34,098 And there was no other explanation. 1388 01:04:34,304 --> 01:04:36,135 Because the numbers just didn't add up. 1389 01:04:36,339 --> 01:04:37,897 We had enough power in California. 1390 01:04:38,175 --> 01:04:40,075 It was never about lack of supply. 1391 01:04:40,310 --> 01:04:41,607 When I ran for Governor in 1998, 1392 01:04:41,878 --> 01:04:44,346 not one human being asked me about electricity. 1393 01:04:44,548 --> 01:04:46,140 This thing kind of came out of the woods, 1394 01:04:46,349 --> 01:04:47,179 as far as I was concerned. 1395 01:04:47,417 --> 01:04:48,475 And I was trying in the early days 1396 01:04:48,718 --> 01:04:51,585 to learn what was happening; how we could fix the problem. 1397 01:04:54,324 --> 01:04:56,588 California was selected by Enron 1398 01:04:56,860 --> 01:04:58,987 as the prime place to experiment 1399 01:04:59,262 --> 01:05:01,662 with this new concept of deregulated electricity. 1400 01:05:01,865 --> 01:05:04,299 Reducing electricity cost is only one benefit 1401 01:05:04,901 --> 01:05:06,528 from choice and competition. 1402 01:05:06,870 --> 01:05:09,703 In 1996, under pressure from energy companies, 1403 01:05:09,973 --> 01:05:12,237 Governor Pete Wilson and the California legislature 1404 01:05:12,509 --> 01:05:16,206 passed a bill allowing for the deregulation of electricity. 1405 01:05:16,546 --> 01:05:18,844 I wasn't in the Legislature in 1996, 1406 01:05:19,082 --> 01:05:21,846 but I can tell you that there isn't a legislator alive 1407 01:05:22,052 --> 01:05:24,612 that can tell you with any sophistication 1408 01:05:24,921 --> 01:05:27,890 how a deregulated electricity market ought to work. 1409 01:05:28,191 --> 01:05:29,249 Not a one. 1410 01:05:29,993 --> 01:05:33,258 California's deregulated system was a bizarre compromise 1411 01:05:33,497 --> 01:05:36,193 between legislators and free-market advocates. 1412 01:05:36,500 --> 01:05:39,060 The rules were complicated and hard to follow. 1413 01:05:39,970 --> 01:05:41,267 Inside Enron, 1414 01:05:41,538 --> 01:05:44,132 California's system was little more than a joke. 1415 01:05:44,407 --> 01:05:45,601 And once in place, 1416 01:05:45,909 --> 01:05:49,970 Enron made sure that the joke would be on California. 1417 01:05:50,313 --> 01:05:52,281 I remember the conversation I had with Ken. 1418 01:05:52,516 --> 01:05:54,006 At the end of it he says 'Well, 1419 01:05:54,284 --> 01:05:55,216 Dave, old buddy, let me just tell you. 1420 01:05:55,552 --> 01:05:57,782 It doesn't matter really to us 1421 01:05:58,021 --> 01:06:00,751 what kooky rules you Californians put in place. 1422 01:06:01,024 --> 01:06:02,787 I got a bunch of really smart people down here 1423 01:06:03,059 --> 01:06:04,993 who will figure out how to make money anyhow.' 1424 01:06:06,863 --> 01:06:09,991 One of the smartest guys at Enron was Tim Belden, 1425 01:06:10,233 --> 01:06:12,326 who ran the west coast trading desk. 1426 01:06:13,170 --> 01:06:14,899 Tim Belden was a fervent believer 1427 01:06:15,138 --> 01:06:16,628 in the idea of free markets 1428 01:06:16,873 --> 01:06:19,433 and as such he spent hours poring over the new rules 1429 01:06:19,643 --> 01:06:22,043 for the deregulation of California's energy industry, 1430 01:06:22,479 --> 01:06:25,448 looking for loopholes that Enron could exploit to make money. 1431 01:06:26,016 --> 01:06:28,450 He found plenty. After the bankruptcy, 1432 01:06:28,618 --> 01:06:30,779 a confidential memo surfaced revealing the names of 1433 01:06:31,021 --> 01:06:34,650 Belden's strategies to game the California market 1434 01:06:35,058 --> 01:06:38,255 Wheel Out, Get Shorty, Fat Boy 1435 01:06:39,029 --> 01:06:42,829 Recently, audio tapes of the Enron traders were discovered. 1436 01:06:43,099 --> 01:06:44,327 What do you want to call this project? 1437 01:06:44,935 --> 01:06:46,197 Probably have a catchy name for that. 1438 01:06:47,170 --> 01:06:48,137 How about, you know, 1439 01:06:48,338 --> 01:06:50,272 something friendly like 'Death Star'? 1440 01:06:55,111 --> 01:06:57,238 The tapes revealed Enron's contempt 1441 01:06:57,514 --> 01:07:00,745 for any values except one, making money. 1442 01:07:03,653 --> 01:07:04,779 Hey John, it's Tim. 1443 01:07:05,021 --> 01:07:06,579 Regulatory's all in a big concern 1444 01:07:06,856 --> 01:07:09,222 about is we're wheeling power out of California. 1445 01:07:09,459 --> 01:07:10,983 He just steals money from California 1446 01:07:11,228 --> 01:07:12,820 to the tune of a million Can you rephrase that? 1447 01:07:13,063 --> 01:07:15,463 Okay, he arbitrages the California market 1448 01:07:15,699 --> 01:07:17,428 to the tune of a million bucks or two a day. 1449 01:07:23,473 --> 01:07:25,805 An arbitrage opportunity has been defined to me 1450 01:07:26,042 --> 01:07:28,101 as any opportunity to make abnormal profits. 1451 01:07:28,311 --> 01:07:30,006 So an abnormal profit would be 1452 01:07:30,480 --> 01:07:33,677 returns above and beyond the norm. 1453 01:07:33,917 --> 01:07:36,681 I was told that a good trader is a creative trader. 1454 01:07:36,920 --> 01:07:38,751 And a creative trader is a trader 1455 01:07:38,955 --> 01:07:41,583 that can find arbitrage opportunities. 1456 01:07:42,359 --> 01:07:45,021 One of those opportunities was called Ricochet. 1457 01:07:45,562 --> 01:07:47,962 I'll see you guys. I'm takin' mine to the desert. 1458 01:07:48,331 --> 01:07:50,891 In the midst of energy shortages Enron's traders 1459 01:07:51,301 --> 01:07:53,861 started to export power out of the state. 1460 01:07:54,271 --> 01:07:57,035 When prices soared, they brought it back in. 1461 01:07:57,374 --> 01:07:59,740 So we fuckin' export like a motherfucker. 1462 01:08:00,043 --> 01:08:01,908 Getting rich? Trying to. 1463 01:08:05,448 --> 01:08:07,712 Traders would stay after a twelve hour shift 1464 01:08:08,051 --> 01:08:11,077 and pour over maps of the western energy grid. 1465 01:08:11,321 --> 01:08:13,619 What are the permutations and combinations of ways to 1466 01:08:13,857 --> 01:08:16,052 move power around the west. 1467 01:08:16,326 --> 01:08:18,624 And I think that's something that Enron knew better 1468 01:08:18,862 --> 01:08:21,695 than any other Energy marketer in the country, period. 1469 01:08:21,998 --> 01:08:24,694 We know all of the California imports. 1470 01:08:25,068 --> 01:08:27,229 We know all of the California load. 1471 01:08:27,504 --> 01:08:29,199 We're getting' pretty spoiled with all this money. 1472 01:08:29,472 --> 01:08:30,530 You said you were getting a little scared 1473 01:08:30,740 --> 01:08:32,970 we're making a little too much. And I tend to agree with you. 1474 01:08:35,178 --> 01:08:38,739 These are two traders, t-r-a-d-e-r-s. 1475 01:08:38,982 --> 01:08:40,176 This is what they say. 1476 01:08:40,483 --> 01:08:42,849 'What we did was overbook the transmission line 1477 01:08:43,119 --> 01:08:45,917 we had the rights on and said to California Utilities, 1478 01:08:46,156 --> 01:08:48,454 'lf you want to use the line, pay us.' 1479 01:08:48,925 --> 01:08:51,291 By the time they agreed to meet our price, 1480 01:08:51,561 --> 01:08:53,995 rolling blackouts had already hit California 1481 01:08:54,264 --> 01:08:56,528 and the price for electricity went through the roof.' 1482 01:08:56,800 --> 01:08:59,030 Did you have any knowledge that this was happening? 1483 01:08:59,302 --> 01:09:01,395 The only thing that I'm aware of Senator, 1484 01:09:01,604 --> 01:09:02,764 is there was a, 1485 01:09:03,006 --> 01:09:04,769 there was a difference of opinion 1486 01:09:05,041 --> 01:09:07,066 on the rules of the independent system operator. 1487 01:09:07,310 --> 01:09:10,108 It was just set up, the rules weren't quite clear. 1488 01:09:10,313 --> 01:09:12,611 We have traders here from Enron 1489 01:09:12,816 --> 01:09:14,147 who were saying they did something wrong. 1490 01:09:14,451 --> 01:09:15,475 But you don't see anything wrong. 1491 01:09:15,752 --> 01:09:18,186 I have one last question and then I am done. 1492 01:09:19,789 --> 01:09:23,418 Traders soon discovered that by shutting down power plants, 1493 01:09:23,660 --> 01:09:26,060 they could create artificial shortages 1494 01:09:26,296 --> 01:09:28,594 that would push prices even higher. 1495 01:09:31,634 --> 01:09:33,693 Hey, this is David up at Enron. 1496 01:09:34,471 --> 01:09:36,598 There's not much demand for power at all here. 1497 01:09:36,840 --> 01:09:37,670 If we shut it down, 1498 01:09:37,874 --> 01:09:39,671 can you bring it back up in 3 or 4 hours? 1499 01:09:39,976 --> 01:09:40,670 Oh, yeah. 1500 01:09:40,910 --> 01:09:42,241 Why don't you just go ahead and shut her down then, 1501 01:09:42,479 --> 01:09:43,741 if that's ok? Okay. 1502 01:09:43,980 --> 01:09:46,540 When you see two or three energy companies 1503 01:09:46,850 --> 01:09:50,217 with 30, 35 percent of their entire capacity down 1504 01:09:50,487 --> 01:09:52,079 for maintenance on a single day 1505 01:09:52,489 --> 01:09:56,084 and as a result the price of electricity is 1506 01:09:56,326 --> 01:09:57,691 skyrocketing three or four hundred percent 1507 01:09:57,961 --> 01:09:59,588 and then a week later someone else does it up 1508 01:09:59,796 --> 01:10:01,127 in Northern California 1509 01:10:01,364 --> 01:10:03,730 you begin to believe something's not smelling right here. 1510 01:10:04,033 --> 01:10:06,365 We want you guys to get a little creative. 1511 01:10:06,603 --> 01:10:06,898 Okay. 1512 01:10:07,170 --> 01:10:08,228 And come up with a reason to go down. 1513 01:10:08,471 --> 01:10:09,802 Like a forced outage type thing? 1514 01:10:10,106 --> 01:10:10,834 Right. 1515 01:10:11,141 --> 01:10:13,041 Those guys at the flip of a switch 1516 01:10:13,276 --> 01:10:15,005 could just yank the California economy 1517 01:10:15,311 --> 01:10:16,710 on it's leash whenever they wanted to. 1518 01:10:16,946 --> 01:10:17,844 And they did it, and they did it, 1519 01:10:18,047 --> 01:10:19,378 and they did it. And they made so much money. 1520 01:10:19,649 --> 01:10:22,550 The heart of it is that an industry 1521 01:10:22,786 --> 01:10:26,347 that went for a hundred years from the days of Edison built 1522 01:10:26,656 --> 01:10:29,090 the best electrical system in the world, 1523 01:10:29,426 --> 01:10:31,724 sold the power at reasonable prices to consumers 1524 01:10:31,928 --> 01:10:34,897 and was very reliable was all of a sudden 1525 01:10:35,198 --> 01:10:36,756 turned into a casino. 1526 01:10:40,036 --> 01:10:42,732 These strategies made some money for Enron. 1527 01:10:42,972 --> 01:10:44,940 But the real money was made by betting 1528 01:10:45,241 --> 01:10:47,209 that the price of energy would go up 1529 01:10:47,577 --> 01:10:48,475 It did. 1530 01:10:48,711 --> 01:10:50,201 And the West Coast traders made 1531 01:10:50,413 --> 01:10:52,881 nearly two billion dollars for Enron. 1532 01:10:58,822 --> 01:11:01,791 You can't treat electricity like you treat oranges. 1533 01:11:02,058 --> 01:11:03,923 It's the lifeblood of the society. 1534 01:11:04,160 --> 01:11:04,717 It can't be stored. 1535 01:11:04,961 --> 01:11:06,451 You can't turn these people loose 1536 01:11:06,663 --> 01:11:09,928 and let them just have a quote free market 1537 01:11:10,133 --> 01:11:12,465 because a free market is God 1538 01:11:12,669 --> 01:11:14,694 Damn expensive to the customers. 1539 01:11:15,205 --> 01:11:17,105 There would be ample supply available 1540 01:11:17,340 --> 01:11:18,602 at the right fuckin' price. 1541 01:11:18,842 --> 01:11:19,501 Oh, sure there would. 1542 01:11:19,742 --> 01:11:20,231 It wasn't just Enron 1543 01:11:20,510 --> 01:11:23,274 "Every company traded according to the rules 1544 01:11:23,546 --> 01:11:25,639 that California put up there. 1545 01:11:26,082 --> 01:11:27,845 We're the future of Enron. 1546 01:11:28,117 --> 01:11:31,951 And we're fucking making half a billion dollars for Enron. 1547 01:11:32,255 --> 01:11:33,347 Can you believe that? 1548 01:11:33,890 --> 01:11:36,381 We'll definitely retire by the time we're 30. 1549 01:11:36,726 --> 01:11:38,489 We're talking about a commodity that 1550 01:11:38,695 --> 01:11:39,821 normally trades in the thirty-five, 1551 01:11:40,029 --> 01:11:41,121 forty-five dollar range. 1552 01:11:41,331 --> 01:11:42,889 High prices are when it gets into the fifties. 1553 01:11:44,000 --> 01:11:45,763 A thousand dollars? 1554 01:11:46,269 --> 01:11:49,761 Prices aren't going to stay at 1,000 bucks forever. 1555 01:11:50,540 --> 01:11:52,235 It weeds out the weak people in the market. 1556 01:11:52,842 --> 01:11:54,241 Get rid of them and you know what, 1557 01:11:54,544 --> 01:11:56,512 the people who are strong will stick around. 1558 01:11:56,846 --> 01:11:59,406 And the Enron traders never seemed to step back and say, 1559 01:11:59,649 --> 01:12:01,583 'Wait. Is what we're doing ethical? 1560 01:12:01,784 --> 01:12:03,445 Is it in our best long term interests? ' 1561 01:12:03,720 --> 01:12:06,314 'Does it help us if we totally rape California? ' 1562 01:12:06,556 --> 01:12:09,719 'Does that advance our goals of nation-wide deregulation? ' 1563 01:12:09,993 --> 01:12:12,154 Instead they sought out every loophole 1564 01:12:12,495 --> 01:12:15,259 they could in order to profit from California's misery. 1565 01:12:16,199 --> 01:12:19,896 Temperatures in California are hitting higher than 100 degrees 1566 01:12:20,169 --> 01:12:24,003 fueling wildfires and fears that California's strained power grid 1567 01:12:24,274 --> 01:12:26,265 could once again near collapse. 1568 01:12:27,510 --> 01:12:28,204 What's happening? 1569 01:12:28,611 --> 01:12:29,976 There's a fire under the core line. 1570 01:12:30,246 --> 01:12:33,579 It's been de-rated from 45 to 2100. 1571 01:12:34,150 --> 01:12:36,584 Burn, baby, burn. 1572 01:12:36,886 --> 01:12:38,319 That's a beautiful thing. 1573 01:12:41,257 --> 01:12:44,488 I was never comfortable on the trading floor at Enron. 1574 01:12:45,328 --> 01:12:48,024 And if I had questions, I didn't ask them, 1575 01:12:48,264 --> 01:12:50,357 because I didn't want to know the answer. 1576 01:12:51,568 --> 01:12:52,762 You know, I didn't want confirmed 1577 01:12:53,069 --> 01:12:55,799 what I suspected might be true. 1578 01:12:56,105 --> 01:12:58,938 That what I was doing was, in fact, 1579 01:12:59,242 --> 01:13:04,874 unseemly or was, at least, unethical, 1580 01:13:05,081 --> 01:13:06,639 if not worse. 1581 01:13:08,518 --> 01:13:10,816 Why did the traders do what they did? 1582 01:13:11,154 --> 01:13:13,714 Was it their multi-million dollar bonuses 1583 01:13:13,957 --> 01:13:16,653 or had Enron found a way to exploit 1584 01:13:16,859 --> 01:13:19,157 the darker side of human behavior? 1585 01:13:20,663 --> 01:13:22,824 In the early 60's Stanley Milgram 1586 01:13:23,099 --> 01:13:25,226 tried to figure out what characteristics 1587 01:13:25,535 --> 01:13:26,661 there were of evil people. 1588 01:13:26,903 --> 01:13:29,736 Was there an evil strain or could normal people 1589 01:13:29,939 --> 01:13:31,270 do really bad things? 1590 01:13:31,507 --> 01:13:33,202 And so he set up this experiment. 1591 01:13:33,409 --> 01:13:35,934 In the experiment he had an actor playing 1592 01:13:36,145 --> 01:13:39,546 an experimental subject and a real experimental subject. 1593 01:13:40,183 --> 01:13:41,844 Want to step right in here and have a seat? 1594 01:13:42,085 --> 01:13:44,679 They went into this room and he had an experimenter say, 1595 01:13:45,088 --> 01:13:47,352 'we're going to see if mild electric shocks 1596 01:13:47,590 --> 01:13:49,490 will help people memorize lists. 1597 01:13:50,293 --> 01:13:54,354 Incorrect... You'll now get a shock of 75 volts. 1598 01:13:55,365 --> 01:13:57,060 Soft air. 1599 01:13:57,934 --> 01:13:59,526 He kind of did some yelling in there. 1600 01:13:59,769 --> 01:14:02,101 The Milgram Experiment has a lot to say about Enron 1601 01:14:02,338 --> 01:14:06,638 because I think people lost their sense of morality. 1602 01:14:06,943 --> 01:14:08,570 Like Milgram, once you accepted the idea 1603 01:14:08,845 --> 01:14:10,836 that behaving inhumanly was okay, 1604 01:14:11,080 --> 01:14:12,012 you could do anything. 1605 01:14:12,281 --> 01:14:13,873 And the shocks increased with the number 1606 01:14:14,150 --> 01:14:15,447 of mistakes that they made. 1607 01:14:15,752 --> 01:14:17,777 I can't stand the pain! Let me out of here! 1608 01:14:18,021 --> 01:14:20,182 He can't stand it. I'm not going to kill that man. 1609 01:14:20,523 --> 01:14:22,150 The subject, the real subject is begging 1610 01:14:22,358 --> 01:14:24,553 the scientist-looking person to stop too. 1611 01:14:24,794 --> 01:14:26,284 And the scientist only says 1612 01:14:26,596 --> 01:14:28,928 'the experiment requires that you continue. 1613 01:14:29,232 --> 01:14:30,597 Please continue. Go on, please. 1614 01:14:31,367 --> 01:14:33,232 You accept all responsibility? 1615 01:14:33,503 --> 01:14:35,232 The responsibility is mine, correct. 1616 01:14:35,505 --> 01:14:36,028 Please go on. 1617 01:14:36,339 --> 01:14:39,103 In a way, Skilling was almost like the guy 1618 01:14:39,342 --> 01:14:40,536 telling those people below him 1619 01:14:40,810 --> 01:14:43,335 it was okay to up the power. 1620 01:14:45,181 --> 01:14:47,240 California's Electric Utilities 1621 01:14:47,517 --> 01:14:49,576 may have to pull the plug on millions of customers. 1622 01:14:49,886 --> 01:14:52,878 It's the fucking coolest thing I've done in a long time. 1623 01:14:53,122 --> 01:14:54,680 Holy fuck, yes. You gotta love the west. 1624 01:14:55,024 --> 01:14:55,547 Oh. 1625 01:14:58,528 --> 01:15:00,428 During the height of Wednesday's blackout, 1626 01:15:00,663 --> 01:15:03,461 fire crews had to free people trapped in elevators. 1627 01:15:04,033 --> 01:15:05,967 All that money you guys stole from those 1628 01:15:06,169 --> 01:15:07,431 poor grandmothers in California. 1629 01:15:07,737 --> 01:15:09,329 Yeah, Grandma Millie, man. 1630 01:15:09,572 --> 01:15:11,563 She's the one who couldn't figure out how to fucking vote 1631 01:15:11,808 --> 01:15:12,866 on the butterfly ballot. 1632 01:15:13,109 --> 01:15:14,974 Now she wants her fucking money back for all the power 1633 01:15:15,178 --> 01:15:16,839 you've charged right up her ass. 1634 01:15:25,755 --> 01:15:27,188 You must continue. Go on, please. 1635 01:15:27,590 --> 01:15:30,616 You're gonna keep giving him what... 450 volts every shot now? 1636 01:15:30,860 --> 01:15:32,487 That's correct. Continue. 1637 01:15:32,695 --> 01:15:34,287 It's kinda hard to say well we should be, 1638 01:15:34,497 --> 01:15:36,260 you know we shouldn't do this even though it's allowed 1639 01:15:36,499 --> 01:15:39,730 because you know. I mean, that's what we do. 1640 01:15:39,969 --> 01:15:40,799 Right. 1641 01:15:41,237 --> 01:15:43,364 Best thing that could happen is fucking an earthquake. 1642 01:15:43,606 --> 01:15:45,198 Let that thing float out to the Pacific. 1643 01:15:45,508 --> 01:15:46,475 Put up fucking candles. 1644 01:15:50,046 --> 01:15:52,139 Milgram's discovery was disturbing. 1645 01:15:52,381 --> 01:15:53,780 Fifty percent of the subjects were 1646 01:15:53,983 --> 01:15:55,746 willing to shock to the death, 1647 01:15:56,018 --> 01:15:57,485 so long as the commands came 1648 01:15:57,720 --> 01:16:00,086 from a seemingly legitimate source. 1649 01:16:09,065 --> 01:16:10,760 Tonight I'm declaring a state of emergency 1650 01:16:11,000 --> 01:16:13,093 in California to give the state 1651 01:16:13,302 --> 01:16:15,202 the authority and the resources to 1652 01:16:15,471 --> 01:16:16,733 keep the lights on in California. 1653 01:16:16,939 --> 01:16:18,338 The Governor, who's been basically 1654 01:16:19,108 --> 01:16:21,099 capitulating to the demands of the energy 1655 01:16:21,310 --> 01:16:24,006 companies and utility companies, needs to put his foot down. 1656 01:16:24,213 --> 01:16:26,443 We wanted the Governor to send in the state police 1657 01:16:26,582 --> 01:16:29,210 or the National Guard to seize control of the power plants 1658 01:16:29,485 --> 01:16:30,452 and put it back on-line. 1659 01:16:30,686 --> 01:16:31,983 And I thought we didn't have to take over every plant, 1660 01:16:32,221 --> 01:16:33,654 we really only had to take over one. 1661 01:16:33,923 --> 01:16:35,550 'Cause then they would know he meant it. 1662 01:16:35,758 --> 01:16:37,749 I'm going to get the nine billion dollars 1663 01:16:38,027 --> 01:16:38,925 back that Enron, 1664 01:16:39,128 --> 01:16:42,689 Dynergy and Reliant stole from us and get it back to you. 1665 01:16:42,932 --> 01:16:44,456 Despite what the people of California 1666 01:16:44,600 --> 01:16:47,933 think Enron's making money despite California, 1667 01:16:48,137 --> 01:16:49,764 not because of California. 1668 01:16:50,239 --> 01:16:52,298 The year-long energy crisis would cost 1669 01:16:52,542 --> 01:16:55,204 the state of California $30 billion dollars. 1670 01:16:57,246 --> 01:17:01,012 The markets in California are the most regulated market 1671 01:17:01,284 --> 01:17:03,309 in North America today. 1672 01:17:03,553 --> 01:17:05,885 And that's what's causing the problem. 1673 01:17:06,289 --> 01:17:08,587 California, it never deregulated. 1674 01:17:08,858 --> 01:17:10,849 Enron, buy stock today. 1675 01:17:12,061 --> 01:17:13,653 Thank you very much. 1676 01:17:13,930 --> 01:17:15,124 We are doing the right thing. 1677 01:17:15,464 --> 01:17:16,829 You're the good guys. 1678 01:17:17,099 --> 01:17:19,659 We are the good guys. We are on the side of angels. 1679 01:17:20,469 --> 01:17:21,436 Oh, I can't help myself. 1680 01:17:21,671 --> 01:17:22,603 You know what the difference is between 1681 01:17:22,805 --> 01:17:24,898 the state of California and the Titanic? 1682 01:17:28,878 --> 01:17:30,869 This being a web cast, I know I'm going to regret this. 1683 01:17:31,147 --> 01:17:32,842 At least when the Titanic went down, 1684 01:17:33,115 --> 01:17:34,446 the lights were on. 1685 01:17:38,020 --> 01:17:41,683 Jeffery Skilling, how's it feel to make a killing? 1686 01:17:41,891 --> 01:17:44,257 A top executive at one of America's biggest power 1687 01:17:44,493 --> 01:17:48,259 companies received a raucous welcome in San Francisco tonight. 1688 01:17:48,497 --> 01:17:51,022 Protestors heckled Enron's CEO, 1689 01:17:51,234 --> 01:17:53,464 Jeffery Skilling outside and inside 1690 01:17:53,603 --> 01:17:55,503 during his appearance at Commonwealth Club. 1691 01:17:55,771 --> 01:17:57,966 One of the protestors even brought a blueberry pie 1692 01:17:58,174 --> 01:17:59,607 and delivered it herself. 1693 01:18:01,510 --> 01:18:02,408 Police! 1694 01:18:03,346 --> 01:18:06,406 A hundred and thirty two million dollars is what he made. 1695 01:18:06,616 --> 01:18:09,983 We had a fifty percent hike in utility rates. 1696 01:18:10,186 --> 01:18:12,120 Consumers in California are angry. 1697 01:18:12,455 --> 01:18:13,422 And they should be. 1698 01:18:13,623 --> 01:18:14,817 And if we had anything to do with this, 1699 01:18:15,024 --> 01:18:17,515 then we are the stupidest people in the world. 1700 01:18:18,027 --> 01:18:19,722 I work for an organization. 1701 01:18:19,962 --> 01:18:21,327 Every day people call saying 1702 01:18:21,597 --> 01:18:23,224 they can't pay their electricity bills! 1703 01:18:23,466 --> 01:18:26,333 You made millions of dollars off of California... 1704 01:18:26,569 --> 01:18:27,297 Get out! Go to jail. 1705 01:18:27,503 --> 01:18:29,494 When the tidal wave of public anger 1706 01:18:29,772 --> 01:18:32,070 started to grow Ken Lay flew out here 1707 01:18:32,275 --> 01:18:34,140 and convened a meeting of friends 1708 01:18:34,477 --> 01:18:36,775 and I guess he had a little more foresight than we did. 1709 01:18:37,013 --> 01:18:39,174 He, he invited Arnold Schwarzenegger. 1710 01:18:39,482 --> 01:18:40,744 Brought them together at the Peninsula Hotel 1711 01:18:40,983 --> 01:18:41,813 and had a lunch meeting. 1712 01:18:42,051 --> 01:18:45,452 The notes from that meeting really still have never surfaced, 1713 01:18:45,655 --> 01:18:47,782 but we know that Ken Lay's pitch was 1714 01:18:48,090 --> 01:18:49,250 we've got to stay the course 1715 01:18:49,492 --> 01:18:51,983 with deregulation and the market will correct itself 1716 01:18:52,228 --> 01:18:53,855 and everything will turn out fine. 1717 01:18:54,497 --> 01:18:56,226 Now at... at the time we didn't understand 1718 01:18:56,499 --> 01:18:57,864 really why he was so concerned. 1719 01:18:58,134 --> 01:18:58,725 But now we do. 1720 01:18:59,035 --> 01:19:00,229 The fact is that Ken Lay was out here 1721 01:19:00,503 --> 01:19:01,834 because he understood that 1722 01:19:02,104 --> 01:19:03,867 Enron itself was a house of cards 1723 01:19:04,106 --> 01:19:07,041 And if deregulation were to collapse, 1724 01:19:07,276 --> 01:19:08,937 then Enron itself would collapse. 1725 01:19:09,812 --> 01:19:11,575 But Ken Lay had a trump card. 1726 01:19:11,881 --> 01:19:14,145 In the midst of the energy crisis his friend, 1727 01:19:14,450 --> 01:19:17,010 George W. Bush, became president 1728 01:19:17,353 --> 01:19:20,288 I, George Walker Bush, do solemnly swear. 1729 01:19:20,556 --> 01:19:22,547 I, George Walker Bush, do solemnly swear. 1730 01:19:22,758 --> 01:19:24,316 Ken Lay's going to be Secretary of Energy. 1731 01:19:25,461 --> 01:19:26,621 Get out of here. 1732 01:19:27,163 --> 01:19:29,324 How great would that be for all the players in the market? 1733 01:19:29,598 --> 01:19:30,121 Lt'd be great. 1734 01:19:30,466 --> 01:19:32,593 I'd love to see Ken Lay be Secretary of Energy. 1735 01:19:32,935 --> 01:19:36,462 Ken Lay did have easy access to the Bush administration. 1736 01:19:36,739 --> 01:19:37,637 On April 17th, 1737 01:19:37,840 --> 01:19:39,740 he met with Vice President Dick Cheney, 1738 01:19:40,076 --> 01:19:42,169 and strongly argued against the imposition of 1739 01:19:42,545 --> 01:19:44,604 Federal price caps in California. 1740 01:19:44,847 --> 01:19:46,678 We're doing everything we can to help in California 1741 01:19:46,983 --> 01:19:48,814 on the short term basis. There's not a lot you can do. 1742 01:19:49,051 --> 01:19:50,609 You can't manufacture kilowatts 1743 01:19:50,820 --> 01:19:51,946 in the West wing of the White House. 1744 01:19:52,154 --> 01:19:54,122 We're fighting with both hands tied behind our back. 1745 01:19:54,357 --> 01:19:55,915 We no longer have the power to stop this. 1746 01:19:56,192 --> 01:19:57,523 If the federal government doesn't help us, 1747 01:19:57,760 --> 01:19:58,692 we're a dead duck. 1748 01:19:59,228 --> 01:20:01,753 At the time, Gray Davis was a likely candidate 1749 01:20:01,998 --> 01:20:03,192 to run for president. 1750 01:20:03,432 --> 01:20:06,060 Ken Lay knew that might give his friend George Bush 1751 01:20:06,335 --> 01:20:08,826 a political reason to oppose California's 1752 01:20:09,071 --> 01:20:11,505 appeals for federal price controls. 1753 01:20:11,774 --> 01:20:14,538 They know full well my administration's belief 1754 01:20:14,744 --> 01:20:18,202 that price controls will not solve the problem. 1755 01:20:18,514 --> 01:20:20,414 His view was that the Federal government 1756 01:20:20,649 --> 01:20:22,674 really shouldn't get involved. This is California's problem. 1757 01:20:23,352 --> 01:20:25,377 And I'm saying, 'with all due... due respect, 1758 01:20:25,588 --> 01:20:28,022 Mr. President, our law said 1759 01:20:28,257 --> 01:20:30,122 the Federal government regulates this, 1760 01:20:30,359 --> 01:20:31,519 so it is your problem. 1761 01:20:31,794 --> 01:20:33,694 And you make appointments to the Federal Deregulatory Commission. 1762 01:20:33,929 --> 01:20:36,329 So, we had a polite, but spirited discussion on that. 1763 01:20:36,632 --> 01:20:37,064 And he says, 1764 01:20:37,299 --> 01:20:38,288 'I just can't be of help to you on that.' 1765 01:20:38,534 --> 01:20:40,399 As I said from the very beginning of my administration, 1766 01:20:40,603 --> 01:20:42,127 we'll work to help California, 1767 01:20:42,438 --> 01:20:43,962 in any way we can. 1768 01:20:44,373 --> 01:20:47,069 And the best way we can is to be good citizens. 1769 01:20:48,544 --> 01:20:51,945 FERC, the federal agency which regulates energy in America, 1770 01:20:52,181 --> 01:20:53,671 refused to intervene. 1771 01:20:54,450 --> 01:20:57,851 What was FERC doing and why was it not taking action? 1772 01:20:58,087 --> 01:21:00,180 The chairman of FERC was Pat Wood, 1773 01:21:00,489 --> 01:21:03,947 the man Ken Lay had personally recommended for the job. 1774 01:21:04,226 --> 01:21:06,524 It was easy for FERC to do Enron's bidding 1775 01:21:06,762 --> 01:21:08,252 because all it had to do was do nothing 1776 01:21:08,497 --> 01:21:09,657 which they did very well. 1777 01:21:09,965 --> 01:21:11,956 Federal Regulators are being pressured to act 1778 01:21:12,234 --> 01:21:14,702 by the now Democratic controlled Senate where here... 1779 01:21:14,937 --> 01:21:18,930 A Democratic Senate forced FERC to impose regional price caps. 1780 01:21:19,175 --> 01:21:22,611 That ended the energy crisis, but not the political one. 1781 01:21:22,878 --> 01:21:25,472 Did Ken Lay and George Bush have a political agenda to 1782 01:21:25,714 --> 01:21:27,511 blame the energy crisis on Gray Davis? 1783 01:21:27,850 --> 01:21:30,011 Oh hello. 1784 01:21:30,719 --> 01:21:33,483 It's one of those 'only in California' stories. 1785 01:21:33,689 --> 01:21:35,281 The state's unpopular Governor, 1786 01:21:35,524 --> 01:21:38,015 Gray Davis, beset by an ailing economy 1787 01:21:38,260 --> 01:21:40,490 and thirty eight billion dollar budget deficit, 1788 01:21:40,663 --> 01:21:42,392 faces possible recall. 1789 01:21:42,731 --> 01:21:45,700 And rumored as a possible replacement for Davis, 1790 01:21:45,935 --> 01:21:48,062 movie star Arnold Schwarzenegger. 1791 01:21:48,437 --> 01:21:49,699 The Terminator? 1792 01:21:49,972 --> 01:21:51,667 We'll see whether he's back or not. 1793 01:21:51,907 --> 01:21:53,704 Gray Davis has terminated opportunities 1794 01:21:53,976 --> 01:21:56,103 and now it's time we terminate Gray Davis! 1795 01:21:56,879 --> 01:22:00,246 No Recall! No Recall! 1796 01:22:03,486 --> 01:22:05,954 Could I predict a phony energy crisis 1797 01:22:06,222 --> 01:22:07,246 as a result of deregulation? 1798 01:22:07,590 --> 01:22:10,252 Yes. Could I predict that Arnold Schwartzerneger 1799 01:22:10,526 --> 01:22:12,756 would be our Governor as a result of deregulation? 1800 01:22:13,395 --> 01:22:14,453 Never would have come up with that. 1801 01:22:14,663 --> 01:22:15,925 That's like a bad science fiction movie. 1802 01:22:16,198 --> 01:22:18,359 Apparently we have all been wrong, 1803 01:22:18,734 --> 01:22:21,498 it is pronounced Caly-forn-ya. 1804 01:22:21,837 --> 01:22:22,826 Ladies and gentlemen, 1805 01:22:23,038 --> 01:22:25,233 the Governor of the great state of California, 1806 01:22:25,508 --> 01:22:26,975 Arnold Schwarzenegger! 1807 01:22:42,658 --> 01:22:44,649 We could just hear rumbles all the way up and down 1808 01:22:45,661 --> 01:22:47,652 Main Street here and all throughout the city 1809 01:22:47,863 --> 01:22:50,855 that things were very difficult at Enron. 1810 01:22:51,100 --> 01:22:53,728 One guy who a year before had come to me and said, 1811 01:22:53,936 --> 01:22:54,664 I'm working for Enron, 1812 01:22:54,870 --> 01:22:57,100 and was very excited but within a year 1813 01:22:57,373 --> 01:22:59,432 was waking up every night with nightmares. 1814 01:22:59,608 --> 01:23:01,473 'I've got no life left 1815 01:23:01,744 --> 01:23:03,939 and I feel like I'm being consumed by this company.' 1816 01:23:04,813 --> 01:23:07,281 As doubts began to surface about the company 1817 01:23:07,516 --> 01:23:09,882 and the erratic behavior of its CEO 1818 01:23:10,152 --> 01:23:12,484 Enron's stock began to fall. 1819 01:23:13,122 --> 01:23:14,646 I remember one of the most poignant meetings 1820 01:23:14,857 --> 01:23:15,915 I'd ever had with Jeff. 1821 01:23:16,125 --> 01:23:17,251 I had left Enron 1822 01:23:17,560 --> 01:23:19,255 and I had come over to talk about whether or not 1823 01:23:19,495 --> 01:23:20,689 I would return to Enron. 1824 01:23:20,963 --> 01:23:22,760 And I said, 'Jeff, you've got a real problem. 1825 01:23:23,098 --> 01:23:25,566 The traders, they will cut your throat, 1826 01:23:25,834 --> 01:23:28,462 if they think it will get them to the trough sooner.' 1827 01:23:29,004 --> 01:23:30,471 Jeff was silent. 1828 01:23:30,773 --> 01:23:33,071 And he looked out the window 1829 01:23:33,509 --> 01:23:35,477 and he looked back at me and he said, 1830 01:23:35,678 --> 01:23:38,841 'Yeah Amanda, you're most likely right.' 1831 01:23:40,216 --> 01:23:43,083 By the end, the traders ran Enron. 1832 01:23:43,352 --> 01:23:45,479 You know, the inmates had taken over the asylum. 1833 01:23:48,524 --> 01:23:51,789 All through the summer, the stock continued to decline. 1834 01:23:52,228 --> 01:23:54,924 There was a buzz that a major 1835 01:23:55,164 --> 01:23:57,029 announcement was going to take place. 1836 01:23:57,299 --> 01:24:01,565 But we all thought that Ken Lay was leaving 1837 01:24:02,037 --> 01:24:04,198 Enron and that he had been 1838 01:24:04,540 --> 01:24:09,443 asked by the Bush administration to join his administration. 1839 01:24:09,745 --> 01:24:11,610 But that wasn't the case at all. 1840 01:24:11,847 --> 01:24:13,337 It was Jeff Skilling announcing that 1841 01:24:13,616 --> 01:24:15,846 he was stepping down as the CEO. 1842 01:24:16,118 --> 01:24:18,814 And that took everyone by surprise. 1843 01:24:19,088 --> 01:24:20,646 No one could believe that. 1844 01:24:21,523 --> 01:24:23,184 CEO's generally, 1845 01:24:23,392 --> 01:24:25,451 don't just resign out of the blue 1846 01:24:25,761 --> 01:24:29,356 without a well orchestrated PR campaign beforehand 1847 01:24:29,665 --> 01:24:31,895 to pave the way so there's no disruptions, 1848 01:24:32,101 --> 01:24:34,262 there's no questions, there's no front page stories, 1849 01:24:34,503 --> 01:24:36,801 which is, of course, exactly what happened. 1850 01:24:38,741 --> 01:24:40,709 It was at that point that I knew, 1851 01:24:41,043 --> 01:24:42,601 the architect of the disaster knows that 1852 01:24:42,878 --> 01:24:46,211 it's crumbling and the rat is leaving the sinking ship. 1853 01:24:47,683 --> 01:24:50,880 Two days later I met with him and Ken Lay 1854 01:24:51,120 --> 01:24:52,144 because I had informed the company 1855 01:24:52,388 --> 01:24:53,616 that I was going to downgrade the stock 1856 01:24:53,889 --> 01:24:56,016 on Skilling's resignation. 1857 01:24:56,258 --> 01:24:57,247 I asked Jeff Skilling, 1858 01:24:57,526 --> 01:24:59,153 'are there any more shoes to drop. 1859 01:24:59,395 --> 01:25:00,521 Have we seen the worst of it.' 1860 01:25:00,729 --> 01:25:02,526 And I was concerned about the energy crisis 1861 01:25:02,731 --> 01:25:04,426 that was occurring in California. 1862 01:25:05,801 --> 01:25:08,964 Well, Skilling convinced me that it was for personal reasons. 1863 01:25:09,238 --> 01:25:12,571 I left his meeting feeling sort of emotional 1864 01:25:12,775 --> 01:25:15,243 because of the concern that he seemed to be 1865 01:25:15,477 --> 01:25:18,344 showing about the relationship he had with his family. 1866 01:25:18,647 --> 01:25:20,308 He appeared to be distraught. 1867 01:25:20,516 --> 01:25:22,177 And I remember saying to an investor 1868 01:25:22,851 --> 01:25:25,046 'lf he's not telling the truth, 1869 01:25:25,321 --> 01:25:27,255 then it's a good thing he quit his day job 1870 01:25:27,489 --> 01:25:28,956 because he needs to go to Hollywood. 1871 01:25:29,325 --> 01:25:30,986 I left Enron on August fourteenth, 1872 01:25:31,193 --> 01:25:33,320 2001 for personal reasons. 1873 01:25:33,662 --> 01:25:36,096 Mr. Skilling a massive earthquake 1874 01:25:37,066 --> 01:25:39,091 struck Enron right after your departure. 1875 01:25:39,702 --> 01:25:44,264 And people in far inferior positions to you 1876 01:25:44,807 --> 01:25:46,604 could see cracks in the walls, 1877 01:25:46,875 --> 01:25:49,810 feel the tremors, feel the windows rattling, 1878 01:25:50,312 --> 01:25:51,779 and you want us to believe 1879 01:25:52,081 --> 01:25:54,276 you sat there in your office and didn't... 1880 01:25:54,516 --> 01:25:56,381 and had no clue 1881 01:25:56,618 --> 01:25:57,983 that this place was about to collapse? 1882 01:25:58,520 --> 01:26:01,421 On the day I left, on August fourteenth, 1883 01:26:01,623 --> 01:26:04,421 2001, I believed the company was in strong, 1884 01:26:04,593 --> 01:26:05,491 financial condition. 1885 01:26:05,694 --> 01:26:07,286 I think he was smart enough 1886 01:26:07,529 --> 01:26:08,655 and he didn't even have to be that smart, 1887 01:26:08,864 --> 01:26:12,163 he had seen documents that I think predicted the future. 1888 01:26:12,468 --> 01:26:14,231 I think he was smart enough to think 1889 01:26:14,503 --> 01:26:16,437 I can get out now and this company 1890 01:26:16,672 --> 01:26:19,732 isn't going to collapse for a year, 1891 01:26:19,942 --> 01:26:23,275 maybe a year and a half, so I won't get the blame. 1892 01:26:23,512 --> 01:26:26,003 It was working fine when I left, guys. 1893 01:26:27,616 --> 01:26:30,141 After Skilling resigned, Enron's chairman, 1894 01:26:30,386 --> 01:26:32,581 Ken Lay took over as CEO. 1895 01:26:39,595 --> 01:26:41,324 Boy, I didn't expect that. 1896 01:26:43,298 --> 01:26:44,458 But thank you. 1897 01:26:44,600 --> 01:26:45,692 Thank you very much. 1898 01:26:46,034 --> 01:26:47,797 Well, I'm delighted to be back. 1899 01:26:48,504 --> 01:26:50,699 I'm sorry Jeff did resign. 1900 01:26:50,973 --> 01:26:52,964 It was a stunning announcement, 1901 01:26:53,308 --> 01:26:55,970 that he was stepping down as CEO. 1902 01:26:56,245 --> 01:26:57,906 And I think the flags 1903 01:26:59,715 --> 01:27:02,013 started going up at that point for everybody. 1904 01:27:02,284 --> 01:27:03,717 We are facing a number of challenges, 1905 01:27:03,919 --> 01:27:05,614 but we're managing them. 1906 01:27:05,921 --> 01:27:08,549 Indeed I think the worst of that's behind us. 1907 01:27:09,124 --> 01:27:11,183 And the business is doing great. 1908 01:27:11,693 --> 01:27:13,183 We're not the only stock 1909 01:27:13,462 --> 01:27:14,929 that's decreased in value this year. 1910 01:27:15,164 --> 01:27:16,756 It's just that we've been hit a little harder than... 1911 01:27:16,999 --> 01:27:17,931 than many others. 1912 01:27:18,167 --> 01:27:20,294 If a few of these other problems disappear, 1913 01:27:20,669 --> 01:27:22,603 like California, like India. 1914 01:27:22,938 --> 01:27:25,304 I think the worst is over. 1915 01:27:25,741 --> 01:27:27,265 And I'm excited. 1916 01:27:27,576 --> 01:27:29,510 August fourteenth 2001, 1917 01:27:29,945 --> 01:27:31,640 Jeff Skilling abruptly resigns. 1918 01:27:31,947 --> 01:27:33,244 And that made me angry. 1919 01:27:33,482 --> 01:27:35,814 It made loads of employees angry. 1920 01:27:36,218 --> 01:27:38,311 I mean, there was a real sense of betrayal 1921 01:27:38,587 --> 01:27:40,521 by the employees. I mean, this was, you know, 1922 01:27:40,889 --> 01:27:42,914 Jim Jones feeding us the Kool-Aid 1923 01:27:43,125 --> 01:27:45,059 and then deciding not to drink it himself. 1924 01:27:49,765 --> 01:27:51,460 The day after Skilling resigned, 1925 01:27:51,733 --> 01:27:54,600 Sherron Watkins sent a letter to Ken Lay. 1926 01:27:54,870 --> 01:27:56,701 We will begin with Ms. Watkins. 1927 01:27:56,972 --> 01:27:58,269 I am Sherron Watkins. 1928 01:27:58,507 --> 01:28:00,498 Would you identify your counsel for the committee. 1929 01:28:01,009 --> 01:28:03,068 Yes. My counsel is Mr. Philip Hilder. 1930 01:28:03,545 --> 01:28:05,274 When you hear the story for the first time, 1931 01:28:05,547 --> 01:28:07,208 it's unbelievable. 1932 01:28:07,449 --> 01:28:10,816 What Sherron was telling me it was more than accounting 1933 01:28:11,053 --> 01:28:12,179 irregularities, as such. 1934 01:28:12,454 --> 01:28:16,117 I mean, it was a massive fraud of enormous proportions. 1935 01:28:16,458 --> 01:28:18,653 In mid to late June of 2001, 1936 01:28:18,927 --> 01:28:21,452 upon the resignation of Cliff Baxter, 1937 01:28:21,697 --> 01:28:23,858 I went to work directly for Mr. Fastow. 1938 01:28:24,066 --> 01:28:27,866 It has evolved to the corporate crime of the century. 1939 01:28:28,136 --> 01:28:31,264 I was highly alarmed by the information I was receiving. 1940 01:28:32,608 --> 01:28:34,075 What Sherron Watkins discovered 1941 01:28:34,343 --> 01:28:37,779 began the unraveling of Fastow's complex partnerships. 1942 01:28:38,146 --> 01:28:40,876 Andy put me in charge of this asset listing. 1943 01:28:41,250 --> 01:28:45,983 And there were about a dozen assets that had been hedged 1944 01:28:46,221 --> 01:28:49,520 with one of Andy's entities, the Raptors. 1945 01:28:49,858 --> 01:28:52,326 So I was working with this spreadsheet and, 1946 01:28:52,728 --> 01:28:54,855 you know, the math just didn't add up. 1947 01:28:55,130 --> 01:28:56,654 It didn't make sense to me. 1948 01:28:56,865 --> 01:28:58,730 I mean, accounting doesn't get that creative. 1949 01:28:59,001 --> 01:29:00,127 You know, I couldn't believe that 1950 01:29:00,335 --> 01:29:01,495 Arthur Andersen had signed off on it. 1951 01:29:01,837 --> 01:29:04,738 I couldn't believe that so many people were going along. 1952 01:29:05,908 --> 01:29:07,603 Behind Fastow's partnerships 1953 01:29:07,943 --> 01:29:10,935 were enormous guarantees of Enron's stock. 1954 01:29:11,346 --> 01:29:13,780 Fastow had gambled Enron's future 1955 01:29:13,982 --> 01:29:16,951 on the hope that its stock would never fall. 1956 01:29:17,352 --> 01:29:21,311 My first reaction was that I should warn Ken Lay. 1957 01:29:21,790 --> 01:29:23,155 The day after Skilling left, 1958 01:29:23,358 --> 01:29:25,553 I sent this one page anonymous letter. 1959 01:29:25,827 --> 01:29:27,988 But within a week I was meeting with Ken Lay. 1960 01:29:28,230 --> 01:29:29,697 I identified myself 1961 01:29:29,965 --> 01:29:31,990 in the hopes of really making my point 1962 01:29:32,267 --> 01:29:34,258 that Enron really needed to address this situation. 1963 01:29:34,503 --> 01:29:36,869 Companies rarely get away with cooking the books. 1964 01:29:37,139 --> 01:29:39,505 But when they do survive, it's when they come clean. 1965 01:29:39,741 --> 01:29:42,335 Not when they're exposed from the outside. 1966 01:29:42,711 --> 01:29:44,542 Ms. Watkins, I went through... 1967 01:29:44,780 --> 01:29:46,475 Ms. Watkins did not talk to me, Senator. 1968 01:29:46,748 --> 01:29:50,149 Well, Ms. Watkins said Clifford Baxter told her 1969 01:29:50,485 --> 01:29:54,046 that he met with you repeatedly to express his concern. 1970 01:29:54,356 --> 01:29:57,450 Cliff and Andy have had a... they didn't like each other. 1971 01:29:57,759 --> 01:30:00,523 They had a very strained personal relationship 1972 01:30:00,862 --> 01:30:03,558 and Cliff's issue had nothing to do 1973 01:30:03,899 --> 01:30:05,093 with the appropriateness 1974 01:30:05,334 --> 01:30:06,631 or inappropriateness of the transactions 1975 01:30:06,868 --> 01:30:10,269 I mentioned Cliff Baxter in these memos. 1976 01:30:10,472 --> 01:30:12,406 And I remember I made the comment to him, 1977 01:30:12,941 --> 01:30:14,499 'you're one of the good guys, 1978 01:30:14,776 --> 01:30:15,674 you know, you're one of the people 1979 01:30:15,877 --> 01:30:19,677 fighting against this. And it'd be alright.' 1980 01:30:19,915 --> 01:30:21,007 And he said, 1981 01:30:21,249 --> 01:30:22,273 'oh I don't think it's going to be alright 1982 01:30:22,517 --> 01:30:24,451 for any of us involved.' 1983 01:30:27,756 --> 01:30:29,724 When I started working on the book with Sherron, 1984 01:30:30,025 --> 01:30:31,788 I was interested in writing about a whistleblower. 1985 01:30:32,027 --> 01:30:34,222 People don't really appreciate 1986 01:30:34,863 --> 01:30:38,094 what she did and the bravery that it took in that company. 1987 01:30:38,367 --> 01:30:40,892 Andy Fastow would not have put his hands 1988 01:30:41,169 --> 01:30:43,865 in the Enron candy jar without an explicit 1989 01:30:44,072 --> 01:30:47,041 or implicit approval to do so by Mr. Skilling. 1990 01:30:47,275 --> 01:30:49,675 I can't for the life of me see what basis she 1991 01:30:49,878 --> 01:30:52,039 would have for suggesting that I would know some... 1992 01:30:52,280 --> 01:30:54,180 I mean, how would she know that? 1993 01:30:54,383 --> 01:30:56,146 And I don't see that it's at all inconsistent that 1994 01:30:56,351 --> 01:30:58,216 there would be some things that I don't know 1995 01:30:58,487 --> 01:31:01,786 if some people purposely kept me from knowing some things 1996 01:31:02,090 --> 01:31:05,617 I felt like I was one lone voice within Enron saying, 1997 01:31:05,827 --> 01:31:07,590 'look, we've... we've committed horrible fraud.' 1998 01:31:07,796 --> 01:31:09,127 And of course all hell broke loose. 1999 01:31:09,331 --> 01:31:12,823 Within six short weeks Enron was spinning out of control. 2000 01:31:17,706 --> 01:31:19,230 Probably in more normal circumstances 2001 01:31:19,508 --> 01:31:20,998 I would have a few more words to say 2002 01:31:21,243 --> 01:31:22,767 about September the eleventh. 2003 01:31:23,045 --> 01:31:26,173 Just like America is under attack by terrorism, 2004 01:31:26,915 --> 01:31:29,509 I think we're under attack. And of course. 2005 01:31:30,786 --> 01:31:35,985 Now we've got the SEC inquiry, informal inquiry... 2006 01:31:36,825 --> 01:31:38,793 The SEC launched an investigation 2007 01:31:39,061 --> 01:31:40,551 When the Wall Street Journal published 2008 01:31:40,829 --> 01:31:43,821 articles revealing Fastow's murky deals. 2009 01:31:44,166 --> 01:31:46,930 Enron announced massive financial restatements. 2010 01:31:47,536 --> 01:31:49,504 Investors began to worry that billions 2011 01:31:49,738 --> 01:31:53,071 in mark-to-market profits were really losses. 2012 01:31:55,610 --> 01:31:57,271 As you can see foresee, 2013 01:31:57,546 --> 01:32:02,108 the underlying fundamentals of our businesses are very strong. 2014 01:32:02,484 --> 01:32:04,509 Indeed the strongest they've ever been. 2015 01:32:05,787 --> 01:32:07,516 But regrettably, 2016 01:32:08,223 --> 01:32:10,316 that's not what Wall Street is focusing on. 2017 01:32:11,159 --> 01:32:13,457 And I doubt that's what you're focusing on. 2018 01:32:13,695 --> 01:32:15,822 This inquiry will take a lot of time 2019 01:32:16,231 --> 01:32:19,029 on the part of our accountants and lawyers and others. 2020 01:32:21,303 --> 01:32:24,238 But it will finally put these issues to rest. 2021 01:32:25,874 --> 01:32:28,866 At the very moment Ken Lay was talking to employees, 2022 01:32:29,144 --> 01:32:32,170 only a few blocks away, Enron's accounting firm, 2023 01:32:32,414 --> 01:32:33,346 Arthur Andersen, 2024 01:32:33,548 --> 01:32:35,948 had begun destroying its Enron files. 2025 01:32:36,918 --> 01:32:38,510 On October 23rd, 2026 01:32:38,787 --> 01:32:41,847 Andersen shredded more than one ton of paper. 2027 01:32:44,526 --> 01:32:46,858 Despite the rumors, despite the speculation, 2028 01:32:47,129 --> 01:32:50,792 the company is doing well both financially and operationally. 2029 01:32:50,999 --> 01:32:52,591 He was making all kinds of statements. 2030 01:32:52,868 --> 01:32:54,893 Reassuring employees and not just employees, 2031 01:32:55,137 --> 01:32:56,604 reassuring investors, 2032 01:32:56,838 --> 01:33:00,672 'we have no accounting irregularities, 2033 01:33:00,876 --> 01:33:02,537 the company's in the best shape it's ever been in' 2034 01:33:02,778 --> 01:33:04,439 From the standpoint of Enron stock, 2035 01:33:04,613 --> 01:33:05,910 we're going to bring it back... 2036 01:33:06,181 --> 01:33:07,546 we're going to bring it back. 2037 01:33:07,783 --> 01:33:09,751 Alright, we're down to questions. 2038 01:33:09,985 --> 01:33:11,452 I've got a few of them here. 2039 01:33:11,620 --> 01:33:13,884 'I would like to know if you are on crack? 2040 01:33:17,692 --> 01:33:19,182 If so, that would explain a lot. 2041 01:33:19,494 --> 01:33:20,756 If not. You may want to start 2042 01:33:20,996 --> 01:33:22,486 because it's going to be a long time 2043 01:33:22,731 --> 01:33:24,198 before we trust you again.' 2044 01:33:24,900 --> 01:33:26,834 It certainly wasn't clear to anyone at Enron, 2045 01:33:27,102 --> 01:33:28,296 much less anyone outside of Enron 2046 01:33:28,537 --> 01:33:31,995 it wasn't really clear what was going on or... 2047 01:33:32,274 --> 01:33:33,741 what was going to happen. 2048 01:33:33,975 --> 01:33:35,306 I know this is a lot... 2049 01:33:35,610 --> 01:33:38,170 There is a lot of speculation about Andy's involvement 2050 01:33:38,513 --> 01:33:41,141 I and the board are also sure that 2051 01:33:41,383 --> 01:33:44,284 Andy has operated in the most ethical 2052 01:33:44,553 --> 01:33:46,521 and appropriate manner possible. 2053 01:33:47,122 --> 01:33:49,852 The next day, Andy Fastow was fired 2054 01:33:50,192 --> 01:33:51,887 when the Enron board discovered that 2055 01:33:52,194 --> 01:33:54,321 he had made more than $45 million dollars 2056 01:33:54,563 --> 01:33:56,497 from his LJM partnerships. 2057 01:33:56,898 --> 01:33:59,492 The question, Mr. Fastow, is how could you believe 2058 01:33:59,935 --> 01:34:03,063 that your actions were in any way consistent 2059 01:34:03,305 --> 01:34:05,432 with your fiduciary duties to Enron 2060 01:34:05,707 --> 01:34:08,267 and its shareholders or with common sense 2061 01:34:08,510 --> 01:34:11,638 notions of corporate ethics and propriety? 2062 01:34:12,347 --> 01:34:13,143 How do you answer, sir? 2063 01:34:13,381 --> 01:34:15,781 Mr. Chairman on the advice of my counsel, 2064 01:34:16,051 --> 01:34:18,076 I respectfully decline to answer the questions 2065 01:34:18,620 --> 01:34:20,349 based on the protection afforded me 2066 01:34:20,622 --> 01:34:22,647 under the United States Constitution. 2067 01:34:26,728 --> 01:34:28,457 Andy, in many ways, 2068 01:34:28,730 --> 01:34:30,960 I think he was set up as the fall guy. 2069 01:34:31,266 --> 01:34:34,827 All of the Enron executives were saying, 2070 01:34:35,036 --> 01:34:37,334 'there's your man, Andy Fastow. He's the crook. 2071 01:34:37,606 --> 01:34:39,369 You know, he's the one that stole from Enron, 2072 01:34:39,608 --> 01:34:40,472 stole from LJM. 2073 01:34:40,675 --> 01:34:42,006 He's the one that cooked the books. 2074 01:34:42,277 --> 01:34:43,369 Go after him.' 2075 01:34:43,945 --> 01:34:45,469 How will you plead, Mr. Fastow? 2076 01:34:46,214 --> 01:34:48,273 I've thought about this and thought about this. 2077 01:34:48,516 --> 01:34:51,542 And it couldn't have just been a few executives 2078 01:34:51,786 --> 01:34:54,186 at Enron that made this happen. 2079 01:34:54,422 --> 01:34:58,552 If you think of the banks involved Chase, 2080 01:34:59,461 --> 01:35:01,793 Morgan, Citibank 2081 01:35:03,765 --> 01:35:07,667 the billions in loans Arthur Andersen... 2082 01:35:07,936 --> 01:35:09,426 What about Vincent and Elkins, 2083 01:35:09,671 --> 01:35:12,834 the lawyers that represented us? 2084 01:35:13,108 --> 01:35:15,906 There had to have been complicity across the board. 2085 01:35:16,478 --> 01:35:18,605 Because it was all too easy; 2086 01:35:18,980 --> 01:35:21,175 all too easy. 2087 01:35:25,687 --> 01:35:28,178 The Enron collapse was an enormous tragedy. 2088 01:35:28,957 --> 01:35:32,518 This is a company that had over thirty thousand employees, 2089 01:35:32,894 --> 01:35:34,555 and clearly with a company that size 2090 01:35:34,829 --> 01:35:36,456 you have a lot of senior officers 2091 01:35:36,631 --> 01:35:39,759 that have a lot of authority in which you place enormous trust. 2092 01:35:40,035 --> 01:35:42,469 But in the case there was at least one, 2093 01:35:42,837 --> 01:35:45,670 Andy Fastow, that betrayed that trust 2094 01:35:46,241 --> 01:35:47,469 to the extent that 2095 01:35:47,676 --> 01:35:49,268 I did not know what he was doing, 2096 01:35:49,511 --> 01:35:51,570 he obviously didn't share with me what he was doing, 2097 01:35:52,314 --> 01:35:55,909 then indeed I cannot take responsibility for what he did 2098 01:35:56,151 --> 01:35:57,140 I never heard him say, 2099 01:35:57,352 --> 01:35:58,649 'I take responsibility' for a thing. 2100 01:35:58,853 --> 01:36:02,254 It sounded to me like the wonderful movie, 'Chicago'. 2101 01:36:02,891 --> 01:36:05,155 I was reminded of the puppet strings 2102 01:36:05,460 --> 01:36:07,428 and the dancers and the tap dancing 2103 01:36:07,595 --> 01:36:09,290 and pointing at the gun, the gun, the gun. 2104 01:36:09,597 --> 01:36:13,431 I mean. Everybody's in step with Johnny. 2105 01:36:13,702 --> 01:36:17,297 I continue to grieve, as does my family, 2106 01:36:18,173 --> 01:36:20,038 over the loss of the company. 2107 01:36:20,308 --> 01:36:22,469 Linda and I saw our net worth reduced 2108 01:36:22,677 --> 01:36:24,645 from several hundred million dollars down to 2109 01:36:24,980 --> 01:36:26,675 something less than twenty million dollars 2110 01:36:26,915 --> 01:36:27,939 on a net worth basis. 2111 01:36:28,183 --> 01:36:29,115 And of course, as... as you said, 2112 01:36:29,317 --> 01:36:32,115 about a million dollars or less in liquidity. 2113 01:36:33,755 --> 01:36:36,986 I don't know whether I'd rather be shot as a crook 2114 01:36:37,258 --> 01:36:39,556 or as an idiot. 2115 01:36:40,061 --> 01:36:44,794 I believe the only venue for me is the 'Ride of Broken Dreams.' 2116 01:36:45,066 --> 01:36:46,499 Oh, you mean the Enron ride! 2117 01:36:46,768 --> 01:36:47,234 Let's go! 2118 01:36:47,535 --> 01:36:48,900 Enron hit the National psyche. 2119 01:36:49,137 --> 01:36:51,833 It hit it as sort of, the time-tested lesson. 2120 01:36:52,107 --> 01:36:53,938 And that is, if it looks too good to be true, 2121 01:36:54,242 --> 01:36:55,607 sometimes it is. 2122 01:36:58,279 --> 01:36:59,871 We're all going to be rich! 2123 01:37:02,517 --> 01:37:03,814 We broke even. 2124 01:37:12,727 --> 01:37:14,627 It is my belief that Enron's failure was 2125 01:37:14,829 --> 01:37:17,297 due to a classic run on the bank. 2126 01:37:19,100 --> 01:37:20,931 Don't look now but there's something funny going on 2127 01:37:21,169 --> 01:37:22,431 over there at the bank, George. 2128 01:37:22,604 --> 01:37:23,536 I've never really seen one, 2129 01:37:23,738 --> 01:37:25,706 but that's got all the earmarks of being a run. 2130 01:37:34,182 --> 01:37:36,047 On December 2nd 2001, 2131 01:37:36,351 --> 01:37:39,184 less than four months after Skilling's resignation 2132 01:37:39,521 --> 01:37:41,614 Enron declared bankruptcy. 2133 01:37:43,758 --> 01:37:46,921 I remember it was just a strange, 2134 01:37:47,162 --> 01:37:48,561 kind of surreal day. 2135 01:37:48,797 --> 01:37:51,891 We learned around nine thirty about the bankruptcy 2136 01:37:52,200 --> 01:37:54,225 and that we were all being let go. 2137 01:37:55,737 --> 01:37:58,467 We all felt like we were on the Titanic 2138 01:37:58,773 --> 01:38:01,606 and the last lifeboats had long gone 2139 01:38:01,843 --> 01:38:05,438 and we were just now on the sinking ship. 2140 01:38:06,848 --> 01:38:09,146 We had thirty minutes to leave the building 2141 01:38:09,350 --> 01:38:11,318 and at that point it was no longer 2142 01:38:11,586 --> 01:38:13,520 like being on the Titanic. 2143 01:38:13,855 --> 01:38:16,415 It was kind of like being on the Lusitania. 2144 01:38:16,558 --> 01:38:17,718 The torpedo had hit 2145 01:38:18,026 --> 01:38:20,824 and there's twenty minutes to get out. 2146 01:38:23,798 --> 01:38:25,925 There's a lot of disbelief. 2147 01:38:26,201 --> 01:38:29,864 Very few of the rank and file people ever dreamed that 2148 01:38:30,105 --> 01:38:32,096 Enron would actually go bankrupt. 2149 01:38:36,945 --> 01:38:38,913 Then all of a sudden, it was like a ghost town. 2150 01:38:41,349 --> 01:38:43,840 I can remember going into the old building, 2151 01:38:44,085 --> 01:38:46,451 on certain floors, ah, late in the, 2152 01:38:46,654 --> 01:38:48,781 afternoon or evening. And it was scary. 2153 01:38:49,190 --> 01:38:50,782 There'd be like paper blowing around, 2154 01:38:51,059 --> 01:38:51,991 and nobody there, 2155 01:38:52,293 --> 01:38:54,955 and it was just... it was very eerie. 2156 01:39:01,536 --> 01:39:03,902 Mr. Skilling, your opening statement was 2157 01:39:04,139 --> 01:39:07,131 extremely compassionate to the employees. 2158 01:39:07,575 --> 01:39:09,839 And I want to show you a tape. 2159 01:39:10,078 --> 01:39:12,012 And I believe we have it ready to go. 2160 01:39:12,313 --> 01:39:13,678 Listen to this. 2161 01:39:13,982 --> 01:39:16,212 Should we invest all of our 401k in Enron Stock? 2162 01:39:16,451 --> 01:39:19,249 Absolutely. Don't you guys agree? 2163 01:39:23,158 --> 01:39:26,321 Why is it that you had begun unloading your stock? 2164 01:39:26,661 --> 01:39:29,255 Pretty heavily before that date 2165 01:39:29,497 --> 01:39:31,522 and yet led the employees to think that 2166 01:39:31,733 --> 01:39:33,633 they should keep buying stock? 2167 01:39:35,570 --> 01:39:36,093 Ms. Senator, 2168 01:39:36,371 --> 01:39:40,307 I have been a major shareholder in Enron Corporation 2169 01:39:40,542 --> 01:39:42,009 and you can take the videotape to mean 2170 01:39:42,210 --> 01:39:43,177 what you want it to mean. 2171 01:39:43,378 --> 01:39:45,107 I was a supporter of Enron Corporation. 2172 01:39:45,313 --> 01:39:46,644 You know what happened to those people. 2173 01:39:46,915 --> 01:39:47,939 They lost everything. 2174 01:39:48,183 --> 01:39:52,051 I feel terrible about what happened to the employees. 2175 01:39:54,088 --> 01:39:57,057 Oh at one time, things were really rosy for us. 2176 01:39:57,959 --> 01:40:00,257 And we all had some really nice-looking 401ks 2177 01:40:00,495 --> 01:40:02,861 and pensions and then it peaked. 2178 01:40:03,064 --> 01:40:04,827 And then it just started going down, 2179 01:40:05,099 --> 01:40:06,726 and it went lower and lower and lower. 2180 01:40:07,035 --> 01:40:09,799 At the peak I had about 348 thousand. 2181 01:40:10,138 --> 01:40:12,368 I sold it all for 1200 dollars; 2182 01:40:12,607 --> 01:40:14,370 was what I got for it, when it was done. 2183 01:40:18,780 --> 01:40:20,645 While Enron's stock was plummeting, 2184 01:40:20,949 --> 01:40:22,849 the retirement accounts of Enron's rank 2185 01:40:23,117 --> 01:40:25,108 and file workers were frozen. 2186 01:40:25,420 --> 01:40:26,887 We were frozen out of our accounts. 2187 01:40:27,155 --> 01:40:29,623 It was right about thirty two dollars, I believe. 2188 01:40:30,058 --> 01:40:31,616 And over that time, 2189 01:40:31,859 --> 01:40:33,520 from when it was frozen to when it opened up, 2190 01:40:33,795 --> 01:40:35,126 I think it went down to nine. 2191 01:40:35,363 --> 01:40:36,625 And we could not access it. 2192 01:40:36,864 --> 01:40:38,263 And what came out later that was so bad, 2193 01:40:38,466 --> 01:40:41,663 was the fact that Ken Lay and Skilling 2194 01:40:41,869 --> 01:40:44,394 and all the top people were movin' their money then. 2195 01:40:45,206 --> 01:40:46,503 But we couldn't. 2196 01:40:48,643 --> 01:40:52,443 The insiders had sold off a billion dollars of their stock. 2197 01:40:52,714 --> 01:40:55,945 Compare that to the lineman who worked for a staid, 2198 01:40:56,184 --> 01:40:58,482 old utility company for most of his life; 2199 01:40:58,720 --> 01:41:00,585 put away money each month. 2200 01:41:00,822 --> 01:41:03,188 And what's he have to show, at the end day, 2201 01:41:03,491 --> 01:41:05,891 for his years of hard and decent labor? 2202 01:41:06,127 --> 01:41:07,458 He gets a big goose egg. 2203 01:41:08,062 --> 01:41:10,860 And Pai is out in Hawaii somewhere, 2204 01:41:11,132 --> 01:41:13,225 with 350 million dollars in the bank. 2205 01:41:13,501 --> 01:41:14,866 That's wrong. 2206 01:41:22,176 --> 01:41:26,237 There is still to this city a layer of anger and upset. 2207 01:41:26,981 --> 01:41:28,608 I am still doing counseling, 2208 01:41:28,916 --> 01:41:30,781 three years later, with some families. 2209 01:41:33,421 --> 01:41:36,117 Where some of those who are most reflective, 2210 01:41:36,357 --> 01:41:37,688 it's gone to a deeper layer. 2211 01:41:37,892 --> 01:41:40,554 And they are looking at the corporate culture itself 2212 01:41:40,862 --> 01:41:41,920 in this country. 2213 01:41:42,230 --> 01:41:43,993 You know, you can gain the whole world 2214 01:41:44,532 --> 01:41:45,965 and all the trinkets 2215 01:41:46,200 --> 01:41:47,258 and all the trophies of the world, 2216 01:41:47,535 --> 01:41:49,935 the corner office, and all the perks 2217 01:41:50,204 --> 01:41:53,503 and you really can lose your soul in the midst of this. 2218 01:41:54,876 --> 01:41:57,310 On January 25th, 2002, 2219 01:41:57,545 --> 01:41:59,877 seven weeks after the Enron bankruptcy, 2220 01:42:00,114 --> 01:42:02,446 Cliff Baxter committed suicide. 2221 01:42:02,784 --> 01:42:04,581 With the media hounding him 2222 01:42:04,886 --> 01:42:06,979 because he was mentioned in my memos 2223 01:42:07,188 --> 01:42:09,179 and the fact that he'd been sued civilly 2224 01:42:09,490 --> 01:42:11,515 because he'd cashed in for about 2225 01:42:11,726 --> 01:42:13,057 thirty million dollars worth of stock 2226 01:42:13,294 --> 01:42:15,455 I guess it all came crashing down on him. 2227 01:42:16,130 --> 01:42:18,894 I think Cliff's suicide note tells it all. 2228 01:42:19,100 --> 01:42:21,933 You know, Where there was once great pride, 2229 01:42:22,236 --> 01:42:23,635 now there is none. 2230 01:42:27,575 --> 01:42:29,566 It's very hard for me to talk about Cliff. 2231 01:42:29,811 --> 01:42:31,574 We were very close for many years. 2232 01:42:33,514 --> 01:42:36,574 And he was a wonderful, wonderful man. 2233 01:42:36,918 --> 01:42:40,877 But a lot of who Cliff was tied up in how 2234 01:42:41,122 --> 01:42:43,147 he had succeeded at Enron. 2235 01:42:43,658 --> 01:42:46,593 It is hard to look at your life's work and say 2236 01:42:47,729 --> 01:42:49,094 it's failed. 2237 01:42:49,397 --> 01:42:53,595 But you have to take a long, cold look at yourself and say, 2238 01:42:54,302 --> 01:42:56,998 'who was I? Who did I become? ' 2239 01:42:58,439 --> 01:43:02,341 And realize that you may have seen your shadow. 2240 01:43:04,379 --> 01:43:08,440 Andy Fastow pled guilty to conspiracy to commit wire fraud. 2241 01:43:08,683 --> 01:43:12,050 He agreed to forfeit 23 million dollars in assets. 2242 01:43:12,587 --> 01:43:15,181 His sentence was reduced to ten years 2243 01:43:15,490 --> 01:43:19,790 in exchange for testifying against other Enron executives. 2244 01:43:21,596 --> 01:43:22,324 Why Enron? 2245 01:43:22,630 --> 01:43:25,861 Why not Worldcom or Tyco or Global Crossings? 2246 01:43:26,100 --> 01:43:30,867 Ultimately in Enron the fatal flaw was a sense that brains 2247 01:43:31,506 --> 01:43:34,168 and wiliness could out-think the way 2248 01:43:34,409 --> 01:43:35,967 that the system will eventually work. 2249 01:43:36,377 --> 01:43:40,313 In 2004, Jeff Skilling was indicted for insider trading 2250 01:43:40,581 --> 01:43:42,742 and conspiracy to defraud investors. 2251 01:43:43,217 --> 01:43:44,184 Pleading innocent, 2252 01:43:44,519 --> 01:43:46,282 he paid his attorneys a retainer of 2253 01:43:46,521 --> 01:43:49,081 23 million dollars to defend him. 2254 01:43:49,791 --> 01:43:53,955 Enron should not be viewed as an aberration, 2255 01:43:54,195 --> 01:43:56,288 something that can't happen anywhere else. 2256 01:43:56,531 --> 01:43:59,295 Because it's all about the rationalization 2257 01:43:59,867 --> 01:44:01,425 that you're not doing anything wrong. 2258 01:44:01,669 --> 01:44:04,433 We've involved Arthur Andersen, we've involved the lawyers. 2259 01:44:04,639 --> 01:44:06,231 The bankers know what we're doing. 2260 01:44:06,674 --> 01:44:09,734 There's a sense the diffusion of responsibility. 2261 01:44:10,077 --> 01:44:11,806 Everyone was on the bandwagon. 2262 01:44:12,580 --> 01:44:13,979 And it can happen again. 2263 01:44:15,883 --> 01:44:17,282 Enron's accounting firm. 2264 01:44:17,485 --> 01:44:18,474 Arthur Andersen, 2265 01:44:18,686 --> 01:44:20,847 was convicted of obstructing justice. 2266 01:44:21,789 --> 01:44:24,349 With its reputation for honesty destroyed, 2267 01:44:24,659 --> 01:44:28,595 America's oldest accounting firm fell along with Enron 2268 01:44:28,830 --> 01:44:32,129 and twenty nine thousand people lost their jobs. 2269 01:44:32,500 --> 01:44:34,730 Enron's shareholders are suing Enron 2270 01:44:35,002 --> 01:44:37,562 and its banks for 20 billion dollars. 2271 01:44:41,609 --> 01:44:44,942 Ken Lay was also indicted for conspiracy to commit fraud. 2272 01:44:45,246 --> 01:44:48,340 His attorney maintains that no one has been hurt more 2273 01:44:48,616 --> 01:44:51,346 by the Enron bankruptcy than Ken Lay. 2274 01:44:52,386 --> 01:44:54,320 Nice of all of you to show up this morning. 2275 01:44:54,522 --> 01:44:56,285 With today's arrest of Ken Lay, 2276 01:44:57,425 --> 01:44:59,893 the top echelon at Enron 2277 01:45:00,261 --> 01:45:03,594 has now been called to account for their crimes. 2278 01:45:03,898 --> 01:45:05,559 Mr. Lay, do you have anything to say, sir? 2279 01:45:05,833 --> 01:45:07,425 A little later today I will. 2280 01:45:07,735 --> 01:45:08,702 Looking at Enron is like 2281 01:45:08,936 --> 01:45:11,461 looking at the flip side of so much possibility 2282 01:45:11,706 --> 01:45:14,072 because like most things that end terribly, 2283 01:45:14,308 --> 01:45:15,468 it didn't start out that way. 2284 01:45:15,676 --> 01:45:17,667 It started with a lot of people who thought 2285 01:45:17,912 --> 01:45:19,072 they were changing the world. 2286 01:45:19,380 --> 01:45:22,315 And over time they became victims of their own hubris, 2287 01:45:22,550 --> 01:45:23,778 victims of their own greed 2288 01:45:24,051 --> 01:45:26,485 and so it's like taking so much promise and possibility 2289 01:45:26,687 --> 01:45:28,211 and looking at it in a mirror and seeing 2290 01:45:28,489 --> 01:45:30,457 the flip side reflected back at you. 2291 01:45:32,493 --> 01:45:34,723 I think the larger lesson was 2292 01:45:34,962 --> 01:45:39,228 what Enron asked of its employees which was ask why. 2293 01:45:40,501 --> 01:45:44,528 And you know I didn't ask myself why enough; 2294 01:45:44,772 --> 01:45:46,330 I didn't ask managers why enough, 2295 01:45:46,574 --> 01:45:50,010 I didn't ask my colleagues why enough.