Enron: The Smartest Guys in the Room (2005) - full transcript

What's he building in there?

What the hell is
he building in there?

It had taken Enron
16 years to go

from about 10 billion
of assets to

65 billion of assets.

It took them 24 days
to go bankrupt.

What the hell is
he building in there?

This company collapsed
so quickly and so entirely.

I mean it was into bankruptcy
within a matter of weeks.

It just immediately had

all the makings of
a gigantic scandal.



He's hiding something
from the rest of us.

The fatal flaw at Enron

if there is one,
you say it was pride

but then it was arrogance,

intolerance, greed,

So many of them were
blinded by the money

that they didn't see that

they were sinking
their own life boat

We have a right to know.

It just got hungrier
and hungrier.

Sooner or later
they were doomed to go off

that cliff at 90 miles an hour.

It's astounding that they
got away with it for so long.

In reality,
Enron was a house of cards.



What we didn't know was
that the house of cards

had been built over
a pool of gasoline

It all sort of became
smoke and mirrors.

Committee will come to order.

This is a case of America's
largest corporate bankruptcy.

The question here is
what happened,

who was responsible
for it happening,

and what can we do to
prevent this sort of thing

from happening again.

I think the Enron story's
so fascinating

because people perceive
it as a story

that's about numbers.

That it's somehow about all
these complicated transactions.

But in reality
it's a story about people

and it's really
a human tragedy.

On this date, at 2:23 am,

Sugar Land police
discovered John C Baxter

located inside his vehicle

with an apparent gunshot
wound to the head.

Ah... at this time there has
been a suicide note located.

Sir, can you give us
any indication whether

this was related to
Enron's bankruptcy.

We do know that he was
and Enron employee,

but as far as any other
indications of why

he committed suicide,
no we do not.

Mr. Skilling,

let me touch on something
that's sort of sad

and that's of course
the suicide of Cliff Baxter.

And you mentioned
he was your best friend

in your opening statement.

Before he died,

did you have many
conversations with him?

Yes.

And were any of them
relative to Enron?

Yes.

There's no one that knew Cliff,

toward the end,
that didn't realize that

he was heartbroken
by what had happened.

And Cliff came over to my house

and he said 'They're calling
us child molesters.'

He says,
'That will never wash off.'

But Mr. Skilling
you don't believe that.

I don't believe what?

You don't believe that
the press and everybody

calling Cliff Baxter
or yourself or anybody

on the Board of Directors,

denigrating or tainting you,

you don't think it's accurate

is what you're saying
to us here today.

I do not believe...

I did not do anything wrong
that was not in the interest

In all the time that
I worked for Enron Corporation,

it was in the interest of the
shareholders of the company.

Ultimately, who was responsible
for the downfall of Enron?

Only a few years ago,

Enron was the nation's
seventh-largest corporation,

valued at almost
70 billion dollars.

Pundits praised the company
as a new business model.

This trading floor was manned
by America's best and brightest,

charting the futures of
energy and power.

And high above each
with a private staircase,

Ken Lay and Jeff Skilling

had built their own
plush staterooms.

They were known as
the smartest guys in the room.

Captains of a ship
too powerful to ever go down.

In the Titanic, the captain
went down with the ship.

In Enron, it looks to me like
the captain first gave himself

and some friends a bonus,

then lowered himself and the
top folks down in the lifeboat

and then hollered up and said,

by the way, everything is
going to be just fine.

Like Skilling,

Ken Lay said he hadn't
done anything wrong.

Could we have a word
with you real quickly?

We're with CNN.

Really not this morning,
thank you.

Beyond the financial issues,

some suspected
a political conspiracy.

Enron had been the largest
corporate contributor

to the first presidential
campaign of George W. Bush.

This is not a political issue,
it is a business issue.

You know Enron had
made contributions to

a lot of people
around Washington D.C.

And if they came to this
administration looking for help

they didn't find any.

To say no help had is like,

'I did not have
political relations

with that man, Mr. Lay.'

What about the fact
that George W. Bush

calls Ken Lay, Kenny Boy?

That's my nickname
for my husband,

which he overheard.

So it wasn't original,
with the President?

It certainly wasn't.

According to published reports,

your husband earned
about 300 million dollars in,

in compensation, in stocks

from Enron
over the last four years.

What happened to
all that money?

It's gone. It's gone.

There's nothing left.

This is the shredded evidence
we got that came out of Enron.

We very quickly determined that
the insiders had sold off

a billion dollars of their stock
in the preceding several months.

Did you convert stock
worth 66 million dollars?

I don't know, but...

I don't have
the records with me...

Would that be surprising to
you to learn that you did that?

No, that would
not be surprising.

Mr. Fastow

got only 30 million
in stock proceeds from Enron,

but he took another
30 million out,

with his side deals.

I think there was just
an immediate sense of outrage

at Lay and Skilling and Fastow

when people realized
how much they had profited,

and how completely artificial

the appearance of
this company had been.

News of shredding at Enron
raised more questions.

What answers were lost
in the torn documents?

20,000 employees
had lost their jobs.

$2 billion in pensions and
retirement funds had disappeared.

Was Enron the work of
a few bad men

or the dark shadow of
the American dream?

Lay comes to the story of
Enron from very humble roots.

My father was
a Baptist minister and,

and he was ordained
a Baptist minister

while I was very young
probably two, three years old.

Ken Lay was a Baptist
Preacher's son in a family

that had been poor
all it's life

and he, throughout his life,
worked several jobs as a kid

and clearly had in mind that
things could be better...

and wanted things to be better.

He had a huge ambition to
make wealth for himself.

He told a story later
about sitting on a tractor,

dreaming about
the world of business

and how different
it could be from the way

things were for him
and his family.

Lay was a PhD in economics
and he became,

very early on,
a real apostle for deregulation.

He was way ahead of
the curve on this.

He was thinking
about energy markets

that would be deregulated.
And in particular,

the natural gas industry
that was shackled by regulation.

And he pushed aggressively in
Washington to change all of that.

In Washington,

Lay became part of
a new crusade

to liberate businessmen
from the rules

and regulations of government.

Government is not
the solution to our problem.

Government is the problem.

The societies which have
achieved the most spectacular,

broad-based economic progress
in the shortest period of time

are not the most
tightly controlled,

not necessarily
the biggest in size,

or the wealthiest
in natural resources.

No, what unites them all
is their willingness to believe

in the magic
of the marketplace.

The magic power of deregulation

pushed Ken Lay to
found Enron in 1985.

Through a merger of vast networks
of natural gas pipelines,

Lay thought Enron
would be poised to take

advantage of
the government's decision

to let gas prices float
with the currents of the market.

Ken Lay had
a view of deregulation

from the standpoint
of all the money

that he thought could be made.

Ken Lay wasn't alone.

A couple of Texas oilmen
shared his views

on how to get government out
of the energy business.

I think they could sort of
understand each other.

It was a professional courtesy

between a sidewinder
and a timber rattlesnake.

Lay was closer to the father.

But while
he was governor of Texas

George W. Bush was
only too happy to

make phone calls for Ken Lay.

This absolutely has
no precedent.

This is by far and away
the most important,

major relationship of
a Presidential family

with a single corporation
in American history.

When Rich Kinder,

one of Enron's Executives,
left the company,

Lay arranged
for a video valentine.

Rich, I've... been asked
to think of one thing

I could say to you
on your departure from Enron.

It'd be this,
'Don't leave Texas.'

Rich, you have been fantastic
to the Bush family.

I don't think
anybody did more than

you did to support George and,

of course,
in this stage of my life,

and Barbara's too,
that's what really matters.

Your family and your friends.

Early on, George Bush, Sr.

Helped secure billions
in government subsidies

for Enron International.

And he helped promote Lay as

deregulation's
Ambassador-at-Large.

Enron is a company...

that deals with everyone
with absolute integrity.

We want people to leave
the transaction with Enron

thinking that
they've been dealt with

in the highest possible way

as far as integrity
and truthfulness.

He always wrapped himself
in the cloak of moral rectitude.

But there was one episode,
early on,

that raised questions
about whether he was actually

walking the walk
This was the Enron oil scandal,

also know as
the Valhalla Scandal.

While you were
at Arthur Anderson,

were you involved
in an investigation

at a company called Enron Oil?"

Yes, I was.

The issue
with the company in 1997

involved the misappropriation
of moneys by two traders.

In 1987 two oil traders
made bets for Enron

on whether the price of
oil would rise or fall.

Oil trading is like gambling:

Sometimes you win,
sometimes you lose.

But Enron Oil
always seemed to win,

much to Ken Lay's delight.

I tried to explain to Ken Lay

the tremendous risk that
you have in that market.

You can lose...

ten times your
original investment.

A veteran trader,
Mike Muckleroy,

was suspicious of Enron Oil's
steady high profits.

Well this oil trading
business had profits

that nobody could really
understand and in fact,

that many of Ken Lay's
lieutenants questioned.

They said this
business can't be making

this much money legitimately.

Something weird is going on.

Something weird was going on.

The first hint came
from an anonymous tip

about the president
of the company,

Louis Borget.

Mr. Borget had taken
some three plus million dollars

of corporate funds and put it
in a personal account of his.

There were offshore
accounts phony books

and a trail that led
from the company's treasurer,

Tom Mastroeni,

to a mysterious Lebanese
speculator no one could find:

M. Yass.

What name did you
suspect that was?

My ass, you know.

And M Smart,
well so that's Maxwell Smart.

I mean, these guys
are playing games

Borget and Mastroeni were
summoned to Houston.

First, they presented
falsified bank records to Enron.

Then they admitted
they had diverted company

profits to personal accounts.

It was brought to the attention
of the Enron Board.

Auditors were brought
in as well,

to look at the whole thing.

At the board meeting,

the auditors told Lay
that Borget and his traders

were manipulating earnings
destroying daily trading records,

and probably gambling
way beyond their limits.

The next day we found out that

Lay's decision was to
basically change nothing

as far as
the operation's concerned.

And the reason
he gave was that this was

the only part of
the combined company

that was making any money
and that he could not,

you know,
kill the golden goose.

The traders weren't fired,
or even disciplined.

Instead,
Enron sent a telex to Borget:

Please keep making us millions.

Instead of reducing
Enron's risk,

Lay encouraged his traders
to gamble more.

But then their luck changed.

Two months later,

here I got this panic
call that they had

drawn down 90 million dollars
in the previous five days.

What we could do is
just try and find out

what kind of guerilla
we had loose up there.

Muckleroy hopped on the
next plane to New York.

He knew Mastroeni had
another set of books,

and he would do whatever
it took to get them.

I basically stood over Tom

and I told him that one of
two things was going to happen.

Either one of
the trading partners

that was crooked with Borget

who was a German arms dealer
was going to kill him,

or I was.
I said 'I'll track you down

and find you
no matter where you go.

And sooner or later,
I'll get you.'

The next day, Mastroeni came
in with the real books.

The traders had gambled away
all of Enron's reserves.

By acting fast,
Muckleroy bluffed the market,

and managed to
save the company.

After Valhalla Ken Lay
maintained that

he had been shocked
that the traders

had gambled so recklessly.

But Ken Lay had known
all along

about the risks
that were taken.

He had seen
the reports warning him

about the traders' behavior.

Since the fall of Enron,
Ken Lay has said that

he can't be responsible
for things

he didn't know about.

Sounds like what he said
about Valhalla.

Do you believe that
he didn't know?"

I can answer only for one.
I can answer for Valhalla

because Ken Lay did in fact
know about this thing.

Because I had told him myself.

The auditors adamantly
told Mr. Ken Lay

that the two rogue traders
should be fired.

Lay read the report
and he read his budget

and estimated how much they,
the two rogue executives made

and if they were fired
what he could lose.

My conclusion was that this guy
is a guy who puts earnings

before scruples
rather than reacting

to the dishonesty right
in front of him.

Mastroeni received
a suspended sentence.

Borget was convicted of fraud,
and spent one year in jail.

With his biggest moneymaker
now behind bars,

Ken Lay had a problem:

Who could he find
to make money for Enron?

Every year, every day,

every week you have to come up
with new ideas.

Ken Lay saw in Jeff Skilling
the guy who had the answer to

what the future of the natural
gas business was supposed to be.

Ken Lay is also a guy who
considers himself a visionary

and he liked other people
he thought of as visionaries.

He liked people with big ideas.

And Jeff Skilling was a person
with the biggest ideas of all.

Jeff Skilling's biggest
single idea was find

a new way to deliver energy.

Rather than be bound by the
physical flow of the pipeline,

Enron would become a kind of
stock market for natural gas.

It was a magical new idea:

Transform energy into
financial instruments

that could be traded
like stocks and bonds.

So that was the one good idea.

In 1992 using that good idea,

we became the largest buyer
and seller of natural gas

in North America.

Jeff was like the prophet.

He came in and said There's
a whole new world out there.

Forget about
this pipeline stuff,

you know the staid pipeline
in the ground and...

gas in and gas out.

We can recreate
this entire industry.

An attorney from
Vinson & Elkins,

Amanda Martin was one of
the first executives hired

by Jeff Skilling and became
part of his inner circle.

The excitement was palpable.

You cannot imagine how proud
we all were to be there.

And then, of course,
we had a leader who imbued us

with a sense of confidence that
if we were smart,

anything could be accomplished
And then the bottom line

we began to make money.

And that in and of itself,

was a re-affirmation
that this could be big.

Skilling saw the opportunity
to build an industry new

and to start a business
from scratch.

But he had
one specific condition

that had to be met
before he'd join Enron,

and it was that
he be allowed to use

a certain kind of accounting
known as mark-to-market.

Arthur Andersen signed off,
and the SEC approved it.

I remember walking in
and going 'What's going on? '

And Causey and everybody,

I mean every one was so excited
and then came the champagne

and We had got Mark-to-market
accounting treatment.

And I often think about how clear
my memory was about that event.

And that was
the beginning of a major cog

of the downfall
ultimately of Enron.

Mark-to-market
accounting allowed Enron

to book potential
future profits

on the very day
a deal was signed.

No matter how little cash
actually came in the door,

to the outside world,
Enron's profits could be...

whatever Enron said they were.

Very subjective.

And very...
it left it open to manipulation.

And they were saying
that we're going to sell

power out of this
power plant in ten years

for X dollars per kilowatt.

And there was no way
anybody could prove that

they could do it.

Well...
Hey Reg.

Good morning.
How are you?

Finally. Great.
Good to see you.

Jeff. Good to see you.
Todd, sit down.

We've been working
hard on this

and we've really pulled
out all the stops.

Look what we got.
Origination...

We did 20 million last year,

I think we can do 120 million
dollars this year.

Trading
we did 10 million last year

we think we can do
64 this year.

This is the key.

We're going to move from

mark-to-market accounting
to something

I call H, F, V

Hypothetical
Future Value accounting.

If we do that
we can add a kazillion dollars

to the bottom line.

Whoa. Jeff... alright.
That sounds fantastic.

Oh Jeff, thank you.
That's just supurb performance.

And you're going to go far,
my boy.

Probably President of
the company one day.

You think so?
I think.

He really believed that
the idea was everything.

And that when you came up
with an idea,

you should be able to book
the profits from that idea,

right away.

Because otherwise some lesser
man was taking the profits

from the idea
that some greater man

had come up with in the past.

When Jeff Skilling applied to
Harvard Business School,

the professor asked him
if he was smart.

He replied,
'I'm fucking smart.'

One of his favorite books
was The Selfish Gene,

about the ways human nature
is steered by greed

and competition in the service
of passing on our genes.

At Enron.

Skilling wanted to set free
the basic instincts

of survival of the fittest.

Jeff had a very Darwinian
view of how the world worked.

He was famous for saying once
in Enron's early years,

that money was the only thing
that motivated people.

Skilling's notion of
how the world should work

really trickled down,

and affected everything
about how Enron did business.

He instituted the system
know as the PRC,

or Perfomance Review Committee.

It required that people be
graded from a one to a five.

And roughly ten percent of
people had to be a five.

And those people were
supposed to be fired.

Hence, this came to be know
as 'Rank and Yank.'

I, personally, am convinced

that the PRC process
is the most important process

that we conduct as a company.

I've never heard of
a company yet

that would be successful
terminating 15 percent

of their people every year...

just to satisfy the fact
that the other employees

had to vote on them.

And so when you're being
evaluated by that group,

you are getting direct
communication from Ken and me

about what the objectives
of the company are

and how you fit
with those objectives.

It was a brutal process.

The ability for
a 25 year old to go in

and to be reviewed
and to be superior...

and as a consequence get
a five million dollar bonus.

I don't think that's
repeated in many places

in corporate America.

Our culture is a tough culture.

It is a very aggressive culture.

At Enron,

no one was more aggressive
than the traders.

If I'm on the way to
my boss's office

talking about my compensation.

And if I step on somebody's
throat on the way

that doubles it?

Well, I'll stomp
on the guy's throat.

You know,
that that's how people were.

On the trading side
we got to be the biggest,

baddest house in town.

And by necessity,

if you wanted to be
in the market,

you had to deal with Enron.

Enron's traders were like the
super powerful high school

clique that even the principal
doesn't dare to reign in.

They had become
the major engine of

at least reported profits
at the company.

They took Jeff Skilling and
Ken Lay's belief in free markets

and turned it into an ideology.

But they pitch it almost
as a new economic religion.

Enron on-line will
change the markets

for many many commodities.

It is creating an open
transparent marketplace

that replaces the dark
blind system that existed.

It is real simple.

You turn on your computer
and it's right there.

That's our vision.

We're trying to
change the world.

I think Jeff Skilling
had a desperate

need to believe
that Enron was a success.

I think he identified
with Enron.

He proclaimed, at one point,'
I am Enron'.

The other thing
about people at Enron is,

a lot of them were former nerds
and including Jeff Skilling.

He had been paunchy.
He had big glasses.

He was losing his hair.

And Jeff Skilling
one day kinda woke up

and decided to change himself.

And he started working out,
lost a lot of weight.

But he really did
remake himself

through sheer will
and force of personality.

When Jeff got Lasik on his eyes,
everybody at Enron got Lasik,

so nobody was wearing glasses.

I think Jeff Skilling
is really a tragic figure,

in a classic sense of the word.

He's a guy that people describe
as incandescently brilliant.

But he's also a guy who
is radically different

than he at times
portrays himself.

He's portrayed himself
as somebody who has

very tightly-monitored risk.
In reality, he's a gambler.

He gambled away huge sums of
money before he was 20 years old,

by making wild bets
on the market.

To Jeff Skilling,
risk was glamorous.

He was a huge risk taker.

He actually talked about
wanting to go on trips that

were so perilous that
someone could actually die.

This manifested itself
in trips that Jeff Skilling led

for a small group of friends
and customers.

A core cadre of
Enron guys used to go on

these wild adventures:

Andy Fastow would go;
Ken Rice would go.

The trips were legend.

You know, we can sit and think
about what strange insecurities

they were trying to overcome.

But it made them
feel good as men.

And they took a particularly
memorable trip to the Baja

twelve hundred miles of
very rugged terrain in Mexico.

This is a trip where
people crashed bikes.

Ken Rice was on the trip,

and he busted a lip and
required a bunch of stitches.

People broke bones.

One guy flipped a jeep
and almost got killed.

Those sorts of stories
at Enron became legend.

And it fed the whole macho
culture of the place.

Jeff Skilling had a way of
describing people that he liked.

He said,
'I like guys with spikes.'

He liked somebody with
something extreme about them.

Ken Rice was one of
the Men with Spikes.

He was the salesman
of the group.

Very amiable, fun, man's man.

And was the guy out selling
deals to energy companies.

In the case of Cliff Baxter,
the company's chief dealmaker

he was extraordinarily talented
at just doing a deal.

But he was a manic depressive.

Baxter was a very bright guy,

very blunt would
tell Skilling whatever

he thought was closest
to Skilling, personally,

than anyone else
in the company.

There was a guy named Lou Pai,

who was a key
Skilling lieutenant;

helped build the trading
business in the early years;

went on to run Enron's doomed

effort called
Enron Energy Services.

What was the job of EES,
as you ran it?

Ah, it was to sell energy
services to end users,

industrial end users.

Lou Pai is
the guy that Skilling

tapped to run the EES business.

Because this was,

this was so important
to the company,

and to Skilling's future.

He called Lou Pai 'my ICBM.'

And Lou Pai dispatched
his enemies

with incredible skill.

And if that meant leaving
bodies behind him,

Skilling was certainly
fine about that.

I'm not feeling anything.

Lou Pai was kind of
a mysterious figure.

He was kind of like
the invisible CEO.

For awhile he was located
on the 7th floor.

And there's a long office.

And it was all glass-enclosed,
and you would walk by there,

and it was just almost
all the time it was empty.

Details didn't
interest Lou Pai.

Only two things seemed
to motivate Pai

money and a peculiar
fascination with strippers.

For Pai,
it was all about the numbers.

He was there
every night after work

and he usually brought some of
the traders along with him.

He spent quite a lot of
money there as well.

Much of it charged to
the Enron expense accounts.

There were rumors that
he brought strippers up

to the trading floor.

Almost everyone knew the story.

The story is that
because he's kind of a mild,

soft-spoken,

almost meek individual
that maybe these...

these strippers didn't even
believe he was the CEO.

So he took them up
to his office.

And I guess they,

they put on
a little show for him there.

One night he was at a club.
And one of the guys said,

you know, Lou,
all the rest of us are single.

You know,
we don't have any problem.

But how do you keep your wife

from smelling
the strippers' perfume on you?

And Lou said,
'oh, I've got a secret'.

He said, 'I stop in at a gas
station on the way home.

And I spill a little
gasoline on myself

and it kills the scent.'

So the other guy shot back,
he said, 'but Lou,

doesn't your wife then think

you're fucking
the gas station attendant? '

In the context of Lou Pai,
everyone was horrified,

a pall fell over the table.

Because Lou Pai was
not a man to trifle with.

Two days later,
the guy who told the joke,

as Enron legend... has it,

was dispatched to Calgary,
Canada.

Lou Pai lost all interest
in running EES

as soon as the numbers
got high enough.

I netted approximately
a hundred million dollars.

I don't know
if that number is accurate,

plus or minus 20 million.

He actually left Enron
with more money than anybody,

250 million dollars,

because he sold
all his stock in Enron

after he got
a divorce from his wife,

in order to marry
his stripper girlfriend,

who had had his child.

His exit from Enron was as
mysterious as his presence there.

Just sort of one day,

we all learned that Lou Pai
was no longer the CEO of EES.

Though Lou Pai
flew away from Enron

with 250 million dollars,

the divisions he left behind

lost a total of
nearly $1 billion.

But Enron managed to
disguise that fact.

Lou Pai became the second
largest landowner in Colorado.

It was the number.

It was always making
those numbers,

and looking, you know,
it was, to me,

the real mythology is
high school mythology.

That, you know,

you wanted to be the most
popular guy on Wall Street,

and you were gonna do whatever
you had to do to stay there.

And Jeff understood
those rules better than,

I think, anyone else.

Americans are making
a lot of money in stocks.

The stock market soared to
near record highs yesterday.

The stock market continued
its bull run Thursday.

The Dow rose nearly 61 points.

Even the person with
very little disposable income

all of a sudden began to play
in the stock market,

because nobody could fail.

Because stock prices were
just going up and up and up.

Another day, another record.

And the internet
technology stocks,

just going wild.

Gained more than 100 points
to close at 7895.81,

the highest finish ever.

It was a time where
we had the biggest bull market

in the history of the world.

Ken Lay was right there,
acting as a cheerleader.

Obviously our stock has
been doing very well.

I think there's
a fairly good chance

we could see the
stock price double

again over the next year
to eighteen months.

Enron mounted
a campaign to capture

the hearts and minds
of stock analysts.

The natural gas stocks
include Enron...

We're never satisfied

and I don't want us
to ever be satisfied

with the stock price.
It should always be higher.

Enron posted a 30-percent jump
in second-quarter profits,

as Web-based trading boosted
its wholesale energy business.

The game was played
on Wall Street in such

an established way
throughout the 1990's.

As long as
a company met or exceeded

the analysts' projections for
quarterly earnings per share,

the stock went higher.

The game was called
'pump and dump.'

Top execs would push
the stock price up

and then cash in their
multi-million-dollar options.

People at Enron got paid,
in large part, through stock.

Everyone had a huge stake
in seeing the stock price go up.

And it was driven,
very clearly,

by the profits
every single quarter.

They were exceedingly
conscious of that;

Skilling was, and everyone
else in the company was.

They posted the stock price
in the elevator.

You were surrounded by
the health of the company;

what's the stock price doing?

We were consumed by it.

This company was fixated
on its stock price

and fixated on a massive
public relations campaign

to convince the investment
community that they were new,

different, innovative;

almost heralding a new era of...
of corporate enterprise.

Come work for us.

We encourage our people
to do new things,

try new things,
experiment step out.

We begin by attracting
the kind of people

that are more comfortable
in an environment of change.

You know
when you work for Enron

you're gonna see
the newest thinking.

You're going to see the
newest markets opening up.

Enron on-line, a fabulous,
fabulous story.

They were so good
at their acting

that they convinced
corporate America

that they were smarter
than anyone else.

Alan, with our sincere
thanks and admiration,

we are pleased and indeed
honored to award you

the Enron prize for
distinguished public service.

They continued to
sell the company

as being a very stable place

where it could
predictably increase profits

10 to 15 percent a year.

In fact, to get to those
numbers Enron was doing

all sorts of
questionable things;

taking enormous risks.

We like risk.

Because you make money
by taking risk.

By all accounts,
Enron was soaring.

But in reality,
profits weren't going up;

they were headed
in the opposite direction.

Enron had vast natural gas
operations all over the world.

They had cost
billions to build

and most were
performing terribly.

But in other places
in the world, in India,

great quarter
and a great year in India.

Phase one of Dabhol is
in operation generating power.

Phase two is financed
and is under construction.

My experience indicated
there were certain places that you

assiduously stayed away from.

And one of them,
as an example, was India.

They built this
power plant in India.

Nobody else would
do that at the time.

They were terrified of
investing in India.

Enron did it,
and did it in a big way.

But Enron had failed to
see something basic.

India couldn't
afford to pay for the power

Enron's plant produced.

Now Dabhol is a ruin.

Though it lost a billion
dollars on the project,

Enron paid out
multi-million dollar

bonuses to executives based

on imaginary profits
that never arrived.

Where was the real money
going to come from?

Of course the pressure
was enormous.

You had to come up
with the next idea

that would break through.

Failure was not an option.

A flurry of buy-outs
in the corporate world...

the biggest:

Enron announcing a buy out
of Portland General.

The merger with PGE put Enron
in the electricity business.

And Portland General's
position on the west coast

gave Enron access to the newly
deregulated market of California.

The merger, we think...

it uniquely positions us
to ultimately

become the largest marketer of
electricity and natural gas

at both the wholesale
and retail level nationwide."

What brought all this
on was the deregulation

they said that
we would not survive,

unless we joined forces.

Enron, I'd never heard of 'em
until they were gonna buy us.

They slid in here,
and when they purchased PGE,

all the PGE stock became Enron.

Just went through,
stamped every one of 'em.

I looked around me,

and all the guys that were
buyin' all this Enron,

they were doublin' their money.

And that whole time since then,
I put the maximum

I could into
my 401 and savings.

Portland General, again,
good earnings and cash flow.

It's what's they call on Wall
Street a "trust me" story.

People that had been
gas pipeline workers who

for decades kept
all their money in the company

because they thought
it was this traditional and,

you know, safe investment
as it... as it had always been.

And it was...
it wasn't anything close to that.

Should we invest all of
our 401k in Enron stock?

Absolutely.
Don't you guys agree?

Enron is a big winner today

One of the things
that fascinated me was that

almost all of
the Wall Street analysts

who covered Enron
had buy ratings

or strong buy ratings
on the company's stock.

Why were the analysts blinded
to the company's deceit?

We relied on the information
that was available at the time.

I trusted the integrity of
the company's certified

financial statements,

and the representations of
the company's management.

And we've been absolutely
upfront with the analysts.

Jeff Skilling was
the critical component

in creating the Enron illusion.

Time and time again
when we had a question

to the sell-side analysts that
they couldn't answer,

the response was,
'I'll give Jeff a call;

I'll run this by Jeff.'

By giving Jeff a call,

the analysts weren't
'analyzing' at all.

They were willing to
believe virtually

anything Enron told them.

Most of the analysts right
now have a target price on us

from a hundred to a hundred
and fifteen dollars a share.

Any analyst who didn't
buy the company line

became an enemy of Enron.

Enron's CFO, Andy Fastow,

had his eye on John Olson

one of the only analysts
skeptical of the Enron story.

Enron loved analysts' strong
buy recommendations.

Merrill was informed by Fastow,

either you get somebody who is
on board with us as a strong

buy recommendation
and loves us at the same time

or we don't do
any business with you.

I knew that my days
were numbered.

This is an abuse.

Merrill Lynch fired John Olson.

Soon after Fastow
rewarded the bank

with two investment
banking jobs

worth 50 million dollars.

Analysts were routinely
getting large bonuses

from the investment banking
departments to bring

in investment banking deals.
Ah... once that happens,

you know, never was heard
a discouraging word.

While Enron's stock
kept rising,

its businesses kept
losing money.

Looking at the soaring
stocks of the dot-coms,

Skilling decided to take
Enron into cyberspace.

We're now in
the process of seeing

if we can create
a bandwidth trading market.

Enron is using its
knowledge of trading gas

to barter other forms of
energy even space

on the information superhighway
called bandwidth.

Ken Rice has worked at Enron
for twenty years.

Enron has found a way to
stay ahead of the curve.

From 7 PM to 7 AM
we're paying for bandwith that

we are not using. Why?

Why?

One of our themes around here
is to always be asking why.

Why something's
done a certain way

or why it's not done
a different way.

There's our market.

Why can't we sell the
bandwidth to other companies?

Make it a commodity
like a pork belly

Just last week Enron
captivated Wall Street

with its bold move
into broadband,

teaming up with Blockbuster to
deliver movies on demand.

It was like being
at a religious cult meeting.

People started jumping up
from their seats,

with their cell phones
and their Blackberrys,

running out to the halls
to call their bosses.

One analyst summed up
his recommendation

to investors in one word

Wow. Enron's stock soared
34 percent in two days.

And you can tell from
the response of the stock market

that they like the strategy.
It makes sense.

They announced that they had
developed the technology.

It would be in test markets
by the end of the year.

And the technology works.

The quality is great
and the customers like this,

so we've made a lot of progress.

The truth was that Enron
was just struggling

with the technology
for video on demand.

The technology didn't work

and the deal with
Blockbuster soon collapsed.

But with the magic of
mark-to-market Enron

used future projections to book
$53 million in earnings

on a deal that
didn't make a penny.

By the end of the year 2000,

Enron was running
out of ways to make

the broadband business
look successful.

They'd tried every trick
in the bag to try to create

the illusion of a business
where there was none,

and the people who were working

there were getting
increasingly desperate.

The executives started
selling their stock.

By Enron's collapse,
Ken Rice had sold 53 million.

Ken Lay had sold 300 million.

Cliff Baxter 35 million.

Jeff Skilling 200 million.

As the fraud is perpetuated,

all the various lies
and artifices

begin to convince
the ringmaster,

if you will, himself

that it's thi
own bizarre reality.

That in fact,
the fraud is the reality.

The perception is the reality.

As long as you can keep
the perception going on,

it really isn't fraud.

You spoke about
bandwidth trading,

what about weather
options or futures?

How is that market developing?

Yeah, we have
a market in weather.

When Enron announced its
latest plan to trade weather,

people wondered whether
it was good science

or science fiction.

Do the weather guys
get punished here

if the weather is wrong?

I mean they predict wrong?

I don't know, do you have any
whip marks on your back there?

Well, it's unfortunate.
That's a good call.

Jeff, as time went on,

had a harder time
admitting things were wrong.

And I have to believe that,

you know, when the lights
went out at night,

he knew what was coming.

I would liken it
to the Titanic,

when you've got
a captain who's saying,

'maintain full speed'

and they bump into
a couple of icebergs,

and then they still
keep full speed going.

The captain of this ship,
Enron,

he ignored
all the warning signs.

And there were plenty of them.

And the captain
of the ship was?

Kenneth Lay

It was one of the bloodiest
days in Wall Street history.

Shares plummeted
thirty one percent.

High tech stocks led
Friday's fierce sell-off

This is really
a great wake-up call.

Millions of nervous
investors following

the huge drop on Friday.
The Dow Jones

Enron was especially
a big deal by the end

of the year 2000
because by then,

most Internet companies had
already begun to fall,

and everybody on Wall Street was
looking for the next big thing.

And here you had Enron,

which appeared to be
this shining star

of a new-economy company.

Its stock price went up
90 percent in the year 2000,

and had gone up over 50 percent
the year before that.

It was an it' stock
on Wall Street

one of those companies
that can seemingly do no wrong.

We were the poster child
for the new economy.

We had this culture
that had a lot of focus on

reminding us how good we were.

And as that culture emerged,

then we get to Fortune
magazine telling us

we were the most innovative
corporation in America.

Then we really began to
feel good about ourselves.

Well, you all did it again.

Enron was just
recently chosen, again,

for the sixth year in a row

in the
most-admired-company survey

by Fortune magazine as the most
innovative company in America.

Well deserved. Well deserved.

The sales pitch
still sounded good.

But one investor saw something
in Enron's numbers

that the stock
analysts had missed.

By and large,
the analysts admitted to us,

in person, 'it's a black box.
You have to take it on faith.

'Who knows where
the earnings come from?

They just pop out.

And all we know is,
they're always good.'

And I kept pointing out, well,

yeah, isn't that
the whole point of...

if the black box is
there to fool you,

the numbers are always
going to be good,

until they're not.

I'm not a beat reporter,

so I would have had no reason
to look at Enron.

But Jim Chanos mentioned to me
that I should take a closer

look at Enron's
financial statements.

And it wasn't clear from Enron's
financial statements that

there was fraud here.

But what was clear is that
something didn't add up.

In March 2001, Bethany Mclean,

a reporter
with Fortune magazine,

first raised questions about
Enron's financial condition.

She asked a simple question

in the article that no one
could seem to answer,

'how exactly does
Enron make its money? '

You got very upset with her,
didn't you?

I very specifically remember
the telephone conversation

that I had with...
the Fortune reporter.

She called up and started
asking some very,

very specific questions about
accounting treatment on things.

I am not an accountant.
And I could not answer them.

He became really,
really agitated.

He said that people who
raise questions like this

were just trying to throw
rocks at the company.

And that I was not ethical

because I hadn't done
enough homework.

And if I had done
enough homework,

I would understand how off-base
my questions were.

Mr. Skilling, it appears as

if you were trying to
bully someone

who was asking very basic
questions about Enron.

I said... said to her

I have got six minutes left

before I have to be
in a meeting.

And I can't get
into the details.

And I'm not an accountant.'

And she said,
'well, that's fine.

We're going to do
the article anyway.'

And I said, 'if you do that,

I personally think
that's unethical.'

And then the next day...

Let me interrupt you.
Our chief financial officer

and our chief
accounting officer

flew to New York at Enron's
expense, to sit down,

not with the editors,

but to sit down with
the reporter on that story,

and help her understand the
questions that she was asking.

And the next day
we sat in this small,

dark, windowless conference room
for about three hours,

going through the various aspects
of the company's business.

And I'll never forget this.

When the interview was over,

the other
two executives packed up

their things
and had left the room,

and Andy Fastow turned around
and looked at my editor and me,

and said, 'I don't care what
you write about the company,

just don't make me look bad.'

And Fastow had good reasons
for not wanting to look bad.

There were these partnerships
that were run by Andy Fastow

that were doing business
with Enron.

And these were disclosed

in the company's
financial statements.

But I didn't mention them
in the story I wrote,

because I thought,

well, the accountants
and the board of directors

have said that this is okay.

So I must be crazy to think
there's anything wrong with this.

The story
I ran was actually pretty meek.

The title was
'ls Enron Overpriced? '

But in the end,
I couldn't prove that

it was anything more than
an overvalued stock.

And I was probably too naive
to suspect that it was anything...

anything more than that.

And was her article critical?

Yes it was.

The Fortune magazine article
that's out the headline is,

'ls Enron's Stock Overvalued? '

The gist of the article is that

Enron is sort of a black box...

which, sorry, it's true.

I mean,
it's just difficult for us

to show people the specifics of
how money flows through,

particularly
the wholesale business.

The entire reason
that this analysis

was done by Fortune magazine

is because Business Week
had a favorable article

about Enron the week before.

And there's this competition
with the news...

the news magazines have,
where one says something good,

the other one has to come
and find something bad.

So I think that was kind of
the genesis of it.

So the criticism,
I think, is kind of ridiculous.

When Bethany McLean at Fortune

started analyzing cash flows,

and she had this
wonderful article saying,

'take a look at first quarter,
second quarter, third quarter,

and end of year cash flows.'

There's a reason
she didn't invest in Enron

'cause the financials
didn't make sense.

But you have to be
willing to say

that the emperor
doesn't have any clothes.

And this emperor was
pretty powerful.

We are going to
unveil this morning

a new corporate vision.

Okay, you ready?
One, two, three.

How's this?

It's really hard to know

when Enron first crossed the
line into outright fraud.

But there isn't any doubt

about who the guy was
who led them there.

It was a protege
of Jeff Skilling's

by the name of Andy Fastow.

Andy Fastow was Enron's
chief financial officer.

His job was to
cover up the fact

that Enron was becoming
a financial fantasyland.

Enron essentially was
losing money on a cash basis,

year after year.

And yet it was
reporting profits.

So it was defying
laws of financial gravity.

And the way he was doing it

was with something called
structured finance.

And the maestro of all that
at Enron was Andy Fastow.

Andy was very young.

He was hired by Jeff Skilling
probably before he was even 30

and he idolized Jeff Skilling.

And he certainly wanted to
please the boss.

To please the Boss,

Fastow had to figure out a way
to keep the stock price up

by hiding the fact
that Enron was

thirty billion dollars in debt.

People pressured by the need
to keep the stock price up

begin to cheat a little bit.

But then the
next quarter comes along

and you have to
cheat a little more to

do the new cheating to
make up for the old cheating.

And before long,

you've created a momentum
that now you can't stop.

Fastow created hundreds
of special companies

to perform a magic trick...

prop up Enron's stock by
making its debt disappear.

To outsider investors

it looked like cash was
coming in the door.

In fact Enron was just stashing
its debt in Fastow's companies

where investors
couldn't see it.

It was black magic.
It really was.

You were pulling some
rabbits out of a hat.

They could bury debt;
they could bury losses.

Many of the companies
had exotic names:

Jedi, Chewco Raptors.

LJM was Fastow's
most ambitious creation.

It would work magic for Enron

and it would allow
Fastow to conjure

45 million dollars for himself.

Andy, in many ways,

was someone we all knew didn't
have a strong moral compass.

It's almost like
Jeff Skilling said,

'okay, we're hitting
some troubled times.

Let's set up Andy so we can
fill the earnings' holes

when we need to',

knowing that Andy would
probably skim a little bit

off each transaction
for himself.

There's a 'Body Heat'
kind of angle to this,

you know, where
Skilling is Kathleen Turner

and Andy is William Hurt.

You know, in the end,

he got suckered into
helping all the executives

meet their earnings.

What I wish, I, you know,
in retrospect?

I wish I'd never heard of LJM.

Is it your contention
that you knew of it

and it was appropriate?

Arthur Andersen
and our lawyers

had taken a very hard look
at this structure

and they believed
it was appropriate.

If the theory is that Fastow
went rogue somewhere deep

in the jungles of Enron

and was the sole agent
of the apocalypse,

I just don't buy it.

Skilling, Lay,
and the Enron board

had signed off
on Fastow's LJM funds.

They saw the benefits
of letting Fastow

do deals with himself.

It is in Enron's best interest,

because Enron needs the capital,
number one.

In a secret video tape that
surfaced after the bankruptcy,

Fastow can be seen selling LJM

to a group of
Merrill Lynch bankers.

He pitches them on the benefits
of investing in a fund

that only buys assets
from Enron.

Remember, I'm not sellling
the assets to myself.

They own the assets.
They're selling them to LJM2.

Fastow knew what kind of deal
he was offering as Enron's CFO.

He could guarantee
profits for LJM.

I think this is an
extraordinary opportunity.

He has a sort of Cheshire Cat
grin on his face as he talks

about all the ways that
the fund is gonna profit.

And he talks about the
informational advantages

that he is gonna have in
his dual role as Enron's CFO

and as the head of these funds.

Isn't there a question of
conflict of interest?

There is never
any question that

I will be on both sides
of the transaction.

I will always be on the LJM
side of the transaction.

He was general partner of LJM,
while at the same time,

being CFO of Enron.

You know, that's a whole
'nother ball of wax

when you want to talk about
that conflict of interest.

Because no human being should
be put in a situation where,

you know,
every single transaction,

they decide
whether they're looking

after Enron's best interests
or their limited partners.

Because this LJM
partnership existed

solely to do business
with Enron.

As you would expect,

Andy as Chief Financial
Officer of Enron,

is heavily banked, so to speak.

And as a result,

there are five or six
of the name brand banks

who have stepped up and said
they'll commit to this.

Commit they did.
And why not?

Fastow was letting them gamble
with Enron's chips.

Fastow was using Enron's stock

as collateral
for a lot of these things.

They were betting their own
company on the transactions.

With the prospect of returns

that would exceed
two thousand percent,

96 individual bankers
invested in LJM.

And America's major banks put up
as much as $25 million each.

It's sort of the Who's
Who of Wall Street:

JP Morgan Chase CS
First Boston Citibank

Merrill Lynch, DeutscheBank...

These are some of the premier
investment banks in the world.

It's hard for us
to poke holes in this.

Good.

It's just amazing
how skilled Enron

and Andy Fastow were
at working Wall Street,

playing on Wall Street's greed,

in order to get money
out of them.

To quote Lenin,

they were the investment
bankers useful idiots.

As disturbing as
Enron's own misconduct,

is the growing evidence that

leading U.S.
Financial institutions

not only took part in Enron's
deceptive practices,

but at times designed,
advanced and profited from them.

The Enron fraud is the story
of synergistic corruption.

There are supposed to be checks
and balances in the system.

The lawyers are
supposed to say no.

The accountants are
supposed to say no.

The bankers are supposed
to say no.

But no one who was supposed
to say no said no.

They all took their
share of the money,

from the fraud and put it
in their pockets.

Enron paid its advisers well.

In 2001 the accounting
firm Arthur Andersen

received one million a week.

Enron's law firm,
Vinson & Elkins,

did nearly as well.

Everyone had their
hand out at the table.

They were all being paid.

And as long as Enron continued,

they received their fees.

They were a part of the process.

So it's hard now to say,

'oh, we didn't know anything.'

Had we known then what we know
now about Enron's practices,

we would not have engaged in
these transactions with Enron.

The facts that we now have
come to light about Enron,

however,
were not known at the time.

I believe that
the Citigroup professionals

involved with these
transactions acted in good faith.

I'd like you here to
look at one Citi email,

The email trail here
is all too lurid.

Oh, for instance,
one email I remember,

where the banker writes,
'Enron loves these deals.

They produce cash,

but they don't have to show
the debt on the balance sheet.'

Now, a high school student
can figure out that.

The banks were all knowing
articipants in this wrong-doing.

Meryll Lynch assisted Enron
in cooking it's books

by pretending to purchase
an existing Enron asset

when it was really
engaged in a loan.

The accounting sham involved
the sale of an interest

in three Nigerian barges

Nigeria is a long way
from Manhattan.

Yet for some reason,

toward the end of
the fourth quarter in 1999

Merrill Lynch suddenly
decided to buy

three Nigerian power
barges from Enron.

Nigerian power barges
have nothing to do

with Merrill Lynch's business.

It was a blatantly
illegal transaction.

It was just taking the barges,

getting them off
of Enron's books,

having Merill Lynch,
if you will,

warehouse them for five months
and then buying them back.

Mr. Martin, you...
you've testified here today

that there was no guarantee.
And you said that under oath.

Here's a document,

saying that the head of
your whole division here

was going to confirm
that understanding.

Over the year 2001,

Skilling became
increasingly despondent.

He'd always been a moody guy,

but people who knew
him said he became

just increasingly volatile.

Show up for work unshaven,
looking blurry-eyed.

And I think it was
the battle of holding these

two totally disjointed
thoughts in his mind at...

at the same time.

One is Enron
a super-star company

and the other of feeling like
it was all crumbling away.

The first cracks
in Skilling's public image

appeared in
a conference call with

analysts in April, 2001.

And then Jeff Skilling
took questions.

And about mid-way
through the session...

there was a question.

It was sort of aggressively
wondering out loud

why it was that Enron,

as a financial services
company in effect,

could not release
a balance sheet

with its earning statement,

like most financial
institutions do.

You're the only financial
institution that can't produce

a balance sheet or a cash flow
statement with their earnings

Well, you, you...

Well, thank you very much.
We appreciate it, asshole.

And then quite audibly

you could here
Skilling say asshole.

And then he said, 'asshole'.

As I understand it,
you called him an asshole.

And this just
caused unbelievable

amounts of consternation
all across Wall Street

because people thought,

'A Fortune 500 CEO
losing it like this,

calling publicly
an investor an asshole? '

If I could go back
and redo things,

I would not now,
have used the term that I used.

Mark Palmer,
Enron's chief PR guy,

Even ran a note up to Skilling,
telling him to apologize.

And he just took
the piece of paper

and tucked it under the pile
of papers on his desk.

And afterwards,

Enron's traders who had
erupted in cheers

when Skilling called this guy
an asshole made him a sign.

It was a play off
Enron's motto

'Ask Why' and the sign said
'ask why asshole.'

My personal feeling was that
Jeff looked at the numbers

and he knew that
we were in a massive hole.

It was the only time
that I saw him truly,

truly worried about keeping
the stock price up.

And he just kept saying to me,

'I don't know what the hell
I'm going to do.'

The broadband business was
in complete meltdown.

And there were all sorts
of other problems

that Jeff Skilling
as the company's Chief

Operating Officer was
wrestling with.

And in the middle of all this,

Ken Lay walks in Jeff
Skilling's office holding up

fabric swatches for the new G5
45 million dollar corporate

jet he wanted to buy.

And he said to Jeff,

asked him
a very important question,

'which of these
cabin configurations

do you like best, Jeff? '

While Ken Lay was stressing
over the corporate jet,

EES was headed for
a crash landing.

Facing 500 million in losses,

Lou Pai's top leuitenant,
Tom White,

wondered how EES
could show a profit

by the end of the quarter.

One of the things
that was always a strange

occurrence at Enron was

for weeks before
a quarterly report

we would be under
the impression that

we weren't going to
make our numbers.

But then somehow,
miraculously,

we always made the numbers,
and then some.

But then a question was
asked to Tom White,

'how is it that
we made the numbers? '

And his answer was,
'One word, California.'

The first clues to
Enron's new strategy

hit California with a jolt.

It started at Noon
rolling across the state.

Sacramento, San Francisco,
Beverly Hills,

Long Beach, San Diego

Twenty six thousand miles of
California power lines.

Enough to circle the Earth.

But for the second day
in a row,

not enough electricity
for America's largest state,

and the world's
sixth largest economy.

The first thing we heard about
this energy crisis is well,

our lights are going to go off
in the middle of winter

when we're using half
the electricity

we normally use
during the summer.

The Bay Area got hit
by not one,

but two rolling blackouts.

We only need
twenty eight thousand

to thirty thousand
megawatts in December.

We have an installed capacity
in California at the time

forty-five thousand megawatts.

Plenty o' power to meet
our electric demand.

Of course,
we had blackouts in December.

The people who control
California's power grid

say once again they're worried
about having to blackout

the Northern half of the state.

When the rolling blackouts
started hitting California

there was definitely a lot of
excitement in the air.

It was something new.

It was something that hadn't
been encountered before.

It was,
'how is this event going to

effect the price of power? '

Control's rotating attitudes
are being implemented.

I knew.

I knew that there was
illegality going on.

I could feel it.
I could smell it.

I could sense it.

And there was
no other explanation.

Because the numbers
just didn't add up.

We had enough power
in California.

It was never
about lack of supply.

When I ran for Governor
in 1998,

not one human being asked me
about electricity.

This thing kind of
came out of the woods,

as far as I was concerned.

And I was trying
in the early days

to learn what was happening;
how we could fix the problem.

California was
selected by Enron

as the prime place
to experiment

with this new concept of
deregulated electricity.

Reducing electricity cost
is only one benefit

from choice and competition.

In 1996, under pressure
from energy companies,

Governor Pete Wilson and
the California legislature

passed a bill allowing for
the deregulation of electricity.

I wasn't in
the Legislature in 1996,

but I can tell you that there
isn't a legislator alive

that can tell you
with any sophistication

how a deregulated electricity
market ought to work.

Not a one.

California's deregulated system
was a bizarre compromise

between legislators
and free-market advocates.

The rules were complicated
and hard to follow.

Inside Enron,

California's system was
little more than a joke.

And once in place,

Enron made sure that the joke
would be on California.

I remember the conversation
I had with Ken.

At the end of it he says 'Well,

Dave, old buddy,
let me just tell you.

It doesn't matter really to us

what kooky rules you
Californians put in place.

I got a bunch of really
smart people down here

who will figure out how to
make money anyhow.'

One of the smartest guys
at Enron was Tim Belden,

who ran the west
coast trading desk.

Tim Belden was
a fervent believer

in the idea of free markets

and as such he spent hours
poring over the new rules

for the deregulation of
California's energy industry,

looking for loopholes that Enron
could exploit to make money.

He found plenty.
After the bankruptcy,

a confidential memo surfaced
revealing the names of

Belden's strategies to game
the California market

Wheel Out, Get Shorty, Fat Boy

Recently, audio tapes of the
Enron traders were discovered.

What do you want to
call this project?

Probably have a catchy
name for that.

How about, you know,

something friendly
like 'Death Star'?

The tapes revealed
Enron's contempt

for any values except one,
making money.

Hey John, it's Tim.

Regulatory's all
in a big concern

about is we're wheeling power
out of California.

He just steals money
from California

to the tune of a million
Can you rephrase that?

Okay, he arbitrages
the California market

to the tune of a million
bucks or two a day.

An arbitrage opportunity
has been defined to me

as any opportunity to
make abnormal profits.

So an abnormal profit would be

returns above
and beyond the norm.

I was told that a good trader
is a creative trader.

And a creative
trader is a trader

that can find
arbitrage opportunities.

One of those opportunities
was called Ricochet.

I'll see you guys.
I'm takin' mine to the desert.

In the midst of energy
shortages Enron's traders

started to export power
out of the state.

When prices soared,
they brought it back in.

So we fuckin' export
like a motherfucker.

Getting rich?
Trying to.

Traders would stay after
a twelve hour shift

and pour over maps of
the western energy grid.

What are the permutations
and combinations of ways to

move power around the west.

And I think that's something
that Enron knew better

than any other Energy marketer
in the country, period.

We know all of
the California imports.

We know all of
the California load.

We're getting' pretty spoiled
with all this money.

You said you were
getting a little scared

we're making a little too much.
And I tend to agree with you.

These are two traders,
t-r-a-d-e-r-s.

This is what they say.

'What we did was overbook
the transmission line

we had the rights on and said
to California Utilities,

'lf you want to use the line,
pay us.'

By the time they agreed
to meet our price,

rolling blackouts
had already hit California

and the price for electricity
went through the roof.'

Did you have any knowledge
that this was happening?

The only thing that
I'm aware of Senator,

is there was a,

there was
a difference of opinion

on the rules of the
independent system operator.

It was just set up,
the rules weren't quite clear.

We have traders here
from Enron

who were saying
they did something wrong.

But you don't see
anything wrong.

I have one last question
and then I am done.

Traders soon discovered that
by shutting down power plants,

they could create
artificial shortages

that would push prices
even higher.

Hey, this is David up at Enron.

There's not much demand
for power at all here.

If we shut it down,

can you bring it back up
in 3 or 4 hours?

Oh, yeah.

Why don't you just go ahead
and shut her down then,

if that's ok?
Okay.

When you see two
or three energy companies

with 30, 35 percent of
their entire capacity down

for maintenance on a single day

and as a result
the price of electricity is

skyrocketing three or
four hundred percent

and then a week later
someone else does it up

in Northern California

you begin to believe something's
not smelling right here.

We want you guys to get
a little creative.

Okay.

And come up with
a reason to go down.

Like a forced
outage type thing?

Right.

Those guys
at the flip of a switch

could just yank
the California economy

on it's leash whenever
they wanted to.

And they did it,
and they did it,

and they did it.
And they made so much money.

The heart of it is
that an industry

that went for a hundred years
from the days of Edison built

the best electrical system
in the world,

sold the power at reasonable
prices to consumers

and was very reliable
was all of a sudden

turned into a casino.

These strategies made
some money for Enron.

But the real money was
made by betting

that the price of
energy would go up

It did.

And the West Coast traders made

nearly two billion dollars
for Enron.

You can't treat electricity
like you treat oranges.

It's the lifeblood
of the society.

It can't be stored.

You can't turn
these people loose

and let them
just have a quote free market

because a free market is God

Damn expensive to
the customers.

There would be
ample supply available

at the right fuckin' price.

Oh, sure there would.

It wasn't just Enron

"Every company traded
according to the rules

that California put up there.

We're the future of Enron.

And we're fucking making half
a billion dollars for Enron.

Can you believe that?

We'll definitely retire
by the time we're 30.

We're talking
about a commodity that

normally trades
in the thirty-five,

forty-five dollar range.

High prices are when it
gets into the fifties.

A thousand dollars?

Prices aren't going to stay
at 1,000 bucks forever.

It weeds out the weak
people in the market.

Get rid of them
and you know what,

the people who are strong
will stick around.

And the Enron traders never
seemed to step back and say,

'Wait.
Is what we're doing ethical?

Is it in our best
long term interests? '

'Does it help us
if we totally rape California? '

'Does that advance our goals
of nation-wide deregulation? '

Instead they sought
out every loophole

they could in order to profit
from California's misery.

Temperatures in California are
hitting higher than 100 degrees

fueling wildfires and fears that
California's strained power grid

could once again near collapse.

What's happening?

There's a fire under
the core line.

It's been de-rated
from 45 to 2100.

Burn, baby, burn.

That's a beautiful thing.

I was never comfortable
on the trading floor at Enron.

And if I had questions,
I didn't ask them,

because I didn't want
to know the answer.

You know,
I didn't want confirmed

what I suspected might be true.

That what I was doing was,
in fact,

unseemly or was,
at least, unethical,

if not worse.

Why did the traders do
what they did?

Was it their multi-million
dollar bonuses

or had Enron found
a way to exploit

the darker side of
human behavior?

In the early
60's Stanley Milgram

tried to figure out
what characteristics

there were of evil people.

Was there an evil strain
or could normal people

do really bad things?

And so he set up
this experiment.

In the experiment
he had an actor playing

an experimental subject
and a real experimental subject.

Want to step right
in here and have a seat?

They went into this room
and he had an experimenter say,

'we're going to see
if mild electric shocks

will help people
memorize lists.

Incorrect... You'll now get
a shock of 75 volts.

Soft air.

He kind of did some
yelling in there.

The Milgram Experiment has
a lot to say about Enron

because I think people lost
their sense of morality.

Like Milgram,
once you accepted the idea

that behaving
inhumanly was okay,

you could do anything.

And the shocks increased
with the number

of mistakes that they made.

I can't stand the pain.
Let me out of here.

He can't stand it.
I'm not going to kill that man.

The subject,
the real subject is begging

the scientist-looking
person to stop too.

And the scientist only says

'the experiment requires
that you continue.

Please continue. Go on, please.

You accept all responsibility?

The responsibility is mine,
correct.

Please go on.

In a way,
Skilling was almost like the guy

telling those people below him

it was okay to up the power.

California's Electric Utilities

may have to pull the plug on
millions of customers.

It's the fucking coolest thing
I've done in a long time.

Holy fuck, yes.
You gotta love the west.

Oh.

During the height of
Wednesday's blackout,

fire crews had to free people
trapped in elevators.

All that money you guys
stole from those

poor grandmothers in California.

Yeah, Grandma Millie, man.

She's the one who couldn't
figure out how to fucking vote

on the butterfly ballot.

Now she wants her fucking money
back for all the power

you've charged right up her ass.

You must continue.
Go on, please.

You're gonna keep giving him
what... 450 volts every shot now?

That's correct. Continue.

It's kinda hard to say
well we should be,

you know we shouldn't do this
even though it's allowed

because you know.
I mean, that's what we do.

Right.

Best thing that could happen
is fucking an earthquake.

Let that thing float
out to the Pacific.

Put up fucking candles.

Milgram's discovery
was disturbing.

Fifty percent of
the subjects were

willing to shock to the death,

so long as the commands came

from a seemingly
legitimate source.

Tonight I'm declaring
a state of emergency

in California to give the state

the authority
and the resources to

keep the lights on
in California.

The Governor,
who's been basically

capitulating to
the demands of the energy

companies and utility companies,
needs to put his foot down.

We wanted the Governor to send
in the state police

or the National Guard to seize
control of the power plants

and put it back on-line.

And I thought we didn't have
to take over every plant,

we really only had to
take over one.

'Cause then they would
know he meant it.

I'm going to get
the nine billion dollars

back that Enron,

Dynergy and Reliant stole
from us and get it back to you.

Despite what the
people of California

think Enron's making money
despite California,

not because of California.

The year-long energy
crisis would cost

the state of California
$30 billion dollars.

The markets in California are
the most regulated market

in North America today.

And that's what's
causing the problem.

California,
it never deregulated.

Enron, buy stock today.

Thank you very much.

We are doing the right thing.

You're the good guys.

We are the good guys.
We are on the side of angels.

Oh, I can't help myself.

You know what the
difference is between

the state of California
and the Titanic?

This being a web cast,
I know I'm going to regret this.

At least when the
Titanic went down,

the lights were on.

Jeffery Skilling,
how's it feel to make a killing?

A top executive at one of
America's biggest power

companies received a raucous
welcome in San Francisco tonight.

Protestors heckled Enron's CEO,

Jeffery Skilling
outside and inside

during his appearance
at Commonwealth Club.

One of the protestors even
brought a blueberry pie

and delivered it herself.

Police.

A hundred and thirty two
million dollars is what he made.

We had a fifty percent hike
in utility rates.

Consumers in California
are angry.

And they should be.

And if we had anything
to do with this,

then we are the stupidest
people in the world.

I work for an organization.

Every day people call saying

they can't pay their
electricity bills.

You made millions of dollars
off of California...

Get out. Go to jail.

When the tidal
wave of public anger

started to grow
Ken Lay flew out here

and convened
a meeting of friends

and I guess he had a little
more foresight than we did.

He, he invited
Arnold Schwarzenegger.

Brought them together
at the Peninsula Hotel

and had a lunch meeting.

The notes from that meeting
really still have never surfaced,

but we know that
Ken Lay's pitch was

we've got to stay the course

with deregulation and
the market will correct itself

and everything will
turn out fine.

Now at... at the time
we didn't understand

really why he was so concerned.

But now we do.

The fact is that
Ken Lay was out here

because he understood that

Enron itself was
a house of cards

And if deregulation
were to collapse,

then Enron itself
would collapse.

But Ken Lay had a trump card.

In the midst of the energy
crisis his friend,

George W. Bush,
became president

I, George Walker Bush,
do solemnly swear.

I, George Walker Bush,
do solemnly swear.

Ken Lay's going to be
Secretary of Energy.

Get out of here.

How great would that be for
all the players in the market?

Lt'd be great.

I'd love to see Ken Lay be
Secretary of Energy.

Ken Lay did have easy access
to the Bush administration.

On April 17th,

he met with Vice
President Dick Cheney,

and strongly argued
against the imposition of

Federal price caps
in California.

We're doing everything
we can to help in California

on the short term basis.
There's not a lot you can do.

You can't manufacture kilowatts

in the West wing of
the White House.

We're fighting with both hands
tied behind our back.

We no longer have
the power to stop this.

If the federal government
doesn't help us,

we're a dead duck.

At the time,
Gray Davis was a likely candidate

to run for president.

Ken Lay knew that might give
his friend George Bush

a political reason
to oppose California's

appeals for federal
price controls.

They know full well
my administration's belief

that price controls will not
solve the problem.

His view was that
the Federal government

really shouldn't get involved.
This is California's problem.

And I'm saying,
'with all due... due respect,

Mr. President, our law said

the Federal government
regulates this,

so it is your problem.

And you make appointments to the
Federal Deregulatory Commission.

So, we had a polite,
but spirited discussion on that.

And he says,

'I just can't be of help
to you on that.'

As I said from the very beginning
of my administration,

we'll work to help California,

in any way we can.

And the best way we can is
to be good citizens.

FERC, the federal agency which
regulates energy in America,

refused to intervene.

What was FERC doing and why
was it not taking action?

The chairman of FERC
was Pat Wood,

the man Ken Lay had personally
recommended for the job.

It was easy for FERC
to do Enron's bidding

because all it had
to do was do nothing

which they did very well.

Federal Regulators are
being pressured to act

by the now Democratic
controlled Senate where here...

A Democratic Senate forced FERC
to impose regional price caps.

That ended the energy crisis,
but not the political one.

Did Ken Lay and George Bush
have a political agenda to

blame the energy crisis
on Gray Davis?

Oh hello.

It's one of those
'only in California' stories.

The state's unpopular Governor,

Gray Davis,
beset by an ailing economy

and thirty eight billion
dollar budget deficit,

faces possible recall.

And rumored as a possible
replacement for Davis,

movie star
Arnold Schwarzenegger.

The Terminator?

We'll see whether
he's back or not.

Gray Davis has
terminated opportunities

and now it's time
we terminate Gray Davis.

No Recall. No Recall.

Could I predict
a phony energy crisis

as a result of deregulation?

Yes. Could I predict that
Arnold Schwartzerneger

would be our Governor
as a result of deregulation?

Never would have
come up with that.

That's like a bad
science fiction movie.

Apparently we have
all been wrong,

it is pronounced Caly-forn-ya.

Ladies and gentlemen,

the Governor of the great
state of California,

Arnold Schwarzenegger.

We could just hear rumbles
all the way up and down

Main Street here
and all throughout the city

that things were
very difficult at Enron.

One guy who a year before had
come to me and said,

I'm working for Enron,

and was very excited
but within a year

was waking up every night
with nightmares.

'I've got no life left

and I feel like I'm being
consumed by this company.'

As doubts began to surface
about the company

and the erratic
behavior of its CEO

Enron's stock began to fall.

I remember one of
the most poignant meetings

I'd ever had with Jeff.

I had left Enron

and I had come over to
talk about whether or not

I would return to Enron.

And I said, 'Jeff,
you've got a real problem.

The traders,
they will cut your throat,

if they think it will get them
to the trough sooner.'

Jeff was silent.

And he looked out the window

and he looked back
at me and he said,

'Yeah Amanda,
you're most likely right.'

By the end,
the traders ran Enron.

You know, the inmates had
taken over the asylum.

All through the summer,
the stock continued to decline.

There was a buzz that a major

announcement was
going to take place.

But we all thought that
Ken Lay was leaving

Enron and that he had been

asked by the Bush administration
to join his administration.

But that wasn't
the case at all.

It was Jeff Skilling
announcing that

he was stepping down
as the CEO.

And that took everyone
by surprise.

No one could believe that.

CEO's generally,

don't just resign
out of the blue

without a well orchestrated PR
campaign beforehand

to pave the way
so there's no disruptions,

there's no questions,
there's no front page stories,

which is, of course,
exactly what happened.

It was at that point
that I knew,

the architect of
the disaster knows that

it's crumbling and the rat is
leaving the sinking ship.

Two days later
I met with him and Ken Lay

because I had
informed the company

that I was going to
downgrade the stock

on Skilling's resignation.

I asked Jeff Skilling,

'are there any more
shoes to drop.

Have we seen the worst of it.'

And I was concerned
about the energy crisis

that was occurring
in California.

Well, Skilling convinced me
that it was for personal reasons.

I left his meeting feeling
sort of emotional

because of the concern
that he seemed to be

showing about the relationship
he had with his family.

He appeared to be distraught.

And I remember saying
to an investor

'lf he's not telling the truth,

then it's a good thing
he quit his day job

because he needs to go
to Hollywood.

I left Enron on
August fourteenth,

2001 for personal reasons.

Mr. Skilling
a massive earthquake

struck Enron right
after your departure.

And people in far
inferior positions to you

could see cracks in the walls,

feel the tremors,
feel the windows rattling,

and you want us to believe

you sat there
in your office and didn't...

and had no clue

that this place was
about to collapse?

On the day I left,
on August fourteenth,

2001, I believed
the company was in strong,

financial condition.

I think he was smart enough

and he didn't even have
to be that smart,

he had seen documents that
I think predicted the future.

I think he was smart
enough to think

I can get out now
and this company

isn't going to collapse
for a year,

maybe a year and a half,
so I won't get the blame.

It was working fine
when I left, guys.

After Skilling resigned,
Enron's chairman,

Ken Lay took over as CEO.

Boy, I didn't expect that.

But thank you.

Thank you very much.

Well, I'm delighted to be back.

I'm sorry Jeff did resign.

It was a stunning announcement,

that he was stepping
down as CEO.

And I think the flags

started going up at
that point for everybody.

We are facing
a number of challenges,

but we're managing them.

Indeed I think the worst
of that's behind us.

And the business is
doing great.

We're not the only stock

that's decreased
in value this year.

It's just that we've been
hit a little harder than...

than many others.

If a few of these
other problems disappear,

like California, like India.

I think the worst is over.

And I'm excited.

August fourteenth 2001,

Jeff Skilling abruptly resigns.

And that made me angry.

It made loads of
employees angry.

I mean, there was
a real sense of betrayal

by the employees.
I mean, this was, you know,

Jim Jones feeding
us the Kool-Aid

and then deciding not to
drink it himself.

The day after
Skilling resigned,

Sherron Watkins
sent a letter to Ken Lay.

We will begin with Ms. Watkins.

I am Sherron Watkins.

Would you identify your
counsel for the committee.

Yes. My counsel is
Mr. Philip Hilder.

When you hear the story
for the first time,

it's unbelievable.

What Sherron was telling me
it was more than accounting

irregularities, as such.

I mean, it was a massive
fraud of enormous proportions.

In mid to late June of 2001,

upon the resignation
of Cliff Baxter,

I went to work directly
for Mr. Fastow.

It has evolved to the corporate
crime of the century.

I was highly alarmed by the
information I was receiving.

What Sherron Watkins discovered

began the unraveling of
Fastow's complex partnerships.

Andy put me in charge of
this asset listing.

And there were about a dozen
assets that had been hedged

with one of Andy's entities,
the Raptors.

So I was working with
this spreadsheet and,

you know,
the math just didn't add up.

It didn't make sense to me.

I mean, accounting doesn't
get that creative.

You know,
I couldn't believe that

Arthur Andersen had
signed off on it.

I couldn't believe that so
many people were going along.

Behind Fastow's partnerships

were enormous guarantees
of Enron's stock.

Fastow had gambled
Enron's future

on the hope that its stock
would never fall.

My first reaction was that
I should warn Ken Lay.

The day after Skilling left,

I sent this one page
anonymous letter.

But within a week
I was meeting with Ken Lay.

I identified myself

in the hopes of really
making my point

that Enron really needed to
address this situation.

Companies rarely get away
with cooking the books.

But when they do survive,
it's when they come clean.

Not when they're exposed
from the outside.

Ms. Watkins, I went through...

Ms. Watkins did not talk
to me, Senator.

Well, Ms. Watkins said
Clifford Baxter told her

that he met with you repeatedly
to express his concern.

Cliff and Andy have had a...
they didn't like each other.

They had a very strained
personal relationship

and Cliff's issue
had nothing to do

with the appropriateness

or inappropriateness of
the transactions

I mentioned Cliff Baxter
in these memos.

And I remember
I made the comment to him,

'you're one of the good guys,

you know,
you're one of the people

fighting against this.
And it'd be alright.'

And he said,

'oh I don't think
it's going to be alright

for any of us involved.'

When I started working
on the book with Sherron,

I was interested in writing
about a whistleblower.

People don't really appreciate

what she did and the bravery
that it took in that company.

Andy Fastow would not
have put his hands

in the Enron candy jar
without an explicit

or implicit approval to do
so by Mr. Skilling.

I can't for the life of me
see what basis she

would have for suggesting
that I would know some...

I mean, how would
she know that?

And I don't see that
it's at all inconsistent that

there would be some things
that I don't know

if some people purposely kept me
from knowing some things

I felt like I was one lone voice
within Enron saying,

'look, we've...
we've committed horrible fraud.'

And of course
all hell broke loose.

Within six short weeks Enron
was spinning out of control.

Probably in more
normal circumstances

I would have
a few more words to say

about September the eleventh.

Just like America is
under attack by terrorism,

I think we're under attack.
And of course.

Now we've got the SEC inquiry,
informal inquiry...

The SEC launched
an investigation

When the Wall Street
Journal published

articles revealing
Fastow's murky deals.

Enron announced massive
financial restatements.

Investors began to
worry that billions

in mark-to-market profits
were really losses.

As you can see foresee,

the underlying fundamentals of
our businesses are very strong.

Indeed the strongest
they've ever been.

But regrettably,

that's not what Wall Street
is focusing on.

And I doubt that's what
you're focusing on.

This inquiry will
take a lot of time

on the part of our accountants
and lawyers and others.

But it will finally
put these issues to rest.

At the very moment Ken Lay
was talking to employees,

only a few blocks away,
Enron's accounting firm,

Arthur Andersen,

had begun destroying
its Enron files.

On October 23rd,

Andersen shredded more than
one ton of paper.

Despite the rumors,
despite the speculation,

the company is doing well both
financially and operationally.

He was making
all kinds of statements.

Reassuring employees
and not just employees,

reassuring investors,

'we have no
accounting irregularities,

the company's in the best shape
it's ever been in'

From the standpoint
of Enron stock,

we're going to bring it back...

we're going to bring it back.

Alright,
we're down to questions.

I've got a few of them here.

'I would like to know
if you are on crack?

If so,
that would explain a lot.

If not. You may want to start

because it's going
to be a long time

before we trust you again.'

It certainly wasn't clear
to anyone at Enron,

much less anyone
outside of Enron

it wasn't really clear
what was going on or...

what was going to happen.

I know this is a lot...

There is a lot of speculation
about Andy's involvement

I and the board are
also sure that

Andy has operated
in the most ethical

and appropriate manner possible.

The next day,
Andy Fastow was fired

when the Enron board
discovered that

he had made more than
$45 million dollars

from his LJM partnerships.

The question, Mr. Fastow,
is how could you believe

that your actions were
in any way consistent

with your fiduciary
duties to Enron

and its shareholders
or with common sense

notions of corporate ethics
and propriety?

How do you answer, sir?

Mr. Chairman on
the advice of my counsel,

I respectfully decline to
answer the questions

based on the protection
afforded me

under the United States
Constitution.

Andy, in many ways,

I think he was set up
as the fall guy.

All of the Enron executives
were saying,

'there's your man, Andy Fastow.
He's the crook.

You know, he's the one
that stole from Enron,

stole from LJM.

He's the one that
cooked the books.

Go after him.'

How will you plead, Mr. Fastow?

I've thought about this
and thought about this.

And it couldn't have
just been a few executives

at Enron that made this happen.

If you think of the banks
involved Chase,

Morgan, Citibank

the billions in loans
Arthur Andersen...

What about Vincent and Elkins,

the lawyers that
represented us?

There had to have been
complicity across the board.

Because it was all too easy;

all too easy.

The Enron collapse was
an enormous tragedy.

This is a company that had
over thirty thousand employees,

and clearly with
a company that size

you have a lot of
senior officers

that have a lot of authority in
which you place enormous trust.

But in the case
there was at least one,

Andy Fastow,
that betrayed that trust

to the extent that

I did not know
what he was doing,

he obviously didn't share
with me what he was doing,

then indeed I cannot take
responsibility for what he did

I never heard him say,

'I take responsibility'
for a thing.

It sounded to me like
the wonderful movie, 'Chicago'.

I was reminded of
the puppet strings

and the dancers
and the tap dancing

and pointing at the gun,
the gun, the gun.

I mean. Everybody's
in step with Johnny.

I continue to grieve,
as does my family,

over the loss of the company.

Linda and I saw
our net worth reduced

from several hundred
million dollars down to

something less than
twenty million dollars

on a net worth basis.

And of course,
as... as you said,

about a million dollars
or less in liquidity.

I don't know whether
I'd rather be shot as a crook

or as an idiot.

I believe the only venue for me
is the 'Ride of Broken Dreams.'

Oh, you mean the Enron ride.

Let's go.

Enron hit the National psyche.

It hit it as sort of,
the time-tested lesson.

And that is,
if it looks too good to be true,

sometimes it is.

We're all going to be rich.

We broke even.

It is my belief that
Enron's failure was

due to a classic
run on the bank.

Don't look now but there's
something funny going on

over there at the bank, George.

I've never really seen one,

but that's got all the
earmarks of being a run.

On December 2nd 2001,

less than four months
after Skilling's resignation

Enron declared bankruptcy.

I remember
it was just a strange,

kind of surreal day.

We learned around nine thirty
about the bankruptcy

and that we were
all being let go.

We all felt like
we were on the Titanic

and the last lifeboats
had long gone

and we were just now
on the sinking ship.

We had thirty minutes
to leave the building

and at that point
it was no longer

like being on the Titanic.

It was kind of like being
on the Lusitania.

The torpedo had hit

and there's twenty minutes
to get out.

There's a lot of disbelief.

Very few of the rank and file
people ever dreamed that

Enron would
actually go bankrupt.

Then all of a sudden,
it was like a ghost town.

I can remember going
into the old building,

on certain floors,
ah, late in the,

afternoon or evening.
And it was scary.

There'd be like paper
blowing around,

and nobody there,

and it was just...
it was very eerie.

Mr. Skilling,
your opening statement was

extremely compassionate
to the employees.

And I want to show you a tape.

And I believe
we have it ready to go.

Listen to this.

Should we invest all of
our 401k in Enron Stock?

Absolutely.
Don't you guys agree?

Why is it that you had begun
unloading your stock?

Pretty heavily
before that date

and yet led
the employees to think that

they should keep buying stock?

Ms. Senator,

I have been a major shareholder
in Enron Corporation

and you can take
the videotape to mean

what you want it to mean.

I was a supporter of
Enron Corporation.

You know what happened
to those people.

They lost everything.

I feel terrible about
what happened to the employees.

Oh at one time,
things were really rosy for us.

And we all had some
really nice-looking 401ks

and pensions
and then it peaked.

And then it
just started going down,

and it went lower
and lower and lower.

At the peak
I had about 348 thousand.

I sold it all for 1200 dollars;

was what I got for it,
when it was done.

While Enron's stock
was plummeting,

the retirement
accounts of Enron's rank

and file workers were frozen.

We were frozen out of
our accounts.

It was right about
thirty two dollars, I believe.

And over that time,

from when it was frozen to
when it opened up,

I think it went down to nine.

And we could not access it.

And what came out
later that was so bad,

was the fact that
Ken Lay and Skilling

and all the top people were
movin' their money then.

But we couldn't.

The insiders had sold off
a billion dollars of their stock.

Compare that to the lineman
who worked for a staid,

old utility company
for most of his life;

put away money each month.

And what's he have to show,
at the end day,

for his years of hard
and decent labor?

He gets a big goose egg.

And Pai is out
in Hawaii somewhere,

with 350 million dollars
in the bank.

That's wrong.

There is still to this city
a layer of anger and upset.

I am still doing counseling,

three years later,
with some families.

Where some of those
who are most reflective,

it's gone to a deeper layer.

And they are looking
at the corporate culture itself

in this country.

You know,
you can gain the whole world

and all the trinkets

and all the trophies
of the world,

the corner office,
and all the perks

and you really can lose
your soul in the midst of this.

On January 25th, 2002,

seven weeks after
the Enron bankruptcy,

Cliff Baxter committed suicide.

With the media hounding him

because he was mentioned
in my memos

and the fact that
he'd been sued civilly

because he'd cashed
in for about

thirty million dollars
worth of stock

I guess it all came
crashing down on him.

I think Cliff's suicide
note tells it all.

You know,
Where there was once great pride,

now there is none.

It's very hard for me
to talk about Cliff.

We were very close
for many years.

And he was a wonderful,
wonderful man.

But a lot of who Cliff
was tied up in how

he had succeeded at Enron.

It is hard to look at
your life's work and say

it's failed.

But you have to take a long,
cold look at yourself and say,

'who was I? Who did I become? '

And realize that you may
have seen your shadow.

Andy Fastow pled guilty to
conspiracy to commit wire fraud.

He agreed to forfeit 23
million dollars in assets.

His sentence was
reduced to ten years

in exchange for testifying
against other Enron executives.

Why Enron?

Why not Worldcom or Tyco
or Global Crossings?

Ultimately in Enron the fatal
flaw was a sense that brains

and wiliness could
out-think the way

that the system
will eventually work.

In 2004, Jeff Skilling was
indicted for insider trading

and conspiracy to
defraud investors.

Pleading innocent,

he paid his
attorneys a retainer of

23 million dollars
to defend him.

Enron should not be viewed
as an aberration,

something that can't
happen anywhere else.

Because it's all about
the rationalization

that you're not doing
anything wrong.

We've involved Arthur Andersen,
we've involved the lawyers.

The bankers know
what we're doing.

There's a sense the
diffusion of responsibility.

Everyone was on the bandwagon.

And it can happen again.

Enron's accounting firm.

Arthur Andersen,

was convicted of
obstructing justice.

With its reputation
for honesty destroyed,

America's oldest accounting
firm fell along with Enron

and twenty nine thousand people
lost their jobs.

Enron's shareholders
are suing Enron

and its banks
for 20 billion dollars.

Ken Lay was also indicted
for conspiracy to commit fraud.

His attorney maintains that
no one has been hurt more

by the Enron bankruptcy
than Ken Lay.

Nice of all of you to
show up this morning.

With today's arrest of Ken Lay,

the top echelon at Enron

has now been called to
account for their crimes.

Mr. Lay, do you have
anything to say, sir?

A little later today I will.

Looking at Enron is like

looking at the flip side of
so much possibility

because like most things
that end terribly,

it didn't start out that way.

It started with
a lot of people who thought

they were changing the world.

And over time they became
victims of their own hubris,

victims of their own greed

and so it's like taking
so much promise and possibility

and looking at it
in a mirror and seeing

the flip side reflected
back at you.

I think the larger lesson was

what Enron asked of
its employees which was ask why.

And you know I didn't ask
myself why enough;

I didn't ask
managers why enough,

I didn't ask
my colleagues why enough.