Conspiracy of Fools (3 page)

“Okay,” he said. “We’re meeting upstairs. Go on up, and I’ll be there in a few minutes.”

The men rode a small internal elevator to the mezzanine level and made their way to a tiny conference room, crowding around an oblong table. Fastow and McMahon—who had long treated each other with an antipathy bordering on contempt—drifted to the seats farthest away from each other. Fifteen minutes later, Whalley blew into the room.

“Okay, let’s get going,” he said as he took his seat. “Let’s start with the organization first.”

Whalley shot a look at Fastow, pointing at him.

“Andy,” he said rapidly, “as we discussed, you’re no longer CFO, effective right now.”

Fastow’s face fell. “Wait …”

Ignoring Fastow, Whalley swept his arm across the table, pointing at McMahon.

“Jeff, you’re now CFO of this company.”

What was that?
McMahon wasn’t sure he heard Whalley correctly. He was chief financial officer? Just like that?

“Excuse me?” McMahon said. “I’m CFO?”

“Yes, you’re CFO.”

McMahon glanced across the table. Fastow was shaking his head, looking shocked. The moment was surreal.

Are other companies like this? You get promoted and the guy you replace gets fired, all in front of everybody?

“Wait a minute!” Fastow sputtered, anger in his voice. “That was not my understanding of the deal!”

Whalley held up a hand. “Andy, I don’t have time for this. I don’t know your arrangement; I don’t know the legal stuff. You get with Ken and work it out. But you’re not CFO. That decision’s made.”

That was it. Whalley turned away from Fastow.

“Okay, Jeff, commercial paper. What should we do?”

“Well,” McMahon said, “I need to assemble a team to figure out where we are. But I think there’s a good chance we’ll need to draw down the revolvers.”

Bowen jumped in. “People, from my experience, if a company has a cash crisis, it either draws its revolvers immediately or gets ready for the banks to come in and find lots of reasons to delay sending the cash.”

The group tossed around the idea. Fastow shook his head, leaning forward in his chair. “Wait a minute, Ray,” he said, looking at Bowen. “I really disagree with you. I think drawing down the revolvers will send a terrible message to the market.”

Fastow pressed a forefinger against the table.

“You do this,” he said forcefully, “and people are going to think there’s really something
wrong
at Enron.”

Three hours later, Fastow sat in a rich leather chair at the credenza behind his desk, typing an e-mail to his wife, Lea. They had planned to have lunch together that day, but now that was impossible. Too much needed to be done; he had to get some things settled. He finished typing his apologies to Lea and hit the “send” button.

Fastow pushed back from the credenza and stood. Ken Lay appeared in his office doorway, his face stern.

“I need to talk to you, Andy,” Lay said.

“Okay, Ken. Come on in.”

Fastow touched the button on his remote, closing his office door, while Lay sat at the conference table. As Fastow joined him, Lay eyed the man he had trusted for so long. In the hours since their first meeting that day, he had learned new information, disturbing details that had made Lay question his steadfast confidence in Fastow. But no matter. The problem was out of Lay’s hands now.

“Andy, I just left a meeting of the board. And based on the information you provided this morning, the board decided that we can’t continue with you as CFO. We’ve decided to put you on a leave of absence and make Jeff McMahon the new chief financial officer.”

Fastow didn’t flinch. Lay was surprised; no one had bothered to tell him that Whalley had already delivered the news with far less formality. “I understand,” he said.

Before Lay could speak again, Fastow plowed ahead.

“We need to work out a severance agreement,” he said.

Lay shook his head. “We’re not ready for that, Andy.”

“It won’t take long. I won’t be unrealistic. I know I’m entitled to nine or ten million dollars. But I think for three or four million, we can all agree that I’m leaving and I’m not going to be a problem.”

What?
Was this some kind of threat?

“Andy, we’re not doing it that way,” Lay said. “First of all, there’s a lot I need to do other than negotiate your severance. But I also need the board involved.”

Fastow leaned in, his voice above a whisper. “Well, let’s just have a handshake on something now, you and me, just so it’s done.” Lay almost recoiled in disgust.

“No, Andy. We’ll talk about it in a few days, but right now we’re not going to do anything.”

Lay didn’t wait for a response. He rose to let Fastow know that the meeting had ended.

“Andy, I think the sooner you exit the building, the better,” he said. “I’m sorry about what’s happened, but it’s necessary. Obviously, I wish you and Lea the best.”

Lay strode out of the room, confident he had done the right thing. With Fastow going, he felt a tinge of hope that Enron would soon right itself. Still, the news he had learned at that day’s board meeting, coupled with Fastow’s sordid scheming for a secret severance, left him shaken.

Had his chief financial officer, a man he had trusted implicitly, really been a snake all along?

OCTOBER 27, 2001—MIAMI BEACH, FLORIDA

The jazz guitarist shuffled toward the front of the small stage at the Jazid club, easing into a sensual blues solo. The bar was woody and intimate, illuminated by long-stemmed candles resting on a handful of marble-topped tables. On this night the place was packed, the crowd swaying to the rhythm of each soulful riff.

On one side of the room Jeff Skilling sat at a crowded table, downing a glass of white wine. None of the revelers spoke to him; none seemed to recognize him as someone who, weeks before, had been CEO of one of America’s top companies. And none realized that on this night, he was deteriorating, a man approaching a nervous breakdown.

There’s no way out of this
.

Skilling ran it through his mind. Enron, his company—for years, his life—was imploding. Other traders were refusing to do business with it. Capital was evaporating. Confidence was shattered. Regardless of Lay’s happy talk about its prospects, Skilling knew his baby was dying.

Oh, fuck! There’s got to be something. Got to be. Outside equity, find investors. How? No time. Talk to the banks. Look ’em in the eye, tell them you’ll pay them back. Shit! It’s too late. Should have had the planes headed to New York last week. Fuck! Why aren’t they doing anything?

He breathed deeply. Again and again, he walked through Enron’s maze of financial problems in his mind, hoping to find some means of escape he had overlooked. But the answer was always the same. Enron was gone. It couldn’t be saved.

Skilling wiped a hand up his cheek, smearing a tear. Fatigue shadowed his red-rimmed eyes. He picked up his glass, then glanced at a passing waitress.

“One more,” he told her. “Pinot Grigio.”

Rebecca Carter, Skilling’s longtime girlfriend and recent fiancée, sat next to him with a growing sense of alarm. The two had met at Enron, and had both left the company in August. For weeks, things had been wonderful; Skilling had spent time with his kids, did some traveling. Just the day before, the couple had come to Florida to visit a friend. But with Enron’s sudden troubles on his mind, Jeff was coming apart. Carter had never seen him drink this much.
What was it now? Eight glasses? Ten?
She reached out and touched his shoulder.

“Jeff, can we please just leave?”

“No.” He didn’t even look at her.

“Jeff …”

“No.”

“Jeff, you need to stop drinking.”

“No.”
Skilling was stone-faced, unflinching.

The wine kept coming, as many as fifteen glasses. Skilling sat stock-still, tranquilizing his frayed emotions, growing angry. He was thinking of the ones he blamed for the troubles.
It was the international division
, he thought.
They
were the ones who wasted billions on lousy projects.
They
were the ones who tied up Enron’s capital. Skilling tossed them out when Enron stock was soaring; the longtime international chief, Rebecca Mark, had made tens of millions of dollars selling her shares.

I kicked them out and saved them
, he thought bitterly.
They destroyed Enron’s wealth, and I made them rich
.

Hours passed as Skilling veered between despondency and fury. Finally he’d had enough.

“Let’s get out of here,” he said suddenly, grabbing Carter’s hand.

Skilling stumbled out to the street, and Carter wrapped an arm around him, struggling to hold him up in the crisp October evening. The couple brushed past crowds as they staggered down Washington Street toward their hotel. With each tormented step, Skilling fell deeper into incoherence.

“It’s going down,” he mumbled rapidly, his voice hollow and detached. “It’s going down.”

Carter tugged at his arm to keep him moving, astonished. “Jeff, come on. You’re talking about Enron.”

“It’s all going down …” The words trailed off.

For ten minutes they lurched along, until the elegant Delano Hotel loomed ahead, its gleaming white facade serving as a beacon. Carter maneuvered her fiancé up the terrazzo steps and into the hotel’s high-ceilinged lobby.

“Come on,” she said. “Let’s just go to bed.”

Skilling jerked away from her.

“No fucking way,” he growled.

He stumbled across the lobby, collapsing on a sofa. Catching sight of the bar in the back, he motioned for a waitress to bring him a drink. Carter sat next to him, closing her eyes as he downed another glass of wine. Finally, she gave in to her fury and frustration.

“Damn it, Jeff!” she said, standing up. “This is stopping right now! You’re not going to kill yourself tonight. We are going upstairs and we’re going to bed”

Chastened, Skilling placed his wineglass on a table, following Carter meekly to the elevators. But his mind was churning. He had no control anymore. He was giving up.

Carter dragged him into their room, and Skilling fell onto the bed. Lying sideways, he sobbed uncontrollably. He tried to speak, but his words came out as gibberish; he pulled his knees into a fetal position. Carter brought her hands to her head.
What the hell is going on?

“Jeff, what’s happening? You’re scaring me.”

She sat beside him, stroking his back, murmuring reassurances that Skilling didn’t want to hear. Minutes ticked by, until finally he crushed the pillow. “It’s not going to be okay!” he shouted. “It’s all going down!” He sat up, pushing Carter back as he moved.

“Everything I worked for my whole life is gone, just destroyed! Everything is gone!”

Skilling shook his head, tears streaming down his face. The enormity of it all suddenly crashed down on him.

“You don’t understand what’s going to happen!” he cried in a raspy voice. “Everyone’s going to get hit by this! I’ll never be able to show my face in Houston again! I mean, just the impact on all the people. Everything I’ve worked for is cratering!”

Reaching out to him, Carter muttered some soothing words. Skilling breathed deeply and tried to think.
It’s too late
. His world was gone, he would be a pariah. Everyone close to him would be caught in the wreckage.
Rebecca
. He couldn’t marry her. He couldn’t.

Skilling pulled away, a look of terror in his face. He was wide-awake now, wild-eyed and breathing rapidly.

“Rebecca, you need to go,” he said.

“Jeff …,” Carter said, reaching for him again.

Skilling recoiled. “Get the fuck away from me!”

Carter stood, astonished. “What?”

“Get the fuck out of here! Get away from me!”

“Jeff …”

“Leave me alone! I don’t want to see you!”

Carter stared at her fiancé, her eyes welling up. Nothing, not a sound or movement, interrupted the moment.

Grimacing, Skilling stood and flailed his arms. “Get the fuck out! Go back to Houston! I don’t want you here!”

Hesitation. Carter shuddered, then silently turned to leave. The door clicked closed behind her. Skilling stayed motionless for a moment, then crumpled into the bed. He pulled his knees to his chest again, his body shaking.

“Oh, God!” he wailed, crushing a pillow to his face.

———

It was the scandal that seemed to come out of nowhere, the scandal that changed everything. In the fall of 2001, the Enron Corporation—a politically powerful company whose business was only vaguely understood even by its own competitors—imploded, falling so far from its pedestal that its once-respected name transformed in a matter of weeks into shorthand for corporate wrongdoing.

The implications of the Enron debacle were so vast that even years in hindsight, they are still coming into view. It set off what became a cascading collapse in public confidence, sealing the final days of an era of giddy markets and seemingly painless, riskless wealth. Soon Enron appeared to be just the first symptom of a disease that had somehow swept undetected through
corporate America, felling giants in its wake from WorldCom to Tyco, from Adelphia to Global Crossing. What emerged was a scandal of scandals, all seemingly interlinked in some mindless spree of corporate greed.

As investors fled the marketplace, terrified of where the next eruption might emerge, trillions of dollars in stock values vanished, translating into untold numbers of second jobs, postponed retirements, lost homes, suspended educations, and shattered dreams.

But nothing was quite what it appeared. The Enron scandal did not burst out, fully grown, from the corporate landscape in a matter of days. Across corporate America, widespread corner cutting, steadily falling standards, and compromised financial discipline had been festering for close to a decade. Warnings about funny numbers, about unrealistic expectations, about the coming pain of economic reality, went unheeded as investors celebrated corporations pursuing reckless or incomprehensible business strategies that helped their stock prices defy the laws of gravity.

It was in that environment, and only that environment, that the Enron debacle could emerge. It was not simply the outgrowth of rampant lawbreaking. The true story was more complex, and certainly more disturbing. For crime at Enron—and, no doubt, there was crime—was just one ingredient in the toxic stew that poisoned the company. Shocking incompetence, unjustified arrogance, compromised ethics, and an utter contempt for the market’s judgment all played decisive roles. Ultimately, it was Enron’s tragedy to be filled with people smart enough to know how to maneuver around the rules, but not wise enough to understand why the rules had been written in the first place.