Conspiracy of Fools (94 page)

“So we’re going to need to start negotiating,” McMahon said. “We have to sit down with the banks.”

The line was silent for a moment. “Is it really that dire?” Lay said softly. More than thirty billion dollars in debt and almost no cash flow? “Yeah, Ken,” McMahon said. “It’s really that dire.”

McMahon called Whalley right afterward. “The only solution I see is that we sit down with the banks,” he said, “and get a workout.”

“Or a merger,” Whalley shot back.

A merger?
“Yeah,” McMahon said, thinking about it. “Merge with someone with a much stronger balance sheet.”

“Yeah,” Whalley replied. “I’m working on that.”

Scores of e-mails were piling up in McMahon’s account. He noticed one from Sherron Watkins and clicked it open. He read it and went back to work. He was trying to save the company. He didn’t have time to worry about her career.

Late that night, the crowds were thin at Kenneally’s, an Irish pub on South Shepherd, ten minutes from the Enron building. Dark and dank, the bar hadn’t changed in two decades. A small collection of regulars were there, tossing back beers and devouring the bar’s fabulous pizza.

After midnight, McMahon walked in, followed by Bowen. It was late, and Whalley had called McMahon some time before, inviting him to stop by the pub to unwind.

Minutes later, Whalley arrived, accompanied by Mark Muller, one of Enron’s deal makers. They glanced around, then made their way over to McMahon’s table. The bartender brought over some beers and joked about how terrible everyone looked. For thirty seconds the men just sat, staring at their beers, saying nothing.

“Well,” Whalley finally said, “this is a tough situation we’re in, guys.”

McMahon picked up his beer and chuckled. “Yeah, that’s kind of an understatement.” He looked at Whalley.

“By the way,” McMahon said, “thanks for the promotion.”

Whalley smiled. “Yeah, I suppose you’re not really thanking me.”

McMahon took a sip of his beer. “Not yet,” he said.

As the beer flowed, the executives wrestled with possibilities. What about Whalley’s idea of a merger?

“Would a merger solve all of this?” Whalley asked.

“Yeah,” McMahon laughed. “With Exxon.”

“Well, who could do a merger?” Bowen asked. “Who’d be willing?” The executives kicked around the idea for a while. Then Mark Muller jumped in with a brainstorm.

“You know who we could do it with, and who would do it fast enough, is Dynegy,” he said. “They’ve always been the Burger King of the energy business.”

Whalley chuckled. McMahon stared at Muller.
Burger King?
“I don’t get it,” McMahon said.

“Well, you know, McDonald’s does market research to figure out where to site one of their franchises, and then Burger King builds one across the street,” Muller said. “That’s the Dynegy view. They just wait to see what Enron does, and then they do it in a smaller way.”

They all laughed and went back to their beers.

The idea was planted.
Dynegy
. That was the answer.

The lunch scheduled for October 25 was nothing special. Every few weeks Steve Bergstrom, Dynegy’s president, had a meal with Stan Horton, a friend who headed Enron’s pipeline group.

But Thursday morning Horton left a message asking if Whalley and Mark Frevert, Enron’s new vice chairman, could join them that day. Bergstrom was intrigued. He had been pushing Enron to combine their European trading operations with Dynegy’s. Maybe, he thought, with the company’s financial crisis, that idea had gained a new appeal.

He phoned back Horton. “Listen, it’ll be fine if Whalley and Frevert come along,” he said. “Maybe I should arrange for us to meet in a private room?”

Horton was way ahead of him. “I’ve already got one booked,” he said, “at the Plaza Club.”

Already booked?
Now Bergstrom was certain. Enron wanted to combine European operations. This was great.

———

What in the world is that noise?

John Riley, the Andersen partner helping manage the Enron crisis, was in a room across from Duncan’s office. He had arrived that morning, been set up by Duncan, and given a number of files to review. But as he worked, Riley couldn’t block out the sound of a dull, high-pitched whine. It continued for hours, almost without interruption. He couldn’t imagine what it was. At one point, Duncan dropped in for a moment, and Riley decided to ask about it.

“Hey, David,” Riley said, “what is that whining noise I’ve been hearing all morning?”

“Oh, that’s the shredder.”

Riley fixed Duncan with an even look. “You know, David, this wouldn’t be the best time for you to be shredding client documents.”

Duncan nodded. “It’s just routine shredding of some client information,” he said.

He gave Riley a smile. “I can imagine for what you do that it would be the worst-case scenario for you to come into an office where documents are being shredded.”

They both had a good laugh.

Andersen’s destruction of Enron records was proceeding swiftly. The shredders in Three Allen Center were going full blast, from early morning until late at night. But even that wasn’t enough. They needed to pick up the pace.

There was a way. Andersen used an outside company named Shred-It for big jobs; its trucks were called in to help. And Andersen’s main office in Houston had more, and better, shredding machines. Requests for trunks were submitted. That way the paperwork could be packed up and carted over to that office, where it could be destroyed.

A bouquet of fresh-cut flowers had been placed in a crystal vase at the entryway of the Plaza Club. From there, on the forty-ninth floor of the One Shell Plaza building, members could see a breathtaking view of Enron Field, the baseball stadium that had helped transform the company into Houston’s most beloved corporate citizen.

Whalley, accompanied by Frevert and Horton, stepped briskly past the floral display without giving it a glance. The three men were escorted back to their private room for their meeting with Bergstrom. The executives chatted about their European trading operations, just as Bergstrom had anticipated. Then the conversation took an abrupt turn.

“Truthfully, Steve, we’re not here today to talk to you about Europe,” Whalley said.

“All right,” Bergstrom replied.

“We want to talk to you about a combination with the entire company,” Whalley said simply.

Bergstrom stared at Whalley in shock.

In just an hour of talks, the two sides covered a lot of ground. Then Bergstrom interrupted the discussions.

They had to hear from Lay, he said. Chuck Watson would not even consider a merger unless Lay told him this was what Enron wanted. If so, maybe they could get it done.

Not a problem, Whalley replied. Lay would make the call.

That day, Enron announced its plans to draw down its bank credit lines—some three billion dollars. Of that, more than half would go to repurchase all of its commercial paper, eliminating that financial problem from Enron’s growing list of woes.

In the
Journal’s
Los Angeles bureau, John Emshwiller and Rebecca Smith began cobbling together an article about the drawdown. Perhaps, they decided, this was the time to mention Chewco. They had learned the name weeks ago, in Kopper’s biography in the LJM2 offering memoranda.

At this point, the reporters didn’t know much else new about Chewco. But now the Enron story was hot. They wanted to get the name out there before someone else did. While writing that part of the story, Emshwiller telephoned Palmer to ask if Enron had any comment on Chewco.

“Never heard of it,” Palmer replied.

Emshwiller explained that the documents he had read showed—incorrectly, it later proved—that Chewco had purchased $400 million in assets from Enron and that it had been run by an Enron executive named Michael Kopper.

Palmer promised to get back to Emshwiller with answers.

In minutes, Palmer tracked down Whalley in his office. “Hey, Greg,” he said, “have you heard of Chewco?”

Whalley’s work came to an abrupt stop. His chief public-relations guy was asking about Chewco. That meant somebody—somebody in the press—was asking Palmer.

“Oh,” Whalley said, “that’s not good.”

———

Chuck Watson from Dynegy was just back from Missouri and was driving home in his silver Mercedes 500 when the car phone rang. He tapped the button on the speakerphone. “Chuck, it’s Ken Lay.”

Watson greeted Lay. Apparently, what he had been hearing from Bergstrom about a possible Enron merger might be true. The two spoke almost in a form of code. There were problems, Lay said, and Enron had options it was pursuing. But talking with Watson was an important one. They needed to meet, Lay said, just to see what they might put together.

They compared schedules. Friday was booked and didn’t work. Lay suggested they get together Saturday morning at his home in the Huntingdon. Watson promised to be there.

The news on Chewco was horrible. The biggest problem, Palmer realized, was that people at Enron either didn’t know it existed or simply didn’t want to talk about it.

As the details trickled out—Kopper ran the thing, his gay lover was the chief investor, Enron had repurchased it for a price that gave Kopper ten million dollars, McMahon had fought to block the deal—Palmer recognized Chewco for what it was. It could be the final nail in Enron’s coffin, proof that the company had been out of control for years.

The calls from Emshwiller kept coming, and the information
he
knew seemed better than what Palmer could learn in the company. Palmer spoke to his boss, Steve Kean.

“The
Journal
knows more about what’s going on here than
we
do!” he barked. “Get Ken down here, get Whalley down here, get McMahon! We’ve got to go through this!”

Minutes later, Palmer was on the phone when someone let him know the senior management was waiting for him in a conference room, ready to discuss Chewco.

He hung up and headed down the hall.

Waiting inside the doorway of the conference room, Whalley saw Palmer dashing toward him. How bad was it this time? What was the
Journal
going to say? He darted over to his public-relations chief.

“What do they know?” he asked hurriedly.

Palmer looked at Whalley and said nothing. Whalley noticed Palmer’s eyes were watering.

———

Palmer’s mouth filled with saliva. A wave of nausea washed over him. He was about to vomit, right in front of Whalley. He could feel it coming.

He turned, dashing into the men’s room. He ran to the farthest sink and stood over it, prepared to throw up. His stomach heaved, and he spit out the saliva flooding his mouth. The wave of nausea passed, and he splashed some water on his face. He grabbed a fistful of paper towels and was wiping his face when Whalley pushed into the bathroom. He walked over and put an arm around Palmer’s shoulder.

“Hey, come on,” Whalley said, escorting him out of the bathroom. “Come on. Come sit down.”

He took Palmer into a small, empty room and sat him down at a table. Palmer wiped his face.

“Fuck it, Greg!” he barked. “I want out!”

Whalley looked at Palmer with surprise. “You want out why? We’re going to be okay. We’ll get through this.”

Palmer shook his head. “No, we won’t, Greg! The
Journal
knows a lot more about what’s going on around here than
I
know, a lot more than Ken and the rest of you. I don’t know how I can do my job! No one is giving me answers!”

Well, there was a problem, Whalley said. Most of Enron’s executives had lawyered up; they were now all worrying about their personal liability. There weren’t going to be a lot of straight answers coming out of anyone.

He pointed at Palmer. “But we’re not giving anybody any outs here,” he said. “You go, you’re gone. Nobody’s getting a severance package. Nobody.”

Palmer closed his eyes. He couldn’t afford to walk away without a severance package. He didn’t have another job lined up. He stood. “All right,” he said. “Let’s go back to the conference room.”

Palmer wandered in to the conference room, escorted by Whalley. All the seats in the room were filled. He walked to a back wall and sat down on the floor, covering his face with his hands.

Ken Lay came in and stood at the head of the table. Soon, he was listening to a briefing on Chewco delivered in almost militaristic tones by Steve Kean.

Everyone tossed in the bits and pieces that they knew. McMahon mentioned to Lay the story of the Chewco buyout, explaining how he had fought it, stopped it. But then, once he lost the treasurer’s job, it had gone through anyway. Kean picked it up again from there.

“Now, one issue here is that the equity holder in Chewco is Michael Kopper’s partner,” he said.

Lay looked at Kean, confused. “His partner? What, we have
another
partnership in this?” he asked.

“Uh, no, Ken …”

“So what is he, a business partner?”

Several executives shifted uncomfortably. McMahon broke in. “No, Ken. It’s his lover. Michael’s gay lover.”

The room was silent for a moment. Lay glanced at the faces around the table and blinked.

“He’s got a fucking
gay lover?”
Lay shouted.

He waved his arms in the air. “
What the fuck is going on here?”
he screamed.

From the back of the room, there was a sharp pounding. Everyone turned to look. Palmer was slapping his hand on the floor, hard enough to hurt himself. He looked up at Lay.

“I’ll tell you what’s going on, Ken!” he shouted. “The
Wall Street Journal
knows more about what’s going on at your company than
you
do!”

He slapped the floor again, punctuating each word.

“This … has … to … stop!” he shouted. “We have got to hire someone, someone who can do an investigation and tell us what the
fuck
has been going on around here!”

The explosion of anger silenced the room.

Lay looked down at the table, then back at Palmer.

“We’re going to find out what’s been going on,” he said simply. The meeting broke up.

Twenty minutes later, Palmer was back at his desk when the phone rang. He saw from caller ID that it was Jim Derrick, Enron’s general counsel.