Conspiracy of Fools (95 page)

“Mark, do you have a number for Bill …”

He stumbled on the last name.

“Bill McLucas?” Palmer asked. The former head of SEC enforcement. The lawyer recommended by Larry Rand at Kekst.

“Yes. Bill McLucas. Who is he with?”

“Wilmer, Cutler,” Palmer said. “I’ll get a number.”

He hung up the line and called Larry Rand.

“Larry?” he said. “Do you have the number for Bill McLucas? We need him down here.”

THE TRADING ROOM IN
the new Enron building was a swarm of activity. McMahon was on the phone with Enron’s bankers, discussing plans to draw down the lines of credit. Nearby, Glisan was helping plan where to put the cash. Whalley was supervising the chaos, knowing any misstep could leave Enron without the money it needed to stay alive.

Steve Kean appeared, his usual composure strained, and approached Whalley. “Greg, I need to talk to you,” he said.

Whalley waved him away. “Steve, I don’t have time right now,” he snapped.

“No, Greg,” Kean said. “I need to talk to you
now.”

The urgency of Kean’s tone grabbed Whalley’s attention. “Is this about a press release?” he asked.

“No, it’s not.”

Whalley studied Kean. “Okay,” he said. He followed Kean into a private office, then shut the door.

They both sat down. “Okay,” Kean said. “You need to go get on the phone with the Special Agent in Charge of the FBI’s Houston office, because we’ve been contacted by both the FBI and the Houston police.”

Whalley laughed. “Steve, tell them I’ll turn myself in at five o’clock. I just don’t have the time right now.”

“No, you don’t understand,” Kean protested. “It seems last night a woman turned herself in to the FBI.”

The woman, Kean said, was a drug addict. She claimed that she had found a duffel bag in a parking lot and took it to a crack house. She told the FBI that inside the bag, she found foreign passports, plane tickets to Nairobi, weapons, and ammunition. And a piece of paper referring to the Enron building and October 26.

What?
September 11 was just weeks earlier. Now there was a terrorist threat—
against Enron?
For tomorrow? They had three billion dollars coming in, the company was teetering toward collapse, and now they might get
attacked?

“You’ve got to be kidding me!” Whalley said.

At that moment, McMahon wandered in, looking lost. “Hey, Jeff,” Whalley called. “You’ve got to listen to this. I’m hearing the building’s blowing up tomorrow.”

McMahon didn’t flinch. “You don’t understand,” he said flatly. “The building’s blowing up today.”

Then he walked away.

That same day in midtown Manhattan, Tom Roberts was at his desk in the offices of Weil, Gotshal & Manges. Roberts, a longtime Texas deal maker, was now the partner in charge of the corporate department, helping push the firm—best known for its work on huge corporate bankruptcies—into other, equally lucrative legal fields.

Roberts was getting ready for a trip to Dallas the next day to visit Southern Methodist University, which his daughter was hoping to attend. As he was wrapping things up, some of his partners dropped by. The Dallas office had just been contacted by Enron.

“Okay,” Roberts said. “What’s it about?”

No one was quite sure. Enron just wanted
something
. The call had come from some junior person in the legal department of the company’s wholesale-trading business.

That’s strange
. This wasn’t a call from the general counsel but from some lower-level guy. There was grumbling around the room. This sounded like a loser assignment. A few lawyers protested that they had commitments on Saturday.

Roberts held up a hand. “Look, I’m going to be down in Texas this weekend anyway,” he said. “I’ll visit with them and take some of our folks from Dallas.”

Everyone agreed that was a fine idea. Fly in, have a quick meeting, fly out. No big deal.

“So what’s the situation?” Whalley asked. “Are we open for business tomorrow or not?”

He was on the phone with the FBI. Agents had just completed a search of the crack house and found the duffel bag. There were some plane tickets inside, some bullets, but no weapons. And no reference to the Enron building.

Whalley sighed. “So we’re coming to work tomorrow?”

The New York bankers were doing everything they could to dissuade Enron from drawing down three billion dollars. They argued with McMahon, who refused to back down. Send the money, he told them.

The bankers were apoplectic. Sure, they had provided Enron with three-billion dollars in credit lines, but none of them had ever figured the company would suck down all the cash in one go. In his office, Lay received a telephone call from Michael Carpenter, CEO of Salomon Smith Barney, a division of Citigroup. As McMahon listened in, Carpenter argued that pulling down the full lines was a bad idea.

“It will send a very negative signal, Ken,” Carpenter said. “If you just take some of it and leave the rest in the bank, it will be much less of a negative signal.”

“Mike, we’ve got to pull it all down,” Lay replied. “I understand what you’re saying, and it’s a valid argument. But we think this is the most prudent thing for us to do.”

Carpenter could sense the conversation was over.

“I have to respect your judgment, Ken,” he said. “And if that’s what you want to do, of course we’ll cooperate.”

Lay hung up and decided to make one more call. One of Enron’s other banks, J. P. Morgan Chase, had as a vice chairman an old-line Texas banker named Marc Shapiro, a longtime friend. Shapiro should know what was happening, Lay decided. Maybe he would have some ideas on how to help.

Later that day, Jimmy Lee, a Morgan vice chairman, was in his glass-walled office just off the bank’s trading floor. As Lee scanned his Bloomberg monitor, the intercom on his desk crackled to life.

“Mr. Shapiro’s on the line,” Lee’s secretary said.

Lee snapped up the phone. “Hey, Marc!” he enthused.

“Hey, Jimmy. I know someone, he’s on a couple of big boards, and he really needs your help.”

“Who is it?” Lee said quickly.

“Ken Lay with Enron. He has a problem, and I think he could really use your help.”

“Okay, what’s his number?”

He didn’t recognize Lay’s name, but he knew Enron. Lee thought nothing of it. Just another company running out of cash or struggling with a bad balance sheet. He’d seen plenty of them and was eager to toss another corporate giant up onto the operating table. He hadn’t lost a patient yet. No reason Enron should be any different.

The next morning, the streets around Enron were blocked, and security tightened. Regardless of what was found in the crack house, law enforcement had decided to take precautions. Whalley was making his way to the building when an employee saw him and called out.

“Hey, Greg! What’s with all the stepped-up security?”

Whalley smiled. He wasn’t about to announce that Enron was working through a possible terrorist threat.

“Well, we pulled a three-billion-dollar revolver, and we put it in small bills on the fourth floor,” he replied. “So we’re just making sure to guard it”

The thankless job had been handed to Glisan. Find out about Chewco, dig through the documents, brief the board. He met with executives to discuss the deal, including Rodney Faldyn, head of accounting transactional support. Faldyn never knew much about Chewco, but now, the more he heard, the more uncomfortable he felt. It didn’t sound like the accounting should work. He went to see Causey.

“Rick, I think we’ve got a serious problem with Chewco,” he said.

Soon after, Tom Bauer, an Andersen partner on the Enron team, received a call from Faldyn and Ryan Siurek.

“I need to ask,” Faldyn said, “about the requirements for the three percent equity standard, what it takes for a special-purpose entity to be considered valid.”

Again?
Bauer had explained this concept to Enron repeatedly, and
it just wasn’t that hard!
For an off-books partnership to be valid, three percent of its capital had to come from an investor independent of the company. Simple. But year after year, Enron just tortured this rule.
What about this? What about that?
It was tiresome.

“What’s the issue?” Bauer asked.

“Does the three percent have to be exclusive or any related-party equity?” Faldyn asked.

A no-brainer. It wouldn’t be independent equity if it was from a related party. Bauer recited his answer. His words were greeted with silence.

“This is what I’ve said for years,” Bauer said. “It’s what I told you on Chewco and on the LJM transactions.”

The silence continued. “Well,” Faldyn said, “based on some new information, Chewco might not meet the standard.”

It couldn’t be true
, Bauer thought.

Chewco had been used to buy out Calpers’s interest in the pool of energy assets known as JEDI. Those produced lots of cash flow. There was no shortage of investors who would have wanted three percent of
that
.

And the consequences of a mistake on Chewco could be devasting. If the three percent wasn’t there, then the partnership wasn’t independent. Instead,
Chewco
was
Enron. That would knock over the next domino. If Chewco was Enron, it couldn’t be half-owner in JEDI. So
JEDI
was Enron, too. None of them was off-books. All of JEDI’s revenue and income would have been Enron’s. All of the company’s numbers, all of them, would have been wrong, dating to the day Chewco was formed. Back four years. To 1997. It couldn’t be true.

Skilling was going out of his mind.

For days he waited to hear from Enron, knowing precious minutes were being lost. Finally, on Friday, he couldn’t delay anymore. He was scheduled to fly to Florida that day with Rebecca Carter to attend a boat show with Cliff Baxter. Skilling had to know if he could leave.

He called Whalley. “Okay, Greg, what’s been decided?”

Whalley reacted as if he hadn’t thought about Skilling for months. “Oh, yeah. We decided not to do it.”

Skilling dropped into a chair. “
What!”

“We had a management committee meeting, and the sense of the group was that it wasn’t a good idea.”

Skilling could almost feel Enron slipping away.
“Why?”
he asked plaintively.

“No one knew how this would play out in the press,” Whalley said. It would just confuse people.

Skilling listened. “Okay,” he said. Then he hung up.

He sat on his couch, his eyes closed. The reasons were weak; he knew what this was about. Fastow looked dirty. He had taken a lot of money. Fastow had been his guy. Skilling had no doubt. His buddies must suspect he was in on it.

Rebecca Carter wandered in. Skilling was sitting on the couch, looking wrecked. He looked up at her.

“They don’t want me back,” he said softly.

“What?”

“They don’t want me back,” he repeated.

He looked down at his lap. “This may be the end.”

Jordan Mintz seethed. What the hell was the matter with everybody? How could he possibly be scheduled to have a meeting that morning to justify forcing LJM people out of the building?
What did it take?

Mintz had been fighting this battle for months, picking up where McMahon left off. But nothing happened. So finally, with the world crashing
down, Mintz found some receptive ears, willing to consider booting LJM out. Then, Kopper protested. He needed more time, he said.

Mintz couldn’t believe Kopper’s chutzpah. All his dirty little deals had pushed Enron to the edge of collapse, and now he wanted more time to get out? The man wasn’t even an
Enron employee
anymore! He was working full-time for LJM! The meeting was scheduled for 10:30. Glancing through the glass walls of the conference room, Mintz saw Kopper making his way down the hall, right on time.
Unbelievable
. The guy was actually willing to argue his case, right in the middle of all this chaos.

Kopper arrived, and Mintz shot him a look of contempt. Raising his hand, Kopper pointed a finger at him.

“Don’t
start
with me!” he snapped.

The discussion began, and for once Kopper had no supporters in the room. It looked as though finally Enron was going to do the right thing. As the meeting came to an end, Kopper brought out an envelope and tossed it to Mintz.

“You guys need to take care of that,” he said.

Mintz pulled open the envelope, and his stomach sank.

It was a bill for several hundred thousand dollars. Kopper was charging Enron for the expenses that LJM2 incurred on the wind deal. The one Enron never wanted the fund to do.

The Enron board met that afternoon at 12:10, joined by a stern-looking, mustached man. If not for his expensive suit, the man might have been mistaken for an Irish cop.

Lay opened the meeting and gestured toward their guest.

“Joining us today is Mr. Bill McLucas from Wilmer, Cutler & Pickering,” he said. McLucas was in Houston at Enron’s request, Lay said, to help on the current crisis.

McLucas stood. He summarized the events of the past few weeks, describing the challenges Enron faced. “It is critical that Enron both establish credibility with the SEC and create confidence in the marketplace,” he said.

The way to accomplish that, McLucas said, was to form a special committee of independent directors. That group, he said, should engage lawyers—who in turn would hire forensic accountants—to review the related-party deals.

Lay picked up the theme. “If a special committee will help instill confidence, I would urge we proceed down that path,” he said.

The directors warmed to the idea, then took things a step further, discussing whether to add a new director to the board, someone uninvolved in
the decisions of the past who could lead the special committee in its investigation.

Jim Derrick thought he knew the perfect person. But first he needed to run the idea by Vinson & Elkins.

Rick Causey just stared at Ben Glisan.

“You have got to be
kidding
me!” he said.

All day, Causey had been going back and forth with Glisan, Faldyn, and a few others about Chewco. At each step, with each new disclosure, the story got worse.