Bauer was sympathetic. None of this was his idea. Causey and the accountants in Enron’s trading group wanted Bass gone. Bauer had been selected to let him know.
“I understand, Carl,” he said. “But they’ve got this perception.” Enron thought Bass didn’t try hard to come up with creative answers, Bauer said. So Andersen was going to move him out of trading and over to international.
Bass’s face was tight. Not long ago, he had fought to stop Enron from booking fifty-one million dollars in bogus earnings, and they’d run him over. Now they were pushing him aside.
“This is wrong,” he muttered.
Fastow’s eyes narrowed as he stared at Skilling.
“Are you fucking kidding me?” he barked.
“Now, Andy—”
“No!” Fastow said, holding up his hands. “No.”
He shook his head. “I can’t fucking believe this.”
It was 1:30 in the afternoon on March 2. The front-runner for the CFO job, Denise McGlone, was flying to Houston the next day to meet with senior management. Among them was Fastow, and Skilling had just let him know.
“Listen, Andy—” Skilling began.
“Why wouldn’t I be CFO?” Fastow interrupted. “Is there anything I haven’t achieved that I should have?”
“Andy, look, it’s the obligation of the board to turn over every stone. I think you have a good shot at being CFO, but we need to look at the alternatives.”
Fastow looked away. “Goddamn it.”
His jaw clenched. “Fine,” he said. “I’ll do what you want.”
Then he walked out.
The next morning at eight, Skilling turned his gray Mercedes 500 SE onto the drive of the Four Seasons Hotel downtown. McGlone, waiting just outside, climbed in.
“Hey, Denise, good morning!” Skilling said.
“Morning, Jeff,” McGlone responded.
Skilling turned left onto Lamar Street, heading toward Enron’s offices. Already something didn’t feel right. McGlone was reserved, almost pensive. Maybe, Skilling thought, she was just nervous about the day’s meetings.
“Have a good trip down?” Skilling asked.
“Oh yes, it was fine.”
Silence. “Okay, well, you’ll be starting out the morning meeting with Rick Causey,” Skilling began.
The rest of the day would be busy, with McGlone visiting a new department about every hour. Then, for dinner, Skilling and Lay planned to take her and her husband to a Houston hot spot called Café Annie.
Skilling parked at the Allen Center Garage and escorted McGlone over to the Enron building.
“How can you do this, Jeff?” Fastow demanded. “I trusted you. I thought we were in this business together!”
It was ten o’clock that morning. Fastow had made a last-minute appointment with Skilling and now was almost pleading for the CFO job. This was a personal betrayal of Andy Fastow by Jeff Skilling, he said. How, he asked, could Skilling do it? Skilling listened, surprised at the desperation. Fastow didn’t seem the type to beg for a job.
After Fastow said his piece, Skilling went to find Lay. Weeks before, he had told Lay that Fastow would never leave Enron if he was passed over. Now he wasn’t so sure.
Word came back fast on Denise McGlone: huh?
Somehow, the dynamo that Skilling—and, after him, Lay—had met on the East Coast had become a milquetoast in Houston. Causey and Fastow came away believing Enron intimidated her—or at least they told Skilling that.
By early afternoon, when Skilling met with her again, McGlone had already fallen back in the pack as far as he was concerned. She seemed subdued; clearly, something about Enron was bothering her. After she left for her next meeting, he went for another visit with Lay.
“Boy,” Skilling said, dropping in a chair, “that was just a totally different Denise than I saw in Washington.”
Lay nodded. “Yeah, me, too. Totally different”
This wasn’t going to work, they agreed. They needed somebody dynamic. There was still their number-two candidate—Ron Hulme, a McKinsey consultant. But if Hulme said no, Fastow was the only choice left.
Two days later, March 5, Skilling was leafing through a document on his desk. It was a deal-approval sheet—or DASH—seeking authorization for executives in Portland to make a relatively small, ten-million-dollar investment in an Internet start-up called Rhythms NetConnections.
For its money, Enron would own ten percent of Rhythms, a high-speed Internet data-transport company. The return was estimated at about 19 percent per year, with Enron holding the stake until 2003. Skilling flipped to the back. A sticker marked where he needed to sign. His subordinates had already given approvals. Not a lot at risk here. Skilling signed his name and wrote in the date.
The next bomb was ticking.
By early the next week, things had gotten tight. Fastow was grumbling about quitting. Skilling was preparing to take his kids on a vacation. He wanted the CFO search resolved. He talked it over with Lay and put together a plan. Skilling called up Hulme and asked him to come over.
Hulme arrived that afternoon in Skilling’s office. The time had come for an answer, Skilling said.
“Look, I’m leaving soon for spring break with the kids, and Andy’s about to quit,” Skilling said. “If you want the CFO job, it’s yours. If not, I’ve gotta give it to Andy or else I’m gonna lose the guy.”
“Well, Jeff,” Hulme said, “I appreciate the offer …”
That was all Skilling needed to hear. Hulme didn’t want it. Fastow would be Enron’s CFO. The decision was made.
That evening, Fastow picked up the receiver on his home phone. “Hello?”
“Andy,” he heard Skilling say. “Ken, I, and the board would like to offer you the job as CFO of Enron.”
Fastow sighed in relief as the news sank in.
“Jeff,” he said, “I’d be proud to accept the job.”
The next morning, Lay was in his office, getting ready to leave for a ten o’clock flight. Fastow appeared, tapping on the door. Lay broke into a smile and walked toward him.
“Andy!” he said.
Fastow beamed, shaking Lay’s hand. “Ken,” he said, “I just wanted to thank you and the board for placing so much confidence in me. I’m not going to disappoint you.”
“Well, Andy, we became convinced after looking at the other candidates that you were the best choice. I’m sure you’ll do a great job, and I’m delighted it worked out.”
Lay promised that he would put out an announcement the following day, making everything official. Causey, of course, would continue handling the accounting side. And Skilling had decided to name Rick Buy as chief risk officer. All three announcements, Lay said, would be issued at the same time. Fastow thanked Lay again and left.
With that, the top financial job at one of the nation’s largest companies was in the hands of a criminal.
The e-mail hit the system at 5:30 the next afternoon.
“As Enron’s finance and capital related activities increase in complexity,” it began. Around the building, eyes zipped down computer screens. Fastow, CFO. Causey, top accounting guy. Buy, chief risk officer.
Back in finance, there were congratulations for Fastow. But when he wasn’t within earshot, the gossip took a sharp turn. Andy Fastow? As CFO? What was up with that?
Shirley Hudler, who worked on the JEDI partnership, was stunned. She had worked with CFOs at other companies, and Fastow was no CFO. He was a terrible manager. He wasn’t particularly smart. He didn’t know accounting, treasury operations, nothing. He had done some fancy structured transactions, but that made him a deal guy, not a CFO.
Then Hudler had a thought. Was this some sort of salvage operation to undo the damage to Fastow’s reputation from his retail flameout? Nothing else made any sense.
How else could they name someone so unqualified to such an important job?
Vince Kaminski stared at the e-mail on his computer screen. What were they thinking? Selecting Andy Fastow�
��Andy Fastow!—was bad enough. Still, there was only so much damage an incompetent CFO could inflict. But Rick Buy as Enron’s new chief risk officer?
How could they name someone so unqualified to such an important job?
Kaminski, Enron’s top risk analyst, considered Buy a nice enough guy—but that was the problem. The chief risk officer had to go to the mat to stop bad ideas. That wasn’t Buy. He wasn’t confrontational, wouldn’t get in people’s faces. He’d already let a lot of lousy merchant investments slide by. He sure wasn’t going to grow a backbone now.
He didn’t even have the background for the job. An engineer by training, Buy was all about systems and organization. That was fine when he ran Enron’s credit analysis, assessing the finances of business partners. But that was arithmetic; risk analysis was calculus. Kaminski was sure this was a disaster in the making.
Not much later, Kaminski was at his desk in his twenty-ninth-floor office when Buy wandered in.
“Hey, Vince.”
Kaminski smiled. “Rick, congratulations on your promotion,” he said in a thick Polish accent. Whatever his thoughts, Kaminski was a model of civility.
“Thanks,” Buy replied. “But now that I’m chief risk officer, I think I need to buck up my understanding of options. Could someone go over option pricing with me?”
Buy didn’t understand options pricing? In the complex world of derivatives where Enron did business, options were rudimentary. A chief risk officer was supposed to be at the top of his field, the guy everyone turned to for the answers, not someone who required on-the-job training.
Kaminski hid his horror behind a smile. “No problem,” he said. “I’ll arrange a few sessions for you.”
For the tutoring, Kaminski recruited Stinson Gibner, one of his best risk analysts. A day later, Kaminski and Gibner headed to the conference room near Buy’s office for the first lesson. Buy’s questions were surprisingly basic, so Gibner kept dialing back the sophistication. Finally, Gibner was reduced to scribbling down the definitions for the general lingo of options trading on a whiteboard.
A “put” is … A “call” is …
After about half an hour, Buy stood. “This has been helpful,” he said. “But I’ve got another appointment. Can we get together another time?”
Some time later, they gathered for the next lesson. Gibner picked up where he left off. After a moment, Buy held up a hand. “I’m sorry, I know we talked about this already,” he said. “But I need to go over it again.”
Gibner glanced at Kaminski, who showed no reaction. He turned back to the whiteboard and started writing.
A “put” is … A “call” is …
It was, by any standard, an unusual first date.
They went to a friend’s wedding, arriving separately so their colleagues from Enron attending the event wouldn’t gossip. At the wedding’s end, Skilling and Rebecca Carter each slipped out alone, agreeing to meet later over dinner.
Skilling’s divorce had gone through, and he had been feeling lonely. With most of his time spent at the office, it was unlikely he would find romance outside of Enron. Soon he began focusing attention on Carter, an Enron veteran who had held a range of positions at the company.
She grew up Rebecca Comeau in a strict Catholic home of five children and had worked ever since she was fourteen. She started as a waitress before moving on to other jobs, using the money to buy her own car, a Toyota. But in her first year of college, she had a terrible accident and was thrown through the car windshield, tearing up her face and her knees. As soon as she was able, she went back to college; the onetime cheerleader now wandered the campus with huge red scars on her face, and found people taking her more seriously than they once had. Years of reconstructive surgery followed, but she never forgot the lesson.
After obtaining a degree in psychology, she married and pursued a master’s degree in accounting. By 1990, she had begun working at Enron, first on its financial filings, then in investor relations. When her marriage started falling apart, she asked for a less time-consuming job to give her more time for her young son. She was assigned to control risk in wholesale trading and gained a reputation for toughness that won her the nickname the Dragon Lady. Work again impeded on time with her son, so she moved on to dealing with the credit agencies. By then, she had attracted Skilling’s attention, and the two decided to have their first date at his secretary’s wedding.
Afterward, they went to dinner at Café Annie and over the meal found they enjoyed each other’s company. Perhaps, they both thought, this could be a relationship that would have some staying power.
As the end of the first quarter rolled around, the finance division was scrambling again. If nothing was done, Enron was going to miss its earnings projections. A little extra creativity was needed to close the gap.
Special projects took on the task. Ben Glisan, the accounting superstar who was a Fastow favorite, hit on the perfect idea—Chewco. The partnership had pulled Enron over the hump before, maybe it could again.
Under the original deal, Chewco had agreed to pay Enron an annual management fee of about two million dollars. Under the accounting rules, that fee could only be reported by Enron after it provided the services.
But what if …
What if, Glisan wondered, Enron and Chewco took, say, 80 percent of that fee and called it a “required payment”? Meaning Chewco had to pay, no matter what. Rapidly, the contracts with Chewco were rewritten to change “management fee” to “required payment.”
The amount Chewco owed Enron stayed the same. The terms of the transaction were identical. But since it was now required, Glisan argued, Enron could count the present value of the whole amount it would be paid over five years as a corporate asset. Then, thanks to mark-to-market accounting, most of that could be booked as income.
Glisan had found almost twenty-six million dollars in new profits, all by changing two words. Everyone celebrated his genius. But the accounting again was wrong. And nobody noticed.
It felt good to be back in America.
Jeff McMahon—onetime Andersen accountant, longtime Enron executive—wandered through the finance division, leaning into various offices to greet old friends. He had worked in the London office for almost three years and was back in Houston for a visit with the bosses.
Blond and boyish, McMahon had been sent to Britain to handle accounting issues for Enron’s merchant and trading business there. At first he reported to Causey but soon found himself involved in finance, reporting to Fastow. He liked the setup; his résumé had lacked finance experience, and now he was qualified for a more high-powered job.
McMahon dropped by Fastow’s twenty-seventh-floor office. The two men, standing on either side of Fastow’s desk, discussed London and the challenges back home.
Fastow’s tone grew serious. “Listen, I haven’t been real happy with Bill Gathmann’s performance as treasurer,” he said. “There’ve been some screwups. I just don’t think he’s the guy for that position. I’m replacing him.”
McMahon just listened.
“So I was wondering,” Fastow continued. “Do you know anybody who might be interested in the job?”
McMahon’s eyes went wide. Excuse me? “Well, yeah,” he replied. “What about me?”
Fastow raised his eyebrows, as if the thought had never entered his mind. Why would somebody like McMahon want a job that was so, well, dull?
“Oh,” Fastow said, pausing for a moment. “I didn’t know you’d be interested.”
“Treasurer of a Fortune 100 company?” McMahon laughed. “I’d be very interested in that.”
Fastow turned the idea over in his head. “Well, okay. Let me bounce this off Skilling, and if it’s okay with him, yeah, let’s go ahead and do it.”
Shortly before noon in Houston, the gold-colored elevator doors opened, and John Ashcroft stepped onto the second floor of the Four Seasons Hotel. Ashcroft, a Missouri senator and future United States Attorney General, walked down the softly lit h
allway toward the Livingston Room, one of the hotel’s larger meeting areas. Outside the room, he saw a smallish, balding man standing beside a reception table. Ashcroft smiled. It was Ken Lay.
“John, welcome to Houston,” Lay said as he approached Ashcroft. “I think we’ve got a good group of people here.”
Ashcroft thrust out a hand. “Well, Ken, I appreciate you doing this, getting this group together.”
It was April 7, and Lay was hosting a luncheon to raise money for Ashcroft’s anticipated 2000 presidential bid. The men met in 1992, when Ashcroft was Missouri’s governor and Lay was chairing the host committee for that year’s Republican Convention. They quickly found that they had a lot in common—roots in Missouri, sons of ministers, similar values. It only seemed right that when Ashcroft began exploring a presidential bid, he would turn to Lay to gain entrée to Houston’s big-money men.
At first, Ashcroft’s request had presented Lay with a quandary. He remained close with the Bush family, and now the former President’s son—George W., the Texas governor—was rapidly becoming the Republican Party’s perceived front-runner. Lay feared that if he hosted an Ashcroft fund-raiser, he risked alienating the Bush team.
So once Ashcroft approached him for help, Lay had asked for a few days to consider the situation. He had sent a message to Bush’s top political adviser, Karl Rove, explaining what Ashcroft wanted and asking if his participation would set anyone’s nose out of joint.
The reply came back quickly. The Bush team would love for Lay to host an Ashcroft fund-raiser. At that point, Ashcroft was attracting support among the Christian right. But of the most conservative politicians who might launch a campaign, Ashcroft seemed the least likely to catch fire. Sending money and support his way would only serve to keep it away from other—and potentially stronger—candidates. So with the secret go-ahead from the Bush campaign, Lay informed Ashcroft that he would be delighted to help out.
As the two men chatted, guests for lunch arrived, and Lay took a moment to introduce them to Ashcroft. Finally they headed inside and found their seats. After giving the guests some time with their food, Lay stood. He picked up a knife and tapped on a glass until everyone was quiet.
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