Bowen smiled. “Not a very good sales job, Jeff.”
Fastow’s call to Bowen came days later from the Caribbean. People were lining up for a shot at being treasurer, Fastow said, but he hadn’t heard from Bowen. How about coming by when he got back, so they could talk? When the appointment rolled around, Fastow seemed relaxed.
“I guess everybody’s coming up here, begging for the job,” Bowen said softly.
“Yeah, I’ve got a tough decision,” Fastow replied. “What about you, Ray? Why haven’t you called me?”
It just wasn’t his style to plead for a job, Bowen replied. And he was pretty happy with the seat he was in.
Fastow listened politely. Apparently, he wasn’t too keen on pressing Bowen to change his mind. “What do you think I should do, Ray?” he asked.
Bowen mentioned a few people. Bill Brown, maybe.
Fastow shook his head. “I think Bill’s okay. But I don’t think he’s the guy to take us to the next level.”
There was a pause. “What about Ben?” Fastow asked.
Ben Glisan? The guy who was an accountant a year ago?
“Well,” Bowen said, “Ben’s got the gray matter. But he doesn’t have the experience. He’s got a ways to go.”
Fastow responded quickly. “I think he’s smart enough. Ben’s done a lot since you’ve been out of finance, Ray.”
With that, Fastow started talking up Glisan as though he were the solution to every challenge Enron faced. “Ben has become a real leader here,” Fastow said. “After McMahon, he’s the best guy in the department”
Bowen nodded. “Great.”
He didn’t know what else to say. Fastow’s praise went far beyond the reality of Ben Glisan. No one who looked at Glisan’s résumé would consider him qualified for the job. Bowen, by contrast, would be an ideal candidate, but Fastow wasn’t even sounding him out. Clearly, he had summoned Bowen not to gauge his interest, but to make sure he wouldn’t impede Glisan’s anointment.
It didn’t take much guesswork for Bowen to figure out why. McMahon, whatever his flaws, was tough and gave Fastow grief. Bowen wouldn’t be a pushover, either. But in Glisan, Bowen thought, Fastow had found someone trusting and pliable.
Fastow wanted a puppet, Bowen concluded, and he already controlled Ben Glisan’s strings. Now almost nothing could stand in his way.
*In a nonpublic affidavit from 2002, Sutton said he believed his meeting with Skilling took place the following Monday, March 20. His recollection is incorrect; contemporaneous records from the time show Skilling was in Brazil on that day and did not return to the office until March 29. See Notes and Sources.
CHAPTER 13
FOUR BLACK-CLAD SOLDIERS plummeted from the sky above Houston. One after another, they pulled rip cords, releasing yellow-and-black parachutes that billowed above them. The men—members of the Army’s Golden Knights parachute team—gently guided themselves toward second base on Enron Field as the crowd of more than forty-one thousand fans cheered wildly.
It was 7:02 on April 7, the night of the Houston Astros’ first regular-season game in their glistening new ballpark, a modern-day temple celebrating Houston, baseball, and, most spectacularly, Enron. A sign proclaiming “Welcome to Enron Field” spun on the video board beneath a giant company logo. Enron had placed its imprint not only on the Astros but on Houston itself, granting the city the gift of outdoor baseball. The fans roared their approval.
The parachutists gathered their equipment and headed off as the announcer’s voice echoed through the stadium.
“Ladies and gentlemen, throwing out tonight’s first pitch, please welcome Ken Lay, chairman and CEO of Enron!”
Lay, dressed in dark slacks and a button-down shirt, hustled out to the pitcher’s mound and waved to the crowd. He went into a windup, keeping in mind the instructions he’d received to throw high. The ball sailed across the plate, into the mitt of Astros catcher Paul Bako.
Amid more applause, Lay headed to his seat behind home plate. Striding up the steps, he passed former President George Bush and his wife, Barbara; a few rows away, he saw Governor George W. Bush and his wife, Laura. Lay arrived at his seat alongside Nolan Ryan, the former Texas Ranger pitcher, and Don Sanders, a prominent Houston stockbroker.
“Hey, you know,” Sanders joked, “Nolan was betting me you wouldn’t get it across the plate.”
Lay glanced over at Ryan. “O ye of little faith, Nolan,” he laughed.
The first inning began, but the Astros didn’t live up to the occasion. By late in the game, it became clear the Phillies would win. Governor Bush and his wife left early; Lay would hear from him a few days later with some gentle ribbing about his pitch. As the last innings played out, former President Bush and Barbara dropped by to speak with Lay.
Lay stood. “Mr. President, Barbara, nice to see both of you. Looks like you’re enjoying the game.”
“You did a nice job getting across the plate, Ken,” Bush said. “I’ve hit the ground more than once.”
The three chatted for another moment, then the Bushes headed out. Lay settled back to watch the rest of the game. He couldn’t have been more delighted. He was friends with presidents and governors. Houston, his town, was saluting his company. There was no denying that he had reached a pinnacle of professional and personal success. This had to be one of the happiest days of his life.
Wanda Curry’s career had been sidetracked. The young Enron accountant had worked with wholesale for some time, until the back-to-back electricity trades with Merrill Lynch came along. She objected to the structure, slowing the project down. Not long afterward, she was transferred.
Still, Curry remained a Causey favorite. So that month—after Andersen raised concerns about the financial controls at Enron Energy Services, the retail division—Causey appointed Curry to head a team to investigate.
It would take months of analysis before Curry realized that retail, one of Enron’s glowing businesses for the future, was in fact another growing problem.
The young waiter balanced a tray of drinks as he pushed into a room on the executive floor of the Enron building. Inside, Joe Sutton and his guest, Dr. Amin Badr El-Din, stood beside a table decked out with three place settings of fine bone china and silverware. The waiter glided between them, delivering their drinks.
Badr El-Din was a short man, a few inches past five feet, and exuded sophistication. He wore a crisp Saville Row suit and displayed impeccable manners; his conversation was laced with references to life’s finer things—expensive cars, a hard-played game of polo. But Badr El-Din was not just another cultured Arab businessman. For American companies, he could literally be a key to the kingdom. He had deep ties with Jordan’s royal family and now served as a special adviser to Sheikh Zayed bin Sultan al Nahyan, President of the United Arab Emirates.
As head of the UAE Offset Group, Badr El-Din—known as Dr. Amin—had for years generated deals to help the Emirates. He was a man with money to burn—potentially as much as eight billion dollars—and that made him very popular with American corporations.
Sutton had come to know Badr El-Din over months of working with him on a huge pipeline project. During one meeting, the two discussed the impending sale of Enron’s international division; Badr El-Din was intrigued. His enterprise put together a proposal, and he came to Enron today to spell out the details to Skilling.
As the two men chatted, Skilling arrived. The waiter reappeared, catching him off guard; Skilling had never seen one on the executive floor before. He ordered a tonic water. Later, as they ate, Sutton explained how he and Badr El-Din had begun talking about the sale of the international assets while working in the Emirates together.
Badr El-Din nodded. “Yes, we are very interested.”
Skilling smiled politely. Bullshit. The price was going to be some seven billion dollars. As soon as Badr El-Din heard that, Skilling figured, this deal would die.
“Well, you know, this is a very large operation,” Skilling cautioned. “We’re in
terested in selling, and obviously we’d prefer to sell it as one package.”
“That is our interest,” Badr El-Din said.
“Hmm,” Skilling said. “Who’s your adviser on this?”
The acid test; the quality of the adviser would signal the seriousness of the potential offer. So Skilling was impressed when Badr El-Din replied that he was represented by UBS, the global financial firm.
“All right,” Skilling said. “Probably the next step would be to have your bankers talk to Cliff Baxter, who’s working on the sale. Whatever information you need will be made available to you.”
They returned to their food, but Skilling couldn’t shake his skepticism. After all, how likely was it that Enron could dump its overseas blunders in one fell swoop?
The Enron trading room in Portland was a hodgepodge of cubicles and workstations, nothing like the sleek, high-tech setup in Houston. It had been pulled together from the offices of Portland General Electric to serve as Enron’s main West Coast trading artery. On one side, near big plasma screens that tracked power flows, about one hundred traders barked orders over telephones. It was just the sort of chaos that traders thrived on.
The top trader, Tim Belden, had been an academic researcher before testing his mettle in the marketplace. He loved the study of market minutiae, and in California he had found his ideal subject. What the state had described as deregulation was in fact a labyrinth of complex—and often contradictory—rules, combining the worst features of both government bureaucracy and unbridled capitalism. Power was delivered to the state through an arcane system involving two bodies called the Power Exchange and the Independent System Operator, which conducted auctions to buy or deliver power to the state.
From the beginning, traders had been poking and prodding at the rules, looking for loopholes. And they found plenty: Power from out of state was allotted a higher price than electricity generated within California. If lines were congested, the ISO would compensate any company that agreed to cancel a transmission of electricity or move electrons the other way. And companies would be paid for committing to provide backup power, even if the electricity ended up never being needed.
The rules struck Belden and his team as open invitations for gaming the system. Just playing with the rules, they could force California to pay more for power. The easy money was just too tempting to pass up.
At 9:41 on the morning of April 15, a Saturday, John Forney, one of Belden’s top traders, hit a button on his phone console. The line rang through to a power-scheduling desk at Portland General Electric. “Portland. This is Robert.”
“Hey, Robert. Good morning. John Forney at Enron.”
The call from Forney should have been surprising. Enron and Portland General were related—one a marketer, the other a power generator—and weren’t supposed to deal directly with each other on transactions in the state. Working together, they could drive up prices.
But Forney had developed an idea: using Portland General to transform lower-priced power from California into higher-priced out-of-state electricity. All that was required was a loop—buying electricity in California, passing it around through out-of-state trading companies and then to Portland General, which would deliver it back. The transactions were all on paper, but so much the better; traders could mark up the price at each stage, making a tidy profit courtesy of California consumers.
As Forney described the details of the plan to the scheduler, he chuckled. “I can’t hand off directly,” he said. “What I’m trying to do is give it to LA.”
“Yeah?”
“But I can’t. I’ve got to involve a northwest utility, and I just can’t deal with you because of our arm’s-length rules. I can’t transact directly with you.”
The scheduler at Portland General was confused. “Hang on a second,” he said.
He called to someone else. “Hey, Bob, have you ever done this deal with Enron where they loop it around?”
———
A new scheduler got on the line. “Hey, man,” Forney said. “I know this is kind of a nasty deal, but we kind of worked this out with our pre-schedulers.”
Forney described the transaction again. He commented that he hoped this deal wouldn’t cause him trouble.
“Hopefully not,” the scheduler said. “It probably will, but—”
“It probably will,” Forney interrupted. “Because it’s basically just a loop.”
The scheduler asked some more details, quickly realizing the true purpose of the proposed trades.
“Okay,” the scheduler said. “Are you going to do it just for one hour, then, or—”
“No,” Forney interrupted. “I’d like to get it going on. I may do it all day, if I can.”
“Okay, okay.”
“Since I don’t come in on the weekends very often, I’m going to come make a big mess for everybody.” The scheduler laughed.
The Forney Perpetual Loop, as the in-and-out trades came to be known, was only one of the schemes cooked up by Enron’s traders to exploit the California power market.
They all had cute names. One, Death Star, involved submitting fake transmission schedules that showed lines would be overloaded; Enron would then be paid for “reducing” congestion by removing scheduled power it never meant to send. Another, Fat Boy, was a variation on that theme but allowed prices to drive up in anticipation of the coming fake congestion. With Get Shorty, Enron pledged to line up backup reserves while in fact doing nothing, under the assumption that the reserves would never be needed. And Ricochet was another variation of the Forney Loop.
Together, the schemes were methods of collecting money from California for services that would never be provided. But there were clear benefits to Enron, which still held a large position that would gain millions if California prices rose. Coupled with the deep structural flaws in the California electricity system—one that allowed for a massive mismatch between demand and available supplies—the market was in perfect position for utter disaster.
The first day of calamity was only weeks away.
The unofficial word was finally out: Glisan was in line to be Enron’s new treasurer. Fastow had pushed his candidacy hard, and both Skilling and Lay had endorsed it. If the board approved, Glisan would have the job.
The prospect left Ray Bowen anxious. Glisan was so young; Bowen worried he might unwittingly become Fastow’s dupe. It only seemed appropriate to warn him. Glisan was working in his small office when Bowen tapped on the door. Bowen ventured inside, offering his congratulations.
“You’ll do a great job,” he said, hoping the words were true. “But I’ve got some advice for you. Be your own man. Don’t let people define you as Andy Fastow’s boy.”
Glisan pondered that. “Yeah, well, I realize I’m not so well known around the company, so I’ve got to get to know people better,” he said finally.
Bowen just listened. Was I speaking in tongues? Glisan seemed not to have understood his fairly blunt message.
“Well,” Bowen said, “then go around the building, do a little road show for yourself. Go see everybody.”
Let’s try again. “But be your own guy. Don’t let them think you’re just somebody who does what Andy says.”
Bowen’s tone was serious. “Ben, you’ve got to know, Andy’s not the most popular guy here. I don’t think he’s somebody you want to completely hitch your wagon to.”
Glisan blinked, looking bewildered. “Gee, you know, Ray,” he said, “Andy’s been really good to me.”
“Fine. But the guy plays hardball. So you’re going to want to watch your head.”
“I don’t know, Ray,” Glisan replied. “I haven’t seen any of that.”
He shrugged. “Andy’s just been really good to me.”
On April 28, wire transfers for more than twenty million dollars arrived in Citibank account 4079-8061, in the name of a Fastow partnership, LJM Swap Sub. Much of the cash—from Enron and Swap Sub—was then transferred to an account at Chase, this one in
the name of the Southampton partnership.
The Southampton scheme was finally paying off. With those transactions, Fastow and his selected friends—Kopper, Glisan, Mordaunt, and a few others—had gained the cash that had been conned out of the investors in LJM1. But they weren’t alone. Days earlier, Fastow’s British co-conspirators—the Greenwich NatWest bankers—had invoked their rights to become partial owners of Southampton. Almost $7.4 million was wired that day to the bankers’ Bermuda account.
After confirming the wire transfer, Fastow telephoned a number in Toronto, where Gary Mulgrew, one of the three bankers, was waiting. “Congratulations,” Fastow said. “You guys just made seven million dollars.”
———
His hand resting on the boardroom table, Fastow took a read of the directors on Enron’s finance committee. Their meeting had been droning on for a while as McMahon took them through his last presentation as treasurer. Then Pug Winokur called on Fastow to present his report.
“Before I do,” Fastow began, “I’d like to take a moment to introduce Ben Glisan.”
He glanced over at Glisan, who nodded a greeting to the committee. “The management of Enron is recommending Ben to succeed Jeff McMahon as company treasurer,” Fastow continued. “Ben has demonstrated himself to be a brilliant and exceedingly valuable member of our team.”
Fastow laid it on thick, and afterward the committee gave its unanimous approval. Glisan thanked the directors and promised to do the best job he could. Fastow took the floor again and began his official report. Several minutes in, he looked at the directors. “That leads us to an update on the transactions conducted with LJM2,” he said.
The fund, he said, had been an all-out win for Enron. Combined with LJM1, he said, it had contributed almost $230 million in profits and more than $2 billion in cash flow, not to mention the investment-banking fees that were saved.
A director asked how much the LJM deals were distracting Fastow from his duties as CFO. “The time I am committing is negligible,” he replied. “I am personally devoting no more than three hours a week to them.”
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