Bennett telephoned David Margolis, the associate deputy attorney general. “Enron wants to cooperate,” he said. “We just don’t know who to cooperate with.”
Word of Bennett’s complaint soon reached Michael Chertoff, the wiry and aggressive chief of the Justice Department’s criminal division. For months, Chertoff had been spearheading the division’s antiterrorism efforts and had been only vaguely aware of the goings-on in Houston.
Now, after hearing about Bennett’s concerns, Chertoff made himself familiar with the Enron inquiry. With Houston out of the picture, a unique opportunity had been created, he thought. He contacted Margolis.
“We should step in and set up a task force,” Chertoff said. “Recruit top assistant U.S. attorneys to put this case together, really give it the prominence and attention that it seems to deserve.”
Margolis agreed. The Enron case would have its own team of prosecutors to dig down every rat hole until they figured out what crimes had been committed and by whom.
Scouting around for someone to lead the task force, Chertoff sounded out Robert Mueller, the former U.S. attorney in San Francisco who had been appointed director of the FBI just months before.
“You might want to look at Leslie Caldwell,” Mueller said. “She was really terrific when I was out at the U.S. attorney’s office in San Francisco.”
Chertoff knew Caldwell by her reputation as a no-nonsense, aggressive prosecutor who had taken on tough criminals in Brooklyn before moving to San Francisco, where she ran the office’s securities-fraud unit. She had handled complex accounting-fraud cases. She was perfect.
But before he could call her, a sudden development emerged that rapidly transformed the criminal case.
In Andersen’s Houston offices, a lawyer flicked on a laptop computer. Within minutes the lawyer—from Davis Polk & Wardwell, now representing Andersen on Enron—clicked open an e-mail program and began scrolling through messages, looking for information to help prepare partners for interviews with the Energy and Commerce Committee.
There wasn’t a lot there. Everything after November 9 looked normal, but before that it was thin. In no time, the lawyer and his colleagues were examining other laptops. Time and again, they found the same thing—a lot that seemed to be missing before November 9. It was almost as if someone had purposely deleted the information.
The lawyers decided to contact Andersen’s general counsel, Andrew Pincus.
———
Early the next morning, January 3, a Thursday, Joe Berardino was in his Chicago office at Andersen when he received a telephone call from Pincus.
“Joe, we may have a new issue down in Houston.”
“What’s happening?”
“Our lawyers have been getting people ready for their testimony and looking through their e-mail records,” Pincus said. “But the files are just too clean. We don’t know what that means yet, but I’m worried”
Thoughts rushed through Berardino’s mind. He and his team had been working so hard to pull Andersen through this Enron mess. His congressional testimony had all been part of that, and he had come away satisfied he had accomplished a lot. But if somebody was out there destroying records …
He didn’t want to think about it. Not until he knew more. “Follow up on this fast,” Berardino said.
“We are. We’re interviewing people now. And we’re scheduled to keep interviewing right through the weekend.”
“Fine,” Berardino said. “Give me a call early tomorrow morning, and update me on what you learn.”
The call to Berardino came the next morning at eight, and the information was devastating. Pincus, calling with a Davis Polk lawyer on the line, pulled no punches.
“We’ve got a big problem,” he said. “We’ve talked to a lot of people, and it seems that a lot of them have been deleting e-mails in recent weeks”
Berardino sucked in a deep breath. “What kind of quantity are we talking about?”
Staggering, Pincus replied.
The three men discussed alternatives, then Berardino issued his instructions. First, Andersen should notify the government right away. Then he wanted people in Houston interviewed night and day until the firm knew what happened. Finally, he wanted technicians brought in to try to recover the e-mails from the Houston and Chicago servers.
None of them knew that the situation was far worse than they imagined. Regardless of how many e-mails Andersen recovered, tens of thousands of documents had already been destroyed. And nothing could bring them back.
The news from Andersen knocked the wind out of official Washington. How could it have happened? How could a modern company have had such terrible procedures that employees could destroy evidence without being detected?
After being briefed on the matter, Michael Chertoff decided to alert Larry Thompson, who, as deputy attorney general, was second in command of the department. Chertoff popped into Thompson’s expansive office that afternoon.
“Larry, you got to hear this one,” Chertoff began.
Thompson sank back in his thick leather chair and listened in astonishment. He shook his head. Wow, he thought, somebody really screwed up here.
“How could the lawyers let that happen?” he asked. “They didn’t know to send out a memo telling everybody not to destroy everything?”
This, the two men agreed, was a new avenue of investigation. And Justice still hadn’t started putting together its team for this new task force. That was something Chertoff decided to fix that very afternoon.
In San Francisco, the day was winding down for Leslie Caldwell, the city’s top white-collar prosecutor. After work, she was planning to go with friends for drinks at Stars, a local hangout. But just when the workweek seemed almost finished, Chertoff called from Washington. This, she knew, could only mean something important was brewing.
Chertoff got right to the point. “We’re forming a task force to handle the Enron investigation,” he said. “Bob Mueller thought you would be the perfect person to be the head of it, and I wanted to see if you were interested.”
Caldwell knew a fair amount about Enron; her team had already opened its own investigation into the company’s collapse. Still, she wasn’t ready to jump without giving the idea more thought. Not on a Friday afternoon.
“Let me think about it over the weekend,” she said. “I’ll give you an answer on Monday.”
That was fine, Chertoff said. But when he hung up, he was confident that he had bagged his prey.
The weekend was hell for Joe Berardino. He stayed huddled at his Connecticut home, receiving periodic updates from Houston, and by Sunday, the ugly truth had emerged. This wasn’t just about e-mails; there had been a wholesale destruction of Enron-related documents, all taking place when the firm knew an SEC investigation was under way.
Berardino began planning his counterattack. First thing Monday, he decided, he would notify the firm’s five-member Global Executive Committee. Then the public had to be told. But how? A misstep here could spell ruin; if public companies feared Andersen had committed a crime, the firm could lose its client base. He was in anguish.
What do we do?
———
Holding her ticket in one hand, Leslie Caldwell stood with a line of passengers, waiting to board a plane to Washington. It was January 9, a Wednesday, and she was on her way to her new job as head of the Enron Task Force.
It had been an easy decision. Over the weekend, she had consulted friends and colleagues, and their verdict was unanimous: how could she ever consider not taking the job? So, that Monday, she had phoned Chertoff to let him know she was coming aboard. Chertoff told her to get to Washington quickly; Andersen’s problems were apparently much worse than anyone had anticipated. With that, Justice announced the creation of the task force.
Caldwell walked onto the plane and found her seat. For the next few hours, she fretted. This was going to be the biggest stage she had ever performed on, yet she had no idea whether a crime had even been committed at Enron. That was scary. I
f there was nothing to find, would the whole world see her as having blown the investigation?
What if there’s no case? What if it doesn’t exist?
The next morning at 9:10, a crowd of government officials entered the Oval Office. The atmosphere was calm and relaxed. In the wake of the September 11 attacks, Bush had won soaring public support for his quick responses, including a war in Afghanistan to root out terrorists. Now, his Administration was turning to domestic matters.
On the front burner this morning were the Administration’s plans to protect pensions and improve internal oversight at corporations. The Enron debacle had been front-page news, with heartrending stories abounding of employees and investors who were wiped out. It was an issue that demanded the attention of the nation’s leaders.
As they stepped in, the officials—members of Bush’s economic team and a few political and communications staffers—jostled for seats. Paul O’Neill, the Treasury Secretary, found one in the center of the room; Don Evans, the Commerce Secretary, sat nearby.
Bush sailed in and took charge, conveying an air of excitement. “What are we going to do about this pension problem?” he asked, sounding jovial.
The mood in the Oval Office was dismayed, almost regretful. Enron’s sudden, precipitous collapse and the suspicions of wrongdoing were shocking, the officials agreed. So many people had been harmed; perhaps the Administration could have minimized the damage, someone said.
“It’s too bad that none of us spoke with the folks in Houston,” Bush mused.
O’Neill interrupted. “Wait a minute, Mr. President,” he said. “I did talk to Ken Lay not long before Enron filed for bankruptcy. And I know that Don did, too.”
All eyes turned to O’Neill and Evans. Suddenly, the wished-for contact between the Administration and Enron didn’t seem like such a good idea after all.
Bush held up a hand. “Tell me all about it.”
O’Neill unveiled the whole story. Lay, he said, had clearly been angling for a federal bailout while never explicitly asking. In the call to Evans, O’Neill said, Lay had pressed for the government to lean on the credit agencies. But no one took any action, he said. Evans spoke up, agreeing with O’Neill’s version of the events.
Bush considered that. “We should tell the media that this happened immediately. Get it on the record.”
The decision was made. Ari Fleischer, the White House Press Secretary, would let the media know. But not until after Bush himself met with reporters to announce the plans for the Administration’s pension initiative.
Minutes later, at 9:42, reporters arrived in the Oval Office, where Bush sat surrounded by his economic team.
“Thank you all very much for coming,” Bush began. “One of the things that we’re deeply concerned about is that there have been a wave of bankruptcies that have caused many workers to lose their pensions.”
So now, Bush said, the Treasury, the SEC, and other federal agencies were working together to come up with recommendations for reforming the system.
“This is an important part of, obviously, other investigations that are ongoing,” Bush said. “The Justice Department announced and informed us late yesterday that they’re in the process of investigating aspects of the Enron bankruptcy. The Administration is deeply concerned about its effects on the economy.”
Bush opened the floor for questions.
“When was the last time you talked to either Mr. Lay or any other Enron official about the—about anything?” one reporter asked. “And did the discussions involve the financial problems at the company?”
“I have never discussed with Mr. Lay the financial problems of the company,” Bush began. “I have not met with him personally.”
There was a question about whether the Administration had concerns about the political fallout of the debacle.
Bush was almost nonchalant. “He was a supporter of Ann Richards in my run in 1994,” Bush said. “She had named him the head of the Governor’s Business Council. And I decided to leave him in place, just for the sake of continuity. And that’s when I first got to know Ken, and worked with Ken, and he supported my candidacy.”
The words left no doubts among the reporters in the room. Bush was distancing himself from a man who for years had been one of his biggest political boosters.
About that time, investigators from a range of federal agencies gathered in the SEC’s Washington offices. The enforcement staff, including Thomsen and Steve Cutler, were there, joined by Leslie Caldwell. The FBI sent over Special Agent Joe Ford, who had spent months tracking terrorists’ cash before being attached to the Enron team. Surrounding that core group were lawyers, investigators, and others now part of the sprawling inquiry.
The SEC had been digging into the case far longer than anyone else in the room but had only scratched the surface. Some of the key witnesses, like Fastow and Kopper, had so far refused to testify before the agency, so many pieces of the puzzle were still missing.
“It’s just our initial view,” one SEC official warned. “But there may well not be a criminal case here, outside possibly obstruction of justice at Andersen.”
Linda Thomsen agreed. “Admittedly, what we are seeing is limited,” she said. “But we don’t see the criminal angle yet. We see it more as a disclosure case.”
Joe Ford spoke up. “I think it’s highly unlikely there’s no criminal case,” he said, “particularly given the speed and the severity of Enron’s meltdown”
“I agree,” Caldwell interjected. “The magnitude strongly suggests a likely crime in this case.”
In the middle of the conversation, Caldwell’s cell phone rang. She pulled it out and clicked a button. It was a police officer from Sausalito, California, where Caldwell lived.
Oh, this can’t be good.
“I was calling to let you know that your apartment’s been burglarized,” the policeman said. A lot of material had been thrown all over the place, he explained.
The officer said that he had tracked Caldwell down to her San Francisco office, only to find that she had gone to Washington to take over the Enron investigation.
“So I was wondering,” he said, “if you think this might have anything to do with the Enron case?”
Not likely. “I don’t think so,” Caldwell replied. “I don’t think they even know I’m doing the case yet.”
Reporters were practically swarming Ari Fleischer, the White House Press Secretary. That morning, in the last moments of an informal briefing, Fleischer had mentioned the contacts between Lay and members of the Cabinet. Now, as the formal briefing got under way at 12:20, reporters were demanding more information.
Was Lay asking for a bailout? Did O’Neill know about Enron’s losses before investors did? Did Evans and O’Neill tell the President about the calls? Why wouldn’t they have told the President? Shouldn’t they have told the President? Is the President disappointed they didn’t tell him? Did anybody tell the Vice President?
Fleischer showed no signs of his frustration. “I just want to remind everybody,” he cautioned, “the difference between communication and contact and wrongdoing.”
But it was too late; what had been a flagging, dying news story about a company that had gone bankrupt a month before was suddenly transformed. Now, however tangentially, the case seemed to have touched the White House. Still, the chronicle of events remained dense, creating an immense thicket of information too convoluted to capture the public imagination. All that was needed was a spark, a development so simple to grasp that this simmering scandal could explode across the front pages.
Hours later, the spark.
In Chicago, Joe Berardino signed off on the Andersen press release announcing the discovery of document destruction in Houston. The release attributed the actions to “individuals in the firm.” The announcement was distributed to reporters around the country.
The firm was barraged with questions, and within hours Andersen put out another release, straightening out a few matters of confusi
on. Among them—yes, those “individuals in the firm” were indeed Andersen personnel.
That same afternoon, John Ashcroft, now the United States Attorney General, met with his staff. His relationship with Lay was certain to be an issue. Lay had raised money for his Senate bid and, at the secret behest of the Bush campaign, done the same for his aborted presidential effort. If a Justice Department task force was handling this case, Ashcroft decided, his obvious conflicts barred him from playing a role.
Ashcroft informed his staff that he was recusing himself from the Enron investigation and handing responsibility for it to his deputy attorney general, Larry Thompson. At that moment, Thompson was in Tucson, mingling with federal judges at a committee meeting for the Judicial Conference. He was called on his cell phone, and told he was needed back in Washington, to take over supervision of the Enron criminal investigation.
“He was a supporter of Ann Richards in my run in 1994”
Ken Lay sat in front of his home television that night, listening to George Bush’s comments from earlier that day. He watched as Bush portrayed him as simply a holdover from the administration of Governor Ann Richards, seeming to suggest that they had never really been all that friendly.
True, he had always been closer with the President’s father, but even so, it seemed silly to imply their relationship had somehow been a distant one.
Linda shook her head. “It’s really surprising to me that he’s doing that,” she said.
Her husband shrugged. It was just politics, though likely bad politics, he figured.
“Probably it’ll do him more harm than good,” he said. “Probably just better to acknowledge the obvious, acknowledge the relationship.”
Lay’s point was proven weeks later when Ann Richards—the sitting governor he had helped defeat by supporting Bush—went on Larry King Live. In plainspoken terms, Richards proclaimed her admiration for Lay and her surprise at Enron’s collapse. Then, she chastised Bush for glossing over his relationship with a man who helped elect him.
“Wasn’t that silly of George Bush?” she said, laughing. “What a stupid thing.”
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