Professional survival often seemed to depend on how far Enron executives and others had managed to move from the epicenter of the scandal—either through the objections they raised at the time or their wisdom in getting out when the getting was good.
After her celebration in Congress, Watkins went on to form her own career as a speaker and corporate ethics consultant; she would ultimately be named as one of Time magazine’s people of the year. Mintz leaped from his job at Enron to a position on the legal staff of a major American homebuilding company. Kaminski found work as a risk analyst with another financial firm, but changed jobs as the tumult in the energy markets left by Enron’s collapse roiled the industry.
But no one walked away from Enron with less damage than the man whose departure cleared the way for the elevation of Jeff Skilling. Rich Kinder, the onetime Enron president whom board members feared would be unable to move the company forward, became the richest and most successful of the bunch. Now a billionaire, Kinder transformed the small energy company he cofounded, Kinder Morgan, Inc., into a steadier, more reliable, and more profitable enterprise than Enron ever was. From 2000 to the end of 2002, Kinder Morgan shareholders saw a 113 percent return; Enron’s investors, of course, lost everything.
The efforts by Arthur Andersen to limit the fallout from the document destruction proved fruitless. After urging the Enron Task Force to quickly resolve the matter, Berardino and his legal team were shocked when the prosecutors came back with a decision to file criminal charges. With the firm already under a court injunction as part of the Waste Management settlement, prosecutors felt that, given the role of Andersen’s legal department in the document destruction, they had little choice but to push this case into the criminal realm.
Andersen sought to settle but fumbled. The government demanded an admission of criminal liability, and at one point the two sides seemed close to a deal. But in the end Andersen balked, and the government walked away from the negotiating table.
By that time a top prosecutor on the Enron Task Force, Andrew Weissmann, had secured a secret weapon: David Duncan. After mulling the matter for months, Duncan acknowledged that he must have destroyed documents with the knowledge that he would be keeping them away from the SEC. He agreed to plead guilty to one count of obstruction, and to serve as the chief witness against his former employer.
The Andersen indictment for obstruction of justice ended the company’s last hope of survival. Clients fled in droves, unwilling to allow a firm charged with a crime to serve as their financial watchdog. Around the globe, Andersen partners jumped to competing firms. By the time of Andersen’s conviction in June, only a small shell of the once great firm remained, and it announced that it would cease auditing public companies.
The fates of Andersen’s partners varied. Berardino resigned from the top post in a futile attempt to forestall its indictment; after Andersen’s collapse, he opened his own consulting firm. Duncan would still be awaiting sentencing for his crime some three years after his guilty plea. John Stewart, Andersen’s expert on accounting rules, remained with the firm for many months, finally leaving to also set up a consulting shop. And Carl Bass, who made so much trouble for Enron that he was forced to end his dealings with the company, was snapped up by a competing accounting firm, where he works when not being consulted as one of the government’s favorite witnesses.
The death of Andersen triggered public criticism that the prosecutors had gone too far in charging the firm. But within days of its conviction, it became apparent that, had this fatal blow not fallen, another would have: WorldCom, the telecommunications giant, announced the discovery of its own massive accounting fraud, involving billions in unreported expenses. The accounting firm that missed the scam was none other than Arthur Andersen.
Until that moment, the Bush Administration had been resisting calls from Congress for sweeping corporate reform. But the one-two punch of Enron and WorldCom changed all that. Within weeks, new rules for corporate America would be adopted by Congress and signed by the President. Called Sarbanes-Oxley, after its chief sponsors, the act represented the most dramatic overhaul of securities laws since the aftermath of the Depression.
The exposure of so much corporate skulduggery also proved the undoing of Harvey Pitt. His ill-timed “kinder and gentler” speech served as red meat to Administration opponents, and, despite his aggressive moves against Enron and WorldCom, he made repeated political missteps that undercut his role in the Administration. The night of the midterm elections, with the Republicans winning a decisive victory, Pitt resigned under pressure from the White House.
By that time, it had become clear that the criminal investigation into Enron was going to penetrate deeply into the company’s executive ranks. The government started in what seemed an unusual place—at Greenwich NatWest. Grand jury subpoenas had uncovered the e-mail traffic among the three bankers who had first proposed to Fastow and Kopper what eventually became Southampton. But for the most part, it was Kopper’s name, not Fastow’s, all over the documents.
Leslie Caldwell and her team decided to send a strong message to Kopper. In late June, they filed a criminal complaint against the bankers, loaded with damning evidence of their misbehavior—and of Michael Kopper’s as well.
Kopper took the hint. Within weeks he came in, eager to cut a deal. He told the prosecutors everything—about the front investors in RADR, the kickbacks from Chewco, the rigged LJM deals, even the Global Galactic agreement. Topping it off, he told of the laptop he had used to track his deals with Fastow, the one that, at his boss’s behest, now rested in a garbage dump somewhere in Texas.
A deal was reached, and in late August, Kopper pleaded guilty in a Houston federal courtroom to two felonies related to Chewco, RADR, and Southampton. As part of the deal, he surrendered twelve million dollars to the government; more than two years later, he had yet to be sentenced.
Five weeks afterward, on October 2, it was Fastow’s turn. Early that morning, he arrived at the FBI’s Houston office and surrendered to agents there. He was handcuffed and led to the courthouse, where he was charged in a criminal complaint with securities and wire fraud, money laundering, and conspiracy. Fastow pleaded not guilty.
The rush of prosecutions and revelations weighed heavily on a number of the partygoers attending the Sprague celebration. Just a few days earlier, a mid-level nobody, Larry Lawyer, had pleaded guilty to a tax crime for failing to report money he made on a Fastow partnership. Now prosecutors were hitting hard on Broadband executives, accusing them of lying to investors about the business’s prospects. Ken Rice, Joe Hirko, and a number of others had already been informed that they stood to be indicted soon.
Amid the laughter and tinkling of glasses, Ray Bowen, now Enron’s CFO, was standing near the mansion’s vast multistory entryway, just feet from a large staircase. He felt a tap on his shoulder. He turned to see Rebecca Carter behind him. His face registered a moment of shock.
“I just wanted to say hi,” she said. “How are you doing?”
“We’re okay.”
“Still at Enron?”
Bowen nodded. “Yeah.”
Carter shrugged. “Well, we can’t talk about that.”
Bowen understood. The criminal case. Longtime friends hadn’t spoken to each other for months. Certainly acquaintances couldn’t discuss Enron, not without the conversation likely being recounted to a grand jury.
“Well, I’m glad to see you’re doing well,” she said.
Bowen thanked her, his anxiety growing. Carter was at the party. Is Skilling here, too? The thought made him uncomfortable. He hadn’t seen Skilling since he resigned. He had heard the man was telling everyone that he had done nothing wrong, and Bowen didn’t want to listen to his protests. Like a lot of Enron executives, he was angry at Skilling.
Then he saw him. Bowen had just walked down a hallway to pick up a beer and, with drink in hand, was on his way back when Skilling emerged from the dining room.
“Ray,” Skill
ing boomed, “how are you doing?”
Bowen stopped. Skilling looked awful. He had aged and gained weight. Bowen muttered a greeting.
“Why don’t you want to see me?” Skilling asked.
What? It was true, but Bowen hadn’t told anyone that night. Maybe Carter had read it in his face.
“I don’t think I ever said that,” he responded.
“Do you not want to see me because you think I did something wrong? Is that it?”
How can that be answered? “Jeff, I don’t know.”
Skilling pressed in. “Do you think I did something wrong?” he repeated. Bowen backed into a corner. “Jeff, I don’t know,” he repeated. “I have no idea.”
“I didn’t do anything wrong!” Skilling shouted. “I didn’t know about any of this stuff!”
Skilling’s tone was emotional. Unbeknownst to anyone, he had just received a letter from the federal prosecutors, notifying him that he was likely to be indicted.
“Jeff,” Bowen said, “I don’t think we should be talking about this.”
“I didn’t know about Andy and all that stuff,” Skilling said. “I didn’t know about the kickbacks from Kopper. You worked for him! Did you know about this?”
This was becoming a scene. “Absolutely not!” Bowen responded. “I didn’t work for Andy for two years.”
Skilling wouldn’t let it go. “I need to know, do you think I did something wrong?”
Bowen stood up straight, feeling angry. “I’ll tell you what I do know, Jeff,” he said. “I know that the financial position of this company wasn’t anywhere close to what the world was led to believe. And that happened on your watch. Was that right or wrong? I don’t know.”
“You’re not answering the question, Ray. Do you think I did anything wrong?”
Bowen stiffened. “I don’t know, Jeff. And that’s what I’m telling everybody that asks me. But again, I don’t think we should be talking about this.”
“Okay,” Skilling said. “Okay.”
There was a pause. Bowen stared at him for a moment. “How are you doing, Jeff?” he asked.
Skilling cleared his throat. “Well, Ray, if you want to know the truth, it’s god-awful. It just sucks.”
“I can’t imagine,” Bowen said. “This is a big tragedy. Lots of people are getting fucked in this thing.”
Skilling looked him in the eye. “I know, I feel bad about that. But, Ray, I didn’t do anything wrong.”
Bowen didn’t want to hear it. Whether Skilling had committed a crime or not, Bowen still held him accountable. He had created a get-rich-quick culture and failed to control it, he thought. Then, at the end, he abandoned them all. He blamed Skilling.
“I gotta go,” Bowen said, taking a step forward. “I wish you the best.”
The party wound down, and the crowds moved to the front of the house, milling about as valets brought their cars around on the long driveway. Bowen and his wife, Jennifer, found themselves behind Skilling and Rebecca Carter. Like four old friends, they chatted until a black Mercedes coupe arrived. Skilling and Carter climbed in and drove off.
Jim Timmins, the Enron executive who left in protest over LJM, happened to be behind Bowen. As the Mercedes pulled away, his own anger at Skilling boiled over.
“Can you believe that asshole had the fucking gall to show up at this party?” Timmins sneered.
His eyes followed the departing car. “Hope you have a good time in jail!” he called out.
The others in line laughed.
In the year that followed, the walls closed in on Andy Fastow. By early 2004 any hopes he harbored for an acquittal had been shoved aside.
By then, he had been formally indicted by a grand jury on ninety-eight counts, including one for obstruction of justice stemming in part from his role in the destruction of Kopper’s laptop. All of his closest allies had taken plea deals. Ben Glisan had pleaded guilty the previous September to conspiring to commit fraud, admitting that the Raptors were structured in ways that violated accounting rules so that Enron could exaggerate its financial performance. He was sentenced to five years in prison.
But the real trap was of Fastow’s own creation. In constructing the RADR scheme, he had secured the help of his wife, Lea. The money siphoned by Kopper from the bogus investors had been delivered in the names of Fastow’s wife and children. And then the Fastows failed to declare it as income, leaving Lea open to a criminal tax charge.
Prosecutors informed Fastow that they would shelve plans to charge Lea if he would plead guilty. Fastow refused and Lea was indicted. Suddenly, the Fastows faced the prospect that their two young sons would have to be raised by others while they served lengthy prison terms. The time had come for Fastow to admit the truth.
“All rise.”
At 2:05 on the afternoon of January 14, 2004, U. S. District Judge Kenneth Hoyt walked past a marble slab on the wall as he made his way to the bench of courtroom 2025 in Houston’s Federal District Courthouse. Scores of spectators attended, seated in rows of benches. In front of the bar, Leslie Caldwell, the head of the Enron Task Force, sat quietly watching the proceedings as members of her team readied themselves at the prosecutors’ table.
Judge Hoyt looked out into the room. To his right sat an array of defense lawyers surrounding their client, Andy Fastow, who was there to change his plea. Fastow, whose hair had grown markedly grayer in the past year and a half, sat in silence as he waited for the proceedings to begin.
Minutes later, under the high, regal ceiling of the courtroom, Fastow stepped before the bench, standing alongside his lawyers.
“I understand that you will be entering a plea of guilty this afternoon,” Judge Hoyt asked.
“Yes, your honor,” Fastow replied.
He began answering questions from the judge, giving his age as forty-two and saying that he had a graduate degree in business. When he said the last word, he whistled slightly on the s, as he often did when his nerves were frayed. He was taking medication for anxiety, Fastow said; it left him better equipped to deal with the proceedings.
Matt Friedrich, the prosecutor handling the hearing, spelled out the deal. There were two conspiracy counts, involving wire fraud and securities fraud. Under the deal, he said, Fastow had agreed to cooperate, serve ten years in prison, and surrender $23.8 million worth of assets. Lea would be allowed to enter a plea and would eventually be sentenced to a year in prison on a misdemeanor tax charge.
Fastow stayed silent as another prosecutor, John Hemann, described the crimes he was confessing. In a statement to prosecutors, Fastow acknowledged his roles in the Southampton and Raptor frauds and provided details of the secret Global Galactic agreement that illegally protected his LJM funds against losses in their biggest dealings with Enron.
Hemann finished the summary, and Hoyt looked at Fastow. “Are those facts true?”
“Yes, your honor,” Fastow said, his voice even.
“Did you in fact engage in the conspiratorious conduct as alleged?”
“Yes, your honor.”
Fastow was asked for his plea. Twice he said guilty.
“Based on your pleas,” Hoyt said, “the court finds you guilty.”
The hearing soon ended. Fastow returned to his seat at the defense table. He reached for a paper cup of water and took a sip. Sitting in silence, he stared off at nothing, suddenly looking very frail.
His hands cuffed behind him, Jeff Skilling was led by FBI agents into the backdoor of Houston’s federal courthouse. It was early in the morning of February 19, the day the Enron Task Force unsealed its forty-two-count criminal indictment against him.
In the weeks since the Fastow plea, the corporate dominoes at the top of Enron’s former management team had begun to fall as the former corporate CFO provided prosecutors with evidence against his onetime colleagues. Already Rick Causey had been charged with fraud for his role in a number of Fastow dealings, including Global Galactic. Now Skilling was being added to the Causey indictment, charged with a br
oad array of crimes.
Escorted by the FBI, Skilling was brought to the elevator banks in the courthouse. The doors opened, and inside stood a man dressed in a prison-issued jumpsuit, wearing handcuffs. Skilling recognized him instantly. It was Ben Glisan, being brought from prison for an appearance before the Enron grand jury.
“Hey, Ben!” Skilling said jovially as he climbed onto the elevator. “How you been doing?”
“Hey, Jeff,” Glisan said uncomfortably. “Guess I’ve been better.”
Skilling was escorted to a holding cell, where he was left alone for almost half an hour. He stewed; all of this, he was convinced, was just some mind game the government was playing with him—the appearance of Glisan, the time alone. He made a decision. He wasn’t going to show any weakness. He wouldn’t let them win.
At 9:20, Skilling was brought to room 704, where he sat at a table with his lawyers, including Bruce Hiler and a new member of the team, Daniel Petrocelli. Sam Buell, a lead prosecutor in the case, stood before Magistrate Judge Frances Stacy and was soon joined by Skilling and his lawyers. Magistrate Stacy began to recite Skilling’s rights and mentioned that he had a right to an attorney.
“It looks like you have an embarrassment of riches in that regard,” she said.
The magistrate then turned to Buell, who recited the charges that Skilling faced. It was a grab bag of allegations, the most serious involving Fastow and his dealings. It charged that, along with Causey, he knew that the LJM funds were being used to manipulate Enron’s earnings through deals like the Raptors and Cuiabá sale. He was also charged with fraud for what the government said was his involvement with Causey and Fastow in Project Grayhawk, the transaction designed to allow Enron to profit from the increase in its own stock price following the 2000 analysts’ conference.
But most of the allegations had nothing to do with Fastow and instead were spread across a wide range of Enron’s businesses. In the wholesale division, Skilling and Causey were charged with manipulating earnings in 2000 and 2001 through the establishment of the reserves to hold the profits from California trading. In retail, they were charged with disguising losses by shifting the division’s trading book into the wholesale division in early 2001. And in Broadband, Skilling was charged with lying to investors about its prospects and technology.
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