28. Some details of McLean’s work and her call to Enron from McLean and Elkind, Smartest Guys in the Room, 321–22, as well as from entries in Skilling’s schedule book. Also see Bethany McLean, “Is Enron Overpriced?” Fortune, March 5, 2001, 122, and handwritten notes taken by one participant during the McLean and Skilling call.
29. Some details of the Fortune interview from McLean and Elkind, Smartest Guys in the Room, 322–23.
CHAPTER 16
1. Some details of Bass’s removal from the 302s from the FBI interviews with Duncan on April 5, 2002; Bass on Feb. 8, 2002; Bauer on Feb. 8, 2002; and Stewart on Feb. 8, 2002. Also see the March 4, 2001, Bass e-mail to Stewart, as well as Bass’s May 9, 2002, testimony in U.S. v. Arthur Andersen, Stewart’s testimony at the same trial on May 30 and 31, 2002, and the handwritten, unsigned notes taken from a March 12, 2001, Andersen meeting.
2. Some details of Mintz’s briefing to the legal team from a March 7, 2001, memo, “LJM Legal Review,” as well as entries from his personal schedule, his May 16, 2003, deposition taken as part of the Batson investigation, and his Feb. 7, 2002, testimony before Congress. Also see the Batson Report, vol. 4, app. C, 155. The testimonies and schedule book also provide details on the effort to forward information to Fastow. A copy of the forwarded memo, “LJM Approval Process—Transaction Substantiation,” dated March 8, 2001, was obtained by the author. Also see the Wilmer, Cutler notes of the Nov. 30, 2001, interview with Causey.
3. Timing of the reviews and discussions from notes in Glisan’s schedule. Some details of the meeting between Kaminski, Glisan, and Kindall from the Kindall report, written with Li Sun and dated March 9, 2001. While there was no daily cash reporting, Andersen analyzed Enron’s cash flow on a quarterly basis, as evidenced by the June 30 and July 30, 2000, memo to the file of Michael Croom from Andersen, “ECM Cash Flow Review.”
4. Details of Glisan’s family trip to Colorado from the “Travel Itinerary/Agenda” for “Ben Glisan and family,” for the week of March 10–17, 2001.
5. Some problems with the Blockbuster deal are revealed in the March 8, 2001, letter from John Antioco, chairman and chief executive of Blockbuster, to Ken Rice. Also see the fourth superseding indictment in U.S. v. Rice et al. and Anne Marie Squeo and Bruce Orwall, “Enron and Blockbuster Terminate Partnership for Video-on-Demand,” Wall Street Journal, March 12, 2001, B9.
6. The Reuters article was dated March 9, 2001. A copy of the e-mail correspondence between Bass and Stewart on March 10 was obtained by the author. The failure to take a loss from U.S. v. Rice et al. Also see Bass’s March 13, 2001, e-mail to Stewart, “EBS Blockbuster Memo.”
7. Timing of the Mintz, Causey, and Buy meeting from notes in Mintz’s personal schedule. Also see his May 16, 2003, Batson deposition; and his Feb. 7, 2002, congressional testimony.
8. Skilling described his frustration in watching the stock price fall in John Emshwiller, “Enron’s Skilling Cites Stock Price Plunge as Main Reason for Leaving CEO Post,” Wall Street Journal, Aug. 16, 2001, A2.
9. The Raptor restructuring is described in clear detail in the Powers Report, 121–25. Also see notes of the Wilmer, Cutler interviews with Kaminski on Dec. 19, 2001; Jordan on Jan. 11 and 15, 2002; Siurek on Dec. 11, 2001, and Jan. 31, 2002. Also see the March 30, 2001, memo to the files by Duncan and the Enron engagement team, “Enron-Raptor Entity Note Impairment”; and Siurek’s April 12, 2001, memo to the files, “Raptor Restructuring.”
10. Siurek described his contact with Skilling in his Wilmer, Cutler interviews.
11. Some details of Pitt’s background from Andrew Hill and John Labate, “A Reluctant Street Fighter,” Financial Times, May 11, 2002, 9; and Stephen Labaton, “Praise to Scorn: Mercurial Ride of S.E.C. Chief,” New York Times, Nov. 10, 2002, sec. 1, 1.
12. Timing of the Skilling and Martin meeting from entries in Skilling’s schedule.
13. Timing of the Skilling and Fastow meeting from entries in Skilling’s schedule. Also see Skilling’s testimony before the SEC on Dec. 4 and 5, 2001.
14. Mintz described how the wind deal proved to be a breaking point for him in his congressional testimony of Feb. 7, 2002, and in his May 16, 2003, Batson deposition. Also see his memo of April 12, 2002, to Baxter, Metts, and Causey, “Proposed Sale of Enron Wind to LJM—Disclosure Issues.” Also see the notes of Wilmer, Cutler’s Jan. 17, 2002, interview with Derrick; the Jan. 18, 2002, interview with Rex Rogers; and the April 18, 2001, letter from Ron Astin to Mintz and Lance Schuler, “Proposed Transaction.”
15. A version of Fastow’s e-mail to Skilling was obtained by the author from an electronic duplicate of Skilling’s e-mail account. Timing of the arrival in Fastow’s office from Mintz’s schedule book
16. Some details of Lay’s trip to Washington from his itinerary headed “Eli Lilly—Indianapolis, Indiana; Vice President Cheney—Washington, D.C.; April 16–17, 2001,” as well as the April 13, 2001, letter from Carolyn A. Cooney from Enron’s Washington office to Debbie Heiden on Cheney’s personal staff and an April 13, 2001, briefing memo from Linda Robertson and Tom Briggs of Enron’s Washington office to Lay and Kean. The precise details of what was discussed in the meeting were heavily documented. Lay’s talking points, headed “Discussion Points for Lay/Cheney Meeting,” were obtained by the author, as were the multiple position papers left with Cheney. The papers, some of which were prepared for other lobbying efforts, are headed “National Energy Policy: Priorities,” “Examples of Problems Due to Lack of Open Access,” “Emergency Measures for Western Power Markets,” “Action Plan for Implementing Findings & Principles for Joint Action on Western States Power Markets,” “ESPA Letter on Open Access,” “Summary of Democratic Alternative Bill,” “Federal Demand Buy-Down (‘Negawatt’) Proposal,” “LNG,” and “Carbon Dioxide.” Finally, the author also reviewed copies of notes taken during the meeting by a participant.
17. Dialogue of Skilling’s conference call from an official transcript of the discussion.
18. Several news outlets reported the Skilling gaffe. For example, see “Skilling, Analyst Verbally Butt Heads,” Reuters, April 18, 2001; and “Skilling Speaks His Mind,” Gas Daily, April 18, 2001.
19. Skilling’s proposal to increase the VAR was documented in the April 30, 2001, presentation to the finance committee written by Skilling and Buy, “Recommended Changes to the Risk Management Policy.”
20. A copy of Skilling’s initial resignation letter was obtained by the author.
21. Some details from the May 6, 2001, analysis of Enron issued by the Off Wall Street Consulting Group. Also see Trebor Banstetter, “Some Saw Through Enron’s Ploys,” Fort Worth Star-Telegram, Feb. 10, 2002, Business, 1.
22. Baxter’s departure was formally announced on May 2, 2001, in a company-wide e-mail sent out by Lay and Skilling headed “Cliff Baxter.”
23. Lay’s location from an entry in his schedule. A copy of the Bank of America margin call was obtained by the author.
24. Timing of Mintz’s meeting from entries in his schedule. Other details from the Wilmer, Cutler notes from the Oct. 20 and Nov. 21, 2001, interview with Mintz; his May 16, 2003, Batson deposition; and his Feb. 7, 2002, congressional testimony. Also see the Batson Report, vol. 4, app. D, 143–45.
25. The article read by Mintz was by Stephen Labaton, “White House Picks Chairman of S.E.C.,” New York Times, May 8, 2001, A1. Other details from Mintz’s Feb. 7, 2002, congressional testimony. Also see Mintz’s May 10, 2001, letter to Richard Steinwurtzel of Fried, Frank.
26. The article read by Lay was by Peter Eavis, “Why One Firm Thinks Enron Is Running Out of Gas,” The Street.com, May 9, 2001.
CHAPTER 17
1. Details of the bank meeting in Miami from papers laying out the attendees and events titled “Bank Attendees,” May 17, 2001.
2. Bush’s announcement from David Sanger with Joseph Kahn, “Bush, Pushing Energy Plan, Offers Scores of Proposals to Find New Power,” New York Times, May 18, 2001, A1. Details of the stock perfor
mance of the industry and of Enron from a transcript of Nightly Business Report, May 17, 2001.
3. Some details of Lay’s trip to California from his itinerary for that week, headed “Itinerary for KLL; California.”
4. The author reviewed the report of the National Energy Policy Development Group, “Reliable, Affordable, and Environmentally Sound Energy for America’s Future,” May 2001, and compared it head-to-head with the issues papers and talking points presented to Cheney and his staff during the meeting with Lay. While there has been much public speculation that the Cheney task force may have bowed to Enron’s demands, in fact the Lay analysis is accurate: Enron’s central request for the establishment of regional transmission organizations was not adopted by the Administration. Certain specific Enron requests for what the Administration should not do were adopted as policy recommendations. All in all, the comparison of the Lay presentation and the Cheney recommendations shows that both voiced a commitment to power deregulation. That, however, has been a central tenet of Republican Party policy for more than a decade; it flies in the face of history and reason to argue that the Administration advocated deregulation because of Lay’s commitment to such a position.
5. The Emshwiller article, “California Blame Game Yields No Score,” appeared in The Wall Street Journal on May 22, 2001, A2. Details of Emshwiller’s interview with Lockyer from Rebecca Smith and John R. Emshwiller, 24 Days (Harper Business, 2003), 14–15.
6. Details of Skilling’s meeting from entries in his schedule book. Other details about this meeting from Skilling’s sworn testimony before the SEC on Dec. 4 and 5, 2001. There are numerous reasons to believe that this scene, as portrayed, is accurate. As of this writing, the government now has Fastow as a witness, has already charged Skilling with crimes, but has not suggested Skilling perjured himself in his SEC testimony in regard to this matter. The surrounding evidence, both documentary and through interviews, makes it undoubtedly clear that the motivation for the Fastow withdrawal from LJM came from Skilling; in the days leading up to this meeting, Fastow was working hard to capture every advantage for LJM. He walked away from this meeting trying to find ways to maintain a position in the fund without creating a disclosure obligation. Fastow also contemporaneously told some witnesses about Skilling’s demand, and his recounting at that time mirrors in every particular the comments made by Skilling in his sworn SEC testimony.
7. Some details of Lay’s visit to KKR from his travel itinerary, May 21–23, 2001.
8. Some details of Belden’s decision to hire a lawyer from Sanders’s testimony before the CFTC and the FERC, July 9, 2002, 113–14.
9. Details of Mintz’s efforts to get Skilling to sign the LJM approval sheets from the Wilmer, Cutler notes from the Oct. 20 and Nov. 21, 2001, interview with Mintz; Mintz’s May 16, 2003, Batson deposition; and his Feb. 7, 2002, testimony before Congress. In his testimony before the same congressional body that day, Skilling said he never saw the memo sent by Mintz; Skilling’s schedule shows that he would have been heading out of the office about the same time the package was sent, and that he did not return to the office for a week. Also see a copy of Mintz’s memo to Skilling, “Company Approvals for Transactions with LJM,” May 22, 2001; and the notes from Skilling’s Nov. 27, 2001, interview with Wilmer, Cutler.
10. Fastow’s efforts to get a smaller portion of ownership in LJM, and the subsequent rejection of that idea, from a May 21, 2001, letter from Jordan Mintz to Richard A. Steinwurtzel and James H. Schropp of the Fried, Frank law firm; Mintz’s typewritten notes headed “LJM Legal Review,” dated May 22, 2001; Mintz’s June 4, 2001, memo to Fastow headed “LJM Proxy Disclosures (2002)”; a June 4, 2001, memo from James P. Baetzhold of Fried, Frank to Steinwurtzel, Schropp and Lanae Holbrook, headed “Enron Proxy Disclosure.”
11. The timing of Mintz’s meeting with Fastow from Mintz’s schedule book. Other details from Mintz’s testimony before Congress on Feb. 7, 2002.
12. Details of the Skilling and Fastow meeting from Skilling’s sworn testimony before the SEC.
13. Details of the dealings on Cuiabá, and the decision to shove the closing date forward, from documents, including the March 28, 2001, share repurchase agreement between LJM BrazilCo and Enron de Brazil Holdings Ltd.; the Aug. 15, 2001, document headed “EPE Holdings Ltd. Transfer of Share from LJM BrazilCo. To EPE Holdings Ltd.”; the Wilmer, Cutler notes from the Dec. 6, 2001, interview with Castleman and from the interviews of Dec. 5 and 7, 2001, with Lipshutz. Also see the Batson Report, vol. 2, app. L, annex 3, 7–8; and Jordan Mintz’s typewritten notes headed “LJM Update” and dated May 7, 2001.
14. Some details of Watkins’s personal situation, and her run-in with Fastow, from Swartz with Watkins, Power Failure, 262–64.
15. Some details of Lay’s meeting from his travel itinerary, headed “European Trip; E7 Summit; May 29—June 10, 2001; Lays/Seidls/Reasoners/Duncans.”
16. Details of the negotiations for LJM, and the final purchase price, from a number of documents, including the July 24, 2001, purchase agreement between Fastow and Kopper; the term note and pledge agreement of July 31, 2001, by Kopper in favor of Citicorp, which financed the loan for the LJM2 purchase; an Aug. 29, 2001, letter from Kopper to Citicorp. Also see the criminal complaint filed in US v. Fastow et al. and the Batson Report, vol. 2, app. L, annex 4, 41–43.
17. The changes to the PRC process are described in a Skilling e-mail to all employees, “Changes to PRC Process,” May 9, 2001.
18. Details of Skilling’s presentation from a video of “Strategic Directions 2001,” a technology conference sponsored by Tibco.
19. Details of the Andersen Waste Management settlement, and Goolsby’s role in that resolution, from the paperwork filed by the SEC in the case of Securities and Exchange Commission v. Arthur Andersen LLP et al. filed in Federal District Court in Washington, D.C. These documents were filed at the time the settlement of June 19, 2001, and include “Order Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission’s Rules of Practice,” Administrative proceeding file no. 10513; “Final Judgment as to Defendant Arthur Andersen LLP”; “Consent of Defendant Arthur Andersen LLP”; and the formal civil complaint.
20. The FERC decision and its effect on Enron stock from Christian Berthelsen, “Texas Power Firm’s Shares Falling,” San Francisco Chronicle, June 22, 2001, B1.
21. Some details of Skilling’s meeting with the lawyers from entries in his schedule book, along with the Sanders testimony of July 9, 2002, 162–65.
22. Details of Herrold’s efforts and the answers he received to his questions from a series of handwritten notes he took beginning on June 20, 2001, in his conversations with Rex Rogers.
23. Skilling testified about the events in San Francisco before the SEC on Dec. 5, 2001. The author obtained an audiotape of the events that transpired in the meeting room. Also see Karen Gaudette, “Enron CEO Gets a Pie in the Face,” Associated Press Online, June 21, 2001.
24. Details of the Fastows’ trip to Florida from a series of documents, including Fastow’s “Company Airplane Transportation Request” of May 30, 2001, which was approved by Skilling; an itinerary headed “Fastow Foundation Travel; Cheeca Lodge, Florida; June 21–24, 2001,” which includes multiple copies with handwritten notes about events participated in; the flight schedule and plan submitted by the pilots of the Hawker for June 21, 2001; an undated printout of an e-mail from Bridget Maronge to a travel agent at Travel Park and three others from her to Fastow’s siblings; bills from the Cheeca Lodge from June 21 through 24, 2001, for Andy Fastow; copies of reimbursement requests submitted to the foundation through Maronge; and the attachment “SIFL Detailed Summary Report,” which was provided to Fastow in a July 6, 2001, memo from Kristi Monson headed “Personal Use of Corporate Aircraft.”
25. Details of the foundation meeting from the document “Fastow Family Foundation Annual Meeting, June 22, 2001” Also see the foundation’s 9
90-PF form (Return of Private Foundation) filed with the Internal Revenue Service for the tax year ending Dec. 31, 2000.
26. Some details of Skilling’s trip from entries in his travel book. The type of transaction being pursued by Nacchio, known as a capacity swap, was part of the regular form of business at Qwest for years. According to Qwest’s filings with the SEC, the accounting used by Qwest for such swaps was approved by Arthur Andersen; however, in 2002, after Qwest brought in new accountants from KPMG, the telephone company began to restate its financial performance for those transactions. For example, on Sept. 22, 2002, Qwest filed documents with the SEC announcing that it was reversing $1.48 billion in revenue, with more than $1 billion of that amount reported in 2001. However, while the accounting proved to be incorrect, there is nothing about Nacchio’s proposal that is on its face illegal or clearly improper; it made little business sense for Enron, however. That Qwest discussed such swaps with Enron is confirmed in the congressional hearings “Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?” before the House Energy and Commerce Committee’s Subcomittee on Oversight and Investigations, Sept. 24, 2002. In that hearing Nacchio testified, “During my tenure as CEO, to my knowledge, every purchase of capacity by Qwest was with the intent of furthering the company’s business plan,” and not for the purpose of booking revenues on a quarterly basis. That several parties in June 2001 were negotiating with Enron to do a broadband swap deal is documented in a June 11, 2001, e-mail from Nancy Davidson on behalf of Gary Winnick, CEO of Global Crossing, to Tom Casey, another Global Crossing executive, in which Winnick describes recent discussions with Skilling about broadband deals.
27. Details of Watkins’s discovery from Swartz with Watkins, Power Failure, 268–70.
28. Some details on the troubles in broadband from an internal “news” article distributed over the Enron corporate Web site on July 12, 2001, “Enron Reports Strong Q2 Earnings Despite Broadband Loss.”
Conspiracy of Fools Page 94
