Conspiracy of Fools

by Kurt Eichenwald

  29. Mordaunt discussed her approach by Fastow to join him in her Jan. 12, 2002, interview with Wilmer, Cutler.

  30. Some details of the transfer of $750,000 to Mordaunt from the RADR conspiracy were disclosed in the indictment in U.S. v. Fastow et al.

  31. Timing of the Skilling meeting with Buy and other details from entries in Skilling’s schedule book.

  32. Some details of the meeting between Lay and Skilling from the two men’s schedule books.

  33. Some details of Watkins’s meeting with Williams and Li from a printout of an entry in her electronic schedule book. Also see Swartz with Watkins, Power Failure, 269.

  CHAPTER 18

  1. Copies of some of the draft press releases were obtained by the author.

  2. Details of the finance committee meeting from the official minutes, handwritten notes of the corporate secretary, and a copy of Fastow’s presentation. Also see the Batson Report, vol. 4, 105; vol. 4, app. D, 135; and vol. 2, app. E, 6.

  3. Some details of the board meeting from the official minutes.

  4. Some details of Watkins’s reaction from Swartz with Watkins, Power Failure, 270–71.

  5. Details of the Skilling and Lay conversation with analysts and reporters from an official transcript. The announcement of Skilling’s resignation was sent out in an e-mail from Lay and Skilling on the morning of Aug. 14, 2001, to employees worldwide. Also see Jonathan Friedland, “Enron’s CEO, Skilling, Quits Two Top Posts,” Wall Street Journal, Aug. 15, 2001, A3.

  6. Some details of the letter from a copy of the undated, unsigned document. Timing of the delivery of the document from an entry in a mail-tracking registry, headed “Log of Incidents,” maintained by the company’s legal department. Some details from Swartz with Watkins, Power Failure, 275—76.

  7. Some details of the initial response to the Watkins letter from Swartz with Watkins, Power Failure, 276.

  8. Some details of Derrick’s response to the Watkins letter from his September 26, 2003, sworn statement to the bankruptcy examiner. Also see the Batson Report, vol. 4, app. C, 159–61.

  9. Causey’s response to the Watkins letter is contained, in part, in an e-mail he sent on Aug. 15, 2001, to Mary Clark of Enron, with copies to Steve Kean and Derrick.

  10. Dialogue and other details of the employee meeting from a transcript of the event.

  11. Some details of Watkins’s reaction to the Lay meeting, and her subsequent visit to Olson, from Swartz with Watkins, Power Failure, 278–79.

  12. Details of Emshwiller’s meeting with Friedland from Smith and Emshwiller, 24 Days, 12—13.

  13. A copy of Skilling’s plan for his future was obtained by the author.

  14. Details of Enron’s disclosures from its 10-Q filed August 14, 2001. Other details from Smith and Emshwiller, 24 Days, 18–19, 21.

  15. Some details of Skilling’s conversation with Emshwiller from Smith and Emshwiller, 24 Days, 22–24. Also see the Batson Report, vol. 4, app. D, 14.

  16. Some details of the trip from Lay’s itinerary headed “Analyst Meetings—New York/Boston; August 16–17, 2001.” The article read by Koenig was Emshwiller, “Enron’s Skilling Cites Stock Price Plunge as Main Reason for Leaving CEO Post.”

  17. A copy of the Kean e-mail was obtained by the author.

  18. Details of the Journals decision to put together a partnership story from Smith and Emshwiller, 24 Days, 25–26.

  19. Some details of Watkins’s efforts to reach out to Mordaunt and Rogers from Swartz with Watkins, Power Failure, 281–83.

  20. Some details of the unopened Siurek e-mail from the FBI 302 of agents’ interview with Grutzmacher on Feb. 15, 2001.

  21. Some details of the Fastow and Bowen meeting from Bowen’s appointment book.

  22. Some details of the Watkins and Buy meeting from her Feb. 14, 2002, testimony in hearings before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations. Also see Watkins’s June 6, 2003, deposition before the Enron bankruptcy trustee and Swartz with Watkins, Power Failure, 284–85.

  23. Some details of Watkins’s call to Hecker from an Aug. 21, 2001, memo of the call written by Hecker to the file, with copies to Duncan and the Enron engagement; Hecker’s Aug. 23, 2001, e-mail to Duncan, “Documentation of Client Call,” which included a copy of the Aug. 21 memo; Hecker’s May 8, 2001, testimony in U.S. v. Arthur Andersen; Duncan’s memo to the files of Oct. 16, 2001, “Enron Employee Assertions Regarding Certain Transactions”; the FBI 302s of agents’ interviews with Shannon Adlong on Feb. 5, 2002; David Duncan on Jan. 14, March 21, and April 5, 2002; Nancy Temple on Feb. 13, 2002; and the SEC notes of the interview with Duncan from Jan. 14, 2002. Also see Swartz with Watkins, Power Failure, 285; and the Batson Report, vol. 4, app. C, 174.

  24. Derrick’s limited action during the first week after reviewing the Watkins letter is documented in the Batson Report, vol. 4, app. C, 159. Some details of the concern about legal liability involving Watkins from an Aug. 24, 2001, e-mail written by Carl Jordan of Vinson & Elkins to Sharon Butcher of Enron. Also see the Batson Report, vol. 4, app. C, 159.

  25. Details of the timing of Lay’s meeting with Watkins from his schedule book. Copies of the documents prepared by Watkins for the meeting were obtained by the author. Also see Swartz with Watkins, Power Failure, 287–89.

  26. Details of Derrick’s call to Dilg, and his failure to review the Watkins material before sending it to Vinson & Elkins, from his sworn statement to the bankruptcy examiner on Sept. 26, 2003. Also see unsigned, handwritten notes from Vinson & Elkins regarding the assignment.

  27. A copy of the Aug. 22, 2001, e-mail—originally from Zipter to Ding Yuan of Enron, and then forwarded by Zipter to Kaminski—along with Kaminski’s response, was obtained by the author.

  28. Details of Dilg’s efforts to assemble an investigative team from certain handwritten notes compiled by the lawyers. Also see the Batson Report, vol. 4, app. C, 161–62. Other details from Dilg’s sworn statement of Aug. 14, 2003, and Astin’s sworn statement of Sept. 10, 2003, to the bankruptcy examiner. Also see Hendrick’s handwritten notes from the Aug. 23, 2001, discussion with Astin, and the Batson Report, vol. 4, app. C, 162–63.

  29. A copy of the overnight letter announcing the margin call from Bank of America was obtained by the author.

  30. The Smith and Emshwiller article, “Heard on the Street: Enron Prepares to Become Easier to Read,” was published in The Wall Street Journal on Aug. 28, 2001, C1.

  31. By analyzing certain details, the author was able to determine the identity of the Journal’s source, and then confirmed that finding directly with the source. However, that confirmation was provided on a not-for-attribution basis.

  32. A copy of the MUI form filed by Hannan on Aug. 28 was obtained by the author.

  33. Some details of McMahon’s call to Watkins from Swartz with Watkins, Power Failure, 290–91.

  34. Details of the reporting by Emshwiller and Smith from Smith and Emshwiller, 24 Days, 47–50, 73–75.

  35. Some details of Watkins’s learning of Fastow’s anger, and Olson’s response, from her congressional testimony of Feb. 14, 2002; her June 6, 2003, deposition before the Enron bankruptcy trustee; the Vinson & Elkins memo to the file regarding their interview with Fastow as part of the Watkins investigation, which documented his anger; and Swartz with Watkins, Power Failure, 291. Also see the Batson Report, vol. 4, app. C, 159.

  36. Some details of the Aug. 30, 2001, Vinson & Elkins interview with McMahon from the lawyers’ Aug. 30, 2001, memo to the file on the discussion. Also see the Batson Report, vol. 4, app. C, 169.

  37. Some details of the Woodlands meeting from handwritten notes taken by one of the participants. Also see the Aug. 31, 2001, e-mail to the management committee from Joannie Williamson of Enron, along with the attached agenda; Whalley’s Sept. 3 e-mail to Lay and Kean about the agenda; and notes of Lay’s Jan. 16, 2002, interview with Wilmer, Cutler.

  38. Kopper later admitted his destructi
on of the laptop, which was never recovered, in interviews with the FBI given as part of his effort to secure a plea deal in July and Aug. 2002. These acts resulted in obstruction-of-justice charges being filed against Fastow in U.S. v. Fastow. He also discussed it in his testimony of Sept. 27, 2004, in U.S. v. Bayly et al.

  CHAPTER 19

  1. The structure and problems that emerged with the third Raptor vehicle are described in the Powers Report, 114–18. Some details of the decision from the Wilmer, Cutler notes from the Jan. 9, 2002, interview with Rodney Faldyn.

  2. Some details of the Sept. 11, 2001, discussion between Stewart, Duncan, and Goddard from an FBI 302 of Stewart’s interview with agents on Feb. 8, 2002. Also see the 302s of the FBI’s Feb. 28, 2002, interviews with Goddard and with Goolsby. Also see the Batson Report, vol. 4, app. B, 52.

  3. Details of the Dilg, Hendrick, and Astin meeting from Astin’s sworn statement to the bankruptcy examiner of Sept. 10, 2003, and from Hendrick’s contemporaneous notes from the meeting. Also see the Batson Report, vol. 4, app. C, 170–71.

  4. A copy of Adlong’s Sept. 14 e-mail, “Raptor Documentation,” and the ten attached Raptor memos, were obtained by the author. Also see the Batson Report, vol. 4, app. B, 52.

  5. Details of Stewart’s reaction to the Raptor memos from the 302 of his Feb. 8, 2002, interview with the FBI and from his Sept. 25, 2001, e-mail to Cash, Duncan, and other members of the Enron team, “Enron Raptor Memos.” Also see the Batson Report, vol. 4, app. B, 104.

  6. Some details of the Glisan meeting from undated, handwritten notes taken by one of the participants. Also see the Wilmer, Cutler notes from the Jan. 18, 2002, interview with Tim Despain.

  7. Some details of the $2.6 million tax payment from the Wilmer, Cutler notes of its Nov. 19, 2001, interview with Mintz. Also see the Powers Report, 64–65.

  8. A copy of Fastow’s report to the finance committee from Aug. 13, 2001, was obtained by the author.

  9. Timing of the meeting at Lay’s office from his official schedule.

  10. Some details of the oral presentation by Vinson & Elkins from unsigned notes, “Outline Points to Discuss with Ken Lay and Jim Derrick,” Sept. 21, 2001, that were prepared for the meeting. Also see Eichenwald with Henriques, “Enron Buffed Image”; and an Oct. 10, 2001, and an Oct. 15, 2001, copy of the report from Vinson & Elkins, sent to Derrick, both headed “Preliminary Investigation of Allegations of an Anonymous Employee.”

  11. The Andersen meeting is disclosed in an e-mail that morning from Bonnie Lamberth of Andersen to Duncan, Stewart, and other Andersen employees. Duncan’s appearance in the video is revealed in the 302 of his March 21, 2002, interview with the FBI. See also the Batson Report, vol. 4, app. B, 53.

  12. A copy of the Bank of America margin call from Sept. 19 was obtained by the author. Also see Kurt Eichenwald, “A Company Man to the End After All,” New York Times, Feb. 9, 2003, Sunday Business, 1.

  13. A copy of the draft 21(a) report e-mailed by Pitt was obtained by the author.

  14. Some details of the meeting from the 302 of the FBI’s interview with Bass on Feb. 1, 2002. Also see Bass’s Sept. 25, 2001, e-mail to Cash, Duncan, and other members of the Enron team, “Raptor Memos.”

  15. A copy of the e-mailed questions from The Wall Street Journal was obtained by the author. Also see the Batson Report, vol. 3, app. C, 92.

  16. Quotes of the E-Speak conference on Sept. 26, 2001, from a transcript of the event.

  17. Some details of Temple’s first day of involvement on Enron from the 302 of her interview with the FBI on Feb. 13, 2002. Also see “Government’s In Limine Motion of Law,” filed April 29, 2002, in U.S. v. Andersen.

  18. Some details from notes of the Wilmer, Cutler interviews with Kaminski on Dec. 19, 2001; Shanbhogue on Dec. 20, 2001; and Bharati on Dec. 28, 2001. Also see the Sept. 2001 memo by Siurek and Ron Baker “Project Raptor—Addendum,” and the unsigned document from Sept. 2001 “Project Raptor, Proposed Alternatives.”

  19. The decision to only provide a written statement is demonstrated with the Sept. 27, 2001, e-mail “LJM Statement,” from Derrick to Dilg, with the attached statement that was intended to be provided to the Journal, and the reply of the same day, headed “68055 1. doc” from Dilg to Palmer, containing a revised statement.

  20. Some details of the discussion between Temple and Stewart from Stewart’s 302s from his Feb. 8, 2002, interview with the FBI, and Temple from her Feb. 13, 2002, interview. Also see Stewart’s May 30, 2002, testimony in U.S. v. Andersen and Temple’s handwritten notes from the conversation. Andersen’s document-destruction policy, dated Feb. 1, 2000, is titled “Client Engagement Information: Organization, Retention, and Destruction.”

  21. A copy of the Kaminski e-mail to Scardino was obtained by the author. Other details from notes of the Wilmer, Cutler interviews with Kaminski on Dec. 19, 2001; with Causey on Dec. 21, 2001; with Gordon McKillop on Dec. 20, 2001; as well as the 302 of Scardino’s interview with the FBI on Feb. 13, 2002.

  22. Some details of Kaminski’s run-in with Buy from notes of his Wilmer, Cutler interview on Dec. 19, 2001.

  23. Some details of the meeting from notes of the Wilmer, Cutler interviews with Kaminski on Dec. 19, 2001; Shanbhogue on Dec. 20, 2001; and Bharati on Dec. 28, 2001.

  24. Some details of the Andersen meeting in New Orleans from a package of materials provided to partners on their arrival at the Oct. 5 gathering.

  25. Some details of the audit committee’s Oct. 8, 2001, meeting from the official minutes and the agenda, as well as from Causey’s two presentations, “Third Quarter Earnings Update” and “Review and Update for Accounting for Goodwill.”

  26. Some details of the finance committee meeting of that same day from the official minutes.

  27. Some details of the full board meeting from Oct. 8 and 9, 2001, from the official minutes, as well as copies of the full presentations made by Enron Energy Services and Enron North America.

  28. A copy of Zajac’s Oct. 9, 2001, e-mail regarding the results of the FIDO test was obtained by the author.

  29. Details of the struggle with finance during Kaminski’s absence from notes of the Wilmer, Cutler interviews with Kaminski on Dec. 19, 2001, and Shanbhogue on Dec. 20, 2001.

  30. Details of the Oct. 10 “current topics” meeting from a videotape of the discussion. Also see the agenda, dated Oct. 10 and headed “Current Topics Agenda,” and the attendance sign-in sheet for the event.

  31. Some details of the discussion between Temple and Stewart from Stewart’s 302s from his Feb. 8, 2002, FBI interview, and Temple from her Feb. 13, 2002, interview. Also see Stewart’s May 30, 2002, testimony in U.S. v. Andersen.

  32. A copy of Temple’s Oct. 12 e-mail to Odom, “Document Rentention Policy,” was obtained by the author. Also see the 302 and the SEC’s notes from the Jan. 14, 2001, interview with Duncan.

  33. Duncan described the failed attempts to persuade Causey to drop the term “non-recurring” from the press release in an Oct. 15, 2001, memo to the file. Also see the notes of the Wilmer, Cutler interview with Bob Butts, the Enron controller, on Jan. 15, 2002, and Duncan’s Oct. 13, 2001, e-mail to assorted Andersen officials, “Press Release Verbage.”

  34. Details of Adlong’s morning on Oct. 15 from the 302 of her Feb. 5, 2002, interview with the FBI.

  35. Details of the final discussion between Causey and Duncan from the Oct. 15, 2001, memo to the file written by Duncan, “Enron Press Release Discussions.” Also see the Oct. 16, 2001, e-mail from Temple to Duncan, “Re: Press Release Draft.”

  36. Details of Smith’s morning and her reaction to the Enron release from Smith and Emshwiller, 24 Days, 105–9. Enron’s Oct. 16 release was headed “Enron Reports Recurring Third Quarter Earnings of $0.43 per Diluted Share.”

  37. Dialogue from the conference call from an official transcript.

  38. Some details of Emshwiller’s discussion with Palmer from Smith and Emshwiller, 24 Days, 109.

  39. Smith’s decision to
fast-forward through the recorded version of the analyst call from Smith and Emshwiller, 24 Days, 114–15.

  40. The story by Emshwiller and Smith, “Enron Posts Surprise 3d-Quarter Loss After Investment, Asset Write-Downs,” appeared in The Wall Street Journal on Oct. 17, 2001, C1.

  41. The call from the short seller to Emshwiller, and the way he reacted to it, are described in Smith and Emshwiller, 24 Days, 122.

  42. A copy of the Oct. 17, 2001, fax from the SEC to Rogers and Fastow at Enron was obtained by the author. Also see the 302 from the FBI’s Jan. 14, 2002, interview with Duncan.

  43. Some details of the locations of Lay and Causey from Lay’s itinerary, headed “3rd Quarter Analyst Reviews; October 16–19, 2001; Itinerary for Ken Lay.”

  44. The short seller call to Smith from Smith and Emshwiller, 24 Days, 129.

  45. Details of Enron’s reaction upon hearing Smith’s statements about McMahon from the Vinson & Elkins notes from the Oct. 18, 2001, interview with McMahon. Also see the Batson Report, vol. 4, app. C, 169.

  46. The Emshwiller and Smith article, “Enron CFO’s Partnership Had Millions in Profit,” appeared in The Wall Street Journal on Oct. 19, 2001, C1.

  47. Some details of the Oct. 19 special board meeting from the official minutes.

  CHAPTER 20

  1. Some details of the managers’ meeting from the Wilmer, Cutler notes from Kaminski’s Dec. 19, 2001, interview.

  2. Details of Pitt’s speech before the AICPA from a videotape of the event.

  3. Corgel’s efforts to bring Riley into the Enron mess at Andersen’s Houston office from the 302 of the FBI’s interview with Riley on Feb. 14, 2002.

  4. Details of the special board meeting of Oct. 22 from the official minutes. Also see the Batson Report, vol. 4, app. D, 114, and the Senate hearings titled “The Role of the Board of Directors in Enron’s Collapse,” held before the Governmental Affairs Committee’s Permanent Subcommittee on Investigations on May 7, 2002.