Enron: Making Money in the Financial World - Stock Market, Commodity Trading Scandal (2005)

nothing the claim author of the smartest guys in the room out in paperback since the fall of 2004 why did you participate in the documentary on Enron well Alex came to us in the early winter of 2004 Alex give me the film maker and expressed an interest in making some sort of film out of the book whether it was a documentary a feature film and frankly at that time and Ron had kind of faded from the public consciousness I think there was this belief that the corporate scandals like Enron were this natural reaction to the aftermath of the bull market and now it was all over and onward and upward and so people weren't exactly beating down our door to come and make it make a movie out of our book and not only was Alex interested but he had read the book and gotten out of it what we hoped people got out of reading the book which is that it's really a story about people and not a story about numbers so you don't need to make a film that is explains all these complicated transactions and run did you can make a film that explains human weakness and human frailties and and go a long way to explaining what happened to Dan Ron I have in my hands from March 5th 2001 by Bethany MacLaine it starts out like this in the Hollywood parlance the it girl is someone who commands the spotlight at any given moment you know like Jennifer Lopez or Kate Hudson Wall Street is far less glitzy but there's still such a thing as a its stock right now that title belongs to Enron the Houston energy giant what did this start I'm not sure it's so much started anything I think I have said well this story began this chain of events that led to Enron's unraveling I think I'm more picked up on a skepticism that was growing under the surface about Enron and expressed that and in the story I'm uncomfortable as seeing that story is an actor in events I see it as more an observation on a on a skepticism that was growing about Enron boat in the business community and among investors and so I'm not sure if that story hadn't been published that history would have been changed I think the skepticism was there regardless of whether I expressed it or not maybe it accelerated something there was fortune magazine March 5th again 2001 what was known at that time what were the feelings in the air about Enron was interesting because Enron was really as the lead into that story expresses it was one of those companies that could do no wrong the stock had gone up I think 90% in the year 2000 every Wall Street analyst with the exception of one who followed the company stock was telling investors to buy it everybody who talked about Enron said well this is a company that's revolutionizing business and that's what people would say at first when I started talking to them but underneath that not with everybody but with a few people there was this sort of vein of fear and people were unwilling to say anything on the record but people would say things to me like well their their meetings our revival meetings or the California energy crisis was going on at the time this company is making a lot of money or losing a lot of money in California but they'll hide it somehow and Ron always does you were based where in 2001 I was in New York how long had you lived here I had lived here since let's see early 92 mid 92 what was the reason he came here in the first place I came to New York to work as an investment banking analyst so a lot of the big Wall Street firms hire people right out of college and you work there supposedly for two years and you basically work 80 hours a week plus and you crunch lots of numbers and learn how to read balance sheets and then maybe you go on to go to business school and you come back as a senior investment banker what company did you work for I worked for Goldman Sachs and why did you take that job honestly I really I had no idea what I was getting into I'd love to say I had some well thought out plan for what Investment Banking was and how it could further my career but the simple truth of the matter was I was a math major in college and fit my senior year without much of an idea what I was going to do afterwards and found that Wall Street firms were pretty interested in me given given my math background and I ended up being recruited by a couple of them and I thought a practical application of my math skills that's not so bad they're going to pay me I can live in New York I'll do that so goldman sachs and back you graduate Williams College where's that located it's located in Williamstown Massachusetts back to him being Minnesota how long did you live there I lived in Hibbing from the time I was five until I was eight eighteen seventeen when I left for college and what were your parents what's their profession my dad was a doctor and my mom was a homemaker they still along they are still alive they no longer live in Hibbing however the winter is 70 below zero got to be too much for them and so along the route there did you ever think you were going to work at Goldman Sachs or did you ever think you're going to write for Fortune magazine I would have had no idea what Goldman Sachs was Hibbing as a mining town up in northern Minnesota so most of what what what's a firm like Goldman Sachs is just not part of the the parlance of a town like Hibbing so no and while I always had an interest in writing I think my parents were scientists my mom was a scientist as well and I think if I'd had any plan to find plan for what I wanted to do when I grew up it would have been something in science what did you learn about this world of money when you worked at Goldman Sachs I learned a lot actually working there and it was tough it was it was it's a hard place to work especially if you're not if you don't know what you're getting into and you don't know what corporate America is going to be like but I learned I learned to make sense of a company's financial statements and to figure out how the way a company made money was translated into figures on a balance sheet or how it wasn't in some cases and I think I learned to that corporate executives are people to with with with weaknesses just like the rest of us and so by the time I got to fortune I wasn't in off people anymore and I think that that helped me in my career as a reporter and back to that story from March 5th you write the third paragraph in but for all the attention that's lavished on Enron the company remains largely impenetrable to outsiders as even some of its admirers are quick to admit start with a pretty straightforward question how exactly does Enron make its money who was asking that question besides you back then well the person who first told me to take it closer look at Enron was a guy named Jim Janus who is a short seller meaning that he's looking for stocks that are going to decline in value you won't find his name anywhere in that story because he was an off-the-record source at the time meaning that he gave me a tip but I couldn't quote him or use information that came from him unless I corroborated elsewhere but he told me to take a closer look at Enron's financial statements and because I had because I had a at least a basic knowledge of Finance I could feel pretty comfortable flipping open and Ron's documents and going through them and if I couldn't figure out how the company made money not that I know know everything I'm an expert by any means but I I know I know and I know enough that if something doesn't make sense to me then there are more questions to be asked so the story you suggest that the Enron officials wouldn't give the information for competitive reasons you have that in quotes and the numbers at Enron does present are often extremely complicated even quantitatively meited Wall Streeters who scrutinized the company for a living think so quote if you figure it out let me know laughs credit analyst Todd shipment at S&P when you did that how old would you you've been then I was thirty at the time how do you feel what's it feel like what kind of responsibility is if your work writing for Fortune magazine and you're dealing in this town with money and the market and a big company called Enron I'm not sure I thought about it at the time I sure I did on some level my friends tell me now that I was terrified as I was writing about this and completely stressed out and they remember me just being in a totally panic state during during this period I guess it's one of those things that you tend it we tend to repress the memory somehow because I remember getting getting interested in thinking well well this is a really interesting question this company has this high-flying stock price and it's a very expensive stock and yet nobody seems to know how exactly the company the company makes its money and how strange is that and there's normally companies that are that are that impenetrable trade at something of a discount because people don't like that you can't figure it out yet here was Enron trading trading at a premium and it just seemed like an intellectually interesting question and I guess by the time I was at the point of maybe if I'd paused at the beginning and said oh this might be really scary to actually deal with all of this maybe I would have stopped but I'm not sure I'm not sure I asked that question of myself until it was too late in any as anybody else written much like this about Enron back in those days um no there had been one piece that ran in The Wall Street Journal not in the Wall Street Journal I'm sorry in a local Dow Jones paper earlier that fall that looked at Enron as well as other energy trading companies and questioned an aspect of their accounting but apart from that most of the press surrounding Enron was was glowing at that time did you try to talk with Enron officials oh I did of course because one of the key responsibilities of a reporter is before you publish anything you have to give the subject of your story the chance to respond so I called Enron to get to get their reaction to some of the questions I was asking here's a quote in your story people who raise questions are people who have not gone through our business in detail who wanted to throw rocks at us says skilling indeed Enron dismisses criticisms as ignorance or as sour grapes on the part of analysts who failed to win its investment banking business the last word in that so you talked to mr. skilling I did I did I called Enron and they put me on the phone with with Jeff Skilling who had very little time when I spoke to him and became became very irate because he thought I hadn't taken the time to understand his business and said that if I had been that it was unethical of me to raise questions without having fully taken the time to understand the business and that's actually a scary thing to be told as a reporter because that can be right you know no matter how much time you've spent trying to figure something out that's always possible that you haven't spent enough time and that you are getting it wrong and that you really you really don't understand as much as you should so it was it was it was a frightening conversation what's the status of Jeff Skilling right now he and Ken he's was indicted for his role and what the government dubbed the end round fraud and is awaiting criminal trial in early 2006 you write a lot about him in the book yes we do write a lot about him in the book what's happened to him I think that by the way let me start with what was his job at Enron in 2001 Jeff was the see Jeff was the president and chief operating officer of Enron from 1996 on and then he became the company's CEO in early 2001 and after just six months of serving as CEO he abruptly quit in August of 2001 and that really helped accelerate the company slide into bankruptcy because it was so unusual for a chief executive officer to just quit after that short an amount of time that that all sorts of all sorts of focus went to Enron so what what happened to him in this last four years well I think it's not been a very pleasant four years for Jeff Skilling he was the only Enron executive to testify in front of Congress in the wake of the company's collapse and he basically denied any responsibility or any knowledge of the events that brought the company down and he characterized it as a run on the bank I think it's pretty clear from the government's indictment that of him that they don't they don't believe that story but it you know it's interesting because I think I think Jeff does believe that story I think self delusion is a really important component of the Enron story and I think many of the top executives who who worked there believed very strongly in the company because they wanted to believe very strongly in the company and I think in the wake of the company's bankruptcy some of them have dug in even more into into that point of view Jeff I think he was picked up in New York for a episode where he where he was supposedly costing people on the street and accusing them of being FBI agents while while he was drinking and his lawyers have sort of denied that version of events but that's what the New York City police told told people at the time and it it it it just he's he's something of a tragic figure I think where does he live now lives in Houston well I want to run just a little bit of the trailers that we can't run much of the documentary even though some of the footage comes from c-span they paid us for the footage and there's a lot of it in there and a lot of our audience saw the original hearing schools we've covered almost all of it but let's just run a little bit of this so people get a sense of what the documentaries do with including your involvement by the way how much time did you personally spend on the documentary how many hours did you were you interviewed I think I was interviewed for probably two hours and Peter and I my co-author Peter Elkind and I helped Alex it with some of the work on the documentary ideas of who to talk to where to get information but the documentary itself is really the work of Alex Gibney and his crew of people because in the end putting together a documentary is a pretty different process than writing a book and Alex Gibney is the same man who did the trials of Henry Kissinger yes did he bring an attitude to the documentary I don't think so I think he whatever attitude he brought to it was probably shaped by our book which does have a strong point of view to it and that point of view I guess is that not necessarily we would never apply on anybody's criminal guilt in advance of their trial but the point of view in the book is that the top executives of Enron are ethically guilty for what for what happened at Enron and excuses like I didn't know it was one of my underlings who did it just don't fly review what has happened to Enron as a company how much money has been lost and what does the stock holders lose and all this at the peak of Enron's power it had a market capitalization of seventy billion dollars and that's just gone the equity and the company has been totally wiped out after a three-year very arduous complicated bankruptcy procedure and that was that was pretty much wound up at the end of last year I think the last estimate I heard was that creditors were supposed to get maybe 20 cents on the dollar which kind of shows you that there really wasn't much left at the end of it all and a couple of pieces of Enron survived it owned a utility out in Washington called Portland general and that utility still operates and run owned pipelines and those have been sold off to other investors and they owned a bunch of assets around the world including this one in the film that was built in Deb ball India and that's going to be spun off into a separate publicly traded company but the sort of Enron of myth of the Enron that that existed in the 1990s for all intents and purposes doesn't exist anymore one of the things you often never see after one of these things if it lost seventy billion dollars in value who lost that 70 billion did somebody physically lose that kind of money and who would it be well people lost it all the way as the stock fell so but a lot of investors in Enron stock from pension funds to big mutual funds who owned shares and often those big mutual funds and pension funds owned shares on behalf of individual investors there were sophisticated hedge funds who came in and thought they were buying a bargain as the stock fell and ended up losing losing a lot of money employee has lost a great deal of money because a lot of their 401k plans were invested in run stock so I think the the real losers in the in the Enron bankruptcy were the employees and individual investors also the people that worked there some of them have pled guilty already and all that how much of that their money can they keep they've gotten to keep very little most of the people who have pled guilty have had to forfeit everything that they have what about mr. Fastow mr. Fastow had to forfeit 23 million dollars I believe is the number and it seemed low in light of the money that he took out of the company but I'd actually done a little bit of homework into that after after writing the book and I think he had spent most of the other money on legal fees so I think the government has been pretty aggressive about taking everything that's left what about somebody Ken Lay today he's waiting for trial and January trial in Jenni where does he have money well he says in the film that he was left with very little that he and his wife were left with only 20 million dollars in the wake of Enron's collapse and only 1 million of that in liquid assets so I mean poor poor Ken Lay having to learn to live with only 20 million dollars when I saw the documentary the crowd moaned and groaned at that point did where did that video come from do you remember when he said he that he only had 20 million left I don't it was from a press conference that he gave after his indictment but I don't recall exactly whose footage that was but it was it was a press conference after that he held after he was indicted legally at this point legally at this point until until and until or unless he is he has found guilty it's it's his money and what is the documentary done up to this moment for you and your book it's made people a lot it's it's it's really interest in our book which has been great because you spend a couple years of your life working on a book like this and so to have people interested in it again I think a lot of people go to see the film and they say that's great now I now stand something about Enron and then there's a small group of people who go to see the film and say wow now I want to know more let me go read the book so how much of your life revolved around this story and for how long well I guess I published my first orient and run in early 2001 as we've discussed and then something I still fought myself or I put it on the back burner until the fall of 2001 when the company went bankrupt and I guess the next probably two years I worked on Enron pretty much non-stop I came back to my job at fortune in the fall of 2003 and have written a number of other other stories but with the documentary and Ron has become part of my life again what does fortune magazine owned by Time Warner what is fortune magazine say to somebody like you in the middle of all this take all the time you want do they have any rights to the things you're writing for their own magazine well we structured our we structured our deal with fortune in a kind of interesting way I think a lot of journalists who write a book just take a leave from the publication that they work for and then they're just off on their own so we set our deal up where we actually stayed on staff at fortune didn't work on anything but the book but fortune gave us gave us the time to do that do they take stories from you as that time goes and put it in fortune they really didn't we did a few separate stories for the magazine as news on Enron would break but I think it was pretty much understood that we were focusing on the book for that period of time I want to go back to your original story and read this line Enron vehemently disagrees with any characterization of its business as black box like or better said black box like what does that mean one of the central contentions in this story was that Enron was something of a black box which isn't necessarily a bad thing there are a lot of firms today that are something of a black box because they're financially very complicated but firms like that such as Wall Street firms normally their stock price is pretty cheap relative to their earnings because investors look at the company and say I can't tell how they're making money I don't know if they're going to make the same amount of money next year as they did this year I can't see inside this company it's a black box so there's a discount that comes with that Enron's business was extremely complex in that in that same fashion and but they didn't want to be known in that way because that would have lowered their stock price and Enron was a company that was very obsessed with its stock price and if its stock price was going to command if its stock was going to command a premium price it had to be known as a company that people could predict its earnings you say fast out who points out that Enron has 1217 trading books for different commodities says quote we don't want anyone to know what's on those books we don't want to tell anyone where we're making money now why would then stock traders or people in places like Goldman Sachs buy this whole thing why would they agree I mean when they looked at it why they say this is they won't tell us what they're doing why shouldn't they what should they take a chance with it I think two reasons because every year and Ron the 1990s were a time about where the thing that was prized more than anything in a company was the ability to deliver consistent quarterly earnings growth that met Wall Street as Wall Street's estimates and Enron did quarter after quarter they played that game magically we now know that they were resorting to all sorts of tricks in order to in order to do that but at the time people said look look at their track record we can we can we can predict this and I think the other thing that played into that was this the title of our book is the smartest guys in the room and the unrung guys really had a reputation for being smarter than other people and so investors looked at this and said wait you know we can just believe these guys and they spit out the right numbers quarter after quarter and why not and of course an important component of that is greed we all wanted the stock to go higher right on top of that and Ron paid Wall Street firms huge amounts of investment banking fees and if you as a Wall Street firm wanted Enron's investment banking fees the analysts who covered Enron stock had to tell investors to buy that was the quid pro quo that Enron demanded and so there was very little incentive for people who analyzed the company to look too closely and say I don't like this at this stage as a my gonna prison um yes leaf asta Andy's wife has gone to prison and I believe Ben Gleason who was the company's treasurer has also begun serving his five-year term a number of people have been sentenced but they're aware have been have been sentenced and found guilty or pled guilty but they are awaiting they're at the beginning of their present sentence as a butt for a test intern for their testimony you're right I think that leaf ass now originally got five months and ended up getting a year she ended up getting a year and what was the mechanism there that gave her an extra few months I think it's very complicated and the Justice Department in effect used leaf a stout to get Andy Fastow to plead guilty and and there's you you can debate there's something ugly about any kind of prosecution right and there's certainly something ugly about about this that said from all the evidence I've seen leaf esta was guilty she was implicated in in the schemes Andy Fastow Andy Fastow devised so the original deal that was cut with the Justice Department was Lee would only get five months so that she could be out of jail by the time Andy began serving his sentence and when that agreement was posed to the judge who was handling the case he said no way her crimes are more serious than this I'm not going to agree to that and so he gave her stiffer sentence one of the things that came through in the documentary for me was watching it is all of a sudden it looms large that Enron put a lot of its businesses in Andy fast outside businesses to hide the debt mm-hmm how long did it take to find that out in this process and explain it I don't think anybody understood during the course when Enron was a functioning company that this is what was happening and it's interesting because there were disclosures and Enron's footnotes to its financial statement which frankly very few people bother reading a whole subject unto itself don't you stop there from it what do you explain more of it companies have to file financial statements with the Securities and Exchange Commission where they're required legally to disclose all sorts of information and the footnotes to those financial statements are often very dense lots and lots of none lots of words so in the footnote Stan Ron's financial statements there are these things called related party transactions and it involved a couple of entities that had been set up by Enron that were run by its chief financial officer Andy Fastow that did all their business with the company now it's extremely strange to have an outside partnership doing all of its business with with the company run by the company CFO because who is the CFO whose interest is the CFO serving is he serving the interests of the outside partnership or is he serving the interests of the company but nobody looked very closely at this disclosure in Enron's financial statements until the fall of 2001 you even though interestingly enough I did and I asked Andy Fastow about it but I did not end up writing about this in my original story that I published because Enron said and it was true that its accounting firm and its board of directors had signed off on these arrangements and while I was already cynical about some things I was not cynical about the role of accountants and the role of a Board of Directors and I thought if they've signed off on it then I guess I must be missing something and this must be okay I was naive who's on the board of directors at the time the top executives of the company Ken Lay Jeff Skilling some very high powered outside invest outside investors and also the former dean of the Stanford Business School and there ain't political figures um there was a Wendy Gramm who was phil gramm's wife and who had run the Commodities Futures Trading Commission right in the middle your book and in the documentary is Alan Greenspan going to Houston to get the Enron public service award what in the world why would the head of the Federal Reserve and the Federal Reserve Board go to Houston on behalf of a company to get a public service award and Ron was really great at doing things like this and increasing its visibility in Washington through prizes like this and a guy like Alan Greenspan would have thought oh here's this great company down in Houston Texas that's being celebrated for its inventiveness and that's changing changing the world and revolutionising markets and they're going to offer me this this prize commemorating me and it was just one more example of how Enron was very clever it burn in its own image because of course the association then between Enron and Alan Greenspan at the time really enhance 10 rounds credibility but go back down in Greenspan why would he even think about it I mean what why would you can't answer I can't answer a quest the question for Greenspan is your money involved in I don't believe there was I think the money got donated to do it charity but but I'm not sure about that go back to the fine print mm-hmm why and who does read the fine print I mean you said you read a little bit didn't do anything with it filed to the SEC the Securities and Exchange Commission did they read it the Securities and Exchange Commission did not reread it one of the darker parts of the un-- run story is the failure of many people in government to do their jobs as well and in that list is you have to include the SEC they're often after all in charge of monitoring corporate America and they had not reviewed Enron's financial statements since 1997 I believe was last year when the company went bankrupt in the truth of the matter as the SEC has just overburdened with work and so no they had not read that disclosure because they hadn't looked in your story the original story you talk about Enron having thirteen billion dollars with the debt was that a lot and was at all no as it turns out that was a fair amount of debt for a company with its equity base at the time but that was not all the company actually at that time had about thirty eight billion dollars of debt so where was it hidden it was some it was hidden in a variety of places some of it was associated with these projects that had done projects that had done to build power plants around the world some of it was in partnerships the company had set off set up off its balance sheet where it had then moved debt to these partnerships other pieces of it was kind of a piece of it were kind of disguised in its financial statements they were recorded as cash flow making the company's operations look much healthier but in substance these transactions were loans and should have been thought of as part of Enron's debt so it was stashed in a variety of places recently I books come out by Kurt I can wall New York Times what did he do with the Enron story that you didn't I think Kurt's book and I should be careful because I have a actually read Kurt's book mainly because I've been I've been just terribly busy with with some other other stories trying to trying to make my life be about something other than Enron from what I've been told of Kurt's book I think he told the story in a very different way than we did he told it in a very chronological fashion whereas we kind of stepped back and told it a story that was based first on characters and then about certain discrete episodes in Enron's history and a comment people have made to me about Kurt's book is that he's probably perhaps less judgmental about Ken Lay then than we are and I don't know if Kurt would agree with that statement or not a couple of reviewers for example have written them what do you say about Ken Lay I think Ken Lay probably was clueless about a lot of the Massah nations that took place at Enron but I don't think and it remains for a court to decide whether he's criminally guilty but I think it is very clear that he's ethically guilty I don't understand how a CEO can take hundreds of millions of dollars in a competent compensation from a company supposedly because of the great job they're doing running that company and then when things go bad say not me I didn't no not my fault not my responsibility that just to me is an incredible shirking of responsibility and I think if that sort of attitude is allowed to stand it says something pretty frightening about about corporate America what's the relationship between Ken Lay and George W Bush they were they were buddies although Ken Lay was closer with George Bush and senior than he was with George Bush jr. but Enron was very close to the Bush administration what was the nickname that President Bush near by and has that bothered or hurt in any way President Bush's image in the country because of his relationship on I think it did initially there was a lot of fir about this and a lot of I think sort of the notion that this could be you know Enron gate and I think some of that has been diffused by the undeniable fact that muscian ministration didn't save and Ron as it was going down and if this really were a political scandal somebody in the Bush administration would have would have tried to say save the company I think some of that has also been diffused by the aggressive prosecution of the company after after after its bankruptcy and I think more of it has just been diffused by events like Iraq totally outside of Enron where some of the focus on wrongdoing in corporate America has been has been lifted and I'm not sure I'm not sure that's necessarily it would have been interesting had Enron continued to exist what the relationship between Enron and the Bush administration would have brought because we are only a year into into the Bush administration when the company went bankrupt he had a partner in this book Peter Elkin who is he he has another senior writer at fortune and he's based in Dallas Texas he's a longtime investigative reporter who worked for Texas Monthly for a while one of the things you notice if you see the documentary is the person who's behind it at least one of the people behind it is somebody named Mark Cuban and it's HDNet Gates Mark Cuban owns about Dallas Mavericks and he was a very successful businessman in the telecommunications world he lives in Dallas I believe and this story is out of Houston what can you tell us about why Mark Cuban's behind this probably not as much as Alex or Mark Cuban can tell you but from the way I've heard the story relayed Alex submitted a proposal to Mark Cuban who had made it known that he wanted to finance independent movies and Alec said it was the quickest green light he's ever gotten on any project he's done I think even though Marc's located in Dallas you know he's in Texas and so he sees the results of Enron every day and I think also having been in the business world he had an appreciation of the story any idea how much you spent I don't actually know but documentaries are usually really low budget and I think this one was no exception we're not talking Hollywood blockbuster dollars here so you're out of Williams College since 1992 and which makes you put you in your early 30s what is what do you say as you're going what do you saying to yourself and your friends is you going through this what's it say about this country business anything concluding I may be concluding as you went along about all this I mean I definitely become more cynical than I would like to be about corporate America and about whether people tell the truth and about whether people live up to the responsibilities that being a citizen corporate citizen entails I think our American system makes it possible for people to make great sums of money be they accountants lawyers members of boards of directors corporate executives and I'm not sure that the concurrent measure at level of responsibility comes with that I think the corporate culture has been corrupted by this get-rich-quick notion make your quarterly earnings estimates get the stock to go high or get your options in the money and cash out and you know who cares what happens next I'm gone and I've made my money and I see that I see that pretty frequently and I think that's just such I think that's really terrible not just because it's a betrayal of responsibility but it's also a betrayal of possibility because when you look at what companies that really do their job well can accomplish you know look at what Bill Gates has done with his foundation giving giving away billions you know that's that that's what that's what business kandi the obviously Microsoft's business practices yes some of its competitors would complain about that but but but he's taken the money he's made and at least given given some of it back and when you see that just being betrayed so that people can put money in their own pockets I think it's just really disillusioning what happened you inside fortune more or less interested in writing stories or books I still try to be driven by intellectual curiosity people said to me after have said to me frequently after the wake of the Enron story well what's the next big story and aren't you looking for the next big story and of course there's a part of me that would love to find another big story but I wrote about Enron initially not because I thought it was going to be a big story not because I ever saw it turning into a book or a documentary but because I thought the company posed a fascinating intellectual conundrum and I think if you let your curiosity as a journalist lead you places sometimes you may end up wasting your time and you may spend months writing about something that's mostly interesting to you if not not anybody else but I think other times maybe your curiosity will lead you in it in an interesting direction so I try to be driven by that how has your life changed in the last three four years it hasn't changed that much I mean writing is a solitary process no I still work for fortune as a journalist you know I still call it PR people and say this is Bethany McLean and people say Stephanie Daphne they have MediConnect no not necessarily no in some cases people do but not always there a couple things before I want to take you back to the very beginning of the book but I also want you to talk about Jeffrey's killings conversation on the phone with the analysts the conversation hearing what was it the conversation you're referring to took place in the spring of 2001 and the pressure at this time inside an Iran was really escalating because the stock was beginning to slide well but I mean he said your beefs been written my peace had been written they'd been out there for a while the questions around Enron were beginning to swirl to the surface and so the skepticism instead of being buried under this layer of celebration of all things Enron was sort of bubbling up to the surface and the stock price was sliding and because so many of these partnerships Andy Fastow had set up they were actually tied to the price of Enron stock it was not just a problem for executives riches that the stock price was sliding it was actually a big problem for the company as well and so skeptical questions were all the more troublesome as a result and this guy on and Ron's first quarter conference call companies always hold a conference call with investors after they announce their result a man named Richard Grubman who was short and Ron stock meaning he was betting it was going to decline asked asked Enron if they could produce a balance sheet with their with their income statement and Jeff Skilling called him an and what happened that was the moment for a lot of people when they said something is wrong here because it is just so rare to have any kind of executive publicly lose it like that and especially the CEO of a fortune 500 company to have him publicly lose his temper in that way is just just too strange and it made everybody think something's not right at this company were you listening at the time I was not I was not listening to that conference call but it immediately began to fly around all sorts of chat rooms and a couple people transcribed the conversation so I know I heard about it that explain to someone who's never been involved in a conference call like this how does it work it's normally the company begins senior management begins and they present their results and in Enron's case they'd say things like this is fabulous our business is so terrific this is just another great quarter great results for our investors and then there's a Q&A period where people have the opportunity to ask questions a lot of those questions if they're asked by say the Wall Street analysts who have by ratings on the stock are questions that are designed to give management a chance to say something another favorable thing about their business so they're there they're puffed they're puffy questions so you go back to your former life and goldman sachs so somebody who might be getting money from Enron at goldman sachs to analyze or give them consultants consult with them could be on the conference call asking questions that would enhance the stock it's not the same person usually because those would be different divisions within and within an investment banking firm but in essence you're right yes that stopped it supposedly has stopped in the wake of Enron's collapse and some of the other corporate frauds Eliot Spitzer cracked down on this sleazy relationship between Wall Street research and Wall Street investment banks and imposed a one point four billion dollar settlement on Wall Street firms who are all now supposedly keep their research completely separate from their investment banking divisions I think time will tell how well that actually works in practice so who published what Jeff Skilling said very few people did at the time it ad I named herb Greenberg who writes generally skeptical pieces online published the transcript of Jeff's remarks um I think the Wall Street Journal might have made note of it um somewhere in an article but a lot of people let it go it was one of those things that unless you were watching and run closely unless you were a Wall Street person the press didn't make much of it I think people who were investors in Enron made a lot of it but if you go back to your original story you raised all this business of in the story about not getting to the bottom of where the money is and you know and the fact they wouldn't publish all I do you think people picked it up from your story the idea of asking the question I don't think Richard Grubman did I think his skepticism about Enron had started earlier but I mean I think the story by my story by bringing to light in a magazine like fortune which had previously written very positive pieces about Enron by publicly raising questions like this I think it provided a sort of validation for people who wanted to ask questions that made them think well maybe I'm not crazy because a big part of what happened at Enron was this intellectual intimidation if you if you didn't go along with what Enron wanted you to believe they'd say well you just don't get it and everybody wants to be thought of as smart we've all been in the situation where you don't really understand something but you say you do because you don't want to ask a stupid question and for a lot of people it sounds hard to believe but for a lot of people that's what happened with Enron they didn't really understand but they didn't want to ask so then I think when something is published in them in a major magazine like fortune saying nobody gets this I think people became a little bit I think people were a little freer to voice their concerns your paperback came out in the fall of 2004 when did your hardback come out he came out the fall of 2003 how long did it take you to write it it took about a year and three quarters and how did you and your co-author divide your interest we really worked pretty closely Peter was based in Texas and I was here in New York we both spent a lot of reporting time in Houston but we we did when we had a key person to talk to would both go to the interview but we divvied up the list of people we wanted to talk to and so we didn't we tried not to tag-team people and we both shared all the transcripts of our conversations with each other and when it came time to write the book we did a pretty exhaustive outline and we just picked chapters you know there were some chapters were really fun to write and so we both wanted to do them and then there were some chapters that were really not fun to write and so you know if you got a fun one to take a not fun one who did not talk to you and who talked to you I've know unfortunately I can't say because most of the people who talked to us didn't talk on the record because people were either already criminally implicated or terrified of getting dragged into the criminal the criminal case and so people talk to us on the condition of anonymity we talked on the record very few people one who did and who spoke in the movie is a woman named Amanda Martin who was a pretty senior exec and run sort of a part of a part of the inner circle for a while and who is a great observer of events the blonde woman to know mm-hmm well-dressed how did she make out after all this she made out well she walked away with it from Enron with a lot of money and people have people's reaction to her in the movie as a result has been has been mixed I've always admired Amanda for one being willing to come forward and say things publicly and to for her ability to reflect both on what happened at Enron and on her own role in events as I had said earlier the self the self delusion at Enron was pretty remarkable and I haven't met a lot of people who have been willing to look back on their role and say I did something wrong here I learned from this I look back and see this differently now than I did at the time the epilogue to our book is entitled isn't anybody sorry because the reaction we got from most people was not my fault not my responsibility I did everything right I behaved perfectly one of the gentlemen the movie who I guess you'd say it was spotlighted critically it was a man named Pei Liu PI they kanpai Pei hey I yeah I will get it right how much did he take away he sold early and where does he live now he took away over two hundred and fifty million dollars from Enron it was more than actually anybody made and he was an interesting character instrumental in building and Ron's early energy trading operation kind of a ruthless strange figure at Enron later Rand this doomed effort and Ron had to expand into providing energy services to to companies and industries across America he the story goes that he sold most of his stock because he was divorcing his wife in order to marry a stripper with whom he'd had a child and one of the things he was known for at Enron was his obsession with with strippers we bought a bunch of land in Colorado I think he became the second-largest land of Honor in Colorado the locals call his his ranch mount pie where does he live now I think he still lives in Colorado I'd heard a rumor that he sold it and moved to Hawaii but I'm pretty sure he's still in Colorado dieded yeah potential indictment there are always rumors swirling around that but one of the tricky things at Enron is that and one of the reasons it's taken so long to prosecute this case is that criminal wrongdoing is often very difficult to prove because it's very rules based and one of the things Enron was very skilled that was following the letter of the law while totally violating the spirit of the law so there are a lot of people at Enron that you in an ethical framework can blame for the company's collapse but whether they're criminally guilty is a much more difficult call and to my mind not is interesting one because in the end this really is a story about about human nature and I find that the more the more interesting part of the story than sort of the more narrow legalistic definitions of criminal guilt now the the documentary and your book start with a story of about a man named cliff Baxter why we began the book with a story of cliff Baxter he's an Enron executive who committed suicide in the wake of the company's and in the wake of the company's bankruptcy he was a very senior Enron executive and was also one of Jeff Skilling's close friends they used to take cigarette breaks together we began the book with his suicide because we wanted to signal to readers this was a story about people and this was a story about about humans and I think at the time when we are writing our book there was this one a presumption that Enron was a story about numbers about complicated financial transactions that you don't want to understand even if you could and I think there was another presumption which is that these were just bad people doing bad things down in Houston Texas and none of us could ever do anything like that and so I think the story we wanted to tell was a story about people and a story of people with very human fatal flaws so that so that it becomes more of a story that more of almost just more of a tragic tale rather than this this story of this limited story of bad people and they're wrong how did you find out specifically how cliff Baxter killed himself I mean it's rather detailed police files the police did the police did a pretty serious investigation into cliffs suicide because there was so much for surrounding Enron at the time that people actually thought it might have been a murder when did it happen and how did it happen it happened in early 2002 right after the company's bankruptcy and he shot himself and there was this this this belief that well it must have been murder he must have been silenced to keep him from spilling Enron's dark darkest secrets so the police did a pretty thorough investigation as a result of which there was many things but material available for journalists and then we talked to a lot of people who went to the funeral and people who were who were friends of cliffs in order to piece together a piece together an account of what happened and you said some didn't go to the funeral from the Enron company Ken Lay Jeff Skilling I think Ken didn't go to the funeral in in Houston it was just a very strange time because it was the wake of the company's the company's collapse and you know the Justice Department was descending and the FBI was everywhere in Houston and so people didn't people had previously been business associates only six months ago suddenly didn't want to be seen talking to each other in public it's just it's just very surreal in a way you learn in the documentary in your book of course the the India story a billion dollars down the drain it's a pretty remarkable story it's a part of this part of the tale isn't really in the documentary simply for time reasons but one in central part of the Enron story was this woman named Rebecca mark who for a while was one of the most glamorous figures in American business she built power plants in remote areas of the world from rainforests in Brazil to this plant in India and Jeff Skilling has always blamed Rebecca for bringing down the company because these power plants that were built didn't live up to the very rosy economic assumptions that were made about them in kind of case in point is double you know Enron believed that India needed the power and frankly India probably does need the power whether India would be able to pay for the power and how it was an entirely different different calculation you're saying double double and where is that located it's a double India it's in the Maharashtra region of India I believe the details are a little bit foggy at this point so excuse me if I've gotten that wrong and what would happen there well Enron built this mammoth power plant in two and two phases but it became a lightning rod for political activism in India because the plants power was going to be so expensive and the plant was challenged in some twenty six lawsuits all of which Enron won but I think it wasn't it's not so much an example of criminal wrongdoing on Enron's part as it is just a blindness to the to the rest of the world in this belief we can build a power plant and they'll pay for it because the contract says they have to even if even if that power was going to be incredibly expensive and it was an example of how Enron Enron paid people because Rebecca mark and her team were often paid on the projected value of power plants like double so they'd walk away from something like this with millions of dollars even if the plant never made under on a dime where is she today she's living in Houston no indictment no no and I think it's very difficult to argue that Rebecca should be should be criminally indicted in any way she actually was forced out of Enron in early in late 2000 and if she hadn't been forced out she would have she would have stayed she wasn't a quitter she would she would never have quit and you can falter for perhaps making bad business decisions but a bad business decision is different from wilfully deceiving somebody you have an interesting paragraph at the end of your original story this was in March of 2001 before all this happened mm-hmm in the end it boils down to a question of faith quote Enron is no black box as Goldman's Fletcher mm-hmm quote that's like calling Michael Jordan the black box just because you don't know what he's going to score every quarter unquote then again Jordan never had to promise a hit to promise to hit a certain number of shots in order to please investors how much of that has changed you know the in the end it boils down to a question of faith is it still faith on Wall Street I think there's a lot of faith on Wall Street actually there are a lot of companies where people would rather believe then the not believe and there's still kind of an unwillingness to to ask questions in a lot of cases and there's still this focus on quarterly earnings you would expect that obsession would have lessened with examples like Enron and world command Tyco and the other corporate scandals we've had but there's still this kind of notion that well if you don't make your quarterly earnings estimate then Wall Street is going to punish your stock and people have too much too many economic incentives tied up and seeing the stock price go higher now that this is a I mean all the trials haven't been held on all that but there have been a lot of stories about Tyco and Delphia and lots of other corporation what has changed for the American if you're if you're watching this and you you're a stock buyer is there a checks and balances thing in this at all I'm not sure much has changed and I guess it's a two things that government instituted a new law called sarbanes-oxley that's supposed to make corporate America behave better sarbanes-oxley has become pretty controversial with companies saying it goes too far and it imposes too many costs on our system and you know to me the issue with sarbanes-oxley isn't whether it imposes too many costs or not it's that it's more rules and in the end a company like Enron was all about using the rules about twisting them about sort of using the rules as a roadmap of the possible I don't think more rules are usually the answer a company that wants to follow the letter of the law while violating the spirit of the law can often find a way to do it the question is a deeper ethical one I think on a on a brighter note I think you know no accounting firm wants to be Arthur Andersen and runs accounts which were taken down by the Enron scandal no Board of Directors wants to be on Ron's board of directors who are you know who suffered a great deal of shame for their for their for their role in the Enron affair no executive wants to be Ken Lay now facing a criminal trial so I think fear is a pretty effective counterweight to greed but there's a reason at the end of every bull market in American history we've had a couple of great scandals and I think there's a reason that that that that tends to happen people's greed gets ahead of them and I don't I don't I think to say that things are different now or that things have changed permanently in the snake that that in the system and Justice Department the SEC the press the analysts the conference calls the Board of Directors the audit committees the banks all that where is the best possible protection in that what do you trust the most and all that to do it right oh Lord I actually have a lot of faith honestly in the role of outsiders the people who aren't part of the system I think that for example short-sellers play a really important role in in in policing our market if you will and people say well they're biased - they want to stock to go down yeah they are but they're biased in the opposite direction and short sellers often do really careful homework on a company and there's a reason that short sellers were early to spot problems at Enron Oh Tyco at Adelphia at worldcom at other companies because they're looking they're looking for problems and I think in a market you need people to have incentives on both sides of the table so that people will do their homework if everybody wants a stock to go up everybody's going to be blinded by greed and nobody's gonna look too carefully last question what do you think you'll be done in ten years you know I never know how to answer that because if you had asked me ten years ago would I've written a book about Enron that was made into a documentary I would have said I don't even know if I would have said I would be a journalist too so I just I just don't know hopefully something interesting

Channel: The Film Archives

Views: 104,615

Rating: 4.7938147 out of 5

Keywords: Money (Video Game Subject), Finance (Industry), Market, Commodity (Taxonomy Subject), Trading, Stock, Commodity Market (Literature Subject), Forex, Business, World, Trade (Organization Type), Money (TV Episode), Business (Musical Album), Stocks, Analysis, Economy, News, Technical, Economics (Literary Genre), Investment, Futures, Options, Bloomberg, Day, Gold, Futures (Magazine), Currency, Markets, Euro

Id: 187pq3bQFUI

Length: 54min 13sec (3253 seconds)

Published: Sat Jan 25 2014

Reddit Comments

[u/alecco]

The interviewer can't read live. He even missed in his self-corrections.