1 00:00:37,496 --> 00:00:40,206 (SINGING) What's he building in there? 2 00:00:41,750 --> 00:00:45,040 What the hell is he building in there? 3 00:00:47,005 --> 00:00:49,465 OLSON: It had taken Enron 16 years 4 00:00:49,508 --> 00:00:51,628 to go from about 10 billion of assets 5 00:00:51,677 --> 00:00:56,597 to 65 billion of assets, and took them 24 days to go bankrupt. 6 00:00:56,640 --> 00:00:59,350 What the hell is he building in there? 7 00:00:59,810 --> 00:01:03,190 LERACH: This company collapsed so quickly and so entirely. 8 00:01:03,272 --> 00:01:06,362 I mean, it was into bankruptcy within a matter of weeks. 9 00:01:06,442 --> 00:01:11,322 It just immediately had all the makings of a gigantic scandal. 10 00:01:11,363 --> 00:01:14,163 (SINGING) He's hiding something from the rest of us 11 00:01:14,450 --> 00:01:16,620 MARTIN-BROCK: The fatal flaw at Enron, 12 00:01:16,660 --> 00:01:19,410 if there is one, you say it was pride. 13 00:01:19,496 --> 00:01:21,996 But then it was arrogance, 14 00:01:22,040 --> 00:01:24,460 intolerance, greed. 15 00:01:25,169 --> 00:01:27,339 MUCKLEROY: So many of them were blinded by the money 16 00:01:27,421 --> 00:01:30,341 that they didn't see that they were sinking their own lifeboat. 17 00:01:30,424 --> 00:01:32,884 (SINGING) We have a right to know 18 00:01:32,968 --> 00:01:35,298 OLSON: It just got hungrier and hungrier. 19 00:01:35,345 --> 00:01:39,635 Sooner or later they were doomed to go off that cliff at 90 miles an hour. 20 00:01:40,350 --> 00:01:41,520 ELKIND: It's astounding 21 00:01:41,560 --> 00:01:43,900 that they got away with it for so long. 22 00:01:43,979 --> 00:01:46,859 In reality, Enron was a house of cards. 23 00:01:46,940 --> 00:01:49,230 What we didn't know is that the house of cards 24 00:01:49,318 --> 00:01:51,688 had been built over a pool of gasoline. 25 00:01:52,529 --> 00:01:55,239 It all sort of became smoke and mirrors. 26 00:01:56,575 --> 00:01:57,945 (BANGING GAVEL) 27 00:01:58,035 --> 00:01:59,945 MAN: The committee will come to order. 28 00:02:00,037 --> 00:02:03,997 This is a case of America's largest corporate bankruptcy. 29 00:02:04,041 --> 00:02:07,671 The question here is what happened, who was responsible for it happening, 30 00:02:07,711 --> 00:02:11,551 and what can we do to prevent this sort of thing from happening again. 31 00:02:11,882 --> 00:02:13,882 MCLEAN: I think the Enron story is so fascinating 32 00:02:13,926 --> 00:02:17,886 because people perceive it as a story that's about numbers, 33 00:02:17,930 --> 00:02:21,180 that it's somehow about all these complicated transactions. 34 00:02:21,225 --> 00:02:23,385 But in reality it's a story about people 35 00:02:23,435 --> 00:02:25,975 and it's really a human tragedy. 36 00:02:32,152 --> 00:02:33,242 (BILLIE HOLIDAY SINGING GOD BLESS THE CHILD) 37 00:03:31,920 --> 00:03:32,920 (GUN COCKING) 38 00:03:37,009 --> 00:03:38,089 (GUN FIRING) 39 00:03:41,972 --> 00:03:45,062 COP: On this date at 2:23 a.m., Sugar Land police discovered 40 00:03:45,142 --> 00:03:48,812 John C. Baxter, located inside his vehicle 41 00:03:48,854 --> 00:03:50,984 with an apparent gunshot wound to the head. 42 00:03:51,064 --> 00:03:54,074 At this time, there has been a suicide note located. 43 00:03:54,151 --> 00:03:56,491 REPORTER: Sergeant, can you give us any indication whether this was 44 00:03:56,528 --> 00:03:58,318 related to Enron's bankruptcy? 45 00:03:58,405 --> 00:04:00,275 We do know that he was an Enron employee 46 00:04:00,324 --> 00:04:01,994 but as far as any other indications 47 00:04:02,034 --> 00:04:04,584 of why he committed suicide, no, we do not. 48 00:04:11,043 --> 00:04:14,383 STEARNS: Mr. Skilling, let me touch on something that's sort of sad 49 00:04:14,463 --> 00:04:17,303 and that's, of course, the suicide of Cliff Baxter. 50 00:04:17,341 --> 00:04:18,671 And you mentioned 51 00:04:18,717 --> 00:04:21,337 he was your best friend in your opening statement. 52 00:04:21,386 --> 00:04:24,176 Before he died, 53 00:04:24,222 --> 00:04:26,642 did you have many conversations with him? 54 00:04:27,100 --> 00:04:28,100 Yes. 55 00:04:28,185 --> 00:04:31,765 STEARNS: And were any of them relative to Enron? 56 00:04:34,524 --> 00:04:36,114 Yes. 57 00:04:37,819 --> 00:04:40,699 SKILLING: There's no one that knew Cliff toward the end 58 00:04:40,739 --> 00:04:43,369 that didn't realize that he was heartbroken 59 00:04:43,450 --> 00:04:45,080 by what had happened. 60 00:04:45,911 --> 00:04:47,951 And Cliff came over to my house, 61 00:04:48,413 --> 00:04:51,213 and he said, "They're calling us child molesters." 62 00:04:51,249 --> 00:04:54,379 And he says, "That will never wash off." 63 00:04:55,420 --> 00:04:58,630 -Mr. Skilling, you don't believe that? -I don't believe what? 64 00:04:58,715 --> 00:05:02,965 STEARNS: You don't believe that the press and everybody 65 00:05:03,345 --> 00:05:08,015 calling Cliff Baxter or yourself or anybody on the board of directors, 66 00:05:08,558 --> 00:05:11,728 denigrating or tainting you, you don't think it's accurate 67 00:05:11,812 --> 00:05:13,852 is what you're saying to us here today. 68 00:05:13,897 --> 00:05:16,017 SKILLING: I do not believe... 69 00:05:16,233 --> 00:05:20,073 I did not do anything wrong, that was not in the interest, 70 00:05:20,153 --> 00:05:22,073 in all the time that I worked for Enron corporation, 71 00:05:22,114 --> 00:05:25,414 that was in the interest of the shareholders of the company. 72 00:05:25,867 --> 00:05:28,237 NARRATOR: Ultimately, who was responsible 73 00:05:28,328 --> 00:05:30,328 for the downfall of Enron? 74 00:05:34,334 --> 00:05:35,754 Only a few years ago, 75 00:05:35,836 --> 00:05:38,916 Enron was the nation's seventh largest corporation, 76 00:05:39,006 --> 00:05:41,626 valued at almost $70 billion. 77 00:05:42,009 --> 00:05:45,849 Pundits praised the company as a new business model. 78 00:05:46,596 --> 00:05:48,426 This trading floor was manned 79 00:05:48,473 --> 00:05:50,433 by America's best and brightest 80 00:05:50,517 --> 00:05:54,147 charting the futures of energy and power. 81 00:05:54,396 --> 00:05:57,516 And high above, each with a private staircase, 82 00:05:57,607 --> 00:05:59,727 Ken Lay and Jeff Skilling 83 00:05:59,776 --> 00:06:02,276 had built their own plush staterooms. 84 00:06:02,362 --> 00:06:04,662 They were known as, "The smartest guys in the room," 85 00:06:04,740 --> 00:06:09,120 captains of a ship too powerful to ever go down. 86 00:06:09,202 --> 00:06:11,872 MAN: In the Titanic, the captain went down with the ship. 87 00:06:11,955 --> 00:06:13,825 In Enron, it looks to me like 88 00:06:13,915 --> 00:06:17,165 the captain first gave himself and some friends a bonus 89 00:06:17,252 --> 00:06:19,882 then lowered himself and the top folks down in the lifeboat 90 00:06:19,963 --> 00:06:21,013 and then hollered up and said, 91 00:06:21,089 --> 00:06:23,469 "By the way, everything's gonna be just fine." 92 00:06:23,508 --> 00:06:24,798 NARRATOR: Like Skilling, 93 00:06:24,885 --> 00:06:27,595 Ken Lay said he hadn't done anything wrong. 94 00:06:27,637 --> 00:06:28,717 Good morning. 95 00:06:28,805 --> 00:06:30,425 Can I have a word with you real quick? We're CNN. 96 00:06:30,474 --> 00:06:32,104 Really, not this morning. Thank you. 97 00:06:32,142 --> 00:06:33,812 NARRATOR: Beyond the financial issues, 98 00:06:33,852 --> 00:06:36,602 some suspected a political conspiracy. 99 00:06:36,646 --> 00:06:39,686 Enron had been the largest corporate contributor 100 00:06:39,775 --> 00:06:43,315 to the first presidential campaign of George W. Bush. 101 00:06:43,361 --> 00:06:46,361 BUSH: This is not a political issue, it is a business issue. 102 00:06:46,656 --> 00:06:48,776 You know, Enron had made contributions 103 00:06:48,825 --> 00:06:51,405 to a lot of people around Washington, D.C. 104 00:06:52,245 --> 00:06:54,495 And if they came to this administration looking for help, 105 00:06:54,581 --> 00:06:55,831 they didn't find any. 106 00:06:55,874 --> 00:06:59,044 To say no help had is like, 107 00:06:59,127 --> 00:07:02,337 "I did not have political relations 108 00:07:02,380 --> 00:07:04,300 "with that man Mr. Lay." 109 00:07:04,341 --> 00:07:06,341 WOMAN: What about the fact that George W. Bush 110 00:07:06,384 --> 00:07:08,184 calls Ken Lay, "Kenny boy"? 111 00:07:08,261 --> 00:07:11,391 That's my nickname for my husband, which he overheard. 112 00:07:11,473 --> 00:07:15,023 -So it wasn't original with the President. -LINDA: It certainly wasn't. 113 00:07:15,060 --> 00:07:18,520 WOMAN: According to published reports, your husband earned about 114 00:07:18,605 --> 00:07:22,605 $300 million in compensation and stocks 115 00:07:22,692 --> 00:07:24,992 from Enron over the last four years. 116 00:07:25,028 --> 00:07:26,568 What happened to all that money? 117 00:07:26,655 --> 00:07:29,945 It's gone. It's gone. There's nothing left. 118 00:07:34,371 --> 00:07:37,921 This is the shredded evidence that we got that came out of Enron. 119 00:07:37,999 --> 00:07:39,579 We very quickly determined 120 00:07:39,668 --> 00:07:43,378 that the insiders had sold off a billion dollars of their stock 121 00:07:43,463 --> 00:07:45,213 in the preceding several months. 122 00:07:45,298 --> 00:07:49,218 Did you convert stock, worth $66 million? 123 00:07:49,302 --> 00:07:52,052 I don't know, but I don't have the records with me. 124 00:07:52,097 --> 00:07:54,387 MAN: Would that be surprising to you to learn that you did that? 125 00:07:54,474 --> 00:07:56,434 No, that would not be surprising. 126 00:07:56,518 --> 00:07:58,808 STRICKLAND: Mr. Fastow got only 127 00:07:58,895 --> 00:08:02,395 30 million in stock proceeds from Enron, 128 00:08:02,440 --> 00:08:06,820 but he took another 30 million out with his side deals. 129 00:08:06,903 --> 00:08:08,363 LERACH: I think there was just 130 00:08:08,405 --> 00:08:11,405 an immediate sense of outrage 131 00:08:11,449 --> 00:08:15,539 at Lay and Skilling and Fastow, 132 00:08:15,579 --> 00:08:16,829 when people realized 133 00:08:16,913 --> 00:08:20,923 how much they had profited and how completely artificial 134 00:08:20,959 --> 00:08:22,539 the appearance of this company had been. 135 00:08:24,546 --> 00:08:28,086 NARRATOR: News of shredding at Enron raised more questions. 136 00:08:28,175 --> 00:08:31,295 What answers were lost in the torn documents? 137 00:08:31,678 --> 00:08:35,218 20,000 employees had lost their jobs. 138 00:08:35,265 --> 00:08:38,265 $2 billion in pensions and retirement funds 139 00:08:38,351 --> 00:08:39,731 had disappeared. 140 00:08:40,103 --> 00:08:43,063 Was Enron the work of a few bad men 141 00:08:43,106 --> 00:08:45,856 or the dark shadow of the American dream? 142 00:08:51,656 --> 00:08:56,536 Lay comes to the story of Enron from very humble roots. 143 00:08:57,913 --> 00:08:59,833 (DUSTY SPRINGFIELD SINGING BILLY RAY WAS A PREACHER'S SON) 144 00:08:59,915 --> 00:09:01,955 My father was a Baptist minister 145 00:09:02,000 --> 00:09:06,000 and he was ordained a Baptist minister while I was very young, 146 00:09:06,296 --> 00:09:08,546 probably two, three years old. 147 00:09:08,632 --> 00:09:10,592 ELKIND: Ken Lay was a Baptist preacher's son 148 00:09:10,634 --> 00:09:13,344 in a family that had been poor all its life, and he, 149 00:09:13,428 --> 00:09:16,808 throughout his life, worked several jobs as a kid 150 00:09:16,890 --> 00:09:20,100 and clearly had in mind that things could be better, 151 00:09:20,143 --> 00:09:22,563 and wanted things to be better and had a huge ambition 152 00:09:22,646 --> 00:09:24,306 to make wealth for himself. 153 00:09:24,397 --> 00:09:27,227 He told a story later about sitting on a tractor, 154 00:09:27,317 --> 00:09:29,897 dreaming about the world of business and how different it could be 155 00:09:29,986 --> 00:09:32,696 from the way things were for him and his family. 156 00:09:34,282 --> 00:09:36,162 Lay was a PhD in economics 157 00:09:36,201 --> 00:09:39,621 and he became very early on a real apostle for deregulation. 158 00:09:39,663 --> 00:09:41,543 He was way ahead of the curve on this. 159 00:09:41,623 --> 00:09:44,583 He was thinking about energy markets that would be deregulated, 160 00:09:44,668 --> 00:09:49,338 and in particular a natural gas industry that was shackled by regulation, 161 00:09:49,422 --> 00:09:53,342 and he pushed aggressively in Washington to change all of that. 162 00:09:58,348 --> 00:10:01,598 NARRATOR: In Washington, Lay became part of the new crusade 163 00:10:01,685 --> 00:10:06,105 to liberate businessmen from the rules and regulations of government. 164 00:10:06,189 --> 00:10:09,569 Government is not the solution to our problem, 165 00:10:09,859 --> 00:10:11,739 government is the problem. 166 00:10:11,820 --> 00:10:14,320 The societies which have achieved the most spectacular 167 00:10:14,364 --> 00:10:18,124 broad-based economic progress in the shortest period of time 168 00:10:18,201 --> 00:10:22,711 are not the most tightly controlled, not necessarily the biggest in size 169 00:10:22,747 --> 00:10:25,577 or the wealthiest in natural resources. 170 00:10:26,001 --> 00:10:28,921 No, what unites them all is their willingness to believe 171 00:10:29,004 --> 00:10:31,384 in the magic of the marketplace. 172 00:10:32,882 --> 00:10:35,432 (JUDY GARLAND SINGING THAT OLD BLACK MAGIC) 173 00:10:39,222 --> 00:10:41,522 NARRATOR: The magic power of deregulation 174 00:10:41,558 --> 00:10:45,438 pushed Ken Lay to found Enron in 1985. 175 00:10:45,520 --> 00:10:49,440 Through a merger of vast networks of natural gas pipelines, 176 00:10:49,524 --> 00:10:52,284 Lay thought Enron would be poised to take advantage 177 00:10:52,360 --> 00:10:53,900 of the government's decision 178 00:10:53,945 --> 00:10:57,695 to let gas prices float with the currents of the market. 179 00:10:59,659 --> 00:11:04,409 Ken Lay had a view of deregulation from the standpoint of all the money 180 00:11:04,456 --> 00:11:05,996 that he thought could be made. 181 00:11:06,082 --> 00:11:07,582 NARRATOR: Ken Lay wasn't alone. 182 00:11:07,625 --> 00:11:10,285 A couple of Texas oilmen shared his views 183 00:11:10,378 --> 00:11:13,418 on how to get government out of the energy business. 184 00:11:13,465 --> 00:11:15,755 PHILLIPS: I think they could sort of understand each other. 185 00:11:15,800 --> 00:11:18,890 It was professional courtesy between a sidewinder 186 00:11:18,928 --> 00:11:20,098 and a timber rattlesnake. 187 00:11:20,180 --> 00:11:24,100 NARRATOR: Lay was closer to the father but while he was governor of Texas, 188 00:11:24,184 --> 00:11:28,654 George W. Bush was only too happy to make phone calls for Ken Lay. 189 00:11:29,606 --> 00:11:31,816 This absolutely has no precedent. 190 00:11:31,900 --> 00:11:35,360 This is by far and away the most important 191 00:11:35,445 --> 00:11:38,445 major relationship of a presidential family 192 00:11:38,531 --> 00:11:40,991 with a single corporation in American history. 193 00:11:41,076 --> 00:11:43,656 NARRATOR: When Rich Kinder, one of Enron's executives, 194 00:11:43,745 --> 00:11:47,405 left the company, Lay arranged for a video valentine. 195 00:11:47,457 --> 00:11:48,917 BUSH: Rich, I've 196 00:11:48,958 --> 00:11:51,838 been asked to think of one thing I could say to you 197 00:11:51,920 --> 00:11:54,630 on your departure from Enron, it'd be this, 198 00:11:54,714 --> 00:11:56,134 don't leave Texas. 199 00:11:56,174 --> 00:11:59,644 Rich, you have been fantastic to the Bush family. 200 00:11:59,719 --> 00:12:02,719 I don't think anybody did more than you did to support George. 201 00:12:02,806 --> 00:12:05,886 And of course at this stage in my life and Barbara's, too, 202 00:12:05,975 --> 00:12:09,135 that's what really matters, your family and your friends. 203 00:12:09,813 --> 00:12:13,483 NARRATOR: Early on, George Bush Sr. helped secure billions 204 00:12:13,566 --> 00:12:16,566 in government subsidies for Enron international, 205 00:12:16,653 --> 00:12:18,613 and he helped promote Lay 206 00:12:18,655 --> 00:12:21,985 as deregulation's ambassador-at-large. 207 00:12:22,325 --> 00:12:23,655 LAY: Enron is a company 208 00:12:23,701 --> 00:12:27,201 that deals with everyone with absolute integrity. 209 00:12:27,288 --> 00:12:29,708 We want people to leave a transaction with Enron 210 00:12:29,791 --> 00:12:33,921 thinking that they've been dealt with in the highest possible way, 211 00:12:34,003 --> 00:12:36,133 as far as integrity and truthfulness. 212 00:12:36,172 --> 00:12:39,432 ELKIND: He always wrapped himself in the cloak of moral rectitude, 213 00:12:39,509 --> 00:12:41,549 but there was one episode early on 214 00:12:41,636 --> 00:12:45,006 that raised questions about whether he was actually, you know, walking the walk. 215 00:12:45,056 --> 00:12:47,426 This was the Enron Oil scandal, 216 00:12:47,517 --> 00:12:49,847 also known as the Vahalla scandal. 217 00:12:50,145 --> 00:12:51,765 FITZGERALD: While you were at Arthur Andersen, 218 00:12:51,855 --> 00:12:54,725 were you involved in an investigation 219 00:12:54,816 --> 00:12:58,776 -at a company called Enron Oil? -Yes, I was. 220 00:12:58,862 --> 00:13:01,202 The issue with the company in 1987 221 00:13:01,281 --> 00:13:04,701 involved the misappropriation of monies by two traders. 222 00:13:05,702 --> 00:13:09,792 NARRATOR: In 1987, two oil traders made bets for Enron 223 00:13:09,873 --> 00:13:12,833 on whether the price of oil would rise or fall. 224 00:13:13,376 --> 00:13:15,086 Oil trading is like gambling. 225 00:13:15,170 --> 00:13:17,750 Sometimes you win, sometimes you lose. 226 00:13:18,131 --> 00:13:21,051 But Enron Oil always seemed to win 227 00:13:21,092 --> 00:13:23,222 much to Ken Lay's delight. 228 00:13:23,303 --> 00:13:25,223 MUCKLEROY: I tried to explain to Ken Lay 229 00:13:25,305 --> 00:13:28,515 the tremendous risk that you have in that market. 230 00:13:28,558 --> 00:13:32,098 You can lose 1 0 times your original investment. 231 00:13:32,645 --> 00:13:35,605 NARRATOR: A veteran trader, Mike Muckleroy was suspicious 232 00:13:35,690 --> 00:13:38,530 of Enron Oil's steady high profits. 233 00:13:38,818 --> 00:13:40,278 ELKIND: This oil-trading business 234 00:13:40,361 --> 00:13:42,151 had profits that nobody could really understand 235 00:13:42,238 --> 00:13:45,118 and in fact that many of Ken Lay's lieutenants questioned. 236 00:13:45,200 --> 00:13:48,040 They said, "This business can't be making this much money legitimately. 237 00:13:48,077 --> 00:13:49,907 "Something weird is going on." 238 00:13:49,996 --> 00:13:52,406 NARRATOR: Something weird was going on. 239 00:13:52,707 --> 00:13:54,957 The first hint came from an anonymous tip 240 00:13:55,043 --> 00:13:58,253 about the president of the company, Louis Borget. 241 00:13:58,338 --> 00:13:59,838 MUCKLEROY: Borget had taken 242 00:13:59,923 --> 00:14:02,803 some three-plus million dollars of corporate funds 243 00:14:02,884 --> 00:14:05,224 and put it in a personal account of his. 244 00:14:05,261 --> 00:14:07,101 NARRATOR: There were offshore accounts, 245 00:14:07,138 --> 00:14:08,968 phony books, and a trail that led 246 00:14:09,057 --> 00:14:11,597 from the company's treasurer, Tom Mastroeni 247 00:14:11,684 --> 00:14:15,104 to a mysterious Lebanese speculator no one could find, 248 00:14:15,146 --> 00:14:16,266 M. Yass. 249 00:14:17,106 --> 00:14:21,776 -MAN: What name did you suspect that was? -My ass, you know? And M. Smart. 250 00:14:21,861 --> 00:14:25,281 So that's Maxwell Smart. I mean, these guys are playing games. 251 00:14:25,532 --> 00:14:28,662 NARRATOR: Borget and Mastroeni were summoned to Houston. 252 00:14:28,743 --> 00:14:32,083 First they presented falsified bank records to Enron 253 00:14:32,413 --> 00:14:35,293 then they admitted they had diverted company profits 254 00:14:35,375 --> 00:14:36,955 to personal accounts. 255 00:14:37,669 --> 00:14:39,459 ELKIND: It was brought to the attention of the Enron board. 256 00:14:39,504 --> 00:14:42,764 Auditors were brought in as well to look at the whole thing. 257 00:14:42,799 --> 00:14:45,299 NARRATOR: At the board meeting, the auditors told Lay 258 00:14:45,343 --> 00:14:48,353 that Borget and his traders were manipulating earnings, 259 00:14:48,429 --> 00:14:50,429 destroying daily trading records 260 00:14:50,473 --> 00:14:53,273 and probably gambling way beyond their limits. 261 00:14:53,309 --> 00:14:56,479 BEARD: The next day we found out that Lay's decision was to 262 00:14:56,563 --> 00:15:00,363 basically change nothing as far as the operation's concerned, 263 00:15:00,441 --> 00:15:02,611 and the reason he gave was that 264 00:15:02,652 --> 00:15:05,492 this was the only part of the combined company 265 00:15:05,572 --> 00:15:08,322 that was making any money and that he could not, 266 00:15:08,408 --> 00:15:10,578 you know, kill the golden goose. 267 00:15:10,660 --> 00:15:13,830 NARRATOR: The traders weren't fired or even disciplined. 268 00:15:13,913 --> 00:15:17,333 Instead, Enron sent a telex to Borget, 269 00:15:17,417 --> 00:15:20,667 "Please keep making us millions." 270 00:15:20,712 --> 00:15:22,962 Instead of reducing Enron's risk, 271 00:15:23,006 --> 00:15:26,376 Lay encouraged his traders to gamble more. 272 00:15:26,467 --> 00:15:29,337 But then their luck changed. 273 00:15:29,929 --> 00:15:32,469 MUCKLEROY: Two months later, I got this panic call 274 00:15:32,515 --> 00:15:36,685 that they had drawn down $90 million in the previous five days, 275 00:15:36,769 --> 00:15:38,729 and what we could do is just try to find out 276 00:15:38,813 --> 00:15:41,483 what kind of gorilla we had loose up there. 277 00:15:42,442 --> 00:15:45,032 NARRATOR: Muckleroy hopped on the next plane to New York. 278 00:15:45,111 --> 00:15:47,861 He knew Mastroeni had another set of books, 279 00:15:47,905 --> 00:15:51,155 and he would do whatever it took to get them. 280 00:15:51,993 --> 00:15:54,293 MUCKLEROY: I basically stood over Tom 281 00:15:54,370 --> 00:15:56,960 and I told him one of two things was gonna happen. 282 00:15:57,040 --> 00:16:00,750 Either, one of the trading partners that was crooked with Borget, 283 00:16:00,835 --> 00:16:04,875 who was a German arms dealer, was gonna kill him, or I was. 284 00:16:04,922 --> 00:16:07,342 I said, "I'll track you down and find you 285 00:16:07,383 --> 00:16:11,093 "no matter where you go, and sooner or later I'll get you." 286 00:16:11,888 --> 00:16:15,178 NARRATOR: The next day, Mastroeni came in with the real books. 287 00:16:15,224 --> 00:16:19,354 The traders had gambled away all of Enron's reserves. 288 00:16:19,729 --> 00:16:22,899 By acting fast, Muckleroy bluffed the market 289 00:16:22,940 --> 00:16:25,400 and managed to save the company. 290 00:16:26,653 --> 00:16:29,863 After Vahalla, Ken Lay maintained that he had been shocked 291 00:16:29,906 --> 00:16:32,156 that the traders had gambled so recklessly. 292 00:16:32,241 --> 00:16:35,911 But Ken Lay had known all along about the risks that were taken. 293 00:16:35,995 --> 00:16:39,785 He had seen the reports warning him about the traders' behavior. 294 00:16:40,500 --> 00:16:42,880 MAN: Since the fall of Enron, Ken Lay has said 295 00:16:42,919 --> 00:16:45,749 he can't be responsible for things he didn't know about. 296 00:16:45,838 --> 00:16:48,418 Sounds like what he said about Vahalla. 297 00:16:48,466 --> 00:16:50,546 Do you believe that he didn't know? 298 00:16:50,593 --> 00:16:53,853 I can answer only for one, I can answer for Vahalla, 299 00:16:53,930 --> 00:16:56,180 because Ken Lay did in fact know about this thing, 300 00:16:56,265 --> 00:16:57,675 because I had told him myself. 301 00:16:57,767 --> 00:17:01,267 FITZGERALD: The auditors adamantly told Mr. Ken Lay 302 00:17:01,646 --> 00:17:04,896 that the two rogue traders should be fired. 303 00:17:05,024 --> 00:17:07,324 Lay read the report and he read his budget 304 00:17:07,402 --> 00:17:11,112 and estimated how much they, the two rogue executives, made, 305 00:17:11,197 --> 00:17:13,447 and if they were fired what he could lose. 306 00:17:13,533 --> 00:17:17,163 My conclusion was that this guy is a guy who puts earnings before scruples 307 00:17:17,245 --> 00:17:20,325 rather than reacting to the dishonesty right in front of him. 308 00:17:20,415 --> 00:17:23,125 NARRATOR: Mastroeni received a suspended sentence. 309 00:17:23,167 --> 00:17:26,997 Borget was convicted of fraud and spent one year in jail. 310 00:17:27,714 --> 00:17:30,304 With his biggest moneymaker now behind bars, 311 00:17:30,383 --> 00:17:31,843 Ken Lay had a problem. 312 00:17:31,926 --> 00:17:34,966 Who could he find to make money for Enron? 313 00:17:36,305 --> 00:17:39,975 Every year, every day, every week, you have to come up with new ideas. 314 00:17:44,981 --> 00:17:49,531 (TOM WAITS SINGING STRAIGHT TO THE TOP) 315 00:17:50,027 --> 00:17:52,647 MCLEAN: Ken Lay saw in Jeff Skilling the guy who had the answer 316 00:17:52,697 --> 00:17:55,737 to what the future of the natural gas business was supposed to be. 317 00:17:55,825 --> 00:17:58,865 Ken Lay is also a guy who considers himself a visionary 318 00:17:58,953 --> 00:18:01,293 and he liked other people he thought of as visionaries. 319 00:18:01,330 --> 00:18:02,830 He liked people with big ideas 320 00:18:02,915 --> 00:18:06,285 and Jeff Skilling was a person with the biggest ideas of all. 321 00:18:06,753 --> 00:18:11,633 NARRATOR: Jeff Skilling's biggest single idea was to find a new way to deliver energy. 322 00:18:11,674 --> 00:18:15,224 Rather than be bound by the physical flow of the pipeline, 323 00:18:15,303 --> 00:18:19,313 Enron would become a kind of stock market for natural gas. 324 00:18:19,348 --> 00:18:21,138 It was a magical, new idea. 325 00:18:21,184 --> 00:18:24,444 Transform energy into financial instruments 326 00:18:24,520 --> 00:18:27,230 that could be traded like stocks and bonds. 327 00:18:27,523 --> 00:18:29,323 SKILLING: So that was the one good idea. 328 00:18:29,358 --> 00:18:31,818 In 1992, using that good idea 329 00:18:31,861 --> 00:18:35,411 we became the largest buyer and seller of natural gas in North America. 330 00:18:35,490 --> 00:18:38,280 MARTIN-BROCK: Jeff was like the prophet. He came in and said, 331 00:18:38,367 --> 00:18:39,987 "There's a whole new world out there. 332 00:18:40,036 --> 00:18:41,696 "Forget about this pipeline stuff, 333 00:18:41,788 --> 00:18:45,708 "the staid pipeline in the ground and gas in and gas out. 334 00:18:45,750 --> 00:18:49,630 "We can recreate this entire industry." 335 00:18:50,171 --> 00:18:53,381 NARRATOR: An attorney from Vinson & Elkins, Amanda Martin, 336 00:18:53,466 --> 00:18:56,086 was one of the first executives hired by Jeff Skilling 337 00:18:56,177 --> 00:18:58,847 and became part of his inner circle. 338 00:18:59,138 --> 00:19:00,928 MARTIN-BROCK: The excitement was palpable. 339 00:19:01,015 --> 00:19:04,385 You cannot imagine how proud we all were to be there. 340 00:19:04,435 --> 00:19:06,305 And then, of course, we had a leader 341 00:19:06,395 --> 00:19:08,895 who imbued us with a sense of confidence 342 00:19:08,981 --> 00:19:12,731 that if we were smart, anything could be accomplished. 343 00:19:12,819 --> 00:19:16,359 And in the bottom line, we began to make money. 344 00:19:17,031 --> 00:19:18,911 And that in and of itself 345 00:19:18,991 --> 00:19:22,621 was a reaffirmation that this could be big. 346 00:19:25,456 --> 00:19:28,416 MCLEAN: Skilling saw the opportunity to build an industry new 347 00:19:28,501 --> 00:19:30,291 and to start a business from scratch, 348 00:19:30,378 --> 00:19:34,758 but he had one specific condition that had to be met before he'd join Enron. 349 00:19:34,841 --> 00:19:37,881 And it was that he'd be allowed to use a certain kind of accounting 350 00:19:37,927 --> 00:19:39,427 known as "mark-to-market." 351 00:19:39,470 --> 00:19:42,560 Arthur Andersen signed off, and the SEC approved it. 352 00:19:42,723 --> 00:19:45,103 I remember walking in and going, "What's going on?" 353 00:19:45,184 --> 00:19:46,434 And Causey and everybody, 354 00:19:46,519 --> 00:19:48,809 I mean, everyone was so excited and in came the champagne 355 00:19:48,896 --> 00:19:51,186 and we had got mark-to-market accounting treatment. 356 00:19:51,274 --> 00:19:54,904 And I often think about how clear my memory was about that event, 357 00:19:54,944 --> 00:19:58,784 and that was the beginning of a major cog 358 00:19:58,865 --> 00:20:01,315 in the downfall, ultimately, of Enron. 359 00:20:03,536 --> 00:20:05,366 NARRATOR: Mark-to-market accounting 360 00:20:05,454 --> 00:20:08,584 allowed Enron to book potential future profits 361 00:20:08,624 --> 00:20:10,924 on the very day a deal was signed. 362 00:20:10,960 --> 00:20:14,210 No matter how little cash actually came in the door, 363 00:20:14,297 --> 00:20:18,007 to the outside world, Enron's profits could be 364 00:20:18,092 --> 00:20:20,142 whatever Enron said they were. 365 00:20:20,970 --> 00:20:22,510 Very subjective, 366 00:20:24,640 --> 00:20:26,390 and very... 367 00:20:27,059 --> 00:20:30,479 It left it open to manipulation. 368 00:20:30,521 --> 00:20:33,111 And they were saying that we're gonna sell power 369 00:20:33,149 --> 00:20:35,939 out of this power plant in 1 0 years 370 00:20:36,027 --> 00:20:38,817 for X dollars per kilowatt, 371 00:20:39,405 --> 00:20:42,905 and there was no way anybody could prove that they could do it. 372 00:20:42,992 --> 00:20:45,202 -Good morning. -How are you? 373 00:20:45,286 --> 00:20:48,326 Fine, Jeff. Good to see you. Todd, sit down. 374 00:20:48,414 --> 00:20:51,374 We've been working hard on this, and we've really pulled out all the stops. 375 00:20:51,459 --> 00:20:54,749 Look what we got. Origination. We did $20 million last year. 376 00:20:54,837 --> 00:20:57,587 We think we can do $120 million this year. 377 00:20:57,673 --> 00:21:02,143 Trading. We did $10 million last year, we think we can do 64 this year. 378 00:21:02,178 --> 00:21:03,298 This is the key. 379 00:21:03,346 --> 00:21:05,846 We're gonna move from mark-to-market accounting 380 00:21:05,932 --> 00:21:09,022 to something I call HFV, 381 00:21:09,101 --> 00:21:12,271 "hypothetical-future-value" accounting. 382 00:21:12,355 --> 00:21:13,355 Whoa! 383 00:21:13,439 --> 00:21:17,479 If we do that we can add a kazillion dollars to the bottom line. 384 00:21:17,526 --> 00:21:18,526 Whoa! 385 00:21:18,653 --> 00:21:22,863 Jeff! All right, that sounds fantastic! 386 00:21:22,949 --> 00:21:24,869 Jeff, thank you! 387 00:21:24,951 --> 00:21:28,871 That's just superb performance, and you're gonna go far, my boy, 388 00:21:28,955 --> 00:21:31,205 probably president of the company one day. 389 00:21:31,248 --> 00:21:32,538 -You think so? -I think! 390 00:21:32,583 --> 00:21:34,883 He really believed that the idea was everything 391 00:21:34,961 --> 00:21:36,591 and that when you came up with an idea 392 00:21:36,671 --> 00:21:40,221 you should be able to book the profits from that idea right away. 393 00:21:40,299 --> 00:21:43,719 Because otherwise, some lesser man was taking the profits from the idea 394 00:21:43,803 --> 00:21:46,763 that some greater man had come up with in the past. 395 00:21:47,807 --> 00:21:50,477 NARRATOR: When Jeff Skilling applied to Harvard business school, 396 00:21:50,559 --> 00:21:52,889 the professor asked him if he was smart. 397 00:21:52,979 --> 00:21:56,019 He replied, "I'm fucking smart." 398 00:21:56,774 --> 00:22:00,074 One of his favorite books was The Selfish Gene, 399 00:22:00,111 --> 00:22:03,911 about the ways human nature is steered by greed and competition 400 00:22:03,990 --> 00:22:06,450 in the service of passing on our genes. 401 00:22:06,951 --> 00:22:10,871 At Enron, Skilling wanted to set free the basic instincts 402 00:22:10,913 --> 00:22:12,873 of survival of the fittest. 403 00:22:15,418 --> 00:22:18,248 MCLEAN: Jeff had a very Darwinian view of how the world worked. 404 00:22:18,295 --> 00:22:19,915 He was famous for saying once 405 00:22:20,006 --> 00:22:24,086 in Enron's early years that money was the only thing that motivated people. 406 00:22:25,177 --> 00:22:27,427 ELKIND: Skilling's notion of how the world should work 407 00:22:27,471 --> 00:22:30,971 really trickled down and affected everything about how Enron did business. 408 00:22:31,058 --> 00:22:34,638 He instituted a system known as the PRC, or performance review committee. 409 00:22:34,729 --> 00:22:37,769 It required that people be graded from a one to a five, 410 00:22:37,857 --> 00:22:40,777 and roughly 10% of people had to be a five, 411 00:22:40,860 --> 00:22:43,280 and those people were supposed to be fired, 412 00:22:43,320 --> 00:22:45,660 hence the scheme to be known as "Rank and Yank." 413 00:22:45,740 --> 00:22:47,910 I personally am convinced 414 00:22:48,242 --> 00:22:51,622 that the PRC process is the most important process 415 00:22:51,704 --> 00:22:53,584 that we conduct as a company. 416 00:22:53,622 --> 00:22:56,502 I've never heard of a company yet that would be successful 417 00:22:56,584 --> 00:22:59,544 terminating 1 5% of their people every year, 418 00:22:59,628 --> 00:23:03,338 just to satisfy the fact that the other employees had to vote on them. 419 00:23:03,424 --> 00:23:05,594 And so when you're being evaluated by that group 420 00:23:05,634 --> 00:23:09,264 you are getting direct communication from Ken and me 421 00:23:09,305 --> 00:23:11,255 about what the objectives of the company are 422 00:23:11,307 --> 00:23:13,217 and how you fit with those objectives. 423 00:23:13,309 --> 00:23:15,639 MARTIN-BROCK: It was a brutal process. 424 00:23:15,728 --> 00:23:18,808 The ability for a 25-year-old to go in 425 00:23:18,898 --> 00:23:22,108 and to be reviewed and to be superior, 426 00:23:22,610 --> 00:23:26,110 and as a consequence get a $5 million bonus, 427 00:23:26,489 --> 00:23:29,489 I don't think that's repeated in many places in corporate America. 428 00:23:29,575 --> 00:23:31,235 Our culture is a tough culture. 429 00:23:31,327 --> 00:23:34,657 It is a very, very aggressive culture. 430 00:23:34,705 --> 00:23:36,745 TRADER: We got eight million on new deals. 431 00:23:36,832 --> 00:23:40,382 NARRATOR: At Enron, no one was more aggressive than the traders. 432 00:23:40,461 --> 00:23:41,841 TRADER: You're not gonna make 17 million. 433 00:23:41,879 --> 00:23:44,339 WICKMAN: If I'm on the way to my boss' office, 434 00:23:44,381 --> 00:23:46,591 talking about my compensation, and if I step on 435 00:23:46,675 --> 00:23:48,835 somebody's throat on the way, that doubles it? 436 00:23:48,928 --> 00:23:50,928 I'll stomp on the guy's throat. 437 00:23:51,388 --> 00:23:54,098 You know, that... That's how people were. 438 00:23:54,183 --> 00:23:55,433 TRADER: Is that your four-and-a-half mil? 439 00:23:55,518 --> 00:23:56,978 MARTIN-BROCK: On the trading side, 440 00:23:57,019 --> 00:24:01,019 we got to be the biggest, baddest house in town. 441 00:24:01,065 --> 00:24:04,105 And by necessity, if you wanted to be in the market, 442 00:24:04,193 --> 00:24:06,653 you had to deal with Enron. 443 00:24:06,695 --> 00:24:08,695 TRADER: Trying to reconcile your big numbers here. 444 00:24:08,739 --> 00:24:12,529 MCLEAN: Enron's traders were like the super-powerful high school clique 445 00:24:12,576 --> 00:24:14,986 that even the principal doesn't dare to reign in. 446 00:24:15,037 --> 00:24:17,537 They had become the major engine 447 00:24:17,623 --> 00:24:20,173 of at least reported profits at the company. 448 00:24:20,209 --> 00:24:23,209 They took Jeff Skilling and Ken Lay's belief in free markets 449 00:24:23,295 --> 00:24:25,295 and turned it into an ideology. 450 00:24:25,381 --> 00:24:29,091 But they pitch it almost as a new economic religion. 451 00:24:32,179 --> 00:24:36,389 SKILLING: EnronOnline will change the markets for many, many commodities. 452 00:24:36,475 --> 00:24:40,805 It is creating an open, transparent marketplace 453 00:24:40,896 --> 00:24:44,936 that replaces the dark, blind system that existed. 454 00:24:45,025 --> 00:24:46,605 It is real simple. 455 00:24:46,902 --> 00:24:49,572 You turn on your computer and it's right there. 456 00:24:49,613 --> 00:24:52,203 And that's our vision, you know. We're trying to change the world. 457 00:24:54,577 --> 00:24:56,997 (ECHOING ELECTRONIC VOICE) Why? Why? 458 00:24:57,246 --> 00:25:01,916 MCLEAN: I think Jeff Skilling had a desperate need to believe that Enron was a success. 459 00:25:01,959 --> 00:25:03,919 I think he identified with Enron. 460 00:25:04,003 --> 00:25:06,713 He proclaimed at one point, "I am Enron." 461 00:25:07,882 --> 00:25:10,302 SWARTZ: The other thing about people at Enron is, a lot of them 462 00:25:10,384 --> 00:25:13,394 were former nerds, including Jeff Skilling. 463 00:25:13,429 --> 00:25:15,639 He had been paunchy. He had big glasses. 464 00:25:15,723 --> 00:25:18,433 He was losing his hair. And Jeff Skilling one day 465 00:25:18,517 --> 00:25:20,767 kind of woke up and decided to change himself. 466 00:25:20,811 --> 00:25:23,191 And he started working out, lost a lot of weight, 467 00:25:23,272 --> 00:25:27,982 but he really did remake himself through sheer will and force of personality. 468 00:25:28,569 --> 00:25:30,569 SWARTZ: When Jeff got Lasiks on his eyes, 469 00:25:30,613 --> 00:25:34,413 everybody at Enron got Lasiks, so nobody was wearing glasses. 470 00:25:36,118 --> 00:25:40,618 MCLEAN: I think Jeff Skilling is really a tragic figure in a classic sense of the word. 471 00:25:40,664 --> 00:25:43,834 He's a guy that people describe as incandescently brilliant, 472 00:25:43,918 --> 00:25:45,288 but he's also a guy who is 473 00:25:45,336 --> 00:25:47,836 radically different than he at times portrays himself. 474 00:25:47,922 --> 00:25:51,382 He's portrayed himself as somebody who has very tightly monitored risk. 475 00:25:51,467 --> 00:25:52,757 In reality he's a gambler. 476 00:25:52,801 --> 00:25:56,011 He gambled away huge sums of money before he was 20 years old 477 00:25:56,096 --> 00:25:58,216 by making wild bets on the market. 478 00:25:59,225 --> 00:26:00,225 (BIKE REVVING) 479 00:26:01,435 --> 00:26:03,225 ELKIND: To Jeff Skilling, risk was glamorous. 480 00:26:03,312 --> 00:26:04,562 He was a huge risk taker. 481 00:26:04,647 --> 00:26:07,017 He actually talked about wanting to go on trips 482 00:26:07,107 --> 00:26:09,647 that were so perilous that someone could actually die. 483 00:26:09,693 --> 00:26:14,203 (EURYTHMICS SINGING SWEET DREAMS) 484 00:26:14,281 --> 00:26:17,621 ELKIND: This manifested itself in trips that Jeff Skilling led 485 00:26:17,910 --> 00:26:20,080 for a small group of friends and customers. 486 00:26:24,833 --> 00:26:27,043 MCLEAN: A core cadre of Enron guys 487 00:26:27,127 --> 00:26:30,047 used to go on these wild adventures. 488 00:26:30,130 --> 00:26:32,840 Andy Fastow would go, Ken Rice would go. 489 00:26:32,883 --> 00:26:34,473 MARTIN-BROCK: The trips were legend. 490 00:26:34,510 --> 00:26:36,180 You know, we can sit and think about 491 00:26:36,220 --> 00:26:39,220 what strange insecurities they were trying to overcome, 492 00:26:39,306 --> 00:26:41,676 but it made them feel good as men. 493 00:26:42,101 --> 00:26:44,891 ELKIND: And they took a particularly memorable trip to the Baja, 494 00:26:44,979 --> 00:26:48,149 1,200 miles and very rugged terrain in Mexico. 495 00:26:51,694 --> 00:26:54,654 This is a trip where people crashed bikes. 496 00:26:54,697 --> 00:26:57,067 Ken Rice was on the trip and he busted a lip 497 00:26:57,157 --> 00:26:59,237 and required a bunch of stitches. 498 00:26:59,368 --> 00:27:00,828 People broke bones. 499 00:27:00,869 --> 00:27:03,869 One guy flipped a jeep and he almost got killed. 500 00:27:03,956 --> 00:27:06,916 Those sorts of stories at Enron became legend, 501 00:27:07,001 --> 00:27:09,711 and it fed the whole macho culture of the place. 502 00:27:19,471 --> 00:27:22,391 MCLEAN: Jeff Skilling had a way of describing people that he liked. 503 00:27:22,433 --> 00:27:24,063 He said, "I like guys with spikes." 504 00:27:24,143 --> 00:27:26,853 He liked somebody with something extreme about them. 505 00:27:29,648 --> 00:27:31,518 ELKIND: Ken Rice was one of the men with spikes. 506 00:27:31,567 --> 00:27:33,357 He was the salesman of the group 507 00:27:33,402 --> 00:27:36,242 a very amiable, fun, man's man, 508 00:27:36,280 --> 00:27:40,070 and was the guy out selling deals to energy companies. 509 00:27:40,159 --> 00:27:43,199 In the case of Cliff Baxter, the company's chief deal-maker, 510 00:27:43,245 --> 00:27:46,115 he was extraordinarily talented at just doing a deal, 511 00:27:46,206 --> 00:27:48,286 but he was a manic depressive. 512 00:27:49,209 --> 00:27:51,419 ELKIND: Baxter was a very bright guy, 513 00:27:51,503 --> 00:27:54,713 very blunt, would tell Skilling whatever he thought, 514 00:27:54,757 --> 00:27:58,257 was closest to Skilling personally than anyone else in the company. 515 00:27:58,302 --> 00:28:01,722 MCLEAN: There was a guy named Lou Pai who was a key Skilling lieutenant, 516 00:28:01,764 --> 00:28:03,854 helped build the trading business in the early years, 517 00:28:03,932 --> 00:28:07,942 went on to run Enron's doomed effort called Enron Energy Services. 518 00:28:07,978 --> 00:28:10,978 MAN: What was the job of EES, as you ran it? 519 00:28:11,065 --> 00:28:14,395 It was to sell energy services 520 00:28:14,443 --> 00:28:16,993 to end users, industrial end users. 521 00:28:17,363 --> 00:28:20,823 Lou Pai is the guy that Skilling tapped to run the EES business, 522 00:28:20,908 --> 00:28:24,368 because this was so important to the company and to Skilling's future. 523 00:28:24,453 --> 00:28:26,793 He called Lou Pai, "My ICBM." 524 00:28:26,914 --> 00:28:30,584 And Lou Pai dispatched his enemies with incredible skill, 525 00:28:30,626 --> 00:28:33,166 and if that meant leaving bodies behind him, 526 00:28:33,253 --> 00:28:35,173 Skilling was certainly fine about that. 527 00:28:35,255 --> 00:28:36,955 I'm not feeling anything. 528 00:28:37,132 --> 00:28:39,722 Lou Pai was kind of a mysterious figure. 529 00:28:39,802 --> 00:28:42,932 He was kind of like the invisible CEO. 530 00:28:42,971 --> 00:28:46,141 For a while he was located on the seventh floor, 531 00:28:46,433 --> 00:28:49,943 and it was this long office, 532 00:28:49,978 --> 00:28:52,228 and it was all glass-enclosed, 533 00:28:52,314 --> 00:28:56,654 and you would walk by there and it was just almost all the time it was empty. 534 00:28:57,820 --> 00:29:00,990 NARRATOR: Details didn't interest Lou Pai. 535 00:29:01,031 --> 00:29:03,531 Only two things seemed to motivate Pai, 536 00:29:03,617 --> 00:29:07,997 money, and a peculiar fascination with strippers. 537 00:29:08,205 --> 00:29:11,325 For Pai, it was all about the numbers. 538 00:29:17,214 --> 00:29:19,174 ELKIND: He was there every night after work 539 00:29:19,216 --> 00:29:21,966 and he usually brought some of the traders along with him. 540 00:29:22,010 --> 00:29:24,350 He spent quite a lot of money there as well, 541 00:29:24,430 --> 00:29:27,010 much of it charged to the Enron expense accounts. 542 00:29:27,057 --> 00:29:30,437 There were rumors that he brought strippers up to the trading floor. 543 00:29:30,519 --> 00:29:32,649 EBERTS: Almost everyone knew the story. 544 00:29:32,688 --> 00:29:35,358 The story is that, because he's kind of a mild, 545 00:29:35,399 --> 00:29:38,729 soft-spoken, almost meek individual, 546 00:29:38,819 --> 00:29:43,699 that maybe these strippers didn't even believe he was the CEO, 547 00:29:43,740 --> 00:29:47,870 so he took them up to his office and I guess they... 548 00:29:47,911 --> 00:29:50,201 They put on a little show for him there. 549 00:29:54,668 --> 00:29:57,168 ELKIND: One night he was at a club and one of the guys said, 550 00:29:57,212 --> 00:29:59,882 "Lou, all the rest of us are single. 551 00:29:59,965 --> 00:30:02,465 "We don't have any problem, but how do you keep your wife 552 00:30:02,551 --> 00:30:04,891 "from smelling the strippers' perfume on you?" 553 00:30:04,928 --> 00:30:06,888 And Lou said, "I've got a secret. 554 00:30:06,972 --> 00:30:09,312 "I stop in at a gas station on the way home 555 00:30:09,391 --> 00:30:12,521 "and I spill a little gasoline on myself and it kills the scent." 556 00:30:12,561 --> 00:30:14,651 So the other guy shot back, said, "But, Lou, 557 00:30:14,730 --> 00:30:17,610 "doesn't your wife then think you're fucking the gas station attendant?" 558 00:30:17,691 --> 00:30:20,321 In the context of Lou Pai, everyone was horrified, 559 00:30:20,402 --> 00:30:22,742 appalled, fell under the table 560 00:30:22,821 --> 00:30:25,161 because Lou Pai was not a man to trifle with. 561 00:30:25,240 --> 00:30:29,040 Two days later, the guy who told the joke, as Enron legend has it, 562 00:30:29,077 --> 00:30:31,497 was dispatched to Calgary, Canada. 563 00:30:35,542 --> 00:30:38,922 NARRATOR: Lou Pai lost all interest in running EES 564 00:30:39,004 --> 00:30:41,464 as soon as the numbers got high enough. 565 00:30:43,258 --> 00:30:47,008 I netted approximately $1 00 million. 566 00:30:47,471 --> 00:30:51,431 I don't know if that number's accurate, plus or minus 20 million. 567 00:30:51,517 --> 00:30:54,097 He actually left Enron with more money than anybody, 568 00:30:54,186 --> 00:30:55,806 $250 million, 569 00:30:55,896 --> 00:31:00,436 because he sold all his stock in Enron after he got a divorce from his wife 570 00:31:00,484 --> 00:31:04,074 in order to marry his stripper girlfriend, who had had his child. 571 00:31:07,032 --> 00:31:09,122 EBERTS: His exit from Enron 572 00:31:09,201 --> 00:31:13,201 was as mysterious as his presence there. 573 00:31:13,288 --> 00:31:15,078 Just sort of one day, 574 00:31:15,123 --> 00:31:17,883 we all learned that Lou Pai was no longer 575 00:31:17,960 --> 00:31:21,210 the CEO of EES. 576 00:31:22,756 --> 00:31:27,296 NARRATOR: Though Lou Pai flew away from Enron with $250 million, 577 00:31:27,386 --> 00:31:32,306 the divisions he left behind lost a total of nearly $1 billion. 578 00:31:32,349 --> 00:31:34,979 But Enron managed to disguise that fact. 579 00:31:35,060 --> 00:31:39,860 Lou Pai became the second-largest landowner in Colorado. 580 00:31:42,568 --> 00:31:43,648 SWARTZ: It was the number. 581 00:31:43,735 --> 00:31:46,025 It was always making those numbers and looking... 582 00:31:46,113 --> 00:31:49,703 To me, the real mythology is high school mythology, 583 00:31:49,783 --> 00:31:52,543 that you wanted to be the most popular guy on Wall Street 584 00:31:52,619 --> 00:31:56,159 and you were gonna do whatever you had to do to stay there. 585 00:31:56,248 --> 00:31:58,748 And Jeff understood those rules better than, I think, anyone else. 586 00:32:03,714 --> 00:32:06,344 (THE CARDIGANS SINGING LOVEFOOL) 587 00:32:06,425 --> 00:32:08,795 NEWSCASTER: Americans are making a lot of money in stocks. 588 00:32:08,844 --> 00:32:11,934 The stock market soared to near-record highs yesterday. 589 00:32:12,014 --> 00:32:14,774 The stock market continued its bull run Thursday. 590 00:32:14,850 --> 00:32:17,310 The Dow rose nearly 61 points. 591 00:32:17,352 --> 00:32:20,352 MARTIN-BROCK: Even the person with very little disposable income 592 00:32:20,439 --> 00:32:22,609 all of a sudden began to play in the stock market, 593 00:32:22,691 --> 00:32:23,981 because nobody could fail, 594 00:32:24,026 --> 00:32:26,686 because stock prices were just going up and up and up. 595 00:32:26,737 --> 00:32:28,527 Another day, another record. 596 00:32:28,614 --> 00:32:31,034 And the Internet and technology stocks just going wild. 597 00:32:31,116 --> 00:32:35,116 NEWSCASTER: Gained more than 100 points to close at 7895.81 , 598 00:32:35,203 --> 00:32:36,623 the highest finish ever. 599 00:32:36,705 --> 00:32:40,075 OLSON: It was a time where we had the biggest bull market 600 00:32:40,167 --> 00:32:41,417 in the history of the world. 601 00:32:41,501 --> 00:32:45,131 Ken Lay was right there acting as a cheerleader. 602 00:32:45,213 --> 00:32:47,383 Obviously our stock has been doing very well. 603 00:32:47,466 --> 00:32:49,876 I think there's a fairly good chance we could see the stock price 604 00:32:49,968 --> 00:32:52,218 double again over the next year to 18 months. 605 00:33:01,063 --> 00:33:02,903 NARRATOR: Enron mounted a campaign 606 00:33:02,981 --> 00:33:06,401 to capture the hearts and minds of stock analysts. 607 00:33:06,693 --> 00:33:08,943 The natural gas stocks include Enron. 608 00:33:09,029 --> 00:33:10,569 We're never satisfied 609 00:33:10,614 --> 00:33:13,374 and I don't want us to ever be satisfied with the stock price. 610 00:33:13,408 --> 00:33:14,408 It should always be higher. 611 00:33:14,493 --> 00:33:17,953 Enron posted a 30% jump in second-quarter profits, 612 00:33:18,038 --> 00:33:21,078 as web-based trading boosted its wholesale energy business. 613 00:33:21,166 --> 00:33:22,916 The game was played on Wall Street 614 00:33:23,001 --> 00:33:26,421 in such an established way throughout the 1 990s. 615 00:33:26,463 --> 00:33:28,923 As long as a company met or exceeded 616 00:33:28,965 --> 00:33:31,295 the annual projections for quarterly earnings per share, 617 00:33:31,385 --> 00:33:32,715 the stock went higher. 618 00:33:32,761 --> 00:33:35,261 NARRATOR: The game was called, "Pump and Dump." 619 00:33:35,597 --> 00:33:38,177 Top execs would push the stock price up 620 00:33:38,266 --> 00:33:41,386 and then cash in their multimillion-dollar options. 621 00:33:41,436 --> 00:33:44,516 ELKIND: People at Enron got paid in large part through stock. 622 00:33:44,606 --> 00:33:47,936 Enron had a huge stake in seeing the stock price go up, 623 00:33:48,276 --> 00:33:51,776 and it was driven very clearly by the profits every single quarter. 624 00:33:51,863 --> 00:33:53,413 They were exceedingly conscious of that. 625 00:33:53,448 --> 00:33:55,568 Skilling was and everyone else in the company was. 626 00:33:55,617 --> 00:33:57,277 They posted the stock price in the elevator. 627 00:33:57,369 --> 00:34:00,909 You were surrounded by the health of the company. 628 00:34:00,956 --> 00:34:03,916 What's the stock price doing? We were consumed by it. 629 00:34:06,503 --> 00:34:10,383 LERACH: This company was fixated on its stock price 630 00:34:10,465 --> 00:34:12,965 and fixated on 631 00:34:13,051 --> 00:34:15,721 a massive public relations campaign 632 00:34:15,846 --> 00:34:18,096 to convince the investment community 633 00:34:18,140 --> 00:34:20,850 that they were new, different, innovative, 634 00:34:20,934 --> 00:34:24,694 almost heralding a new era of corporate enterprise. 635 00:34:24,771 --> 00:34:27,271 (UPBEAT POP MUSIC PLAYING) 636 00:34:27,315 --> 00:34:29,225 Come work for us! 637 00:34:29,317 --> 00:34:33,147 The courage of people to do new things, try new things, experiment, 638 00:34:34,156 --> 00:34:35,196 step out. 639 00:34:35,282 --> 00:34:38,082 We begin by attracting the kind of people that are more comfortable 640 00:34:38,160 --> 00:34:39,790 in an environment of change. 641 00:34:39,828 --> 00:34:43,208 SKILLING: You know when you work for Enron, you're gonna see the newest thinking. 642 00:34:43,290 --> 00:34:45,620 You're gonna see the newest markets opening up. 643 00:34:45,667 --> 00:34:48,497 EnronOnline, a fabulous, fabulous story. 644 00:34:48,545 --> 00:34:51,085 SWARTZ: They were so good at their acting 645 00:34:51,173 --> 00:34:54,723 that they convinced corporate America that they were smarter than anyone else. 646 00:34:54,801 --> 00:34:57,891 Alan, with our sincere thanks and admiration, 647 00:34:58,180 --> 00:35:02,310 we are pleased and indeed honored to award you the Enron Prize 648 00:35:02,350 --> 00:35:04,480 for distinguished public service. 649 00:35:04,686 --> 00:35:06,016 (APPLAUSE) 650 00:35:08,190 --> 00:35:10,940 NEWSCASTER: The power business continues to go up 25%. 651 00:35:11,026 --> 00:35:14,446 ELKIND: They continued to sell the company as being a very stable place, 652 00:35:14,529 --> 00:35:18,069 where it could predictably increase profits 10 to 15% a year. 653 00:35:18,158 --> 00:35:20,078 In fact, to get to those numbers, 654 00:35:20,160 --> 00:35:23,290 Enron was doing all sorts of questionable things, 655 00:35:23,371 --> 00:35:24,831 taking enormous risks. 656 00:35:24,873 --> 00:35:28,383 We like risk because you make money by taking risks. 657 00:35:34,633 --> 00:35:37,553 NARRATOR: By all accounts, Enron was soaring. 658 00:35:39,721 --> 00:35:42,601 But in reality, profits weren't going up. 659 00:35:42,682 --> 00:35:45,182 They were headed in the opposite direction. 660 00:35:45,894 --> 00:35:50,194 Enron had vast natural gas operations all over the world. 661 00:35:50,232 --> 00:35:52,232 They had cost billions to build 662 00:35:52,317 --> 00:35:54,527 and most were performing terribly. 663 00:35:55,195 --> 00:35:57,395 But in other places in the world, in India, 664 00:35:57,489 --> 00:35:59,869 great quarter and a great year in India. 665 00:35:59,908 --> 00:36:03,868 Phase one of Dabhol is in operation generating power. 666 00:36:03,912 --> 00:36:06,662 Phase two is financed and is under construction. 667 00:36:06,915 --> 00:36:09,785 My experience indicated there were certain places 668 00:36:09,876 --> 00:36:14,126 that you assiduously stayed away from, and one of them, as an example, was India. 669 00:36:14,214 --> 00:36:17,934 They built this power plant in India. Nobody else would do that at the time. 670 00:36:17,968 --> 00:36:19,838 They were terrified of investing in India. 671 00:36:19,928 --> 00:36:22,388 Enron did it, and did it in a big way. 672 00:36:23,223 --> 00:36:25,933 NARRATOR: But Enron had failed to see something basic. 673 00:36:25,976 --> 00:36:30,346 India couldn't afford to pay for the power Enron's plant produced. 674 00:36:30,772 --> 00:36:33,572 Now Dabhol is a ruin. 675 00:36:34,901 --> 00:36:37,361 Though it lost $1 billion on the project, 676 00:36:37,445 --> 00:36:41,565 Enron paid out multimillion-dollar bonuses to executives 677 00:36:41,616 --> 00:36:44,866 based on imaginary profits that never arrived. 678 00:36:45,829 --> 00:36:48,409 Where was the real money going to come from? 679 00:36:49,040 --> 00:36:51,080 MARTIN-BROCK: Of course, the pressure was enormous. 680 00:36:51,126 --> 00:36:54,496 You had to come up with the next idea that would break through. 681 00:36:54,588 --> 00:36:56,708 Failure was not an option. 682 00:36:56,798 --> 00:36:59,048 A flurry of buyouts in the corporate world. 683 00:36:59,134 --> 00:37:02,974 The biggest, Enron announcing a buyout of Portland General. 684 00:37:03,597 --> 00:37:05,057 NARRATOR: The merger with PGE 685 00:37:05,140 --> 00:37:07,470 put Enron in the electricity business, 686 00:37:07,517 --> 00:37:10,347 and Portland General's position on the west coast 687 00:37:10,437 --> 00:37:14,647 gave Enron access to the newly deregulated market of California. 688 00:37:15,901 --> 00:37:18,821 LAY: The merger, we think it uniquely positions us 689 00:37:18,862 --> 00:37:23,322 to ultimately become the largest marketer of electricity and natural gas 690 00:37:23,408 --> 00:37:26,238 at both the wholesale and retail level nationwide. 691 00:37:27,454 --> 00:37:29,754 KASEWETER: What brought all this on was, with deregulation, 692 00:37:29,831 --> 00:37:33,251 they said that we would not survive unless we joined forces. 693 00:37:33,335 --> 00:37:35,875 Enron... I'd never heard of them until they were gonna buy us. 694 00:37:35,962 --> 00:37:38,802 They slid in here, and when they purchased PGE, 695 00:37:38,924 --> 00:37:41,014 all the PGE stock became Enron. 696 00:37:41,301 --> 00:37:43,301 Just went through, stamped every one of them. 697 00:37:43,345 --> 00:37:44,345 I looked around me, 698 00:37:44,429 --> 00:37:46,179 and all the guys that were buying all this Enron, 699 00:37:46,222 --> 00:37:47,262 they were doubling their money. 700 00:37:47,349 --> 00:37:49,019 In that whole time since then, 701 00:37:49,100 --> 00:37:52,850 I put the maximum I could into my 401 and savings. 702 00:37:52,938 --> 00:37:56,858 Portland General, again, good earnings and cash flow. 703 00:37:56,900 --> 00:37:59,070 ELKIND: It's what they call on Wall Street a "Trust me" story. 704 00:37:59,152 --> 00:38:01,702 People that had been gas pipeline workers for decades 705 00:38:01,780 --> 00:38:02,860 kept their money in the company, 706 00:38:02,906 --> 00:38:05,696 because they thought it was as traditional and 707 00:38:06,451 --> 00:38:10,251 safe an investment as it had always been, and it wasn't anything close to that. 708 00:38:10,538 --> 00:38:13,368 "Should we invest all of our 401k in Enron stock?" 709 00:38:13,416 --> 00:38:15,876 Absolutely. Don't you guys agree? 710 00:38:15,961 --> 00:38:17,171 Bonus. 711 00:38:21,424 --> 00:38:23,384 (VIVIAN GREEN SINGING LOVE FOR SALE) 712 00:38:29,933 --> 00:38:31,813 NEWSCASTER: Enron is a big winner today. 713 00:38:31,893 --> 00:38:33,733 MCLEAN: One of the things that fascinated me 714 00:38:33,770 --> 00:38:36,770 was that almost all of the Wall Street analysts who covered Enron 715 00:38:36,856 --> 00:38:39,606 had buy ratings or strong-buy ratings on the company's stock. 716 00:38:39,693 --> 00:38:42,243 Why were the analysts 717 00:38:42,320 --> 00:38:44,820 blinded to the company's deceit? 718 00:38:44,906 --> 00:38:48,076 We relied on the information that was available at the time. 719 00:38:48,243 --> 00:38:52,043 They trusted the integrity of the company's certified financial statements 720 00:38:52,080 --> 00:38:55,040 and the representations of the company's management. 721 00:38:55,083 --> 00:38:57,253 And we've been absolutely upfront with the analysts. 722 00:38:57,293 --> 00:38:59,713 CHANOS: Jeff Skilling was the critical component 723 00:38:59,754 --> 00:39:01,594 in creating the Enron illusion. 724 00:39:02,257 --> 00:39:04,717 Time and time again when we had a question 725 00:39:04,926 --> 00:39:06,426 to the sell-side analysts 726 00:39:06,469 --> 00:39:10,469 that they couldn't answer, the response was, "I'll give Jeff a call. 727 00:39:10,724 --> 00:39:12,104 "I'll run this by Jeff." 728 00:39:12,559 --> 00:39:14,439 NARRATOR: By giving Jeff a call, 729 00:39:14,477 --> 00:39:16,897 the analysts weren't analyzing at all. 730 00:39:16,938 --> 00:39:20,438 They were willing to believe virtually anything Enron told them. 731 00:39:26,072 --> 00:39:28,662 Most of the analysts right now have a target price on us 732 00:39:28,742 --> 00:39:31,542 from $100-1 15 a share. 733 00:39:31,619 --> 00:39:33,699 NARRATOR: Any analyst who didn't buy the company line 734 00:39:33,788 --> 00:39:35,868 became an enemy of Enron. 735 00:39:35,957 --> 00:39:40,417 Enron CFO, Andy Fastow, had his eye on John Olson, 736 00:39:40,462 --> 00:39:43,842 one of the only analysts skeptical of the Enron story. 737 00:39:43,923 --> 00:39:46,843 Enron loved analysts' strong-buy recommendations. 738 00:39:46,926 --> 00:39:49,466 OLSON: Merrill was informed by Fastow, 739 00:39:49,512 --> 00:39:52,892 "Either you get somebody who is on board with us 740 00:39:52,974 --> 00:39:55,564 "and has a strong-buy recommendation 741 00:39:55,643 --> 00:39:57,853 "and loves us at the same time, 742 00:39:57,937 --> 00:39:59,977 "or we don't do any business with you." 743 00:40:00,065 --> 00:40:03,435 I knew that my days were numbered. 744 00:40:03,485 --> 00:40:04,985 This is an abuse. 745 00:40:05,195 --> 00:40:07,525 NARRATOR: Merrill Lynch fired John Olson. 746 00:40:07,739 --> 00:40:10,159 Soon after, Fastow rewarded the bank 747 00:40:10,241 --> 00:40:14,161 with two investment banking jobs worth $50 million. 748 00:40:14,245 --> 00:40:16,705 CHANOS: Analysts were routinely getting large bonuses 749 00:40:16,790 --> 00:40:18,370 from the investment banking departments 750 00:40:18,458 --> 00:40:20,498 to bring in investment banking deals. 751 00:40:20,543 --> 00:40:22,673 Once that happens, you know, 752 00:40:22,712 --> 00:40:24,592 never was heard a discouraging word. 753 00:40:26,299 --> 00:40:28,969 NARRATOR: While Enron stock kept rising, 754 00:40:29,010 --> 00:40:31,430 its businesses kept losing money. 755 00:40:31,888 --> 00:40:34,678 Looking at the soaring stocks of the dot-coms, 756 00:40:34,766 --> 00:40:38,556 Skilling decided to take Enron into cyberspace. 757 00:40:39,270 --> 00:40:43,940 We're now in the process of seeing if we can create a bandwidth trading market. 758 00:40:44,025 --> 00:40:46,355 NEWSCASTER: Enron is using its knowledge of trading gas 759 00:40:46,402 --> 00:40:48,072 to barter other forms of energy, 760 00:40:48,154 --> 00:40:51,284 even space on the information superhighway called "bandwidth." 761 00:40:51,366 --> 00:40:54,446 Ken Rice has worked at Enron for 20 years. 762 00:40:54,536 --> 00:40:57,366 Enron has found a way to stay ahead of the curve. 763 00:40:58,540 --> 00:40:59,710 MAN: From 7 p.m. to 7 a.m., 764 00:40:59,749 --> 00:41:02,329 we're paying for bandwidth that we're not using. 765 00:41:02,377 --> 00:41:04,877 Why? 766 00:41:05,463 --> 00:41:08,763 One of our themes around here is to always be asking why. 767 00:41:08,842 --> 00:41:12,592 Why something's done a certain way, or why it's not done a different way. 768 00:41:12,679 --> 00:41:13,889 WOMAN: There's our market. 769 00:41:13,930 --> 00:41:16,890 MAN: Why can't we sell the bandwidth to other companies, 770 00:41:16,975 --> 00:41:20,225 make it a commodity like a pork belly? 771 00:41:28,820 --> 00:41:33,660 Just last week, Enron captivated Wall Street with its bold move into broadband, 772 00:41:33,741 --> 00:41:37,081 teaming up with Blockbuster to deliver movies on demand. 773 00:41:37,162 --> 00:41:40,912 COALE: It was like being at a religious cult meeting. 774 00:41:40,957 --> 00:41:43,247 People started jumping up from their seats 775 00:41:43,334 --> 00:41:45,634 with their cell phones and their blackberries, 776 00:41:45,712 --> 00:41:48,762 running out to the halls to call their bosses. 777 00:41:48,840 --> 00:41:51,970 NARRATOR: One analyst summed up his recommendation to investors 778 00:41:52,051 --> 00:41:54,431 in one word, "Wow!" 779 00:41:54,512 --> 00:41:58,102 Enron stock soared 34% in two days. 780 00:41:58,933 --> 00:42:01,103 And you can tell from the response in the stock market 781 00:42:01,144 --> 00:42:03,524 that they like the strategy, it makes sense. 782 00:42:03,605 --> 00:42:05,475 They announced that they had developed the technology, 783 00:42:05,565 --> 00:42:07,475 it would be in test markets by the end of the year. 784 00:42:07,567 --> 00:42:10,527 And the technology works, the quality is great, 785 00:42:10,612 --> 00:42:13,452 and the customers like it, so we've made a lot of progress. 786 00:42:13,489 --> 00:42:17,619 The truth was that Enron was just struggling with the technology 787 00:42:17,702 --> 00:42:18,912 for video on demand. 788 00:42:18,953 --> 00:42:21,123 NARRATOR: The technology didn't work, 789 00:42:21,164 --> 00:42:24,424 and the deal with Blockbuster soon collapsed. 790 00:42:24,459 --> 00:42:26,629 But with the magic of mark-to-market, 791 00:42:26,669 --> 00:42:28,919 Enron used future projections 792 00:42:28,963 --> 00:42:31,803 to book $53 million in earnings 793 00:42:31,883 --> 00:42:34,473 on a deal that didn't make a penny. 794 00:42:34,510 --> 00:42:37,640 MCLEAN: By the end of the year 2000, Enron was running out of ways 795 00:42:37,680 --> 00:42:40,140 to make the broadband business look successful. 796 00:42:40,225 --> 00:42:43,595 They tried every trick in the bag to try to create the illusion 797 00:42:43,645 --> 00:42:45,555 of a business where there was none, 798 00:42:45,647 --> 00:42:48,357 and the people who were working there were getting increasingly desperate. 799 00:42:48,942 --> 00:42:51,652 NARRATOR: The executives started selling their stock. 800 00:42:51,736 --> 00:42:55,656 By Enron's collapse, Ken Rice had sold $53 million. 801 00:42:56,324 --> 00:42:59,034 Ken Lay had sold $300 million. 802 00:42:59,118 --> 00:43:01,368 Cliff Baxter, $35 million. 803 00:43:01,454 --> 00:43:03,794 Jeff Skilling, $200 million. 804 00:43:04,499 --> 00:43:06,539 CHANOS: As the fraud is perpetuated, 805 00:43:06,626 --> 00:43:09,456 all the various lies and artifices 806 00:43:09,504 --> 00:43:12,974 begin to convince the ringmaster, if you will, himself, 807 00:43:13,216 --> 00:43:16,506 that it's this own bizarre reality. 808 00:43:16,552 --> 00:43:20,102 That in fact, the fraud is the reality. The perception is the reality. 809 00:43:20,181 --> 00:43:23,731 And as long as you can keep the perception going on, it really isn't a fraud. 810 00:43:24,185 --> 00:43:28,145 MAN: Let's talk about bandwidth trading. What about weather options or futures? 811 00:43:28,439 --> 00:43:32,109 -How is that market developing? -Yeah, we have a market in weather. 812 00:43:32,443 --> 00:43:33,743 (PEOPLE LAUGHING) 813 00:43:35,196 --> 00:43:38,656 NARRATOR: When Enron announced its latest plan to trade weather, 814 00:43:38,700 --> 00:43:41,120 people wondered whether it was good science 815 00:43:41,202 --> 00:43:42,912 or science fiction. 816 00:43:44,247 --> 00:43:47,367 Do the weather guys get punished here if the weather's wrong? 817 00:43:47,458 --> 00:43:49,918 Do you have any whip marks on your back there? 818 00:43:50,003 --> 00:43:51,963 That's a good call. 819 00:43:53,756 --> 00:43:57,836 MARTIN-BROCK: Jeff, as time went on, had a harder time admitting things were wrong. 820 00:43:58,928 --> 00:44:02,058 And I have to believe that, you know, 821 00:44:02,557 --> 00:44:06,227 when the lights went out at night, he knew what was coming. 822 00:44:11,274 --> 00:44:13,154 MUCKLEROY: I would liken it to the Titanic, 823 00:44:13,234 --> 00:44:16,244 when you've got a captain who's saying, "Maintain full speed," 824 00:44:16,321 --> 00:44:18,161 and they bump into a couple of icebergs, 825 00:44:18,239 --> 00:44:21,029 and then they still keep full speed going. 826 00:44:22,660 --> 00:44:24,910 The captain of this ship, Enron, 827 00:44:25,079 --> 00:44:28,459 ignored all the warning signs, and there were plenty of them. 828 00:44:28,750 --> 00:44:31,340 -MAN: And the captain of the ship was? -Kenneth Lay. 829 00:44:42,555 --> 00:44:45,305 NEWSCASTER 1 : It was one of the bloodiest days in Wall Street history. 830 00:44:45,391 --> 00:44:47,601 NEWSCASTER 2: Shares plummeted 31%. 831 00:44:47,685 --> 00:44:49,765 NEWSCASTER 3: High-tech stocks led Friday's fierce sell-off. 832 00:44:49,812 --> 00:44:51,862 This is really a great wake-up call. 833 00:44:51,939 --> 00:44:55,779 Millions of nervous investors following the huge drop on Friday. 834 00:44:55,818 --> 00:45:00,448 MCLEAN: Enron was especially a big deal by the end of the year 2000, 835 00:45:00,490 --> 00:45:03,780 because by then, most Internet companies had already begun to fall, 836 00:45:03,826 --> 00:45:06,406 and everybody on Wall Street was looking for the next big thing. 837 00:45:06,454 --> 00:45:07,954 And here you had Enron, 838 00:45:08,039 --> 00:45:11,419 which appeared to be this shining star of a new-economy company. 839 00:45:11,459 --> 00:45:13,959 Its stock price went up 90% in the year 2000 840 00:45:14,003 --> 00:45:17,303 and had gone up over 50% the year before that. 841 00:45:17,382 --> 00:45:19,132 It was an "it" stock on Wall Street, 842 00:45:19,175 --> 00:45:21,925 one of those companies that can seemingly do no wrong. 843 00:45:23,763 --> 00:45:25,853 MARTIN-BROCK: We were the poster child for the new economy. 844 00:45:25,932 --> 00:45:28,432 We had this culture that had a lot of focus 845 00:45:28,476 --> 00:45:31,136 on reminding us how good we were. 846 00:45:31,187 --> 00:45:34,397 And as that culture emerged, then we get to Fortune magazine, 847 00:45:34,482 --> 00:45:37,612 telling us we were the most innovative corporation in America, 848 00:45:37,652 --> 00:45:40,492 then we really began to feel good about ourselves. 849 00:45:40,696 --> 00:45:42,026 LAY: You all did it again. 850 00:45:42,949 --> 00:45:47,989 Enron was just recently chosen again for the sixth year in a row, 851 00:45:48,246 --> 00:45:52,326 in the most admired company survey by Fortune magazine, 852 00:45:52,417 --> 00:45:55,417 as the most innovative company in America. 853 00:45:56,379 --> 00:45:58,629 Well deserved. Well deserved. 854 00:45:59,173 --> 00:46:01,343 NARRATOR: The sales pitch still sounded good, 855 00:46:01,592 --> 00:46:04,682 but one investor saw something in Enron's numbers 856 00:46:04,762 --> 00:46:07,062 that the stock analysts had missed. 857 00:46:07,432 --> 00:46:10,232 CHANOS: By and large, the analysts admitted to us in person 858 00:46:10,309 --> 00:46:12,019 it's a black box, you have to take it on faith. 859 00:46:12,103 --> 00:46:13,403 Who knows where their earnings come from? 860 00:46:13,479 --> 00:46:16,689 They just pop out, and all we know is they're always good. 861 00:46:16,899 --> 00:46:19,859 And I kept pointing out, "Isn't that the whole point?" 862 00:46:19,902 --> 00:46:23,202 If the black box is there to fool you, 863 00:46:23,281 --> 00:46:25,911 the numbers are always going to be good until they're not. 864 00:46:25,992 --> 00:46:27,332 MCLEAN: I'm not a beat reporter, 865 00:46:27,368 --> 00:46:29,738 so I would've had no reason to look at Enron. 866 00:46:29,829 --> 00:46:32,159 But Jim Chanos mentioned to me that I should take 867 00:46:32,206 --> 00:46:34,286 a closer look at Enron's financial statements, 868 00:46:34,375 --> 00:46:36,915 and it wasn't clear from Enron's financial statements 869 00:46:37,003 --> 00:46:38,383 that there was fraud here, 870 00:46:38,463 --> 00:46:41,593 but what was clear is that something didn't add up. 871 00:46:41,674 --> 00:46:43,184 In March 2001 , 872 00:46:43,217 --> 00:46:46,217 Bethany McLean, a reporter with Fortune magazine, 873 00:46:46,262 --> 00:46:49,682 first raised questions about Enron's financial condition. 874 00:46:49,724 --> 00:46:54,144 She asked a simple question in the article that no one could seem to answer, 875 00:46:54,437 --> 00:46:57,437 "How exactly does Enron make its money?" 876 00:46:59,066 --> 00:47:00,896 You got very upset at her, didn't you? 877 00:47:00,943 --> 00:47:03,903 SKILLING: I very specifically remember 878 00:47:03,946 --> 00:47:08,066 the telephone conversation that I had with the Fortune reporter. 879 00:47:08,117 --> 00:47:11,907 She called up and started asking some very, very specific questions 880 00:47:11,954 --> 00:47:13,414 about accounting treatment on things. 881 00:47:13,498 --> 00:47:16,248 I am not an accountant, and I could not answer them. 882 00:47:16,292 --> 00:47:18,422 MCLEAN: He became really, really agitated. 883 00:47:18,461 --> 00:47:20,711 He said that people who raised questions like this 884 00:47:20,755 --> 00:47:22,915 were just trying to throw rocks at the company, 885 00:47:23,007 --> 00:47:26,257 and that I was not ethical because I hadn't done enough homework, 886 00:47:26,302 --> 00:47:28,432 and if I had done enough homework, I would understand 887 00:47:28,513 --> 00:47:30,313 how off-base my questions were. 888 00:47:30,389 --> 00:47:35,269 Mr. Skilling, it appears as if you were trying to bully someone 889 00:47:35,561 --> 00:47:39,231 who was asking very basic questions about Enron. 890 00:47:39,273 --> 00:47:42,983 I said to her, "I have got six minutes left 891 00:47:43,236 --> 00:47:44,946 "before I have to be in a meeting 892 00:47:45,029 --> 00:47:48,489 "and I can't get into the details and I'm not an accountant." 893 00:47:48,616 --> 00:47:51,156 And she said, "That's fine. We're gonna do the article anyway." 894 00:47:51,244 --> 00:47:55,044 And I said, "If you do that, I personally think that's unethical." 895 00:47:55,122 --> 00:47:57,792 And the next day, our Chief Financial Officer 896 00:47:57,875 --> 00:48:01,795 and our Chief Accounting Officer flew to New York at Enron's expense 897 00:48:01,837 --> 00:48:03,667 to sit down, not with the editors, 898 00:48:03,756 --> 00:48:06,506 but to sit down with the reporter on that story, 899 00:48:06,592 --> 00:48:09,182 and help her understand the questions that she was asking. 900 00:48:09,262 --> 00:48:12,602 And the next day, we sat in a small, dark, windowless conference room 901 00:48:12,640 --> 00:48:14,430 for about three hours going through 902 00:48:14,475 --> 00:48:17,225 the various aspects of the company's business. 903 00:48:17,311 --> 00:48:20,021 And I'll never forget this. When the interview was over, 904 00:48:20,106 --> 00:48:23,146 the other two executives packed up their things and had left the room. 905 00:48:23,234 --> 00:48:26,494 And Andy Fastow turned around and looked at my editor and me and said, 906 00:48:26,529 --> 00:48:28,199 "I don't care what you write about the company. 907 00:48:28,281 --> 00:48:30,201 "Just don't make me look bad." 908 00:48:30,366 --> 00:48:35,076 NARRATOR: And Fastow had good reasons for not wanting to look bad. 909 00:48:35,705 --> 00:48:39,205 MCLEAN: There were these partnerships that were run by Andy Fastow 910 00:48:39,292 --> 00:48:41,002 that were doing business with Enron. 911 00:48:41,085 --> 00:48:43,745 And these were disclosed in the company's financial statements. 912 00:48:43,838 --> 00:48:46,508 But, I didn't mention them in the story I wrote because I thought, 913 00:48:46,591 --> 00:48:48,261 "The accountants and the board of directors 914 00:48:48,342 --> 00:48:49,722 "have said that this is okay, 915 00:48:49,802 --> 00:48:53,182 "so I must be crazy to think there's anything wrong with this." 916 00:48:53,264 --> 00:48:55,684 The story I ran was actually pretty meek. 917 00:48:55,725 --> 00:48:57,885 The title was "Is Enron Overpriced?" 918 00:48:57,977 --> 00:49:02,477 But in the end, I couldn't prove that it was anything more than an overvalued stock. 919 00:49:02,523 --> 00:49:05,903 And I was probably too naive to suspect that it was anything more than that. 920 00:49:05,985 --> 00:49:09,105 -WAXMAN: Was her article critical? -Yes, it was. 921 00:49:09,697 --> 00:49:11,567 The Fortune magazine article that's out, 922 00:49:11,657 --> 00:49:14,277 the headline is, "Is Enron stock overvalued?" 923 00:49:14,410 --> 00:49:17,120 The gist of the article is that 924 00:49:17,204 --> 00:49:20,044 Enron is sort of a black box which... 925 00:49:20,082 --> 00:49:21,462 Sorry, It's true. I mean, 926 00:49:21,542 --> 00:49:24,132 it's just difficult for us to show people 927 00:49:24,211 --> 00:49:28,921 the specifics of how money flows through, particularly the wholesale business. 928 00:49:29,008 --> 00:49:32,298 The entire reason that this analysis was done by Fortune magazine 929 00:49:32,386 --> 00:49:35,386 is because BusinessWeek had a favorable article 930 00:49:35,431 --> 00:49:37,351 about Enron the week before. 931 00:49:37,391 --> 00:49:41,061 And there's this competition that the news magazines have 932 00:49:41,103 --> 00:49:44,063 where if one says something good, the other one has to find something bad. 933 00:49:44,148 --> 00:49:46,228 So I think that was kind of the genesis of it. 934 00:49:46,275 --> 00:49:49,435 So the criticism, I think, is kind of ridiculous. 935 00:49:49,528 --> 00:49:52,528 When Bethany McLean at Fortune 936 00:49:53,032 --> 00:49:54,742 started analyzing cash flows, 937 00:49:54,784 --> 00:49:56,414 and she had this wonderful article saying, 938 00:49:56,494 --> 00:49:59,454 "Take a look at first quarter, second quarter, third quarter 939 00:49:59,538 --> 00:50:01,578 "and end-of-year cash flows." 940 00:50:01,624 --> 00:50:03,714 There's a reason she didn't invest in Enron, 941 00:50:03,751 --> 00:50:05,631 'cause the financials didn't make sense. 942 00:50:05,711 --> 00:50:10,551 But you have to be willing to say that the emperor doesn't have any clothes, 943 00:50:11,175 --> 00:50:13,505 and this emperor was pretty powerful. 944 00:50:13,719 --> 00:50:17,929 We are going to unveil this morning a new corporate vision. 945 00:50:18,099 --> 00:50:21,849 Okay, are you ready? One, two, three. 946 00:50:24,021 --> 00:50:25,311 How's this? 947 00:50:27,525 --> 00:50:28,525 (APPLAUSE) 948 00:50:28,818 --> 00:50:30,188 MCLEAN: It's really hard to know 949 00:50:30,277 --> 00:50:34,027 when Enron first crossed the line into outright fraud. 950 00:50:34,115 --> 00:50:37,195 But there isn't any doubt about who the guy was who led them there. 951 00:50:37,284 --> 00:50:40,794 It was a protégé of Jeff Skilling's by the name of Andy Fastow. 952 00:50:42,915 --> 00:50:45,625 (TRAFFIC SINGING DEAR MR. FANTASY) 953 00:50:48,379 --> 00:50:52,259 NARRATOR: Andy Fastow was Enron's Chief Financial Officer. 954 00:50:52,383 --> 00:50:54,473 His job was to cover up the fact 955 00:50:54,510 --> 00:50:57,800 that Enron was becoming a financial fantasy land. 956 00:50:58,013 --> 00:51:02,103 ELKIND: Enron essentially was losing money on a cash basis year after year 957 00:51:02,143 --> 00:51:03,853 and yet it was reporting profits. 958 00:51:03,936 --> 00:51:06,306 So it was defying the laws of financial gravity. 959 00:51:06,355 --> 00:51:09,895 The way it was doing it was with something called "structured finance." 960 00:51:09,984 --> 00:51:13,404 And the maestro of all that at Enron was Andy Fastow. 961 00:51:13,654 --> 00:51:16,994 WATKINS: Andy was very young. He was hired by Jeff Skilling, 962 00:51:17,074 --> 00:51:18,994 probably before he was even 30. 963 00:51:19,034 --> 00:51:21,704 And he idolized Jeff Skilling 964 00:51:21,787 --> 00:51:25,077 and he certainly wanted to please the boss. 965 00:51:25,332 --> 00:51:26,752 NARRATOR: To please the boss, 966 00:51:26,834 --> 00:51:30,504 Fastow had to figure out a way to keep the stock price up 967 00:51:30,546 --> 00:51:35,046 by hiding the fact that Enron was $30 billion in debt. 968 00:51:35,676 --> 00:51:39,676 LERACH: People pressured by the need to keep the stock price up 969 00:51:39,722 --> 00:51:41,432 begin to cheat a little bit. 970 00:51:41,515 --> 00:51:43,845 But then the next quarter comes along 971 00:51:43,934 --> 00:51:46,444 and you have to cheat a little more to 972 00:51:46,854 --> 00:51:49,944 do the new cheating to make up for the old cheating. 973 00:51:51,025 --> 00:51:52,815 And before long, 974 00:51:53,235 --> 00:51:56,485 you have created a momentum 975 00:51:56,530 --> 00:51:58,570 that now you can't stop. 976 00:51:58,657 --> 00:52:01,617 NARRATOR: Fastow created hundreds of special companies 977 00:52:01,702 --> 00:52:03,372 to perform a magic trick, 978 00:52:03,412 --> 00:52:07,172 prop up Enron stock by making its debt disappear. 979 00:52:07,833 --> 00:52:11,463 To outside investors, it looked like cash was coming in the door. 980 00:52:11,545 --> 00:52:15,875 In fact, Enron was just stashing its debt in Fastow's companies 981 00:52:15,966 --> 00:52:18,046 where investors couldn't see it. 982 00:52:18,594 --> 00:52:20,894 OLSON: It was black magic. It really was. 983 00:52:20,930 --> 00:52:23,010 They were pulling some rabbits out of a hat. 984 00:52:27,895 --> 00:52:30,895 They could bury debt, they could bury losses. 985 00:52:30,940 --> 00:52:33,530 NARRATOR: Many of the companies had exotic names, 986 00:52:33,609 --> 00:52:36,819 Jedi, Chewco, Raptors. 987 00:52:36,904 --> 00:52:40,244 LJM was Fastow's most ambitious creation. 988 00:52:40,282 --> 00:52:42,332 It would work magic for Enron, 989 00:52:42,409 --> 00:52:46,579 and it would allow Fastow to conjure $45 million 990 00:52:46,664 --> 00:52:48,044 for himself. 991 00:52:48,791 --> 00:52:51,751 So instead of $450 million in equity... 992 00:52:51,794 --> 00:52:54,754 WATKINS: Andy in many ways was someone 993 00:52:54,839 --> 00:52:57,759 we all knew didn't have a strong moral compass. 994 00:52:57,800 --> 00:52:59,680 It's almost like Jeff Skilling said, 995 00:52:59,760 --> 00:53:03,100 "Okay, we're hitting some troubled times. Let's set up Andy 996 00:53:03,138 --> 00:53:05,808 "so we can fill the earnings holes when we need to," 997 00:53:05,891 --> 00:53:08,521 knowing that Andy would probably 998 00:53:08,602 --> 00:53:12,152 skim a little bit off each transaction for himself. 999 00:53:12,231 --> 00:53:16,571 There's a Body Heat kind of angle to this, you know, 1000 00:53:16,610 --> 00:53:21,280 where Skilling is Kathleen Turner and Andy is William Hurt. 1001 00:53:21,365 --> 00:53:23,985 You know, in the end, he got suckered 1002 00:53:24,076 --> 00:53:26,946 into helping all the executives meet their earnings. 1003 00:53:27,037 --> 00:53:30,457 What I wish, in retrospect, I wish I'd never heard of LJM. 1004 00:53:30,541 --> 00:53:33,081 Is it your contention that you knew of it and it was appropriate? 1005 00:53:33,127 --> 00:53:36,047 Arthur Andersen and our lawyers had taken a very hard look 1006 00:53:36,130 --> 00:53:38,170 at this structure, and they believed it was appropriate. 1007 00:53:38,257 --> 00:53:41,257 If the theory is that Fastow went rogue somewhere 1008 00:53:41,302 --> 00:53:43,512 deep in the jungles of Enron 1009 00:53:43,596 --> 00:53:48,016 and was the sole agent of the apocalypse, I just don't buy it. 1010 00:53:48,100 --> 00:53:50,730 NARRATOR: Skilling, Lay and the Enron board 1011 00:53:50,811 --> 00:53:54,061 had signed off on Fastow's LJM funds. 1012 00:53:54,148 --> 00:53:58,108 They saw the benefits of letting Fastow do deals with himself. 1013 00:54:02,114 --> 00:54:05,334 NARRATOR: In a secret videotape that surfaced after the bankruptcy, 1014 00:54:05,367 --> 00:54:08,367 Fastow can be seen selling LJM 1015 00:54:08,454 --> 00:54:10,624 to a group of Merrill Lynch bankers. 1016 00:54:10,664 --> 00:54:13,544 He pitches them on the benefits of investing in a fund 1017 00:54:13,626 --> 00:54:16,626 that only buys assets from Enron. 1018 00:54:22,885 --> 00:54:27,465 NARRATOR: Fastow knew what kind of deal he was offering was Enron's CFO. 1019 00:54:27,514 --> 00:54:30,984 He could guarantee profits for LJM. 1020 00:54:33,812 --> 00:54:36,522 MCLEAN: He has a sort of Cheshire cat grin on his face 1021 00:54:36,607 --> 00:54:39,397 as he talks about all the ways that the fund is gonna profit, 1022 00:54:39,485 --> 00:54:41,645 and he talks about the informational advantages 1023 00:54:41,695 --> 00:54:45,485 that he's going to have in his dual role as Enron's CFO 1024 00:54:45,532 --> 00:54:46,872 and as the head of these funds. 1025 00:54:54,667 --> 00:54:56,707 WATKINS: He was general partner of LJM, 1026 00:54:56,752 --> 00:54:59,052 while at the same time being CFO of Enron. 1027 00:54:59,088 --> 00:55:01,628 Now that's a whole another ball of wax when you wanna talk about that 1028 00:55:01,715 --> 00:55:03,585 conflict of interest because 1029 00:55:03,676 --> 00:55:06,336 no human being should be put in a situation 1030 00:55:06,387 --> 00:55:10,097 where, you know, every single transaction they decide 1031 00:55:10,182 --> 00:55:13,942 whether they're looking after Enron's best interests or their limited partners' 1032 00:55:14,019 --> 00:55:18,729 because this LJM partnership existed solely to do business with Enron. 1033 00:55:36,750 --> 00:55:39,170 NARRATOR: Commit they did. And why not? 1034 00:55:39,253 --> 00:55:42,923 Fastow was letting them gamble with Enron's chips. 1035 00:55:43,007 --> 00:55:45,427 OLSON: Fastow was using Enron stock 1036 00:55:45,509 --> 00:55:47,259 as collateral for a lot of these things. 1037 00:55:47,344 --> 00:55:50,144 They were betting their own company on the transactions. 1038 00:55:51,265 --> 00:55:55,095 NARRATOR: With the prospect of returns that would exceed 2,000%, 1039 00:55:55,144 --> 00:55:58,814 96 individual bankers invested in LJM, 1040 00:55:58,897 --> 00:56:02,897 and America's major banks put up as much as 25 million each. 1041 00:56:02,943 --> 00:56:05,903 LERACH: It's sort of a who's who of Wall Street. 1042 00:56:05,946 --> 00:56:07,606 JPMorgan Chase, 1043 00:56:07,656 --> 00:56:09,946 CS First Boston, 1044 00:56:10,034 --> 00:56:11,624 Citibank, 1045 00:56:11,702 --> 00:56:15,202 Merrill Lynch, Deutsche Bank. 1046 00:56:15,456 --> 00:56:19,576 These are some of the premiere investment banks in the world. 1047 00:56:25,549 --> 00:56:29,339 MCLEAN: It's just amazing how skilled Enron and Andy Fastow were at 1048 00:56:29,511 --> 00:56:32,761 working Wall Street, playing on Wall Street's greed 1049 00:56:32,806 --> 00:56:34,636 in order to get money out of them. 1050 00:56:34,808 --> 00:56:38,558 To quote Lenin, 1051 00:56:38,645 --> 00:56:42,315 they were the investment bankers' "useful idiots." 1052 00:56:45,444 --> 00:56:48,154 MAN: As disturbing as Enron's own misconduct 1053 00:56:48,197 --> 00:56:52,827 is the growing evidence that leading US financial institutions 1054 00:56:52,868 --> 00:56:56,658 not only took part in Enron's deceptive practices, 1055 00:56:56,747 --> 00:57:00,957 but at times designed, advanced and profited from them. 1056 00:57:01,001 --> 00:57:05,211 LERACH: The Enron fraud is the story of synergistic corruption. 1057 00:57:05,297 --> 00:57:08,507 There are supposed to be checks and balances in the system. 1058 00:57:08,550 --> 00:57:12,850 The lawyers are supposed to say no. The accountants are supposed to say no. 1059 00:57:12,888 --> 00:57:14,558 The bankers are supposed to say no. 1060 00:57:14,640 --> 00:57:17,680 But no one who was supposed to say no, said no. 1061 00:57:17,768 --> 00:57:20,308 They all took their share of the money from the fraud 1062 00:57:20,354 --> 00:57:21,564 and put it in their pockets. 1063 00:57:21,647 --> 00:57:23,937 NARRATOR: Enron paid its advisors well. 1064 00:57:24,024 --> 00:57:27,404 In 2001 , the accounting firm Arthur Andersen 1065 00:57:27,486 --> 00:57:29,696 received $1 million a week. 1066 00:57:29,780 --> 00:57:33,620 Enron's law firm Vinson & Elkins did nearly as well. 1067 00:57:34,201 --> 00:57:38,121 Everyone had their hand out at the table. 1068 00:57:38,205 --> 00:57:40,035 They were all being paid. 1069 00:57:40,082 --> 00:57:44,882 And as long as Enron continued, they received their fees. 1070 00:57:44,920 --> 00:57:47,760 They were a part of the process. 1071 00:57:47,840 --> 00:57:51,010 So it's hard now to say, "Oh, we didn't know anything." 1072 00:57:51,051 --> 00:57:54,851 Had we known then what we know now about Enron's practices, 1073 00:57:54,888 --> 00:57:57,638 we would not have engaged in these transactions with Enron. 1074 00:57:57,724 --> 00:58:00,104 The facts that we now have coming to light about Enron 1075 00:58:00,185 --> 00:58:01,845 however were not known at the time. 1076 00:58:01,895 --> 00:58:05,305 I believe that the Citigroup professionals involved with these transactions 1077 00:58:05,399 --> 00:58:06,859 acted in good faith. 1078 00:58:06,900 --> 00:58:08,570 I'd like you here to look at one 1079 00:58:08,652 --> 00:58:12,572 Citi e-mail, exhibit 333-I. 1080 00:58:12,614 --> 00:58:15,744 The e-mail trail here is all too lurid. 1081 00:58:16,493 --> 00:58:20,293 Oh, for instance, one e-mail I remember where the banker writes, 1082 00:58:20,414 --> 00:58:22,794 "Enron loves these deals. 1083 00:58:22,875 --> 00:58:24,285 "They produce cash, 1084 00:58:24,376 --> 00:58:26,626 "but they don't have to show the debt on the balance sheet." 1085 00:58:26,712 --> 00:58:28,882 Now, a high school student can figure out 1086 00:58:28,922 --> 00:58:32,432 that the banks were all knowing participants 1087 00:58:32,509 --> 00:58:34,259 in this wrongdoing. 1088 00:58:34,595 --> 00:58:38,055 Merrill Lynch assisted Enron in cooking its books 1089 00:58:38,098 --> 00:58:42,098 by pretending to purchase an existing Enron asset 1090 00:58:42,144 --> 00:58:45,774 when it was really engaged in a loan. 1091 00:58:45,856 --> 00:58:50,356 The accounting sham involved the sale of an interest in three Nigerian barges. 1092 00:58:51,320 --> 00:58:53,990 NARRATOR: Nigeria is a long way from Manhattan, 1093 00:58:54,072 --> 00:58:58,032 yet for some reason toward the end of the fourth quarter in 1999, 1094 00:58:58,243 --> 00:59:00,623 Merrill Lynch suddenly decided to buy 1095 00:59:00,662 --> 00:59:03,922 three Nigerian power barges from Enron. 1096 00:59:03,957 --> 00:59:07,877 LERACH: Nigerian power barges have nothing to do with Merrill Lynch's business. 1097 00:59:07,961 --> 00:59:10,501 It was a blatantly illegal transaction. 1098 00:59:10,589 --> 00:59:14,469 It was just taking the barges, getting them off Enron's books, 1099 00:59:14,551 --> 00:59:18,801 having Merrill Lynch, if you will, warehouse them for five months, 1100 00:59:18,847 --> 00:59:20,217 and then buying them back. 1101 00:59:20,307 --> 00:59:23,097 LEVIN: Mr. Martin, you've testified here today 1102 00:59:23,143 --> 00:59:25,353 that there was no guarantee, 1103 00:59:25,437 --> 00:59:27,647 and you said that under oath. 1104 00:59:28,065 --> 00:59:32,935 Here's a document saying that the head of your whole division here 1105 00:59:32,986 --> 00:59:37,026 was going to confirm that understanding. 1106 00:59:40,702 --> 00:59:44,662 MCLEAN: Over the year 2001, Skilling became increasingly despondent. 1107 00:59:44,706 --> 00:59:46,326 He'd always been a moody guy, 1108 00:59:46,416 --> 00:59:50,036 but people who knew him said he became just increasingly volatile, 1109 00:59:50,128 --> 00:59:52,508 would show up for work unshaven, looking bleary-eyed. 1110 00:59:52,589 --> 00:59:56,679 And I think it was the battle of holding these two totally disjointed thoughts 1111 00:59:56,718 --> 00:59:58,468 in his mind at the same time. 1112 00:59:58,512 --> 01:00:00,392 One is Enron as superstar company 1113 01:00:00,472 --> 01:00:04,022 and the other of feeling like it was all crumbling away. 1114 01:00:04,351 --> 01:00:07,101 NARRATOR: The first cracks in Skilling's public image 1115 01:00:07,187 --> 01:00:11,187 appeared in a conference call with analysts in April 2001 . 1116 01:00:11,275 --> 01:00:13,685 CHANOS: And then Jeff Skilling took questions. 1117 01:00:13,735 --> 01:00:18,355 And about midway through the session, there was a question 1118 01:00:18,448 --> 01:00:21,778 and it was sort of aggressively wondering out loud 1119 01:00:21,868 --> 01:00:26,158 why it was that Enron, as a financial services company in effect, 1120 01:00:26,206 --> 01:00:29,996 could not release a balance sheet with its earnings statement 1121 01:00:30,043 --> 01:00:32,043 like most financial institutions do. 1122 01:00:45,225 --> 01:00:46,475 (SKILLING CHUCKLING) 1123 01:00:46,893 --> 01:00:50,483 And then quite audibly you could hear Skilling say "asshole." 1124 01:00:50,897 --> 01:00:52,647 And then he said, "asshole." 1125 01:00:52,733 --> 01:00:55,903 As I understand, you called him an asshole. 1126 01:00:55,986 --> 01:00:59,696 And this just caused unbelievable amounts of consternation all across Wall Street, 1127 01:00:59,740 --> 01:01:03,950 because people thought, "A Fortune 500 CEO losing it like this, 1128 01:01:04,036 --> 01:01:07,116 "publicly calling an investor an asshole?" 1129 01:01:07,247 --> 01:01:09,247 If I could go back and redo things, 1130 01:01:09,291 --> 01:01:13,591 I would not now have used the term that I used. 1131 01:01:13,628 --> 01:01:16,008 Mark Palmer, Enron's chief PR guy, 1132 01:01:16,089 --> 01:01:18,549 even ran a note up to Skilling telling him to apologize, 1133 01:01:18,592 --> 01:01:20,182 and he just took the piece of paper 1134 01:01:20,260 --> 01:01:22,470 and tucked it under the pile of papers on his desk. 1135 01:01:22,554 --> 01:01:25,434 And afterwards, Enron's traders, who had erupted in cheers 1136 01:01:25,474 --> 01:01:27,894 once Skilling called this guy an asshole, made him a sign. 1137 01:01:27,934 --> 01:01:30,024 It was a play off Enron's motto, "Ask why." 1138 01:01:30,103 --> 01:01:34,113 And the sign said, "Ask why, asshole." 1139 01:01:34,149 --> 01:01:38,149 My personal feeling was that Jeff looked at the numbers 1140 01:01:38,236 --> 01:01:43,066 and he knew that we were in a massive hole. 1141 01:01:43,867 --> 01:01:47,907 It was the only time that I saw him truly, truly worried 1142 01:01:47,954 --> 01:01:50,044 about keeping the stock price up. 1143 01:01:50,123 --> 01:01:51,463 And he just kept saying to me, 1144 01:01:51,541 --> 01:01:54,501 "I don't know what the hell I'm going to do." 1145 01:01:57,631 --> 01:02:00,301 ELKIND: The broadband business was in complete meltdown, 1146 01:02:00,384 --> 01:02:02,594 and there were all sorts of other problems that Jeff Skilling, 1147 01:02:02,636 --> 01:02:05,806 as the company's chief operating officer, was wrestling with. 1148 01:02:05,847 --> 01:02:07,427 In the middle of all of this, 1149 01:02:07,474 --> 01:02:11,274 Ken Lay walks into Jeff Skilling's office holding up fabric swatches 1150 01:02:11,311 --> 01:02:15,151 for the new G5 $45 million corporate jet he wanted to buy. 1151 01:02:15,482 --> 01:02:19,282 And he said to Jeff... Asked him a very important question, 1152 01:02:19,319 --> 01:02:22,449 "Which of these cabin configurations do you like best, Jeff?" 1153 01:02:23,615 --> 01:02:27,325 NARRATOR: While Ken Lay was stressing over the corporate jet, 1154 01:02:27,411 --> 01:02:30,001 EES was headed for a crash landing. 1155 01:02:30,580 --> 01:02:32,830 Facing 500 million in losses, 1156 01:02:32,916 --> 01:02:35,496 Lou Pai's top lieutenant, Tom White, 1157 01:02:35,585 --> 01:02:39,665 wondered how EES could show a profit by the end of the quarter. 1158 01:02:40,340 --> 01:02:45,220 One of the things that was always a strange occurrence at Enron was, 1159 01:02:46,179 --> 01:02:49,889 for weeks before a quarterly report, 1160 01:02:49,975 --> 01:02:52,265 we would be under the impression 1161 01:02:52,352 --> 01:02:54,652 that we weren't going to make our numbers. 1162 01:02:54,688 --> 01:02:56,808 But then somehow miraculously 1163 01:02:56,857 --> 01:02:59,857 we always made the numbers and then some. 1164 01:02:59,943 --> 01:03:03,203 But then a question was asked to Tom White, 1165 01:03:03,238 --> 01:03:05,868 "How is it that we made the numbers?" 1166 01:03:06,324 --> 01:03:09,914 And his answer was one word, 1167 01:03:10,704 --> 01:03:12,714 "California." 1168 01:03:16,418 --> 01:03:19,088 (PHANTOM PLANET SINGING CALIFORNIA) 1169 01:03:19,171 --> 01:03:22,211 NARRATOR: The first clues to Enron's new strategy 1170 01:03:22,299 --> 01:03:23,469 hit California with a jolt. 1171 01:03:25,385 --> 01:03:28,175 NEWSCASTER: It started at noon, rolling across the state. 1172 01:03:28,221 --> 01:03:29,601 Sacramento, San Francisco, 1173 01:03:29,681 --> 01:03:31,351 Beverly Hills, Long Beach, 1174 01:03:31,391 --> 01:03:32,601 San Diego. 1175 01:03:32,684 --> 01:03:37,614 26,000 miles of California power lines, enough to circle the earth. 1176 01:03:37,689 --> 01:03:39,359 But for the second day in a row, 1177 01:03:39,399 --> 01:03:42,399 not enough electricity for America's largest state 1178 01:03:42,486 --> 01:03:44,526 and the world's sixth-largest economy. 1179 01:03:44,571 --> 01:03:46,571 The first thing we heard about this energy crisis 1180 01:03:46,615 --> 01:03:48,195 is our lights are gonna go off in the middle of winter 1181 01:03:48,241 --> 01:03:51,331 when we were using half the electricity we normally use during the summer. 1182 01:03:51,411 --> 01:03:55,121 REPORTER: The Bay Area got hit by not one, but two rolling blackouts. 1183 01:03:55,207 --> 01:03:59,457 LYNCH: We only need 28,000 to 30,000 megawatts in December. 1184 01:03:59,669 --> 01:04:04,049 We have an installed capacity in California, at the time, of 45,000 megawatts. 1185 01:04:04,090 --> 01:04:06,840 Plenty of power to meet our electric demand. 1186 01:04:06,927 --> 01:04:09,087 Of course, we had blackouts in December. 1187 01:04:09,137 --> 01:04:12,097 NEWSCASTER: The people who control California's power grid say 1188 01:04:12,182 --> 01:04:14,482 once again they're worried about having to blackout 1189 01:04:14,559 --> 01:04:16,269 the northern half of the state. 1190 01:04:16,353 --> 01:04:18,233 WHITEHEAD: When the rolling blackouts started in California, 1191 01:04:18,271 --> 01:04:20,271 there was definitely a lot of excitement in the air. 1192 01:04:20,357 --> 01:04:21,647 It was something new. 1193 01:04:21,733 --> 01:04:23,443 It was something that hadn't been encountered before. 1194 01:04:23,527 --> 01:04:27,397 It was, how is this event gonna affect the price of power. 1195 01:04:27,447 --> 01:04:30,117 WOMAN OVER PHONE: Controlled rotating outages are being implemented. 1196 01:04:30,158 --> 01:04:34,118 I knew. I knew that there was illegality going on. 1197 01:04:34,162 --> 01:04:36,412 I could feel it, I could smell it, I could sense it 1198 01:04:36,456 --> 01:04:38,116 and there was no other explanation, 1199 01:04:38,208 --> 01:04:40,038 because the numbers didn't just add up. 1200 01:04:40,126 --> 01:04:43,876 We had enough power in California. It was never about lack of supply. 1201 01:04:43,964 --> 01:04:45,674 DAVIS: When I ran for Governor in 1998, 1202 01:04:45,757 --> 01:04:48,127 not one human being asked me about electricity. 1203 01:04:48,218 --> 01:04:50,838 This thing kind of came out of the woods as far as I was concerned, 1204 01:04:50,929 --> 01:04:54,349 and I was trying in the early days to learn what was happening, 1205 01:04:54,432 --> 01:04:55,982 how we could fix the problem. 1206 01:04:58,144 --> 01:05:01,984 DUNN: California was selected by Enron as the prime place 1207 01:05:02,023 --> 01:05:05,403 to experiment with this new concept of deregulated electricity. 1208 01:05:05,485 --> 01:05:08,645 Reducing electricity cost is only one benefit 1209 01:05:08,697 --> 01:05:10,317 from choice and competition. 1210 01:05:10,574 --> 01:05:13,834 NARRATOR: In 1996, under pressure from energy companies, 1211 01:05:13,868 --> 01:05:17,328 Governor Pete Wilson and the California legislature passed a bill 1212 01:05:17,372 --> 01:05:20,212 allowing for the deregulation of electricity. 1213 01:05:20,333 --> 01:05:22,383 DUNN: I wasn't in the legislature in 1996, 1214 01:05:22,460 --> 01:05:25,590 but I can tell you that there isn't a legislator alive 1215 01:05:26,089 --> 01:05:28,509 that can tell you with any sophistication 1216 01:05:28,758 --> 01:05:31,798 how a deregulated electricity market ought to work. 1217 01:05:32,178 --> 01:05:33,508 Not a one. 1218 01:05:33,722 --> 01:05:37,142 NARRATOR: California's deregulated system was a bizarre compromise 1219 01:05:37,183 --> 01:05:40,103 between legislators and free-market advocates. 1220 01:05:40,186 --> 01:05:43,186 The rules were complicated and hard to follow. 1221 01:05:43,648 --> 01:05:48,068 Inside Enron, California's system was little more than a joke. 1222 01:05:48,320 --> 01:05:49,860 And once in place, 1223 01:05:49,904 --> 01:05:53,624 Enron made sure that the joke would be on California. 1224 01:05:53,867 --> 01:05:57,447 FREEMAN: I remember the conversation I'd had with Ken. At the end of it he said, 1225 01:05:57,537 --> 01:05:59,707 "Well, Dave, old buddy, let me just tell you. 1226 01:05:59,789 --> 01:06:01,619 "It doesn't matter really to us 1227 01:06:01,708 --> 01:06:04,748 "what kooky rules you Californians put in place. 1228 01:06:04,836 --> 01:06:06,706 "I got a bunch of really smart people down here 1229 01:06:06,796 --> 01:06:08,546 "that'll figure out how to make money anyhow." 1230 01:06:10,550 --> 01:06:13,840 NARRATOR: One of the smartest guys at Enron was Tim Belden 1231 01:06:13,887 --> 01:06:16,467 who ran the west coast trading desk. 1232 01:06:16,973 --> 01:06:20,603 MCLEAN: Tim Belden was a fervent believer in the idea of free markets. 1233 01:06:20,685 --> 01:06:23,305 And as such, he spent hours pouring over the new rules 1234 01:06:23,396 --> 01:06:26,316 for the deregulation of California's energy industry, 1235 01:06:26,399 --> 01:06:29,569 looking for loopholes that Enron could exploit to make money. 1236 01:06:29,653 --> 01:06:31,113 NARRATOR: He found plenty. 1237 01:06:31,196 --> 01:06:34,066 After the bankruptcy, a confidential memo surfaced 1238 01:06:34,115 --> 01:06:36,575 revealing the names of Belden's strategies 1239 01:06:36,660 --> 01:06:38,910 to gain the California market. 1240 01:06:42,791 --> 01:06:46,711 Recently, audiotapes of the Enron traders were discovered. 1241 01:06:56,721 --> 01:06:57,931 (LAUGHING UPROARIOUSLY) 1242 01:06:58,848 --> 01:07:02,138 NARRATOR: The tapes revealed Enron's contempt for any values 1243 01:07:02,227 --> 01:07:04,937 except one: making money. 1244 01:07:22,539 --> 01:07:23,539 (CHUCKLING) 1245 01:07:27,127 --> 01:07:29,747 WHITEHEAD: An arbitrage opportunity has been defined to me 1246 01:07:29,796 --> 01:07:31,956 as any opportunity to make abnormal profits. 1247 01:07:32,048 --> 01:07:34,468 So an abnormal profit would be 1248 01:07:34,509 --> 01:07:37,549 returns above and beyond the norm. 1249 01:07:37,637 --> 01:07:40,637 I was told that a good trader is a creative trader, 1250 01:07:40,682 --> 01:07:45,142 and a creative trader is a trader that can find arbitrage opportunities. 1251 01:07:45,770 --> 01:07:48,980 NARRATOR: One of those opportunities was called "Ricochet." 1252 01:07:52,193 --> 01:07:54,073 In the midst of the energy shortages, 1253 01:07:54,154 --> 01:07:57,874 Enron traders started to export power out of the state. 1254 01:07:57,949 --> 01:08:00,869 When prices soared, they brought it back in. 1255 01:08:09,169 --> 01:08:11,999 WHITEHEAD: Traders would stay after a 12-hour shift 1256 01:08:12,046 --> 01:08:14,836 and pour over maps of the western energy grid. 1257 01:08:14,924 --> 01:08:17,514 What are the permutations and combinations of ways 1258 01:08:17,552 --> 01:08:19,932 to move power around the west? 1259 01:08:20,013 --> 01:08:22,223 And I think that's something that Enron knew better 1260 01:08:22,307 --> 01:08:25,517 than any other energy marketer in the country, period. 1261 01:08:37,906 --> 01:08:38,946 (LAUGHlNG) 1262 01:08:39,032 --> 01:08:40,782 WOMAN: These are two traders. 1263 01:08:40,867 --> 01:08:44,077 T-r-a-d-e-r-s. This is what they say. 1264 01:08:44,162 --> 01:08:47,832 "What we did was overbook the transmission line we had the rights on 1265 01:08:47,874 --> 01:08:50,044 "and said to California Utilities, 1266 01:08:50,084 --> 01:08:52,964 "'if you want to use the line, pay us.' 1267 01:08:53,046 --> 01:08:58,046 "By the time they agreed to meet our price, rolling blackouts had already hit California, 1268 01:08:58,134 --> 01:09:00,394 "and the price for electricity went through the roof." 1269 01:09:00,428 --> 01:09:02,848 Did you have any knowledge that this was happening? 1270 01:09:02,889 --> 01:09:05,309 SKILLING: The only thing that I'm aware of, Senator, 1271 01:09:05,391 --> 01:09:08,521 is there was a difference of opinion 1272 01:09:08,561 --> 01:09:11,021 on the rules of the independent system operator. 1273 01:09:11,064 --> 01:09:13,944 It was just set up. The rules weren't quite clear. 1274 01:09:14,025 --> 01:09:18,025 We have traders here from Enron who were saying they did something wrong, 1275 01:09:18,071 --> 01:09:19,451 but you don't see anything wrong. 1276 01:09:19,531 --> 01:09:22,371 I have one last question, and then I am done. 1277 01:09:23,451 --> 01:09:27,291 NARRATOR: Traders soon discovered that by shutting down power plants 1278 01:09:27,372 --> 01:09:32,332 they could create artificial shortages that would push prices even higher. 1279 01:09:32,752 --> 01:09:33,962 (PHONE RlNGlNG) 1280 01:09:48,017 --> 01:09:50,517 DAVIS: When you see two or three energy companies 1281 01:09:50,603 --> 01:09:53,653 with 30, 35% of their entire capacity 1282 01:09:53,731 --> 01:09:56,441 down for maintenance on a single day, 1283 01:09:56,526 --> 01:10:01,526 and as a result, the price of electricity skyrocketing three or 400%, 1284 01:10:01,781 --> 01:10:04,991 and then a week later someone else does it up in northern California, 1285 01:10:05,076 --> 01:10:07,656 you begin to believe something's not smelling right here. 1286 01:10:14,961 --> 01:10:17,091 Those guys, at the flip of a switch, 1287 01:10:17,130 --> 01:10:20,420 could just yank the California economy on its leash whenever they wanted to 1288 01:10:20,466 --> 01:10:23,636 and they did and did it and they did it, and they made so much money. 1289 01:10:23,678 --> 01:10:28,058 The heart of it is an industry that went for 1 00 years, 1290 01:10:28,433 --> 01:10:33,193 from the days of Edison, built the best electrical system in the world, 1291 01:10:33,271 --> 01:10:37,861 sold the power at reasonable prices to consumers and was very reliable, 1292 01:10:37,942 --> 01:10:40,442 was all of a sudden turned into a casino. 1293 01:10:43,531 --> 01:10:46,491 NARRATOR: These strategies made some money for Enron, 1294 01:10:46,534 --> 01:10:51,334 but the real money was made by betting that the price of energy would go up. 1295 01:10:51,372 --> 01:10:56,342 It did, and the west coast traders made nearly $2 billion for Enron. 1296 01:10:56,920 --> 01:10:59,710 (OINGO BOINGO SINGING CAPITALISM) 1297 01:11:02,508 --> 01:11:05,678 FREEMAN: You can't treat electricity like you treat oranges. 1298 01:11:05,720 --> 01:11:08,510 It's the lifeblood of society. It can't be stored. 1299 01:11:08,556 --> 01:11:12,846 You can't turn these people loose and let them just have 1300 01:11:12,894 --> 01:11:15,694 a "free market," because a free market 1301 01:11:15,772 --> 01:11:18,442 is goddamn expensive to the customers. 1302 01:11:23,196 --> 01:11:24,236 WICKMAN: It wasn't just Enron. 1303 01:11:24,322 --> 01:11:27,372 Every company traded according to the rules 1304 01:11:27,450 --> 01:11:29,660 that California put up there. 1305 01:11:40,088 --> 01:11:41,878 WHITEHEAD: We're talking about a commodity 1306 01:11:41,923 --> 01:11:44,883 that normally trades in the $35-45 range. 1307 01:11:44,968 --> 01:11:49,298 High prices are when it gets in the 50s or $1 ,000. 1308 01:12:00,566 --> 01:12:03,356 MCLEAN: The Enron traders never seemed to step back and say, 1309 01:12:03,403 --> 01:12:07,453 "Wait. Is what we're doing ethical? Is it in our best long-term interests? 1310 01:12:07,532 --> 01:12:10,492 "Does it help us if we totally rape California? 1311 01:12:10,576 --> 01:12:13,576 "Does that advance our goals of nationwide deregulation?" 1312 01:12:13,663 --> 01:12:16,503 Instead, they sought out every loophole they could 1313 01:12:16,582 --> 01:12:18,752 in order to profit from California's misery. 1314 01:12:19,752 --> 01:12:23,882 NEWSCASTER: Temperatures in California are hitting higher than 100 degrees, 1315 01:12:23,923 --> 01:12:28,053 fueling wildfires and fears that California's strained power grid 1316 01:12:28,094 --> 01:12:30,434 could once again near collapse. 1317 01:12:44,986 --> 01:12:48,446 WHITEHEAD: I was never comfortable on the trading floor at Enron. 1318 01:12:49,073 --> 01:12:50,913 And if I had questions, 1319 01:12:50,950 --> 01:12:54,700 I didn't ask them because I didn't want to know the answer. 1320 01:12:55,038 --> 01:12:59,458 You know, I didn't want confirmed what I suspected might be true, 1321 01:12:59,792 --> 01:13:03,962 that what I was doing was in fact unseemly 1322 01:13:05,423 --> 01:13:10,053 or was at least unethical, if not worse. 1323 01:13:12,138 --> 01:13:14,968 NARRATOR: Why did the traders do what they did? 1324 01:13:15,016 --> 01:13:17,556 Was it their multimillion-dollar bonuses 1325 01:13:17,643 --> 01:13:22,653 or had Enron found a way to exploit the darker side of human behavior? 1326 01:13:24,400 --> 01:13:27,820 RAPOPORT: In the early '60s, Stanley Milgram tried to figure out 1327 01:13:27,945 --> 01:13:30,315 what characteristics there were of evil people. 1328 01:13:30,364 --> 01:13:32,664 Was there an evil strain 1329 01:13:32,700 --> 01:13:35,080 or could normal people do really bad things? 1330 01:13:35,328 --> 01:13:37,038 So he set up this experiment. 1331 01:13:37,121 --> 01:13:41,291 In the experiment, he had an actor playing an experimental subject 1332 01:13:41,334 --> 01:13:43,674 and a real experimental subject. 1333 01:13:43,711 --> 01:13:45,551 Step right in here and have a seat. 1334 01:13:45,630 --> 01:13:48,880 They went into this room and he had the experimenter say, 1335 01:13:48,966 --> 01:13:53,346 "We're going to see if mild electric shocks will help people memorize lists." 1336 01:13:53,805 --> 01:13:55,095 (BUZZING) Incorrect. 1337 01:13:55,181 --> 01:13:58,351 You will now get a shock of 75 volts. 1338 01:13:58,434 --> 01:13:59,434 (MAN YELPS) 1339 01:13:59,519 --> 01:14:01,309 "Soft hair." 1340 01:14:01,562 --> 01:14:03,192 He kind of did some yelling in there. 1341 01:14:03,231 --> 01:14:05,941 RAPOPORT: The Milgram experiment has a lot to say about Enron 1342 01:14:06,025 --> 01:14:10,485 because I think people lost their sense of morality. 1343 01:14:10,530 --> 01:14:12,660 Like Milgram, once you accepted the idea 1344 01:14:12,698 --> 01:14:15,828 that behaving inhumanely was okay, you could do anything. 1345 01:14:15,868 --> 01:14:19,288 And the shocks increased with the number of mistakes that they made. 1346 01:14:19,372 --> 01:14:21,082 MAN: I can't stand the pain! Let me out of here! 1347 01:14:21,165 --> 01:14:23,875 He can't stand it. I'm not gonna kill that man in there. 1348 01:14:23,960 --> 01:14:25,460 RAPOPORT: The subject, the real subject, 1349 01:14:25,545 --> 01:14:28,205 is begging the scientist-looking person to stop, too, 1350 01:14:28,256 --> 01:14:30,546 and the scientist only says, 1351 01:14:30,633 --> 01:14:32,883 "The experiment requires that you continue." 1352 01:14:32,969 --> 01:14:35,049 Please continue. Go on, please. 1353 01:14:35,096 --> 01:14:37,216 You accept all the responsibility? 1354 01:14:37,265 --> 01:14:39,845 The responsibility is mine. Correct. Please go on. 1355 01:14:39,892 --> 01:14:44,562 SWARTZ: In a way, Skilling was almost like the guy telling those people below him 1356 01:14:44,647 --> 01:14:47,187 that it was okay to up the power. 1357 01:14:47,233 --> 01:14:48,733 420 volts. 1358 01:14:48,776 --> 01:14:51,526 California's electric utilities may have to pull the plug 1359 01:14:51,571 --> 01:14:53,661 on millions of customers. 1360 01:14:59,745 --> 01:15:01,365 435 volts. 1361 01:15:02,206 --> 01:15:04,416 NARRATOR: During the height of Wednesday's blackout, 1362 01:15:04,458 --> 01:15:07,458 fire crews had to free people trapped in elevators. 1363 01:15:21,976 --> 01:15:23,806 450 volts. 1364 01:15:24,020 --> 01:15:28,730 (RAMONES SINGING CALIFORNIA SUN) 1365 01:15:29,483 --> 01:15:31,323 SCIENTIST: You must continue. Go on, please. 1366 01:15:31,402 --> 01:15:34,452 You're gonna keep giving him, what, 450 volts every shock now? 1367 01:15:34,488 --> 01:15:36,198 SCIENTIST: That's correct. Continue. 1368 01:15:51,214 --> 01:15:52,764 450 volts. 1369 01:15:53,633 --> 01:15:55,973 NARRATOR: Milgram's discovery was disturbing. 1370 01:15:56,010 --> 01:15:59,550 50% of the subjects were willing to shock to the death, 1371 01:15:59,639 --> 01:16:03,979 so long as the commands came from a seemingly legitimate source. 1372 01:16:05,311 --> 01:16:06,441 (MAN SCREAMING) 1373 01:16:12,777 --> 01:16:15,277 DAVIS: Tonight I'm declaring a state of emergency in California 1374 01:16:15,905 --> 01:16:18,945 to give the state the authority and the resources 1375 01:16:18,991 --> 01:16:20,491 to keep the lights on in California. 1376 01:16:20,576 --> 01:16:23,746 The governor, who's been basically capitulating 1377 01:16:23,829 --> 01:16:26,409 to the demands of the energy companies and utility companies, 1378 01:16:26,499 --> 01:16:27,959 needs to put his foot down. 1379 01:16:28,000 --> 01:16:30,210 ROSENFIELD: We wanted the governor to send in the state police 1380 01:16:30,294 --> 01:16:33,094 or the national guard to seize control of the power plants 1381 01:16:33,172 --> 01:16:34,302 and put them back on line. 1382 01:16:34,340 --> 01:16:36,010 And I thought we didn't have to take over every plant. 1383 01:16:36,092 --> 01:16:39,342 We only had to take over one, 'cause then they would know he meant it. 1384 01:16:39,428 --> 01:16:42,178 I'm going to get the $9 billion back 1385 01:16:42,223 --> 01:16:46,603 that Enron, Dynegy and Reliant stole from us and get it back to you. 1386 01:16:46,686 --> 01:16:49,226 Despite what people in California think, 1387 01:16:49,313 --> 01:16:53,443 Enron's making money despite California, not because of California. 1388 01:16:53,985 --> 01:16:55,685 NARRATOR: The year-long energy crisis 1389 01:16:55,778 --> 01:16:59,198 would cost the state of California $30 billion. 1390 01:17:00,825 --> 01:17:04,865 The markets in California are the most regulated markets 1391 01:17:04,954 --> 01:17:09,544 in North America today, and that's what's causing the problem. 1392 01:17:09,875 --> 01:17:13,915 California, it never deregulated. Enron, buy stock today. 1393 01:17:14,046 --> 01:17:15,256 (PEOPLE LAUGHlNG) 1394 01:17:15,381 --> 01:17:16,421 Thank you very much. 1395 01:17:16,507 --> 01:17:17,507 (APPLAUSE) 1396 01:17:17,550 --> 01:17:18,930 SKILLING: We are doing the right thing. 1397 01:17:19,010 --> 01:17:21,510 -MAN: You're the good guys. -We are the good guys. 1398 01:17:21,554 --> 01:17:23,514 We are on the side of angels. 1399 01:17:23,597 --> 01:17:25,887 Oh, I can't help myself. You know what the difference is 1400 01:17:25,933 --> 01:17:29,063 between the state of California and the Titanic? 1401 01:17:29,228 --> 01:17:30,398 (PEOPLE LAUGHlNG) 1402 01:17:32,565 --> 01:17:35,145 And this is being webcast. I know I'm going to regret this. 1403 01:17:35,234 --> 01:17:38,824 At least when the Titanic went down, the lights were on. 1404 01:17:38,904 --> 01:17:39,994 (LAUGHlNG) 1405 01:17:40,197 --> 01:17:41,197 (APPLAUDING) 1406 01:17:42,241 --> 01:17:45,331 (CHANTING) Jeffrey Skilling, how does it feel to make a killing? 1407 01:17:45,411 --> 01:17:48,461 NEWSCASTER: A top executive at one of America's biggest power companies 1408 01:17:48,539 --> 01:17:52,249 received a raucous welcome in San Francisco tonight. 1409 01:17:52,335 --> 01:17:56,665 Protesters heckled Enron's CEO Jeffrey Skilling outside 1410 01:17:56,756 --> 01:17:59,586 and inside during his appearance at the Commonwealth Club. 1411 01:17:59,675 --> 01:18:03,545 One of the protesters even brought a blueberry pie and delivered it herself. 1412 01:18:03,596 --> 01:18:04,596 (YELPING) 1413 01:18:05,097 --> 01:18:06,427 MAN: Police! 1414 01:18:06,682 --> 01:18:09,932 WOMAN: $1 32 million is what he made. 1415 01:18:10,019 --> 01:18:13,609 We had a 50% hike in utility rates. 1416 01:18:13,647 --> 01:18:17,067 Consumers in California are angry, and they should be. 1417 01:18:17,109 --> 01:18:18,609 And if we had anything to do with this, 1418 01:18:18,652 --> 01:18:20,952 then we are the stupidest people in the world. 1419 01:18:21,614 --> 01:18:23,414 I work for an organization! 1420 01:18:23,449 --> 01:18:26,739 Every day people call and say they can't pay their electricity bills! 1421 01:18:26,786 --> 01:18:29,196 You've made billions of dollars off of California! 1422 01:18:29,288 --> 01:18:30,868 You oughta go to jail! 1423 01:18:31,332 --> 01:18:34,672 ROSENFIELD: When the tidal wave of public anger started to grow, 1424 01:18:34,752 --> 01:18:38,252 Ken Lay flew out here and convened a meeting of friends. 1425 01:18:38,297 --> 01:18:40,667 And I guess he had a little more foresight than we did. 1426 01:18:40,758 --> 01:18:42,798 He invited Arnold Schwarzenegger, 1427 01:18:42,843 --> 01:18:45,603 brought them together at the Peninsula Hotel and had a lunch meeting. 1428 01:18:45,638 --> 01:18:49,138 The notes from that meeting really still have never surfaced. 1429 01:18:49,225 --> 01:18:51,805 But we know that Ken Lay's pitch was 1430 01:18:51,894 --> 01:18:54,194 "We've got to stay the course with deregulation 1431 01:18:54,271 --> 01:18:58,021 "and the market will correct itself and everything will turn out fine." 1432 01:18:58,150 --> 01:19:00,150 Now, at the time, we didn't understand 1433 01:19:00,236 --> 01:19:02,566 really why he was so concerned, but now we do. 1434 01:19:02,655 --> 01:19:05,485 The fact is that Ken Lay was out here because he understood 1435 01:19:05,533 --> 01:19:07,493 that Enron itself was a house of cards. 1436 01:19:07,576 --> 01:19:10,866 And if deregulation were to collapse, 1437 01:19:10,955 --> 01:19:13,495 then Enron itself would collapse. 1438 01:19:13,582 --> 01:19:15,542 NARRATOR: But Ken Lay had a trump card. 1439 01:19:15,626 --> 01:19:17,376 In the midst of the energy crisis, 1440 01:19:17,461 --> 01:19:21,011 his friend, George W. Bush, became President. 1441 01:19:21,090 --> 01:19:26,300 I, George Walker Bush, do solemnly swear... 1442 01:19:36,730 --> 01:19:40,360 NARRATOR: Ken Lay did have easy access to the Bush administration. 1443 01:19:40,443 --> 01:19:43,573 On April 17, he met with Vice President Dick Cheney 1444 01:19:43,654 --> 01:19:48,414 and strongly argued against the imposition of federal price caps in California. 1445 01:19:48,617 --> 01:19:51,487 CHENEY: We're doing everything we can to help in California on a short-term basis. 1446 01:19:51,537 --> 01:19:52,867 There's not a lot you can do. 1447 01:19:52,913 --> 01:19:55,793 You can't manufacture kilowatts in the west wing of the White House. 1448 01:19:55,875 --> 01:19:58,035 We're fighting with both hands tied behind our back. 1449 01:19:58,085 --> 01:19:59,995 We no longer have the power to stop this. 1450 01:20:00,045 --> 01:20:02,955 If the federal government doesn't help us, we're a dead duck. 1451 01:20:03,048 --> 01:20:06,968 NARRATOR: At the time, Gray Davis was a likely candidate to run for President. 1452 01:20:07,094 --> 01:20:10,104 Ken Lay knew that might give his friend, George Bush, 1453 01:20:10,181 --> 01:20:15,141 a political reason to oppose California's appeals for federal price controls. 1454 01:20:15,352 --> 01:20:18,402 They know full well my administration's belief 1455 01:20:18,481 --> 01:20:22,281 that price controls will not solve the problem. 1456 01:20:22,359 --> 01:20:25,319 His view was that the federal government really shouldn't get involved. 1457 01:20:25,404 --> 01:20:27,414 This is California's problem. 1458 01:20:27,448 --> 01:20:30,278 And I'm saying, "With all due respect, Mr. President, 1459 01:20:30,367 --> 01:20:33,907 "our law said the federal government regulates this. 1460 01:20:33,954 --> 01:20:35,294 "So it is your problem 1461 01:20:35,372 --> 01:20:37,502 "and you make appointments to the federal deregulatory commission." 1462 01:20:37,583 --> 01:20:40,253 So we had a polite but spirited discussion on that 1463 01:20:40,336 --> 01:20:42,166 and he said, "I just can't be of help to you on that." 1464 01:20:42,254 --> 01:20:44,264 As I said from the very beginning of my administration, 1465 01:20:44,298 --> 01:20:47,428 we'll work to help California in any way we can. 1466 01:20:48,135 --> 01:20:51,255 And the best way we can is to be good citizens. 1467 01:20:52,097 --> 01:20:55,677 NARRATOR: FERC, the federal agency which regulates energy in America, 1468 01:20:55,768 --> 01:20:58,438 refused to intervene. 1469 01:20:58,521 --> 01:21:01,651 What was FERC doing, and why was it not taking action? 1470 01:21:01,732 --> 01:21:04,032 NARRATOR: The chairman of FERC was Pat Wood, 1471 01:21:04,109 --> 01:21:07,779 the man Ken Lay had personally recommended for the job. 1472 01:21:07,863 --> 01:21:10,113 DAVIS: It was easy for FERC to do Enron's bidding, 1473 01:21:10,157 --> 01:21:13,447 because all they had to do was do nothing, which they did very well. 1474 01:21:13,536 --> 01:21:15,946 NEWSCASTER: Federal regulators are being pressured to act 1475 01:21:15,996 --> 01:21:18,406 by the now democratic-controlled Senate... 1476 01:21:18,457 --> 01:21:22,707 NARRATOR: A democratic Senate forced FERC to impose regional price caps. 1477 01:21:22,795 --> 01:21:26,375 That ended the energy crisis, but not the political one. 1478 01:21:26,465 --> 01:21:29,175 MAN: Did Ken Lay and George Bush have a political agenda 1479 01:21:29,260 --> 01:21:33,010 to blame the energy crisis on Gray Davis and... 1480 01:21:33,097 --> 01:21:34,467 Hello! 1481 01:21:34,515 --> 01:21:37,425 NEWSCASTER: It's one of those "Only in California" stories. 1482 01:21:37,476 --> 01:21:40,056 The state's unpopular governor, Gray Davis, 1483 01:21:40,145 --> 01:21:44,315 beset by an ailing economy and a $38 billion budget deficit 1484 01:21:44,400 --> 01:21:46,570 faces possible recall, 1485 01:21:46,652 --> 01:21:49,492 and rumored as a possible replacement for Davis, 1486 01:21:49,530 --> 01:21:52,120 movie star Arnold Schwarzenegger. 1487 01:21:52,157 --> 01:21:55,327 The Terminator? We'll see whether he's back or not. 1488 01:21:55,411 --> 01:21:57,451 Gray Davis has terminated opportunities 1489 01:21:57,496 --> 01:22:00,326 and now it's time we terminate Gray Davis. 1490 01:22:00,416 --> 01:22:02,496 (CALIFORNICATION BY RED HOT CHILLI PEPPERS PLAYING) 1491 01:22:02,585 --> 01:22:05,245 ALL: (SHOUTING) Recall! Recall! 1492 01:22:07,214 --> 01:22:10,934 ROSENFIELD: Could I predict a phony energy crisis as a result of deregulation? 1493 01:22:11,010 --> 01:22:12,010 Yes. 1494 01:22:12,094 --> 01:22:13,724 Could I predict that Arnold Schwarzenegger 1495 01:22:13,804 --> 01:22:16,514 would be our Governor as a result of deregulation? 1496 01:22:17,099 --> 01:22:18,389 Never would've come up with that. 1497 01:22:18,475 --> 01:22:20,175 That's like a bad science fiction movie. 1498 01:22:20,227 --> 01:22:22,437 Apparently, we have been all wrong. 1499 01:22:22,521 --> 01:22:25,441 It is pronounced "Kal-ee-'for-nyah." 1500 01:22:25,524 --> 01:22:26,694 Ladies and gentlemen, 1501 01:22:26,775 --> 01:22:28,735 the Governor of the great state of California, 1502 01:22:28,819 --> 01:22:30,699 Arnold Schwarzenegger! 1503 01:22:46,337 --> 01:22:50,297 We could just hear rumbles all the way up and down main street 1504 01:22:50,382 --> 01:22:54,592 here and all throughout the city that things were very difficult at Enron. 1505 01:22:54,678 --> 01:22:57,388 One guy who a year before had come to me and said 1506 01:22:57,473 --> 01:22:59,643 "I'm working for Enron," and was very excited, 1507 01:22:59,725 --> 01:23:03,225 but within a year was waking up every night with nightmares. 1508 01:23:03,312 --> 01:23:05,272 "I've got no life left 1509 01:23:05,356 --> 01:23:08,396 "and I feel like I'm being consumed by this company." 1510 01:23:08,484 --> 01:23:11,074 NARRATOR: As doubts began to surface about the company 1511 01:23:11,153 --> 01:23:16,033 and the erratic behavior of its CEO, Enron stock began to fall. 1512 01:23:16,742 --> 01:23:19,622 MARTIN-BROCK: I remember one of the most poignant meetings I'd ever had with Jeff. 1513 01:23:19,703 --> 01:23:21,163 I had left Enron 1514 01:23:21,246 --> 01:23:24,456 and I have come over to talk about whether or not I would return to Enron. 1515 01:23:24,541 --> 01:23:26,791 I said, "Jeff, you've got a real problem. 1516 01:23:26,877 --> 01:23:29,457 "The traders, they will cut your throat 1517 01:23:29,546 --> 01:23:32,086 "if they think it will get them to the trough sooner." 1518 01:23:32,758 --> 01:23:35,048 Jeff was silent. 1519 01:23:35,094 --> 01:23:39,184 And he looked out the window and he looked back at me and he said 1520 01:23:39,264 --> 01:23:42,604 "Yeah, Amanda, you're most likely right." 1521 01:23:43,894 --> 01:23:46,814 By the end, the traders ran Enron. 1522 01:23:46,897 --> 01:23:50,017 You know, the inmates had taken over the asylum. 1523 01:23:52,111 --> 01:23:55,911 EBERTS: All through the summer, the stock continued to decline. 1524 01:23:55,989 --> 01:23:57,529 There was a buzz 1525 01:23:57,616 --> 01:24:00,946 that a major announcement was going to take place. 1526 01:24:01,036 --> 01:24:02,946 But we all thought that 1527 01:24:03,038 --> 01:24:06,538 Ken Lay was leaving Enron 1528 01:24:06,625 --> 01:24:10,245 and that he been asked by the Bush administration 1529 01:24:10,295 --> 01:24:13,295 to join his administration. 1530 01:24:13,340 --> 01:24:15,220 But that wasn't the case at all. 1531 01:24:15,300 --> 01:24:19,970 It was Jeff Skilling announcing that he was stepping down as the CEO 1532 01:24:20,055 --> 01:24:22,845 and that took everyone by surprise. 1533 01:24:22,933 --> 01:24:24,983 No one could believe that. 1534 01:24:25,310 --> 01:24:29,400 CHANOS: CEO's generally don't just resign out of the blue 1535 01:24:29,481 --> 01:24:33,651 without a well-orchestrated PR campaign beforehand 1536 01:24:33,694 --> 01:24:35,324 to pave the way so there's no disruption, 1537 01:24:35,404 --> 01:24:38,164 there's no questions, there's no front-page stories, 1538 01:24:38,240 --> 01:24:40,530 which, of course, is exactly what happened. 1539 01:24:42,369 --> 01:24:44,539 It was at that point that I knew 1540 01:24:44,621 --> 01:24:47,581 the architect of the disaster knows that it's crumbling 1541 01:24:47,666 --> 01:24:50,416 and the rat is leaving the sinking ship. 1542 01:24:51,462 --> 01:24:54,712 COALE: Two days later, I met with him and Ken Lay. 1543 01:24:54,798 --> 01:24:57,718 So I had informed the company that I was going to downgrade the stock 1544 01:24:57,801 --> 01:24:59,841 on Skilling's resignation. 1545 01:24:59,928 --> 01:25:02,928 I asked Jeff Skilling, "Are there any more shoes to drop? 1546 01:25:03,015 --> 01:25:04,345 "Have we seen the worst of it?" 1547 01:25:04,391 --> 01:25:08,851 I was concerned about the energy crisis that was occurring in California. 1548 01:25:09,605 --> 01:25:12,855 Well, Skilling convinced me that it was for personal reasons. 1549 01:25:12,941 --> 01:25:16,441 I left his meeting feeling sort of emotional 1550 01:25:16,528 --> 01:25:19,448 because of the concern that he seemed to be showing 1551 01:25:19,531 --> 01:25:22,371 about the relationship he had with his family. 1552 01:25:22,451 --> 01:25:24,161 He appeared to be distraught. 1553 01:25:24,203 --> 01:25:27,163 And I remembered saying to an investor, 1554 01:25:27,206 --> 01:25:29,076 "If he's not telling the truth, 1555 01:25:29,166 --> 01:25:32,496 "then it's a good thing he quit his day job because he needs to go to Hollywood." 1556 01:25:32,878 --> 01:25:37,168 I left Enron on August 14, 2001, for personal reasons. 1557 01:25:37,466 --> 01:25:40,796 Mr. Skilling, a massive earthquake 1558 01:25:40,886 --> 01:25:43,386 struck Enron right after your departure, 1559 01:25:43,472 --> 01:25:48,062 and people in far inferior positions to you 1560 01:25:48,560 --> 01:25:50,650 could see cracks in the walls, 1561 01:25:50,729 --> 01:25:53,649 feel the tremors, feel the windows rattling, 1562 01:25:54,107 --> 01:25:58,107 and you want us to believe that you sat there in your office and didn't... 1563 01:25:58,195 --> 01:26:02,155 And had no clue that this place was about to collapse? 1564 01:26:02,783 --> 01:26:06,293 On the day I left, on August 14, 2001 1565 01:26:06,411 --> 01:26:09,251 I believed the company was in strong financial condition. 1566 01:26:09,331 --> 01:26:12,541 I think he was smart enough, and he didn't even have to be that smart. 1567 01:26:12,584 --> 01:26:16,254 He had seen documents that I think predicted the future. 1568 01:26:16,547 --> 01:26:18,377 I think he was smart enough to think 1569 01:26:18,423 --> 01:26:22,303 "I can get out now, and this company isn't going to collapse 1570 01:26:22,386 --> 01:26:25,386 "for a year, maybe a year and a half, 1571 01:26:25,430 --> 01:26:27,180 "so I won't get the blame. 1572 01:26:27,266 --> 01:26:29,556 "It was working fine when I left, guys." 1573 01:26:31,270 --> 01:26:32,940 NARRATOR: After Skilling resigned, 1574 01:26:33,021 --> 01:26:36,401 Enron's chairman, Ken Lay, took over as CEO. 1575 01:26:43,282 --> 01:26:45,372 Boy, I didn't expect that. 1576 01:26:46,910 --> 01:26:51,250 But thank you. Thank you very much. I'm delighted to be back. 1577 01:26:52,124 --> 01:26:54,464 I'm sorry Jeff did resign. 1578 01:26:54,501 --> 01:26:56,961 EBERTS: It was a stunning announcement 1579 01:26:57,004 --> 01:26:59,804 that he was stepping down as the CEO. 1580 01:26:59,840 --> 01:27:01,840 And I think the flags 1581 01:27:03,302 --> 01:27:05,802 started going up at that point for everybody. 1582 01:27:05,888 --> 01:27:09,348 We are facing a number of challenges, but we're managing them. 1583 01:27:09,433 --> 01:27:12,983 Indeed, I think the worst of that's behind us 1584 01:27:13,020 --> 01:27:15,310 and the business is doing great. 1585 01:27:15,355 --> 01:27:18,815 We're not the only stock that's decreased in value this year. 1586 01:27:18,859 --> 01:27:21,819 It's just that we've been hit a little harder than many others. 1587 01:27:21,862 --> 01:27:24,912 If a few of these other problems disappear, 1588 01:27:24,990 --> 01:27:29,490 like California, like India, I think the worst is over 1589 01:27:29,536 --> 01:27:31,076 and I'm excited. 1590 01:27:31,163 --> 01:27:33,663 WATKINS: August 14, 2001, 1591 01:27:33,749 --> 01:27:35,579 Jeff Skilling abruptly resigns. 1592 01:27:35,667 --> 01:27:39,747 And that made me angry. It made loads of employees angry. 1593 01:27:39,838 --> 01:27:42,918 I mean, there was a real sense of betrayal by the employees. 1594 01:27:43,008 --> 01:27:46,678 I mean, this was, you know, Jim Jones feeding us the Kool-Aid 1595 01:27:46,762 --> 01:27:48,932 and then deciding not to drink it himself. 1596 01:27:53,435 --> 01:27:55,435 NARRATOR: The day after Skilling resigned, 1597 01:27:55,520 --> 01:27:58,360 Sherron Watkins sent a letter to Ken Lay. 1598 01:27:58,440 --> 01:28:00,520 MAN: We will begin with Miss Watkins. 1599 01:28:00,567 --> 01:28:02,147 I am Sherron Watkins. 1600 01:28:02,194 --> 01:28:04,534 Would you identify your counsel for the committee? 1601 01:28:04,613 --> 01:28:07,373 Yes. My council is Mr. Philip Hilder. 1602 01:28:07,407 --> 01:28:10,987 HILDER: When you hear the story for the first time, it's unbelievable. 1603 01:28:11,036 --> 01:28:13,196 What Sherron was telling me 1604 01:28:13,288 --> 01:28:15,998 was more than accounting irregularities as such. 1605 01:28:16,041 --> 01:28:20,131 I mean, it was a massive fraud of enormous proportions. 1606 01:28:20,212 --> 01:28:25,222 In mid to late June of 2001 , upon the resignation of Cliff Baxter, 1607 01:28:25,300 --> 01:28:27,640 I went to work directly for Mr. Fastow. 1608 01:28:27,719 --> 01:28:31,719 It has evolved to the corporate crime of the century. 1609 01:28:31,807 --> 01:28:36,227 I was highly alarmed by the information I was receiving. 1610 01:28:36,269 --> 01:28:38,059 NARRATOR: What Sherron Watkins discovered 1611 01:28:38,105 --> 01:28:41,895 began the unraveling of Fastow's complex partnerships. 1612 01:28:41,942 --> 01:28:45,032 Andy put me in charge of this asset listing, 1613 01:28:45,070 --> 01:28:48,070 and there were about a dozen assets 1614 01:28:48,115 --> 01:28:52,405 that had been hedged with one of Andy's entities, 1615 01:28:52,452 --> 01:28:53,832 the Raptors. 1616 01:28:53,912 --> 01:28:58,582 So I was working with the spreadsheet and, you know, the math just didn't add up. 1617 01:28:58,625 --> 01:29:00,415 It didn't make sense to me. 1618 01:29:00,502 --> 01:29:02,552 Accounting doesn't get that creative. 1619 01:29:02,587 --> 01:29:05,877 You know, I couldn't believe that Arthur Andersen had signed off on it. 1620 01:29:05,924 --> 01:29:09,684 I couldn't believe that so many people were going along. 1621 01:29:09,761 --> 01:29:14,681 NARRATOR: Behind Fastow's partnerships were enormous guarantees of Enron stock. 1622 01:29:15,017 --> 01:29:17,687 Fastow had gambled Enron's future 1623 01:29:17,769 --> 01:29:20,729 on the hope that its stock would never fall. 1624 01:29:21,106 --> 01:29:23,436 WATKINS: My first reaction was 1625 01:29:23,483 --> 01:29:25,443 that I should warn Ken Lay. 1626 01:29:25,527 --> 01:29:29,407 The day after Skilling left, I sent this one-page anonymous letter. 1627 01:29:29,448 --> 01:29:31,738 But within a week, I was meeting with Ken Lay. 1628 01:29:31,783 --> 01:29:35,703 I'd identified myself in the hopes of really making my point 1629 01:29:35,787 --> 01:29:37,907 that Enron needed to address this situation. 1630 01:29:37,956 --> 01:29:40,706 Companies rarely get away with cooking the books. 1631 01:29:40,792 --> 01:29:43,252 But when they do survive, it's when they come clean, 1632 01:29:43,295 --> 01:29:46,295 not when they're exposed from the outside. 1633 01:29:46,381 --> 01:29:50,301 -WYDEN: Miss Watkins, I went through... -Miss Watkins did not talk to me, Senator. 1634 01:29:50,343 --> 01:29:54,353 Miss Watkins said Clifford Baxter told her 1635 01:29:54,431 --> 01:29:57,931 that he met with you repeatedly to express his concern. 1636 01:29:57,976 --> 01:30:01,896 SKILLING: Cliff and Andy had a... They didn't like each other. 1637 01:30:01,980 --> 01:30:04,570 They had very strained personal relationship 1638 01:30:04,649 --> 01:30:07,649 and Cliff's issue had nothing to do 1639 01:30:07,736 --> 01:30:10,646 with the appropriateness or inappropriateness of the transaction. 1640 01:30:10,739 --> 01:30:14,079 WATKINS: I mentioned Cliff Baxter in these memos. 1641 01:30:14,159 --> 01:30:17,159 And I remember I made the comment to him, 1642 01:30:17,245 --> 01:30:18,405 "Well, you're one of the good guys. 1643 01:30:18,497 --> 01:30:22,167 "You know, you're one of the people fighting against this, 1644 01:30:22,209 --> 01:30:23,539 "and it'd be all right." 1645 01:30:23,627 --> 01:30:26,957 And he said, "Oh, I don't think it's going to be all right for any of us 1646 01:30:27,005 --> 01:30:28,665 "involved in this." 1647 01:30:31,760 --> 01:30:33,680 SWARTZ: When I started working on the book with Sherron, 1648 01:30:33,720 --> 01:30:35,640 I was interested in writing about a whistle blower. 1649 01:30:35,680 --> 01:30:39,520 People don't really appreciate what she did 1650 01:30:39,601 --> 01:30:41,891 and the bravery that it took in that company. 1651 01:30:41,978 --> 01:30:46,358 Andy Fastow would not have put his hands in the Enron candy jar 1652 01:30:46,441 --> 01:30:50,821 without an explicit or implicit approval to do so by Mr. Skilling. 1653 01:30:50,904 --> 01:30:54,204 I can't for the life of me see what basis she would have 1654 01:30:54,241 --> 01:30:56,121 for suggesting that I would know something. 1655 01:30:56,201 --> 01:30:58,041 I mean, how would she know that? 1656 01:30:58,120 --> 01:31:00,500 And I don't see that it's at all inconsistent 1657 01:31:00,539 --> 01:31:02,289 that there would be some things I don't know 1658 01:31:02,374 --> 01:31:05,714 if some people purposely kept me from knowing some things. 1659 01:31:05,794 --> 01:31:09,554 I felt like I was one lone voice within Enron saying, 1660 01:31:09,631 --> 01:31:11,511 "Look, we committed horrible fraud." 1661 01:31:11,550 --> 01:31:12,590 And, of course, all hell broke loose. 1662 01:31:12,676 --> 01:31:16,546 Within six short weeks, Enron was spinning out of control. 1663 01:31:21,393 --> 01:31:23,233 LAY: Probably in more normal circumstances, 1664 01:31:23,311 --> 01:31:26,561 I would have a few more words to say about September 1 1th. 1665 01:31:26,606 --> 01:31:30,396 Just like America's under attack by terrorism, 1666 01:31:30,485 --> 01:31:32,565 I think we're under attack. 1667 01:31:32,863 --> 01:31:34,783 And of course, 1668 01:31:34,865 --> 01:31:38,075 now we've got the SEC inquiry, 1669 01:31:38,160 --> 01:31:39,950 informal inquiry. 1670 01:31:40,620 --> 01:31:42,580 NARRATOR: The SEC launched an investigation 1671 01:31:42,664 --> 01:31:47,594 when the Wall Street Journal published articles revealing Fastow's murky deals. 1672 01:31:47,919 --> 01:31:51,089 Enron announced massive financial restatements. 1673 01:31:51,173 --> 01:31:55,383 Investors began to worry that billions in mark-to-market profits 1674 01:31:55,427 --> 01:31:57,257 were really losses. 1675 01:31:59,306 --> 01:32:01,096 As you can, of course, see 1676 01:32:01,141 --> 01:32:05,771 the underlying fundamentals of our businesses are very strong. 1677 01:32:06,104 --> 01:32:09,654 Indeed, the strongest they've ever been. 1678 01:32:09,733 --> 01:32:14,613 But regrettably, that's not what Wall Street is focusing on, 1679 01:32:14,988 --> 01:32:17,448 and I doubt that's what you're focusing on. 1680 01:32:17,490 --> 01:32:20,410 This inquiry will take a lot of time 1681 01:32:20,452 --> 01:32:23,792 on the part of our accountants, lawyers and others, 1682 01:32:25,081 --> 01:32:28,131 but it will finally put these issues to rest. 1683 01:32:29,461 --> 01:32:32,761 NARRATOR: At the very moment Ken Lay was talking to employees, 1684 01:32:32,797 --> 01:32:34,467 only a few blocks away, 1685 01:32:34,507 --> 01:32:37,127 Enron's accounting firm, Arthur Andersen, 1686 01:32:37,177 --> 01:32:39,797 had begun destroying its Enron files. 1687 01:32:40,639 --> 01:32:42,309 On October 23rd 1688 01:32:42,349 --> 01:32:45,979 Andersen shredded more than one ton of paper. 1689 01:32:48,146 --> 01:32:50,686 Despite the rumors, despite the speculation 1690 01:32:50,774 --> 01:32:54,364 the company is doing well both financially and operationally. 1691 01:32:54,569 --> 01:32:57,739 WATKINS: He was making all kinds of statements. Reassuring employees. 1692 01:32:57,822 --> 01:33:00,532 And not just employees. Reassuring investors. 1693 01:33:00,617 --> 01:33:03,487 "We have no accounting irregularities. 1694 01:33:03,954 --> 01:33:06,334 "The company's in the best shape it's ever been in." 1695 01:33:06,373 --> 01:33:08,173 Now from the standpoint of Enron stock, 1696 01:33:08,208 --> 01:33:11,288 we're gonna bring it back, we're gonna bring it back. 1697 01:33:11,336 --> 01:33:15,206 All right. We're down to questions, and I've got a few up here. 1698 01:33:15,298 --> 01:33:18,048 "I would like to know if you are on crack? 1699 01:33:18,468 --> 01:33:19,678 (LAUGHlNG) 1700 01:33:21,346 --> 01:33:24,556 "If so, that would explain a lot. If not, you may want to start, 1701 01:33:24,641 --> 01:33:27,851 "because it's going to be a long time before we trust you again." 1702 01:33:28,520 --> 01:33:30,690 It certainly wasn't clear to anyone at Enron, 1703 01:33:30,772 --> 01:33:32,022 much less anyone outside of Enron. 1704 01:33:32,107 --> 01:33:35,437 It wasn't really clear what was going on 1705 01:33:35,527 --> 01:33:37,317 or what was gonna happen. 1706 01:33:37,362 --> 01:33:39,072 I know this is a lot of... 1707 01:33:39,155 --> 01:33:42,065 There's a lot of speculation about Andy's involvement. 1708 01:33:42,158 --> 01:33:47,038 I and the board are also sure that Andy has operated 1709 01:33:47,080 --> 01:33:49,960 in the most ethical and appropriate manner possible. 1710 01:33:50,792 --> 01:33:53,712 NARRATOR: The next day, Andy Fastow was fired 1711 01:33:53,795 --> 01:33:58,045 when the Enron board discovered that he had made more than $45 million 1712 01:33:58,133 --> 01:34:00,383 from his LJM partnerships. 1713 01:34:00,427 --> 01:34:03,717 GREENWOOD: The question, Mr. Fastow, is how could you believe 1714 01:34:03,805 --> 01:34:06,965 that your actions were in any way consistent 1715 01:34:07,058 --> 01:34:10,808 with your fiduciary duties to Enron and its shareholders 1716 01:34:10,895 --> 01:34:15,435 or with common sense notions of corporate ethics and propriety? 1717 01:34:15,900 --> 01:34:16,900 How do you answer, sir? 1718 01:34:16,943 --> 01:34:19,613 Mr. Chairman, on the advice of my counsel, 1719 01:34:19,696 --> 01:34:22,446 I respectfully decline to answer the questions 1720 01:34:22,532 --> 01:34:27,412 based on the protection afforded me under the United States Constitution. 1721 01:34:30,373 --> 01:34:32,173 WATKINS: Andy, in many ways, 1722 01:34:32,250 --> 01:34:34,540 I think he was set up as the fall guy. 1723 01:34:34,753 --> 01:34:38,053 All of the Enron executives were saying, 1724 01:34:38,590 --> 01:34:41,380 "There's your man, Andy Fastow. He's the crook. 1725 01:34:41,426 --> 01:34:44,546 "You know, he's the one that stole from Enron, stole from LJM. 1726 01:34:44,596 --> 01:34:46,926 "He's the one that cooked the books. Go after him." 1727 01:34:47,182 --> 01:34:48,352 Excuse us. 1728 01:34:48,433 --> 01:34:49,983 REPORTER: How do you plead, Mr. Fastow? 1729 01:34:50,060 --> 01:34:52,020 EBERTS: I've thought about this and thought about this 1730 01:34:52,103 --> 01:34:56,273 and it couldn't have just been a few executives at Enron 1731 01:34:56,441 --> 01:34:57,941 that made this happen. 1732 01:34:57,984 --> 01:35:01,534 If you think of the banks involved, 1733 01:35:01,613 --> 01:35:04,453 Chase, Morgan, 1734 01:35:04,532 --> 01:35:05,782 Citibank. 1735 01:35:07,494 --> 01:35:10,044 The billions in loans 1736 01:35:10,288 --> 01:35:11,458 Arthur Andersen. 1737 01:35:11,539 --> 01:35:13,329 What about Vinson & Elkins, 1738 01:35:13,416 --> 01:35:16,376 the lawyers that represented us? 1739 01:35:16,461 --> 01:35:19,841 There had to have been complicity across the board 1740 01:35:20,173 --> 01:35:22,763 because it was all too easy. 1741 01:35:22,801 --> 01:35:24,551 All too easy. 1742 01:35:29,349 --> 01:35:32,229 LAY: The Enron collapse was an enormous tragedy. 1743 01:35:32,727 --> 01:35:36,557 This is a company that had over 30,000 employees, 1744 01:35:36,648 --> 01:35:38,318 and clearly in a company that size, 1745 01:35:38,400 --> 01:35:40,190 you have a lot of senior officers 1746 01:35:40,276 --> 01:35:43,606 that have a lot of authority in which you placed enormous trust. 1747 01:35:43,655 --> 01:35:46,485 Clearly in this case, there was at least one, 1748 01:35:46,574 --> 01:35:48,084 Andy Fastow, 1749 01:35:48,159 --> 01:35:49,989 that betrayed that trust 1750 01:35:50,036 --> 01:35:52,906 to the extent that I did not know what he was doing, 1751 01:35:52,997 --> 01:35:56,127 that he obviously didn't share with me what he was doing, 1752 01:35:56,167 --> 01:35:59,707 then, indeed, I cannot take responsibility for what he did. 1753 01:35:59,796 --> 01:36:02,416 MUCKLEROY: I never heard him say, "I take responsibility" for a thing. 1754 01:36:02,507 --> 01:36:06,717 Sounded to me like the wonderful movie Chicago. 1755 01:36:06,803 --> 01:36:09,433 I was reminded of the puppet strings and the dancers 1756 01:36:09,514 --> 01:36:13,274 and the tap dancing and pointing at the gun, the gun, the gun. 1757 01:36:13,351 --> 01:36:17,351 I mean, everybody's in step with Johnny. 1758 01:36:17,439 --> 01:36:21,779 I continue to grieve, as does my family, 1759 01:36:21,860 --> 01:36:23,820 over the loss of the company. 1760 01:36:23,862 --> 01:36:28,032 Linda and I saw our net worth reduced from several hundred million dollars 1761 01:36:28,074 --> 01:36:31,454 down to something less than $20 million on a net worth basis 1762 01:36:31,536 --> 01:36:35,746 and as you said, about $1 million or less in liquidity. 1763 01:36:36,374 --> 01:36:39,384 I don't know whether I'd 1764 01:36:39,461 --> 01:36:43,591 rather be shot as a crook or as an idiot. 1765 01:36:43,673 --> 01:36:48,393 I believe the only venue for me is the ride of broken dreams. 1766 01:36:48,720 --> 01:36:51,010 Oh, you mean the Enron ride. Let's go. 1767 01:36:51,055 --> 01:36:52,715 CHANOS: Enron hit the national psyche. 1768 01:36:52,765 --> 01:36:55,765 It hit it as the time-tested lesson 1769 01:36:55,852 --> 01:36:58,982 and that is if it looks too good to be true, sometimes it is. 1770 01:37:00,815 --> 01:37:01,935 (RATTLING) 1771 01:37:02,025 --> 01:37:04,225 WOMAN: We're all gonna be rich! 1772 01:37:04,277 --> 01:37:05,567 (ALL SCREAMING) 1773 01:37:06,070 --> 01:37:07,650 MAN: Broke even! 1774 01:37:07,739 --> 01:37:09,029 (SCREAMING) 1775 01:37:10,450 --> 01:37:11,450 (ALL SIGH) 1776 01:37:16,414 --> 01:37:18,504 SKILLING: It is my belief that Enron's failure 1777 01:37:18,583 --> 01:37:21,043 was due to a classic run on the bank. 1778 01:37:22,879 --> 01:37:24,879 Don't look now, but there's something funny going on 1779 01:37:24,923 --> 01:37:26,133 over there at the bank, George. 1780 01:37:26,216 --> 01:37:27,376 I've never really seen one, 1781 01:37:27,425 --> 01:37:30,545 but that's got all the earmarks of being a run. 1782 01:37:37,894 --> 01:37:40,064 NARRATOR: On December 2nd, 2001, 1783 01:37:40,104 --> 01:37:43,324 less than four months after Skilling's resignation, 1784 01:37:43,399 --> 01:37:45,729 Enron declared bankruptcy. 1785 01:37:47,237 --> 01:37:48,607 I remember. 1786 01:37:49,656 --> 01:37:52,276 It was just a strange, kind of a surreal day. 1787 01:37:52,325 --> 01:37:55,865 We learned around 9:30 about the bankruptcy, 1788 01:37:55,954 --> 01:37:58,294 and that we were all being let go. 1789 01:37:59,457 --> 01:38:02,417 We all felt like we were on the Titanic 1790 01:38:02,460 --> 01:38:06,210 and the last lifeboats had long gone 1791 01:38:06,297 --> 01:38:09,257 and we were just now on the sinking ship. 1792 01:38:10,385 --> 01:38:14,175 We had 30 minutes to leave the building and at that point 1793 01:38:14,264 --> 01:38:17,604 it was no longer like being on the Titanic. 1794 01:38:17,642 --> 01:38:20,272 It was kind of like being on the Lusitania. 1795 01:38:20,311 --> 01:38:24,401 The torpedo had hit, and there's 20 minutes to get out. 1796 01:38:27,569 --> 01:38:29,529 WICKMAN: There was a lot disbelief. 1797 01:38:29,612 --> 01:38:32,322 Very few of the rank and file people 1798 01:38:32,407 --> 01:38:35,327 ever dreamed that Enron would actually go bankrupt. 1799 01:38:40,623 --> 01:38:43,833 And then all of a sudden it was like a ghost town. 1800 01:38:45,003 --> 01:38:49,133 I can remember going into the old building on certain floors 1801 01:38:49,173 --> 01:38:52,843 late in the afternoon or evening and it was scary. 1802 01:38:52,927 --> 01:38:56,387 There'd be like papers blowing around and nobody there 1803 01:38:56,472 --> 01:38:58,972 and it was very eerie. 1804 01:39:05,106 --> 01:39:07,686 BOXER: Mr. Skilling, your opening statement 1805 01:39:07,775 --> 01:39:11,235 was extremely compassionate to the employees. 1806 01:39:11,321 --> 01:39:15,871 And I want to show you a tape. And I believe we have it ready to go. 1807 01:39:15,950 --> 01:39:17,530 Listen to this. 1808 01:39:17,619 --> 01:39:20,499 "Should we invest all of our 401k in Enron stock?" 1809 01:39:20,538 --> 01:39:23,708 Absolutely. Don't you guys agree? 1810 01:39:27,003 --> 01:39:30,383 Why is it that you had begun unloading your stock 1811 01:39:30,423 --> 01:39:34,053 pretty heavily before that date and yet 1812 01:39:34,093 --> 01:39:37,723 led the employees to think they should keep buying stock? 1813 01:39:39,098 --> 01:39:40,218 SKILLING: Mrs. Senator, 1814 01:39:40,308 --> 01:39:44,308 I have been a major shareholder in Enron Corporation, 1815 01:39:44,395 --> 01:39:46,975 and you can take the videotape to mean what you want it to mean. 1816 01:39:47,065 --> 01:39:48,895 I was a supporter of Enron Corporation. 1817 01:39:48,983 --> 01:39:51,863 You know what happened to those people. They lost everything. 1818 01:39:51,903 --> 01:39:55,993 I feel terrible about what happened to the employees. 1819 01:39:57,867 --> 01:40:01,287 MAN: Well, at one time, things were really rosy for us, 1820 01:40:01,371 --> 01:40:05,211 and we all had some really nice-looking 401 k's and pensions, 1821 01:40:05,917 --> 01:40:08,037 then it peaked and then it just started going down 1822 01:40:08,086 --> 01:40:10,706 and it went lower and lower and lower. 1823 01:40:10,755 --> 01:40:13,465 The peak, I had about 348,000 1824 01:40:13,883 --> 01:40:18,473 and I sold it all for $1 ,200, was what I got for it when it was done. 1825 01:40:22,308 --> 01:40:24,518 NARRATOR: While Enron stock was plummeting, 1826 01:40:24,602 --> 01:40:29,112 the retirement accounts of Enron's rank and file workers were frozen. 1827 01:40:29,190 --> 01:40:33,530 KASEWETER: We were frozen out of our accounts. It was right about $32, I believe. 1828 01:40:33,861 --> 01:40:37,411 And over that time, from when it was frozen to when it opened up, 1829 01:40:37,448 --> 01:40:40,448 I think it went down to nine and we could not access it. 1830 01:40:40,493 --> 01:40:44,453 And what came out later that was so bad was the fact that 1831 01:40:44,497 --> 01:40:46,957 Ken Lay and Skilling and all the top people were 1832 01:40:47,041 --> 01:40:49,841 moving their money then, but we couldn't. 1833 01:40:52,296 --> 01:40:56,086 LERACH: The insiders had sold off a billion dollars of their stock. 1834 01:40:56,384 --> 01:40:58,514 Compare that to the lineman 1835 01:40:58,594 --> 01:41:01,144 who worked for a state-owned utility company 1836 01:41:01,180 --> 01:41:04,270 for most of his life, put away money each month, 1837 01:41:04,308 --> 01:41:07,058 and what's he have to show at the end of the day 1838 01:41:07,145 --> 01:41:09,645 for his years of hard and decent labor? 1839 01:41:09,731 --> 01:41:14,321 He gets a big goose egg. And Pai is out in Hawaii somewhere 1840 01:41:14,736 --> 01:41:18,656 with $350 million in the bank. That's wrong. 1841 01:41:25,788 --> 01:41:29,998 NUTTER: There's still, to this city, a layer of anger and upset. 1842 01:41:30,376 --> 01:41:35,006 I am still doing counseling three years later with some families. 1843 01:41:37,008 --> 01:41:41,508 With some of those who are most reflective, it's gone to a deeper layer, 1844 01:41:41,554 --> 01:41:45,974 and they are looking at the corporate culture itself in this country. 1845 01:41:46,017 --> 01:41:48,637 You know, you can gain the whole world, 1846 01:41:48,770 --> 01:41:51,100 and all the trinkets and all the trophies of the world, 1847 01:41:51,189 --> 01:41:54,399 the corner office and all the perks, 1848 01:41:54,484 --> 01:41:57,864 and you really can lose your soul in the midst of this. 1849 01:41:58,613 --> 01:42:01,163 NARRATOR: On January 25, 2002, 1850 01:42:01,199 --> 01:42:03,869 seven weeks after the Enron bankruptcy, 1851 01:42:03,951 --> 01:42:06,451 Cliff Baxter committed suicide. 1852 01:42:06,537 --> 01:42:10,787 WATKINS: With the media hounding him because he was mentioned in my memos 1853 01:42:10,875 --> 01:42:13,035 and the fact that he had been sued civilly 1854 01:42:13,127 --> 01:42:16,877 because he'd cashed in for about $30 million worth of stock, 1855 01:42:16,923 --> 01:42:19,673 I guess it all came crashing down on him. 1856 01:42:19,717 --> 01:42:22,717 I think Cliff's suicide note tells it all. 1857 01:42:22,804 --> 01:42:27,224 You know, "where there was once great pride, now there is none." 1858 01:42:31,229 --> 01:42:33,479 MARTIN-BROCK: It's very hard for me to talk about Cliff. 1859 01:42:33,564 --> 01:42:35,984 We were very close for many years. 1860 01:42:37,193 --> 01:42:40,493 And he was a wonderful, wonderful man. 1861 01:42:40,571 --> 01:42:42,861 But a lot of who Cliff was, 1862 01:42:42,907 --> 01:42:47,077 was tied up in how he had succeeded at Enron. 1863 01:42:47,370 --> 01:42:52,330 It is hard to look at your life's work and say it's failed. 1864 01:42:53,084 --> 01:42:58,094 But you have to take a long, cold look at yourself and say, 1865 01:42:58,172 --> 01:43:01,132 "Who was I? Who did I become?" 1866 01:43:02,218 --> 01:43:06,258 And realize that you may have seen your shadow. 1867 01:43:07,932 --> 01:43:12,102 NARRATOR: Andy Fastow pled guilty to conspiracy to commit wire fraud. 1868 01:43:12,144 --> 01:43:16,234 He agreed to forfeit $23 million in assets. 1869 01:43:16,274 --> 01:43:19,034 His sentence was reduced to 10 years 1870 01:43:19,110 --> 01:43:23,450 in exchange for testifying against other Enron executives. 1871 01:43:25,283 --> 01:43:29,663 RAPOPORT: Why Enron? Why not WorldCom or Tyco or Global Crossings? 1872 01:43:29,745 --> 01:43:31,615 Ultimately, in Enron, 1873 01:43:31,664 --> 01:43:36,464 the fatal flaw was the sense that brains and wiliness 1874 01:43:36,586 --> 01:43:39,956 could outthink the way that the system eventually will work. 1875 01:43:40,047 --> 01:43:41,127 NARRATOR: In 2004, 1876 01:43:41,173 --> 01:43:44,343 Jeff Skilling was indicted for insider trading 1877 01:43:44,427 --> 01:43:46,927 and conspiracy to defraud investors. 1878 01:43:46,971 --> 01:43:48,141 Pleading innocent, 1879 01:43:48,180 --> 01:43:52,980 he paid his attorneys a retainer of $23 million to defend him. 1880 01:43:53,519 --> 01:43:56,149 WATKINS: Enron should not be viewed 1881 01:43:56,188 --> 01:44:00,148 as an aberration, something that can't happen anywhere else, 1882 01:44:00,192 --> 01:44:05,322 because it's all about the rationalization that you're not doing anything wrong. 1883 01:44:05,406 --> 01:44:08,156 We've involved Arthur Andersen, we've involved the lawyers, 1884 01:44:08,242 --> 01:44:10,202 the bankers know what we're doing. 1885 01:44:10,286 --> 01:44:13,536 There's a sense... The diffusion of responsibility. 1886 01:44:13,623 --> 01:44:16,373 Everyone was on the bandwagon. 1887 01:44:16,459 --> 01:44:18,459 And it can happen again. 1888 01:44:19,503 --> 01:44:22,303 NARRATOR: Enron's accounting firm, Arthur Andersen, 1889 01:44:22,340 --> 01:44:25,510 was convicted of obstructing justice. 1890 01:44:25,551 --> 01:44:28,431 With its reputation for honesty destroyed, 1891 01:44:28,512 --> 01:44:32,562 America's oldest accounting firm fell along with Enron, 1892 01:44:32,642 --> 01:44:36,022 and 29,000 people lost their jobs. 1893 01:44:36,103 --> 01:44:41,153 Enron shareholders are suing Enron and its banks for $20 billion. 1894 01:44:45,363 --> 01:44:48,873 Ken Lay was also indicted for conspiracy to commit fraud. 1895 01:44:48,908 --> 01:44:53,908 His attorney maintains that no one has been hurt more by the Enron bankruptcy 1896 01:44:53,996 --> 01:44:55,616 than Ken Lay. 1897 01:44:55,998 --> 01:44:58,038 Nice of all of you to show up this morning. 1898 01:44:58,084 --> 01:45:01,214 WEISSMANN: With today's arrest of Ken Lay, 1899 01:45:01,295 --> 01:45:04,085 the top echelon at Enron 1900 01:45:04,173 --> 01:45:07,263 has now been called to account for their crimes. 1901 01:45:07,343 --> 01:45:10,553 -MAN: Mr. Lay, you have anything to say, sir? -A little later today I will. 1902 01:45:11,430 --> 01:45:15,560 MCLEAN: Looking at Enron is like looking at the flip side of so much possibility, 1903 01:45:15,601 --> 01:45:19,231 because like most things that end terribly, it didn't start out that way. 1904 01:45:19,313 --> 01:45:23,073 It started with a lot of people who thought they were changing the world 1905 01:45:23,150 --> 01:45:26,110 and over time, they became victims of their own hubris, 1906 01:45:26,195 --> 01:45:27,735 victims of their own greed. 1907 01:45:27,822 --> 01:45:30,572 And so it's like taking so much promise and possibility 1908 01:45:30,658 --> 01:45:31,738 and looking at it in a mirror 1909 01:45:31,784 --> 01:45:34,204 and seeing the flip side reflected back at you. 1910 01:45:36,205 --> 01:45:39,075 WHITEHEAD: I think the larger lesson was what 1911 01:45:39,125 --> 01:45:43,285 Enron asked of its employees, which was "Ask why." 1912 01:45:44,213 --> 01:45:47,973 And, you know, I didn't ask myself why enough. 1913 01:45:48,050 --> 01:45:50,470 I didn't ask managers why enough. 1914 01:45:50,553 --> 01:45:53,223 I didn't ask my colleagues why enough.