(SINGING) What's he building in there?
What the hell is he building in there?
OLSON: It had taken Enron 16 years
to go from about 10 billion of assets
to 65 billion of assets, and took them 24 days to go bankrupt.
What the hell is he building in there?
LERACH: This company collapsed so quickly and so entirely.
I mean, it was into bankruptcy within a matter of weeks.
It just immediately had all the makings of a gigantic scandal.
(SINGING) He's hiding something from the rest of us
MARTIN-BROCK: The fatal flaw at Enron,
if there is one, you say it was pride.
But then it was arrogance,
intolerance, greed.
MUCKLEROY: So many of them were blinded by the money
that they didn't see that they were sinking their own lifeboat.
(SINGING) We have a right to know
OLSON: It just got hungrier and hungrier.
Sooner or later they were doomed to go off that cliff at 90 miles an hour.
ELKIND: It's astounding
that they got away with it for so long.
In reality, Enron was a house of cards.
What we didn't know is that the house of cards
had been built over a pool of gasoline.
It all sort of became smoke and mirrors.
(BANGING GAVEL)
MAN: The committee will come to order.
This is a case of America's largest corporate bankruptcy.
The question here is what happened, who was responsible for it happening,
and what can we do to prevent this sort of thing from happening again.
MCLEAN: I think the Enron story is so fascinating
because people perceive it as a story that's about numbers,
that it's somehow about all these complicated transactions.
But in reality it's a story about people
and it's really a human tragedy.
(BILLIE HOLIDAY SINGING GOD BLESS THE CHILD)
(GUN COCKING)
(GUN FIRING)
COP: On this date at 2:23 a.m., Sugar Land police discovered
John C. Baxter, located inside his vehicle
with an apparent gunshot wound to the head.
At this time, there has been a suicide note located.
REPORTER: Sergeant, can you give us any indication whether this was
related to Enron's bankruptcy?
We do know that he was an Enron employee
but as far as any other indications
of why he committed suicide, no, we do not.
STEARNS: Mr. Skilling, let me touch on something that's sort of sad
and that's, of course, the suicide of Cliff Baxter.
And you mentioned
he was your best friend in your opening statement.
Before he died,
did you have many conversations with him?
Yes.
STEARNS: And were any of them relative to Enron?
Yes.
SKILLING: There's no one that knew Cliff toward the end
that didn't realize that he was heartbroken
by what had happened.
And Cliff came over to my house,
and he said, "They're calling us child molesters."
And he says, "That will never wash off."
-Mr. Skilling, you don't believe that? -I don't believe what?
STEARNS: You don't believe that the press and everybody
calling Cliff Baxter or yourself or anybody on the board of directors,
denigrating or tainting you, you don't think it's accurate
is what you're saying to us here today.
SKILLING: I do not believe...
I did not do anything wrong, that was not in the interest,
in all the time that I worked for Enron corporation,
that was in the interest of the shareholders of the company.
NARRATOR: Ultimately, who was responsible
for the downfall of Enron?
Only a few years ago,
Enron was the nation's seventh largest corporation,
valued at almost $70 billion.
Pundits praised the company as a new business model.
This trading floor was manned
by America's best and brightest
charting the futures of energy and power.
And high above, each with a private staircase,
Ken Lay and Jeff Skilling
had built their own plush staterooms.
They were known as, "The smartest guys in the room,"
captains of a ship too powerful to ever go down.
MAN: In the Titanic, the captain went down with the ship.
In Enron, it looks to me like
the captain first gave himself and some friends a bonus
then lowered himself and the top folks down in the lifeboat
and then hollered up and said,
"By the way, everything's gonna be just fine."
NARRATOR: Like Skilling,
Ken Lay said he hadn't done anything wrong.
Good morning.
Can I have a word with you real quick? We're CNN.
Really, not this morning. Thank you.
NARRATOR: Beyond the financial issues,
some suspected a political conspiracy.
Enron had been the largest corporate contributor
to the first presidential campaign of George W. Bush.
BUSH: This is not a political issue, it is a business issue.
You know, Enron had made contributions
to a lot of people around Washington, D.C.
And if they came to this administration looking for help,
they didn't find any.
To say no help had is like,
"I did not have political relations
"with that man Mr. Lay."
WOMAN: What about the fact that George W. Bush
calls Ken Lay, "Kenny boy"?
That's my nickname for my husband, which he overheard.
-So it wasn't original with the President. -LINDA: It certainly wasn't.
WOMAN: According to published reports, your husband earned about
$300 million in compensation and stocks
from Enron over the last four years.
What happened to all that money?
It's gone. It's gone. There's nothing left.
This is the shredded evidence that we got that came out of Enron.
We very quickly determined
that the insiders had sold off a billion dollars of their stock
in the preceding several months.
Did you convert stock, worth $66 million?
I don't know, but I don't have the records with me.
MAN: Would that be surprising to you to learn that you did that?
No, that would not be surprising.
STRICKLAND: Mr. Fastow got only
30 million in stock proceeds from Enron,
but he took another 30 million out with his side deals.
LERACH: I think there was just
an immediate sense of outrage
at Lay and Skilling and Fastow,
when people realized
how much they had profited and how completely artificial
the appearance of this company had been.
NARRATOR: News of shredding at Enron raised more questions.
What answers were lost in the torn documents?
20,000 employees had lost their jobs.
$2 billion in pensions and retirement funds
had disappeared.
Was Enron the work of a few bad men
or the dark shadow of the American dream?
Lay comes to the story of Enron from very humble roots.
(DUSTY SPRINGFIELD SINGING BILLY RAY WAS A PREACHER'S SON)
My father was a Baptist minister
and he was ordained a Baptist minister while I was very young,
probably two, three years old.
ELKIND: Ken Lay was a Baptist preacher's son
in a family that had been poor all its life, and he,
throughout his life, worked several jobs as a kid
and clearly had in mind that things could be better,
and wanted things to be better and had a huge ambition
to make wealth for himself.
He told a story later about sitting on a tractor,
dreaming about the world of business and how different it could be
from the way things were for him and his family.
Lay was a PhD in economics
and he became very early on a real apostle for deregulation.
He was way ahead of the curve on this.
He was thinking about energy markets that would be deregulated,
and in particular a natural gas industry that was shackled by regulation,
and he pushed aggressively in Washington to change all of that.
NARRATOR: In Washington, Lay became part of the new crusade
to liberate businessmen from the rules and regulations of government.
Government is not the solution to our problem,
government is the problem.
The societies which have achieved the most spectacular
broad-based economic progress in the shortest period of time
are not the most tightly controlled, not necessarily the biggest in size
or the wealthiest in natural resources.
No, what unites them all is their willingness to believe
in the magic of the marketplace.
(JUDY GARLAND SINGING THAT OLD BLACK MAGIC)
NARRATOR: The magic power of deregulation
pushed Ken Lay to found Enron in 1985.
Through a merger of vast networks of natural gas pipelines,
Lay thought Enron would be poised to take advantage
of the government's decision
to let gas prices float with the currents of the market.
Ken Lay had a view of deregulation from the standpoint of all the money
that he thought could be made.
NARRATOR: Ken Lay wasn't alone.
A couple of Texas oilmen shared his views
on how to get government out of the energy business.
PHILLIPS: I think they could sort of understand each other.
It was professional courtesy between a sidewinder
and a timber rattlesnake.
NARRATOR: Lay was closer to the father but while he was governor of Texas,
George W. Bush was only too happy to make phone calls for Ken Lay.
This absolutely has no precedent.
This is by far and away the most important
major relationship of a presidential family
with a single corporation in American history.
NARRATOR: When Rich Kinder, one of Enron's executives,
left the company, Lay arranged for a video valentine.
BUSH: Rich, I've
been asked to think of one thing I could say to you
on your departure from Enron, it'd be this,
don't leave Texas.
Rich, you have been fantastic to the Bush family.
I don't think anybody did more than you did to support George.
And of course at this stage in my life and Barbara's, too,
that's what really matters, your family and your friends.
NARRATOR: Early on, George Bush Sr. helped secure billions
in government subsidies for Enron international,
and he helped promote Lay
as deregulation's ambassador-at-large.
LAY: Enron is a company
that deals with everyone with absolute integrity.
We want people to leave a transaction with Enron
thinking that they've been dealt with in the highest possible way,
as far as integrity and truthfulness.
ELKIND: He always wrapped himself in the cloak of moral rectitude,
but there was one episode early on
that raised questions about whether he was actually, you know, walking the walk.
This was the Enron Oil scandal,
also known as the Vahalla scandal.
FITZGERALD: While you were at Arthur Andersen,
were you involved in an investigation
-at a company called Enron Oil? -Yes, I was.
The issue with the company in 1987
involved the misappropriation of monies by two traders.
NARRATOR: In 1987, two oil traders made bets for Enron
on whether the price of oil would rise or fall.
Oil trading is like gambling.
Sometimes you win, sometimes you lose.
But Enron Oil always seemed to win
much to Ken Lay's delight.
MUCKLEROY: I tried to explain to Ken Lay
the tremendous risk that you have in that market.
You can lose 1 0 times your original investment.
NARRATOR: A veteran trader, Mike Muckleroy was suspicious
of Enron Oil's steady high profits.
ELKIND: This oil-trading business
had profits that nobody could really understand
and in fact that many of Ken Lay's lieutenants questioned.
They said, "This business can't be making this much money legitimately.
"Something weird is going on."
NARRATOR: Something weird was going on.
The first hint came from an anonymous tip
about the president of the company, Louis Borget.
MUCKLEROY: Borget had taken
some three-plus million dollars of corporate funds
and put it in a personal account of his.
NARRATOR: There were offshore accounts,
phony books, and a trail that led
from the company's treasurer, Tom Mastroeni
to a mysterious Lebanese speculator no one could find,
M. Yass.
-MAN: What name did you suspect that was? -My ass, you know? And M. Smart.
So that's Maxwell Smart. I mean, these guys are playing games.
NARRATOR: Borget and Mastroeni were summoned to Houston.
First they presented falsified bank records to Enron
then they admitted they had diverted company profits
to personal accounts.
ELKIND: It was brought to the attention of the Enron board.
Auditors were brought in as well to look at the whole thing.
NARRATOR: At the board meeting, the auditors told Lay
that Borget and his traders were manipulating earnings,
destroying daily trading records
and probably gambling way beyond their limits.
BEARD: The next day we found out that Lay's decision was to
basically change nothing as far as the operation's concerned,
and the reason he gave was that
this was the only part of the combined company
that was making any money and that he could not,
you know, kill the golden goose.
NARRATOR: The traders weren't fired or even disciplined.
Instead, Enron sent a telex to Borget,
"Please keep making us millions."
Instead of reducing Enron's risk,
Lay encouraged his traders to gamble more.
But then their luck changed.
MUCKLEROY: Two months later, I got this panic call
that they had drawn down $90 million in the previous five days,
and what we could do is just try to find out
what kind of gorilla we had loose up there.
NARRATOR: Muckleroy hopped on the next plane to New York.
He knew Mastroeni had another set of books,
and he would do whatever it took to get them.
MUCKLEROY: I basically stood over Tom
and I told him one of two things was gonna happen.
Either, one of the trading partners that was crooked with Borget,
who was a German arms dealer, was gonna kill him, or I was.
I said, "I'll track you down and find you
"no matter where you go, and sooner or later I'll get you."
NARRATOR: The next day, Mastroeni came in with the real books.
The traders had gambled away all of Enron's reserves.
By acting fast, Muckleroy bluffed the market
and managed to save the company.
After Vahalla, Ken Lay maintained that he had been shocked
that the traders had gambled so recklessly.
But Ken Lay had known all along about the risks that were taken.
He had seen the reports warning him about the traders' behavior.
MAN: Since the fall of Enron, Ken Lay has said
he can't be responsible for things he didn't know about.
Sounds like what he said about Vahalla.
Do you believe that he didn't know?
I can answer only for one, I can answer for Vahalla,
because Ken Lay did in fact know about this thing,
because I had told him myself.
FITZGERALD: The auditors adamantly told Mr. Ken Lay
that the two rogue traders should be fired.
Lay read the report and he read his budget
and estimated how much they, the two rogue executives, made,
and if they were fired what he could lose.
My conclusion was that this guy is a guy who puts earnings before scruples
rather than reacting to the dishonesty right in front of him.
NARRATOR: Mastroeni received a suspended sentence.
Borget was convicted of fraud and spent one year in jail.
With his biggest moneymaker now behind bars,
Ken Lay had a problem.
Who could he find to make money for Enron?
Every year, every day, every week, you have to come up with new ideas.
(TOM WAITS SINGING STRAIGHT TO THE TOP)
MCLEAN: Ken Lay saw in Jeff Skilling the guy who had the answer
to what the future of the natural gas business was supposed to be.
Ken Lay is also a guy who considers himself a visionary
and he liked other people he thought of as visionaries.
He liked people with big ideas
and Jeff Skilling was a person with the biggest ideas of all.
NARRATOR: Jeff Skilling's biggest single idea was to find a new way to deliver energy.
Rather than be bound by the physical flow of the pipeline,
Enron would become a kind of stock market for natural gas.
It was a magical, new idea.
Transform energy into financial instruments
that could be traded like stocks and bonds.
SKILLING: So that was the one good idea.
In 1992, using that good idea
we became the largest buyer and seller of natural gas in North America.
MARTIN-BROCK: Jeff was like the prophet. He came in and said,
"There's a whole new world out there.
"Forget about this pipeline stuff,
"the staid pipeline in the ground and gas in and gas out.
"We can recreate this entire industry."
NARRATOR: An attorney from Vinson & Elkins, Amanda Martin,
was one of the first executives hired by Jeff Skilling
and became part of his inner circle.
MARTIN-BROCK: The excitement was palpable.
You cannot imagine how proud we all were to be there.
And then, of course, we had a leader
who imbued us with a sense of confidence
that if we were smart, anything could be accomplished.
And in the bottom line, we began to make money.
And that in and of itself
was a reaffirmation that this could be big.
MCLEAN: Skilling saw the opportunity to build an industry new
and to start a business from scratch,
but he had one specific condition that had to be met before he'd join Enron.
And it was that he'd be allowed to use a certain kind of accounting
known as "mark-to-market."
Arthur Andersen signed off, and the SEC approved it.
I remember walking in and going, "What's going on?"
And Causey and everybody,
I mean, everyone was so excited and in came the champagne
and we had got mark-to-market accounting treatment.
And I often think about how clear my memory was about that event,
and that was the beginning of a major cog
in the downfall, ultimately, of Enron.
NARRATOR: Mark-to-market accounting
allowed Enron to book potential future profits
on the very day a deal was signed.
No matter how little cash actually came in the door,
to the outside world, Enron's profits could be
whatever Enron said they were.
Very subjective,
and very...
It left it open to manipulation.
And they were saying that we're gonna sell power
out of this power plant in 1 0 years
for X dollars per kilowatt,
and there was no way anybody could prove that they could do it.
-Good morning. -How are you?
Fine, Jeff. Good to see you. Todd, sit down.
We've been working hard on this, and we've really pulled out all the stops.
Look what we got. Origination. We did $20 million last year.
We think we can do $120 million this year.
Trading. We did $10 million last year, we think we can do 64 this year.
This is the key.
We're gonna move from mark-to-market accounting
to something I call HFV,
"hypothetical-future-value" accounting.
Whoa!
If we do that we can add a kazillion dollars to the bottom line.
Whoa!
Jeff! All right, that sounds fantastic!
Jeff, thank you!
That's just superb performance, and you're gonna go far, my boy,
probably president of the company one day.
-You think so? -I think!
He really believed that the idea was everything
and that when you came up with an idea
you should be able to book the profits from that idea right away.
Because otherwise, some lesser man was taking the profits from the idea
that some greater man had come up with in the past.
NARRATOR: When Jeff Skilling applied to Harvard business school,
the professor asked him if he was smart.
He replied, "I'm fucking smart."
One of his favorite books was The Selfish Gene,
about the ways human nature is steered by greed and competition
in the service of passing on our genes.
At Enron, Skilling wanted to set free the basic instincts
of survival of the fittest.
MCLEAN: Jeff had a very Darwinian view of how the world worked.
He was famous for saying once
in Enron's early years that money was the only thing that motivated people.
ELKIND: Skilling's notion of how the world should work
really trickled down and affected everything about how Enron did business.
He instituted a system known as the PRC, or performance review committee.
It required that people be graded from a one to a five,
and roughly 10% of people had to be a five,
and those people were supposed to be fired,
hence the scheme to be known as "Rank and Yank."
I personally am convinced
that the PRC process is the most important process
that we conduct as a company.
I've never heard of a company yet that would be successful
terminating 1 5% of their people every year,
just to satisfy the fact that the other employees had to vote on them.
And so when you're being evaluated by that group
you are getting direct communication from Ken and me
about what the objectives of the company are
and how you fit with those objectives.
MARTIN-BROCK: It was a brutal process.
The ability for a 25-year-old to go in
and to be reviewed and to be superior,
and as a consequence get a $5 million bonus,
I don't think that's repeated in many places in corporate America.
Our culture is a tough culture.
It is a very, very aggressive culture.
TRADER: We got eight million on new deals.
NARRATOR: At Enron, no one was more aggressive than the traders.
TRADER: You're not gonna make 17 million.
WICKMAN: If I'm on the way to my boss' office,
talking about my compensation, and if I step on
somebody's throat on the way, that doubles it?
I'll stomp on the guy's throat.
You know, that... That's how people were.
TRADER: Is that your four-and-a-half mil?
MARTIN-BROCK: On the trading side,
we got to be the biggest, baddest house in town.
And by necessity, if you wanted to be in the market,
you had to deal with Enron.
TRADER: Trying to reconcile your big numbers here.
MCLEAN: Enron's traders were like the super-powerful high school clique
that even the principal doesn't dare to reign in.
They had become the major engine
of at least reported profits at the company.
They took Jeff Skilling and Ken Lay's belief in free markets
and turned it into an ideology.
But they pitch it almost as a new economic religion.
SKILLING: EnronOnline will change the markets for many, many commodities.
It is creating an open, transparent marketplace
that replaces the dark, blind system that existed.
It is real simple.
You turn on your computer and it's right there.
And that's our vision, you know. We're trying to change the world.
(ECHOING ELECTRONIC VOICE) Why? Why?
MCLEAN: I think Jeff Skilling had a desperate need to believe that Enron was a success.
I think he identified with Enron.
He proclaimed at one point, "I am Enron."
SWARTZ: The other thing about people at Enron is, a lot of them
were former nerds, including Jeff Skilling.
He had been paunchy. He had big glasses.
He was losing his hair. And Jeff Skilling one day
kind of woke up and decided to change himself.
And he started working out, lost a lot of weight,
but he really did remake himself through sheer will and force of personality.
SWARTZ: When Jeff got Lasiks on his eyes,
everybody at Enron got Lasiks, so nobody was wearing glasses.
MCLEAN: I think Jeff Skilling is really a tragic figure in a classic sense of the word.
He's a guy that people describe as incandescently brilliant,
but he's also a guy who is
radically different than he at times portrays himself.
He's portrayed himself as somebody who has very tightly monitored risk.
In reality he's a gambler.
He gambled away huge sums of money before he was 20 years old
by making wild bets on the market.
(BIKE REVVING)
ELKIND: To Jeff Skilling, risk was glamorous.
He was a huge risk taker.
He actually talked about wanting to go on trips
that were so perilous that someone could actually die.
(EURYTHMICS SINGING SWEET DREAMS)
ELKIND: This manifested itself in trips that Jeff Skilling led
for a small group of friends and customers.
MCLEAN: A core cadre of Enron guys
used to go on these wild adventures.
Andy Fastow would go, Ken Rice would go.
MARTIN-BROCK: The trips were legend.
You know, we can sit and think about
what strange insecurities they were trying to overcome,
but it made them feel good as men.
ELKIND: And they took a particularly memorable trip to the Baja,
1,200 miles and very rugged terrain in Mexico.
This is a trip where people crashed bikes.
Ken Rice was on the trip and he busted a lip
and required a bunch of stitches.
People broke bones.
One guy flipped a jeep and he almost got killed.
Those sorts of stories at Enron became legend,
and it fed the whole macho culture of the place.
MCLEAN: Jeff Skilling had a way of describing people that he liked.
He said, "I like guys with spikes."
He liked somebody with something extreme about them.
ELKIND: Ken Rice was one of the men with spikes.
He was the salesman of the group
a very amiable, fun, man's man,
and was the guy out selling deals to energy companies.
In the case of Cliff Baxter, the company's chief deal-maker,
he was extraordinarily talented at just doing a deal,
but he was a manic depressive.
ELKIND: Baxter was a very bright guy,
very blunt, would tell Skilling whatever he thought,
was closest to Skilling personally than anyone else in the company.
MCLEAN: There was a guy named Lou Pai who was a key Skilling lieutenant,
helped build the trading business in the early years,
went on to run Enron's doomed effort called Enron Energy Services.
MAN: What was the job of EES, as you ran it?
It was to sell energy services
to end users, industrial end users.
Lou Pai is the guy that Skilling tapped to run the EES business,
because this was so important to the company and to Skilling's future.
He called Lou Pai, "My ICBM."
And Lou Pai dispatched his enemies with incredible skill,
and if that meant leaving bodies behind him,
Skilling was certainly fine about that.
I'm not feeling anything.
Lou Pai was kind of a mysterious figure.
He was kind of like the invisible CEO.
For a while he was located on the seventh floor,
and it was this long office,
and it was all glass-enclosed,
and you would walk by there and it was just almost all the time it was empty.
NARRATOR: Details didn't interest Lou Pai.
Only two things seemed to motivate Pai,
money, and a peculiar fascination with strippers.
For Pai, it was all about the numbers.
ELKIND: He was there every night after work
and he usually brought some of the traders along with him.
He spent quite a lot of money there as well,
much of it charged to the Enron expense accounts.
There were rumors that he brought strippers up to the trading floor.
EBERTS: Almost everyone knew the story.
The story is that, because he's kind of a mild,
soft-spoken, almost meek individual,
that maybe these strippers didn't even believe he was the CEO,
so he took them up to his office and I guess they...
They put on a little show for him there.
ELKIND: One night he was at a club and one of the guys said,
"Lou, all the rest of us are single.
"We don't have any problem, but how do you keep your wife
"from smelling the strippers' perfume on you?"
And Lou said, "I've got a secret.
"I stop in at a gas station on the way home
"and I spill a little gasoline on myself and it kills the scent."
So the other guy shot back, said, "But, Lou,
"doesn't your wife then think you're fucking the gas station attendant?"
In the context of Lou Pai, everyone was horrified,
appalled, fell under the table
because Lou Pai was not a man to trifle with.
Two days later, the guy who told the joke, as Enron legend has it,
was dispatched to Calgary, Canada.
NARRATOR: Lou Pai lost all interest in running EES
as soon as the numbers got high enough.
I netted approximately $1 00 million.
I don't know if that number's accurate, plus or minus 20 million.
He actually left Enron with more money than anybody,
$250 million,
because he sold all his stock in Enron after he got a divorce from his wife
in order to marry his stripper girlfriend, who had had his child.
EBERTS: His exit from Enron
was as mysterious as his presence there.
Just sort of one day,
we all learned that Lou Pai was no longer
the CEO of EES.
NARRATOR: Though Lou Pai flew away from Enron with $250 million,
the divisions he left behind lost a total of nearly $1 billion.
But Enron managed to disguise that fact.
Lou Pai became the second-largest landowner in Colorado.
SWARTZ: It was the number.
It was always making those numbers and looking...
To me, the real mythology is high school mythology,
that you wanted to be the most popular guy on Wall Street
and you were gonna do whatever you had to do to stay there.
And Jeff understood those rules better than, I think, anyone else.
(THE CARDIGANS SINGING LOVEFOOL)
NEWSCASTER: Americans are making a lot of money in stocks.
The stock market soared to near-record highs yesterday.
The stock market continued its bull run Thursday.
The Dow rose nearly 61 points.
MARTIN-BROCK: Even the person with very little disposable income
all of a sudden began to play in the stock market,
because nobody could fail,
because stock prices were just going up and up and up.
Another day, another record.
And the Internet and technology stocks just going wild.
NEWSCASTER: Gained more than 100 points to close at 7895.81 ,
the highest finish ever.
OLSON: It was a time where we had the biggest bull market
in the history of the world.
Ken Lay was right there acting as a cheerleader.
Obviously our stock has been doing very well.
I think there's a fairly good chance we could see the stock price
double again over the next year to 18 months.
NARRATOR: Enron mounted a campaign
to capture the hearts and minds of stock analysts.
The natural gas stocks include Enron.
We're never satisfied
and I don't want us to ever be satisfied with the stock price.
It should always be higher.
Enron posted a 30% jump in second-quarter profits,
as web-based trading boosted its wholesale energy business.
The game was played on Wall Street
in such an established way throughout the 1 990s.
As long as a company met or exceeded
the annual projections for quarterly earnings per share,
the stock went higher.
NARRATOR: The game was called, "Pump and Dump."
Top execs would push the stock price up
and then cash in their multimillion-dollar options.
ELKIND: People at Enron got paid in large part through stock.
Enron had a huge stake in seeing the stock price go up,
and it was driven very clearly by the profits every single quarter.
They were exceedingly conscious of that.
Skilling was and everyone else in the company was.
They posted the stock price in the elevator.
You were surrounded by the health of the company.
What's the stock price doing? We were consumed by it.
LERACH: This company was fixated on its stock price
and fixated on
a massive public relations campaign
to convince the investment community
that they were new, different, innovative,
almost heralding a new era of corporate enterprise.
(UPBEAT POP MUSIC PLAYING)
Come work for us!
The courage of people to do new things, try new things, experiment,
step out.
We begin by attracting the kind of people that are more comfortable
in an environment of change.
SKILLING: You know when you work for Enron, you're gonna see the newest thinking.
You're gonna see the newest markets opening up.
EnronOnline, a fabulous, fabulous story.
SWARTZ: They were so good at their acting
that they convinced corporate America that they were smarter than anyone else.
Alan, with our sincere thanks and admiration,
we are pleased and indeed honored to award you the Enron Prize
for distinguished public service.
(APPLAUSE)
NEWSCASTER: The power business continues to go up 25%.
ELKIND: They continued to sell the company as being a very stable place,
where it could predictably increase profits 10 to 15% a year.
In fact, to get to those numbers,
Enron was doing all sorts of questionable things,
taking enormous risks.
We like risk because you make money by taking risks.
NARRATOR: By all accounts, Enron was soaring.
But in reality, profits weren't going up.
They were headed in the opposite direction.
Enron had vast natural gas operations all over the world.
They had cost billions to build
and most were performing terribly.
But in other places in the world, in India,
great quarter and a great year in India.
Phase one of Dabhol is in operation generating power.
Phase two is financed and is under construction.
My experience indicated there were certain places
that you assiduously stayed away from, and one of them, as an example, was India.
They built this power plant in India. Nobody else would do that at the time.
They were terrified of investing in India.
Enron did it, and did it in a big way.
NARRATOR: But Enron had failed to see something basic.
India couldn't afford to pay for the power Enron's plant produced.
Now Dabhol is a ruin.
Though it lost $1 billion on the project,
Enron paid out multimillion-dollar bonuses to executives
based on imaginary profits that never arrived.
Where was the real money going to come from?
MARTIN-BROCK: Of course, the pressure was enormous.
You had to come up with the next idea that would break through.
Failure was not an option.
A flurry of buyouts in the corporate world.
The biggest, Enron announcing a buyout of Portland General.
NARRATOR: The merger with PGE
put Enron in the electricity business,
and Portland General's position on the west coast
gave Enron access to the newly deregulated market of California.
LAY: The merger, we think it uniquely positions us
to ultimately become the largest marketer of electricity and natural gas
at both the wholesale and retail level nationwide.
KASEWETER: What brought all this on was, with deregulation,
they said that we would not survive unless we joined forces.
Enron... I'd never heard of them until they were gonna buy us.
They slid in here, and when they purchased PGE,
all the PGE stock became Enron.
Just went through, stamped every one of them.
I looked around me,
and all the guys that were buying all this Enron,
they were doubling their money.
In that whole time since then,
I put the maximum I could into my 401 and savings.
Portland General, again, good earnings and cash flow.
ELKIND: It's what they call on Wall Street a "Trust me" story.
People that had been gas pipeline workers for decades
kept their money in the company,
because they thought it was as traditional and
safe an investment as it had always been, and it wasn't anything close to that.
"Should we invest all of our 401k in Enron stock?"
Absolutely. Don't you guys agree?
Bonus.
(VIVIAN GREEN SINGING LOVE FOR SALE)
NEWSCASTER: Enron is a big winner today.
MCLEAN: One of the things that fascinated me
was that almost all of the Wall Street analysts who covered Enron
had buy ratings or strong-buy ratings on the company's stock.
Why were the analysts
blinded to the company's deceit?
We relied on the information that was available at the time.
They trusted the integrity of the company's certified financial statements
and the representations of the company's management.
And we've been absolutely upfront with the analysts.
CHANOS: Jeff Skilling was the critical component
in creating the Enron illusion.
Time and time again when we had a question
to the sell-side analysts
that they couldn't answer, the response was, "I'll give Jeff a call.
"I'll run this by Jeff."
NARRATOR: By giving Jeff a call,
the analysts weren't analyzing at all.
They were willing to believe virtually anything Enron told them.
Most of the analysts right now have a target price on us
from $100-1 15 a share.
NARRATOR: Any analyst who didn't buy the company line
became an enemy of Enron.
Enron CFO, Andy Fastow, had his eye on John Olson,
one of the only analysts skeptical of the Enron story.
Enron loved analysts' strong-buy recommendations.
OLSON: Merrill was informed by Fastow,
"Either you get somebody who is on board with us
"and has a strong-buy recommendation
"and loves us at the same time,
"or we don't do any business with you."
I knew that my days were numbered.
This is an abuse.
NARRATOR: Merrill Lynch fired John Olson.
Soon after, Fastow rewarded the bank
with two investment banking jobs worth $50 million.
CHANOS: Analysts were routinely getting large bonuses
from the investment banking departments
to bring in investment banking deals.
Once that happens, you know,
never was heard a discouraging word.
NARRATOR: While Enron stock kept rising,
its businesses kept losing money.
Looking at the soaring stocks of the dot-coms,
Skilling decided to take Enron into cyberspace.
We're now in the process of seeing if we can create a bandwidth trading market.
NEWSCASTER: Enron is using its knowledge of trading gas
to barter other forms of energy,
even space on the information superhighway called "bandwidth."
Ken Rice has worked at Enron for 20 years.
Enron has found a way to stay ahead of the curve.
MAN: From 7 p.m. to 7 a.m.,
we're paying for bandwidth that we're not using.
Why?
One of our themes around here is to always be asking why.
Why something's done a certain way, or why it's not done a different way.
WOMAN: There's our market.
MAN: Why can't we sell the bandwidth to other companies,
make it a commodity like a pork belly?
Just last week, Enron captivated Wall Street with its bold move into broadband,
teaming up with Blockbuster to deliver movies on demand.
COALE: It was like being at a religious cult meeting.
People started jumping up from their seats
with their cell phones and their blackberries,
running out to the halls to call their bosses.
NARRATOR: One analyst summed up his recommendation to investors
in one word, "Wow!"
Enron stock soared 34% in two days.
And you can tell from the response in the stock market
that they like the strategy, it makes sense.
They announced that they had developed the technology,
it would be in test markets by the end of the year.
And the technology works, the quality is great,
and the customers like it, so we've made a lot of progress.
The truth was that Enron was just struggling with the technology
for video on demand.
NARRATOR: The technology didn't work,
and the deal with Blockbuster soon collapsed.
But with the magic of mark-to-market,
Enron used future projections
to book $53 million in earnings
on a deal that didn't make a penny.
MCLEAN: By the end of the year 2000, Enron was running out of ways
to make the broadband business look successful.
They tried every trick in the bag to try to create the illusion
of a business where there was none,
and the people who were working there were getting increasingly desperate.
NARRATOR: The executives started selling their stock.
By Enron's collapse, Ken Rice had sold $53 million.
Ken Lay had sold $300 million.
Cliff Baxter, $35 million.
Jeff Skilling, $200 million.
CHANOS: As the fraud is perpetuated,
all the various lies and artifices
begin to convince the ringmaster, if you will, himself,
that it's this own bizarre reality.
That in fact, the fraud is the reality. The perception is the reality.
And as long as you can keep the perception going on, it really isn't a fraud.
MAN: Let's talk about bandwidth trading. What about weather options or futures?
-How is that market developing? -Yeah, we have a market in weather.
(PEOPLE LAUGHING)
NARRATOR: When Enron announced its latest plan to trade weather,
people wondered whether it was good science
or science fiction.
Do the weather guys get punished here if the weather's wrong?
Do you have any whip marks on your back there?
That's a good call.
MARTIN-BROCK: Jeff, as time went on, had a harder time admitting things were wrong.
And I have to believe that, you know,
when the lights went out at night, he knew what was coming.
MUCKLEROY: I would liken it to the Titanic,
when you've got a captain who's saying, "Maintain full speed,"
and they bump into a couple of icebergs,
and then they still keep full speed going.
The captain of this ship, Enron,
ignored all the warning signs, and there were plenty of them.
-MAN: And the captain of the ship was? -Kenneth Lay.
NEWSCASTER 1 : It was one of the bloodiest days in Wall Street history.
NEWSCASTER 2: Shares plummeted 31%.
NEWSCASTER 3: High-tech stocks led Friday's fierce sell-off.
This is really a great wake-up call.
Millions of nervous investors following the huge drop on Friday.
MCLEAN: Enron was especially a big deal by the end of the year 2000,
because by then, most Internet companies had already begun to fall,
and everybody on Wall Street was looking for the next big thing.
And here you had Enron,
which appeared to be this shining star of a new-economy company.
Its stock price went up 90% in the year 2000
and had gone up over 50% the year before that.
It was an "it" stock on Wall Street,
one of those companies that can seemingly do no wrong.
MARTIN-BROCK: We were the poster child for the new economy.
We had this culture that had a lot of focus
on reminding us how good we were.
And as that culture emerged, then we get to Fortune magazine,
telling us we were the most innovative corporation in America,
then we really began to feel good about ourselves.
LAY: You all did it again.
Enron was just recently chosen again for the sixth year in a row,
in the most admired company survey by Fortune magazine,
as the most innovative company in America.
Well deserved. Well deserved.
NARRATOR: The sales pitch still sounded good,
but one investor saw something in Enron's numbers
that the stock analysts had missed.
CHANOS: By and large, the analysts admitted to us in person
it's a black box, you have to take it on faith.
Who knows where their earnings come from?
They just pop out, and all we know is they're always good.
And I kept pointing out, "Isn't that the whole point?"
If the black box is there to fool you,
the numbers are always going to be good until they're not.
MCLEAN: I'm not a beat reporter,
so I would've had no reason to look at Enron.
But Jim Chanos mentioned to me that I should take
a closer look at Enron's financial statements,
and it wasn't clear from Enron's financial statements
that there was fraud here,
but what was clear is that something didn't add up.
In March 2001 ,
Bethany McLean, a reporter with Fortune magazine,
first raised questions about Enron's financial condition.
She asked a simple question in the article that no one could seem to answer,
"How exactly does Enron make its money?"
You got very upset at her, didn't you?
SKILLING: I very specifically remember
the telephone conversation that I had with the Fortune reporter.
She called up and started asking some very, very specific questions
about accounting treatment on things.
I am not an accountant, and I could not answer them.
MCLEAN: He became really, really agitated.
He said that people who raised questions like this
were just trying to throw rocks at the company,
and that I was not ethical because I hadn't done enough homework,
and if I had done enough homework, I would understand
how off-base my questions were.
Mr. Skilling, it appears as if you were trying to bully someone
who was asking very basic questions about Enron.
I said to her, "I have got six minutes left
"before I have to be in a meeting
"and I can't get into the details and I'm not an accountant."
And she said, "That's fine. We're gonna do the article anyway."
And I said, "If you do that, I personally think that's unethical."
And the next day, our Chief Financial Officer
and our Chief Accounting Officer flew to New York at Enron's expense
to sit down, not with the editors,
but to sit down with the reporter on that story,
and help her understand the questions that she was asking.
And the next day, we sat in a small, dark, windowless conference room
for about three hours going through
the various aspects of the company's business.
And I'll never forget this. When the interview was over,
the other two executives packed up their things and had left the room.
And Andy Fastow turned around and looked at my editor and me and said,
"I don't care what you write about the company.
"Just don't make me look bad."
NARRATOR: And Fastow had good reasons for not wanting to look bad.
MCLEAN: There were these partnerships that were run by Andy Fastow
that were doing business with Enron.
And these were disclosed in the company's financial statements.
But, I didn't mention them in the story I wrote because I thought,
"The accountants and the board of directors
"have said that this is okay,
"so I must be crazy to think there's anything wrong with this."
The story I ran was actually pretty meek.
The title was "Is Enron Overpriced?"
But in the end, I couldn't prove that it was anything more than an overvalued stock.
And I was probably too naive to suspect that it was anything more than that.
-WAXMAN: Was her article critical? -Yes, it was.
The Fortune magazine article that's out,
the headline is, "Is Enron stock overvalued?"
The gist of the article is that
Enron is sort of a black box which...
Sorry, It's true. I mean,
it's just difficult for us to show people
the specifics of how money flows through, particularly the wholesale business.
The entire reason that this analysis was done by Fortune magazine
is because BusinessWeek had a favorable article
about Enron the week before.
And there's this competition that the news magazines have
where if one says something good, the other one has to find something bad.
So I think that was kind of the genesis of it.
So the criticism, I think, is kind of ridiculous.
When Bethany McLean at Fortune
started analyzing cash flows,
and she had this wonderful article saying,
"Take a look at first quarter, second quarter, third quarter
"and end-of-year cash flows."
There's a reason she didn't invest in Enron,
'cause the financials didn't make sense.
But you have to be willing to say that the emperor doesn't have any clothes,
and this emperor was pretty powerful.
We are going to unveil this morning a new corporate vision.
Okay, are you ready? One, two, three.
How's this?
(APPLAUSE)
MCLEAN: It's really hard to know
when Enron first crossed the line into outright fraud.
But there isn't any doubt about who the guy was who led them there.
It was a protégé of Jeff Skilling's by the name of Andy Fastow.
(TRAFFIC SINGING DEAR MR. FANTASY)
NARRATOR: Andy Fastow was Enron's Chief Financial Officer.
His job was to cover up the fact
that Enron was becoming a financial fantasy land.
ELKIND: Enron essentially was losing money on a cash basis year after year
and yet it was reporting profits.
So it was defying the laws of financial gravity.
The way it was doing it was with something called "structured finance."
And the maestro of all that at Enron was Andy Fastow.
WATKINS: Andy was very young. He was hired by Jeff Skilling,
probably before he was even 30.
And he idolized Jeff Skilling
and he certainly wanted to please the boss.
NARRATOR: To please the boss,
Fastow had to figure out a way to keep the stock price up
by hiding the fact that Enron was $30 billion in debt.
LERACH: People pressured by the need to keep the stock price up
begin to cheat a little bit.
But then the next quarter comes along
and you have to cheat a little more to
do the new cheating to make up for the old cheating.
And before long,
you have created a momentum
that now you can't stop.
NARRATOR: Fastow created hundreds of special companies
to perform a magic trick,
prop up Enron stock by making its debt disappear.
To outside investors, it looked like cash was coming in the door.
In fact, Enron was just stashing its debt in Fastow's companies
where investors couldn't see it.
OLSON: It was black magic. It really was.
They were pulling some rabbits out of a hat.
They could bury debt, they could bury losses.
NARRATOR: Many of the companies had exotic names,
Jedi, Chewco, Raptors.
LJM was Fastow's most ambitious creation.
It would work magic for Enron,
and it would allow Fastow to conjure $45 million
for himself.
So instead of $450 million in equity...
WATKINS: Andy in many ways was someone
we all knew didn't have a strong moral compass.
It's almost like Jeff Skilling said,
"Okay, we're hitting some troubled times. Let's set up Andy
"so we can fill the earnings holes when we need to,"
knowing that Andy would probably
skim a little bit off each transaction for himself.
There's a Body Heat kind of angle to this, you know,
where Skilling is Kathleen Turner and Andy is William Hurt.
You know, in the end, he got suckered
into helping all the executives meet their earnings.
What I wish, in retrospect, I wish I'd never heard of LJM.
Is it your contention that you knew of it and it was appropriate?
Arthur Andersen and our lawyers had taken a very hard look
at this structure, and they believed it was appropriate.
If the theory is that Fastow went rogue somewhere
deep in the jungles of Enron
and was the sole agent of the apocalypse, I just don't buy it.
NARRATOR: Skilling, Lay and the Enron board
had signed off on Fastow's LJM funds.
They saw the benefits of letting Fastow do deals with himself.
NARRATOR: In a secret videotape that surfaced after the bankruptcy,
Fastow can be seen selling LJM
to a group of Merrill Lynch bankers.
He pitches them on the benefits of investing in a fund
that only buys assets from Enron.
NARRATOR: Fastow knew what kind of deal he was offering was Enron's CFO.
He could guarantee profits for LJM.
MCLEAN: He has a sort of Cheshire cat grin on his face
as he talks about all the ways that the fund is gonna profit,
and he talks about the informational advantages
that he's going to have in his dual role as Enron's CFO
and as the head of these funds.
WATKINS: He was general partner of LJM,
while at the same time being CFO of Enron.
Now that's a whole another ball of wax when you wanna talk about that
conflict of interest because
no human being should be put in a situation
where, you know, every single transaction they decide
whether they're looking after Enron's best interests or their limited partners'
because this LJM partnership existed solely to do business with Enron.
NARRATOR: Commit they did. And why not?
Fastow was letting them gamble with Enron's chips.
OLSON: Fastow was using Enron stock
as collateral for a lot of these things.
They were betting their own company on the transactions.
NARRATOR: With the prospect of returns that would exceed 2,000%,
96 individual bankers invested in LJM,
and America's major banks put up as much as 25 million each.
LERACH: It's sort of a who's who of Wall Street.
JPMorgan Chase,
CS First Boston,
Citibank,
Merrill Lynch, Deutsche Bank.
These are some of the premiere investment banks in the world.
MCLEAN: It's just amazing how skilled Enron and Andy Fastow were at
working Wall Street, playing on Wall Street's greed
in order to get money out of them.
To quote Lenin,
they were the investment bankers' "useful idiots."
MAN: As disturbing as Enron's own misconduct
is the growing evidence that leading US financial institutions
not only took part in Enron's deceptive practices,
but at times designed, advanced and profited from them.
LERACH: The Enron fraud is the story of synergistic corruption.
There are supposed to be checks and balances in the system.
The lawyers are supposed to say no. The accountants are supposed to say no.
The bankers are supposed to say no.
But no one who was supposed to say no, said no.
They all took their share of the money from the fraud
and put it in their pockets.
NARRATOR: Enron paid its advisors well.
In 2001 , the accounting firm Arthur Andersen
received $1 million a week.
Enron's law firm Vinson & Elkins did nearly as well.
Everyone had their hand out at the table.
They were all being paid.
And as long as Enron continued, they received their fees.
They were a part of the process.
So it's hard now to say, "Oh, we didn't know anything."
Had we known then what we know now about Enron's practices,
we would not have engaged in these transactions with Enron.
The facts that we now have coming to light about Enron
however were not known at the time.
I believe that the Citigroup professionals involved with these transactions
acted in good faith.
I'd like you here to look at one
Citi e-mail, exhibit 333-I.
The e-mail trail here is all too lurid.
Oh, for instance, one e-mail I remember where the banker writes,
"Enron loves these deals.
"They produce cash,
"but they don't have to show the debt on the balance sheet."
Now, a high school student can figure out
that the banks were all knowing participants
in this wrongdoing.
Merrill Lynch assisted Enron in cooking its books
by pretending to purchase an existing Enron asset
when it was really engaged in a loan.
The accounting sham involved the sale of an interest in three Nigerian barges.
NARRATOR: Nigeria is a long way from Manhattan,
yet for some reason toward the end of the fourth quarter in 1999,
Merrill Lynch suddenly decided to buy
three Nigerian power barges from Enron.
LERACH: Nigerian power barges have nothing to do with Merrill Lynch's business.
It was a blatantly illegal transaction.
It was just taking the barges, getting them off Enron's books,
having Merrill Lynch, if you will, warehouse them for five months,
and then buying them back.
LEVIN: Mr. Martin, you've testified here today
that there was no guarantee,
and you said that under oath.
Here's a document saying that the head of your whole division here
was going to confirm that understanding.
MCLEAN: Over the year 2001, Skilling became increasingly despondent.
He'd always been a moody guy,
but people who knew him said he became just increasingly volatile,
would show up for work unshaven, looking bleary-eyed.
And I think it was the battle of holding these two totally disjointed thoughts
in his mind at the same time.
One is Enron as superstar company
and the other of feeling like it was all crumbling away.
NARRATOR: The first cracks in Skilling's public image
appeared in a conference call with analysts in April 2001 .
CHANOS: And then Jeff Skilling took questions.
And about midway through the session, there was a question
and it was sort of aggressively wondering out loud
why it was that Enron, as a financial services company in effect,
could not release a balance sheet with its earnings statement
like most financial institutions do.
(SKILLING CHUCKLING)
And then quite audibly you could hear Skilling say "asshole."
And then he said, "asshole."
As I understand, you called him an asshole.
And this just caused unbelievable amounts of consternation all across Wall Street,
because people thought, "A Fortune 500 CEO losing it like this,
"publicly calling an investor an asshole?"
If I could go back and redo things,
I would not now have used the term that I used.
Mark Palmer, Enron's chief PR guy,
even ran a note up to Skilling telling him to apologize,
and he just took the piece of paper
and tucked it under the pile of papers on his desk.
And afterwards, Enron's traders, who had erupted in cheers
once Skilling called this guy an asshole, made him a sign.
It was a play off Enron's motto, "Ask why."
And the sign said, "Ask why, asshole."
My personal feeling was that Jeff looked at the numbers
and he knew that we were in a massive hole.
It was the only time that I saw him truly, truly worried
about keeping the stock price up.
And he just kept saying to me,
"I don't know what the hell I'm going to do."
ELKIND: The broadband business was in complete meltdown,
and there were all sorts of other problems that Jeff Skilling,
as the company's chief operating officer, was wrestling with.
In the middle of all of this,
Ken Lay walks into Jeff Skilling's office holding up fabric swatches
for the new G5 $45 million corporate jet he wanted to buy.
And he said to Jeff... Asked him a very important question,
"Which of these cabin configurations do you like best, Jeff?"
NARRATOR: While Ken Lay was stressing over the corporate jet,
EES was headed for a crash landing.
Facing 500 million in losses,
Lou Pai's top lieutenant, Tom White,
wondered how EES could show a profit by the end of the quarter.
One of the things that was always a strange occurrence at Enron was,
for weeks before a quarterly report,
we would be under the impression
that we weren't going to make our numbers.
But then somehow miraculously
we always made the numbers and then some.
But then a question was asked to Tom White,
"How is it that we made the numbers?"
And his answer was one word,
"California."
(PHANTOM PLANET SINGING CALIFORNIA)
NARRATOR: The first clues to Enron's new strategy
hit California with a jolt.
NEWSCASTER: It started at noon, rolling across the state.
Sacramento, San Francisco,
Beverly Hills, Long Beach,
San Diego.
26,000 miles of California power lines, enough to circle the earth.
But for the second day in a row,
not enough electricity for America's largest state
and the world's sixth-largest economy.
The first thing we heard about this energy crisis
is our lights are gonna go off in the middle of winter
when we were using half the electricity we normally use during the summer.
REPORTER: The Bay Area got hit by not one, but two rolling blackouts.
LYNCH: We only need 28,000 to 30,000 megawatts in December.
We have an installed capacity in California, at the time, of 45,000 megawatts.
Plenty of power to meet our electric demand.
Of course, we had blackouts in December.
NEWSCASTER: The people who control California's power grid say
once again they're worried about having to blackout
the northern half of the state.
WHITEHEAD: When the rolling blackouts started in California,
there was definitely a lot of excitement in the air.
It was something new.
It was something that hadn't been encountered before.
It was, how is this event gonna affect the price of power.
WOMAN OVER PHONE: Controlled rotating outages are being implemented.
I knew. I knew that there was illegality going on.
I could feel it, I could smell it, I could sense it
and there was no other explanation,
because the numbers didn't just add up.
We had enough power in California. It was never about lack of supply.
DAVIS: When I ran for Governor in 1998,
not one human being asked me about electricity.
This thing kind of came out of the woods as far as I was concerned,
and I was trying in the early days to learn what was happening,
how we could fix the problem.
DUNN: California was selected by Enron as the prime place
to experiment with this new concept of deregulated electricity.
Reducing electricity cost is only one benefit
from choice and competition.
NARRATOR: In 1996, under pressure from energy companies,
Governor Pete Wilson and the California legislature passed a bill
allowing for the deregulation of electricity.
DUNN: I wasn't in the legislature in 1996,
but I can tell you that there isn't a legislator alive
that can tell you with any sophistication
how a deregulated electricity market ought to work.
Not a one.
NARRATOR: California's deregulated system was a bizarre compromise
between legislators and free-market advocates.
The rules were complicated and hard to follow.
Inside Enron, California's system was little more than a joke.
And once in place,
Enron made sure that the joke would be on California.
FREEMAN: I remember the conversation I'd had with Ken. At the end of it he said,
"Well, Dave, old buddy, let me just tell you.
"It doesn't matter really to us
"what kooky rules you Californians put in place.
"I got a bunch of really smart people down here
"that'll figure out how to make money anyhow."
NARRATOR: One of the smartest guys at Enron was Tim Belden
who ran the west coast trading desk.
MCLEAN: Tim Belden was a fervent believer in the idea of free markets.
And as such, he spent hours pouring over the new rules
for the deregulation of California's energy industry,
looking for loopholes that Enron could exploit to make money.
NARRATOR: He found plenty.
After the bankruptcy, a confidential memo surfaced
revealing the names of Belden's strategies
to gain the California market.
Recently, audiotapes of the Enron traders were discovered.
(LAUGHING UPROARIOUSLY)
NARRATOR: The tapes revealed Enron's contempt for any values
except one: making money.
(CHUCKLING)
WHITEHEAD: An arbitrage opportunity has been defined to me
as any opportunity to make abnormal profits.
So an abnormal profit would be
returns above and beyond the norm.
I was told that a good trader is a creative trader,
and a creative trader is a trader that can find arbitrage opportunities.
NARRATOR: One of those opportunities was called "Ricochet."
In the midst of the energy shortages,
Enron traders started to export power out of the state.
When prices soared, they brought it back in.
WHITEHEAD: Traders would stay after a 12-hour shift
and pour over maps of the western energy grid.
What are the permutations and combinations of ways
to move power around the west?
And I think that's something that Enron knew better
than any other energy marketer in the country, period.
(LAUGHlNG)
WOMAN: These are two traders.
T-r-a-d-e-r-s. This is what they say.
"What we did was overbook the transmission line we had the rights on
"and said to California Utilities,
"'if you want to use the line, pay us.'
"By the time they agreed to meet our price, rolling blackouts had already hit California,
"and the price for electricity went through the roof."
Did you have any knowledge that this was happening?
SKILLING: The only thing that I'm aware of, Senator,
is there was a difference of opinion
on the rules of the independent system operator.
It was just set up. The rules weren't quite clear.
We have traders here from Enron who were saying they did something wrong,
but you don't see anything wrong.
I have one last question, and then I am done.
NARRATOR: Traders soon discovered that by shutting down power plants
they could create artificial shortages that would push prices even higher.
(PHONE RlNGlNG)
DAVIS: When you see two or three energy companies
with 30, 35% of their entire capacity
down for maintenance on a single day,
and as a result, the price of electricity skyrocketing three or 400%,
and then a week later someone else does it up in northern California,
you begin to believe something's not smelling right here.
Those guys, at the flip of a switch,
could just yank the California economy on its leash whenever they wanted to
and they did and did it and they did it, and they made so much money.
The heart of it is an industry that went for 1 00 years,
from the days of Edison, built the best electrical system in the world,
sold the power at reasonable prices to consumers and was very reliable,
was all of a sudden turned into a casino.
NARRATOR: These strategies made some money for Enron,
but the real money was made by betting that the price of energy would go up.
It did, and the west coast traders made nearly $2 billion for Enron.
(OINGO BOINGO SINGING CAPITALISM)
FREEMAN: You can't treat electricity like you treat oranges.
It's the lifeblood of society. It can't be stored.
You can't turn these people loose and let them just have
a "free market," because a free market
is goddamn expensive to the customers.
WICKMAN: It wasn't just Enron.
Every company traded according to the rules
that California put up there.
WHITEHEAD: We're talking about a commodity
that normally trades in the $35-45 range.
High prices are when it gets in the 50s or $1 ,000.
MCLEAN: The Enron traders never seemed to step back and say,
"Wait. Is what we're doing ethical? Is it in our best long-term interests?
"Does it help us if we totally rape California?
"Does that advance our goals of nationwide deregulation?"
Instead, they sought out every loophole they could
in order to profit from California's misery.
NEWSCASTER: Temperatures in California are hitting higher than 100 degrees,
fueling wildfires and fears that California's strained power grid
could once again near collapse.
WHITEHEAD: I was never comfortable on the trading floor at Enron.
And if I had questions,
I didn't ask them because I didn't want to know the answer.
You know, I didn't want confirmed what I suspected might be true,
that what I was doing was in fact unseemly
or was at least unethical, if not worse.
NARRATOR: Why did the traders do what they did?
Was it their multimillion-dollar bonuses
or had Enron found a way to exploit the darker side of human behavior?
RAPOPORT: In the early '60s, Stanley Milgram tried to figure out
what characteristics there were of evil people.
Was there an evil strain
or could normal people do really bad things?
So he set up this experiment.
In the experiment, he had an actor playing an experimental subject
and a real experimental subject.
Step right in here and have a seat.
They went into this room and he had the experimenter say,
"We're going to see if mild electric shocks will help people memorize lists."
(BUZZING) Incorrect.
You will now get a shock of 75 volts.
(MAN YELPS)
"Soft hair."
He kind of did some yelling in there.
RAPOPORT: The Milgram experiment has a lot to say about Enron
because I think people lost their sense of morality.
Like Milgram, once you accepted the idea
that behaving inhumanely was okay, you could do anything.
And the shocks increased with the number of mistakes that they made.
MAN: I can't stand the pain! Let me out of here!
He can't stand it. I'm not gonna kill that man in there.
RAPOPORT: The subject, the real subject,
is begging the scientist-looking person to stop, too,
and the scientist only says,
"The experiment requires that you continue."
Please continue. Go on, please.
You accept all the responsibility?
The responsibility is mine. Correct. Please go on.
SWARTZ: In a way, Skilling was almost like the guy telling those people below him
that it was okay to up the power.
420 volts.
California's electric utilities may have to pull the plug
on millions of customers.
435 volts.
NARRATOR: During the height of Wednesday's blackout,
fire crews had to free people trapped in elevators.
450 volts.
(RAMONES SINGING CALIFORNIA SUN)
SCIENTIST: You must continue. Go on, please.
You're gonna keep giving him, what, 450 volts every shock now?
SCIENTIST: That's correct. Continue.
450 volts.
NARRATOR: Milgram's discovery was disturbing.
50% of the subjects were willing to shock to the death,
so long as the commands came from a seemingly legitimate source.
(MAN SCREAMING)
DAVIS: Tonight I'm declaring a state of emergency in California
to give the state the authority and the resources
to keep the lights on in California.
The governor, who's been basically capitulating
to the demands of the energy companies and utility companies,
needs to put his foot down.
ROSENFIELD: We wanted the governor to send in the state police
or the national guard to seize control of the power plants
and put them back on line.
And I thought we didn't have to take over every plant.
We only had to take over one, 'cause then they would know he meant it.
I'm going to get the $9 billion back
that Enron, Dynegy and Reliant stole from us and get it back to you.
Despite what people in California think,
Enron's making money despite California, not because of California.
NARRATOR: The year-long energy crisis
would cost the state of California $30 billion.
The markets in California are the most regulated markets
in North America today, and that's what's causing the problem.
California, it never deregulated. Enron, buy stock today.
(PEOPLE LAUGHlNG)
Thank you very much.
(APPLAUSE)
SKILLING: We are doing the right thing.
-MAN: You're the good guys. -We are the good guys.
We are on the side of angels.
Oh, I can't help myself. You know what the difference is
between the state of California and the Titanic?
(PEOPLE LAUGHlNG)
And this is being webcast. I know I'm going to regret this.
At least when the Titanic went down, the lights were on.
(LAUGHlNG)
(APPLAUDING)
(CHANTING) Jeffrey Skilling, how does it feel to make a killing?
NEWSCASTER: A top executive at one of America's biggest power companies
received a raucous welcome in San Francisco tonight.
Protesters heckled Enron's CEO Jeffrey Skilling outside
and inside during his appearance at the Commonwealth Club.
One of the protesters even brought a blueberry pie and delivered it herself.
(YELPING)
MAN: Police!
WOMAN: $1 32 million is what he made.
We had a 50% hike in utility rates.
Consumers in California are angry, and they should be.
And if we had anything to do with this,
then we are the stupidest people in the world.
I work for an organization!
Every day people call and say they can't pay their electricity bills!
You've made billions of dollars off of California!
You oughta go to jail!
ROSENFIELD: When the tidal wave of public anger started to grow,
Ken Lay flew out here and convened a meeting of friends.
And I guess he had a little more foresight than we did.
He invited Arnold Schwarzenegger,
brought them together at the Peninsula Hotel and had a lunch meeting.
The notes from that meeting really still have never surfaced.
But we know that Ken Lay's pitch was
"We've got to stay the course with deregulation
"and the market will correct itself and everything will turn out fine."
Now, at the time, we didn't understand
really why he was so concerned, but now we do.
The fact is that Ken Lay was out here because he understood
that Enron itself was a house of cards.
And if deregulation were to collapse,
then Enron itself would collapse.
NARRATOR: But Ken Lay had a trump card.
In the midst of the energy crisis,
his friend, George W. Bush, became President.
I, George Walker Bush, do solemnly swear...
NARRATOR: Ken Lay did have easy access to the Bush administration.
On April 17, he met with Vice President Dick Cheney
and strongly argued against the imposition of federal price caps in California.
CHENEY: We're doing everything we can to help in California on a short-term basis.
There's not a lot you can do.
You can't manufacture kilowatts in the west wing of the White House.
We're fighting with both hands tied behind our back.
We no longer have the power to stop this.
If the federal government doesn't help us, we're a dead duck.
NARRATOR: At the time, Gray Davis was a likely candidate to run for President.
Ken Lay knew that might give his friend, George Bush,
a political reason to oppose California's appeals for federal price controls.
They know full well my administration's belief
that price controls will not solve the problem.
His view was that the federal government really shouldn't get involved.
This is California's problem.
And I'm saying, "With all due respect, Mr. President,
"our law said the federal government regulates this.
"So it is your problem
"and you make appointments to the federal deregulatory commission."
So we had a polite but spirited discussion on that
and he said, "I just can't be of help to you on that."
As I said from the very beginning of my administration,
we'll work to help California in any way we can.
And the best way we can is to be good citizens.
NARRATOR: FERC, the federal agency which regulates energy in America,
refused to intervene.
What was FERC doing, and why was it not taking action?
NARRATOR: The chairman of FERC was Pat Wood,
the man Ken Lay had personally recommended for the job.
DAVIS: It was easy for FERC to do Enron's bidding,
because all they had to do was do nothing, which they did very well.
NEWSCASTER: Federal regulators are being pressured to act
by the now democratic-controlled Senate...
NARRATOR: A democratic Senate forced FERC to impose regional price caps.
That ended the energy crisis, but not the political one.
MAN: Did Ken Lay and George Bush have a political agenda
to blame the energy crisis on Gray Davis and...
Hello!
NEWSCASTER: It's one of those "Only in California" stories.
The state's unpopular governor, Gray Davis,
beset by an ailing economy and a $38 billion budget deficit
faces possible recall,
and rumored as a possible replacement for Davis,
movie star Arnold Schwarzenegger.
The Terminator? We'll see whether he's back or not.
Gray Davis has terminated opportunities
and now it's time we terminate Gray Davis.
(CALIFORNICATION BY RED HOT CHILLI PEPPERS PLAYING)
ALL: (SHOUTING) Recall! Recall!
ROSENFIELD: Could I predict a phony energy crisis as a result of deregulation?
Yes.
Could I predict that Arnold Schwarzenegger
would be our Governor as a result of deregulation?
Never would've come up with that.
That's like a bad science fiction movie.
Apparently, we have been all wrong.
It is pronounced "Kal-ee-'for-nyah."
Ladies and gentlemen,
the Governor of the great state of California,
Arnold Schwarzenegger!
We could just hear rumbles all the way up and down main street
here and all throughout the city that things were very difficult at Enron.
One guy who a year before had come to me and said
"I'm working for Enron," and was very excited,
but within a year was waking up every night with nightmares.
"I've got no life left
"and I feel like I'm being consumed by this company."
NARRATOR: As doubts began to surface about the company
and the erratic behavior of its CEO, Enron stock began to fall.
MARTIN-BROCK: I remember one of the most poignant meetings I'd ever had with Jeff.
I had left Enron
and I have come over to talk about whether or not I would return to Enron.
I said, "Jeff, you've got a real problem.
"The traders, they will cut your throat
"if they think it will get them to the trough sooner."
Jeff was silent.
And he looked out the window and he looked back at me and he said
"Yeah, Amanda, you're most likely right."
By the end, the traders ran Enron.
You know, the inmates had taken over the asylum.
EBERTS: All through the summer, the stock continued to decline.
There was a buzz
that a major announcement was going to take place.
But we all thought that
Ken Lay was leaving Enron
and that he been asked by the Bush administration
to join his administration.
But that wasn't the case at all.
It was Jeff Skilling announcing that he was stepping down as the CEO
and that took everyone by surprise.
No one could believe that.
CHANOS: CEO's generally don't just resign out of the blue
without a well-orchestrated PR campaign beforehand
to pave the way so there's no disruption,
there's no questions, there's no front-page stories,
which, of course, is exactly what happened.
It was at that point that I knew
the architect of the disaster knows that it's crumbling
and the rat is leaving the sinking ship.
COALE: Two days later, I met with him and Ken Lay.
So I had informed the company that I was going to downgrade the stock
on Skilling's resignation.
I asked Jeff Skilling, "Are there any more shoes to drop?
"Have we seen the worst of it?"
I was concerned about the energy crisis that was occurring in California.
Well, Skilling convinced me that it was for personal reasons.
I left his meeting feeling sort of emotional
because of the concern that he seemed to be showing
about the relationship he had with his family.
He appeared to be distraught.
And I remembered saying to an investor,
"If he's not telling the truth,
"then it's a good thing he quit his day job because he needs to go to Hollywood."
I left Enron on August 14, 2001, for personal reasons.
Mr. Skilling, a massive earthquake
struck Enron right after your departure,
and people in far inferior positions to you
could see cracks in the walls,
feel the tremors, feel the windows rattling,
and you want us to believe that you sat there in your office and didn't...
And had no clue that this place was about to collapse?
On the day I left, on August 14, 2001
I believed the company was in strong financial condition.
I think he was smart enough, and he didn't even have to be that smart.
He had seen documents that I think predicted the future.
I think he was smart enough to think
"I can get out now, and this company isn't going to collapse
"for a year, maybe a year and a half,
"so I won't get the blame.
"It was working fine when I left, guys."
NARRATOR: After Skilling resigned,
Enron's chairman, Ken Lay, took over as CEO.
Boy, I didn't expect that.
But thank you. Thank you very much. I'm delighted to be back.
I'm sorry Jeff did resign.
EBERTS: It was a stunning announcement
that he was stepping down as the CEO.
And I think the flags
started going up at that point for everybody.
We are facing a number of challenges, but we're managing them.
Indeed, I think the worst of that's behind us
and the business is doing great.
We're not the only stock that's decreased in value this year.
It's just that we've been hit a little harder than many others.
If a few of these other problems disappear,
like California, like India, I think the worst is over
and I'm excited.
WATKINS: August 14, 2001,
Jeff Skilling abruptly resigns.
And that made me angry. It made loads of employees angry.
I mean, there was a real sense of betrayal by the employees.
I mean, this was, you know, Jim Jones feeding us the Kool-Aid
and then deciding not to drink it himself.
NARRATOR: The day after Skilling resigned,
Sherron Watkins sent a letter to Ken Lay.
MAN: We will begin with Miss Watkins.
I am Sherron Watkins.
Would you identify your counsel for the committee?
Yes. My council is Mr. Philip Hilder.
HILDER: When you hear the story for the first time, it's unbelievable.
What Sherron was telling me
was more than accounting irregularities as such.
I mean, it was a massive fraud of enormous proportions.
In mid to late June of 2001 , upon the resignation of Cliff Baxter,
I went to work directly for Mr. Fastow.
It has evolved to the corporate crime of the century.
I was highly alarmed by the information I was receiving.
NARRATOR: What Sherron Watkins discovered
began the unraveling of Fastow's complex partnerships.
Andy put me in charge of this asset listing,
and there were about a dozen assets
that had been hedged with one of Andy's entities,
the Raptors.
So I was working with the spreadsheet and, you know, the math just didn't add up.
It didn't make sense to me.
Accounting doesn't get that creative.
You know, I couldn't believe that Arthur Andersen had signed off on it.
I couldn't believe that so many people were going along.
NARRATOR: Behind Fastow's partnerships were enormous guarantees of Enron stock.
Fastow had gambled Enron's future
on the hope that its stock would never fall.
WATKINS: My first reaction was
that I should warn Ken Lay.
The day after Skilling left, I sent this one-page anonymous letter.
But within a week, I was meeting with Ken Lay.
I'd identified myself in the hopes of really making my point
that Enron needed to address this situation.
Companies rarely get away with cooking the books.
But when they do survive, it's when they come clean,
not when they're exposed from the outside.
-WYDEN: Miss Watkins, I went through... -Miss Watkins did not talk to me, Senator.
Miss Watkins said Clifford Baxter told her
that he met with you repeatedly to express his concern.
SKILLING: Cliff and Andy had a... They didn't like each other.
They had very strained personal relationship
and Cliff's issue had nothing to do
with the appropriateness or inappropriateness of the transaction.
WATKINS: I mentioned Cliff Baxter in these memos.
And I remember I made the comment to him,
"Well, you're one of the good guys.
"You know, you're one of the people fighting against this,
"and it'd be all right."
And he said, "Oh, I don't think it's going to be all right for any of us
"involved in this."
SWARTZ: When I started working on the book with Sherron,
I was interested in writing about a whistle blower.
People don't really appreciate what she did
and the bravery that it took in that company.
Andy Fastow would not have put his hands in the Enron candy jar
without an explicit or implicit approval to do so by Mr. Skilling.
I can't for the life of me see what basis she would have
for suggesting that I would know something.
I mean, how would she know that?
And I don't see that it's at all inconsistent
that there would be some things I don't know
if some people purposely kept me from knowing some things.
I felt like I was one lone voice within Enron saying,
"Look, we committed horrible fraud."
And, of course, all hell broke loose.
Within six short weeks, Enron was spinning out of control.
LAY: Probably in more normal circumstances,
I would have a few more words to say about September 1 1th.
Just like America's under attack by terrorism,
I think we're under attack.
And of course,
now we've got the SEC inquiry,
informal inquiry.
NARRATOR: The SEC launched an investigation
when the Wall Street Journal published articles revealing Fastow's murky deals.
Enron announced massive financial restatements.
Investors began to worry that billions in mark-to-market profits
were really losses.
As you can, of course, see
the underlying fundamentals of our businesses are very strong.
Indeed, the strongest they've ever been.
But regrettably, that's not what Wall Street is focusing on,
and I doubt that's what you're focusing on.
This inquiry will take a lot of time
on the part of our accountants, lawyers and others,
but it will finally put these issues to rest.
NARRATOR: At the very moment Ken Lay was talking to employees,
only a few blocks away,
Enron's accounting firm, Arthur Andersen,
had begun destroying its Enron files.
On October 23rd
Andersen shredded more than one ton of paper.
Despite the rumors, despite the speculation
the company is doing well both financially and operationally.
WATKINS: He was making all kinds of statements. Reassuring employees.
And not just employees. Reassuring investors.
"We have no accounting irregularities.
"The company's in the best shape it's ever been in."
Now from the standpoint of Enron stock,
we're gonna bring it back, we're gonna bring it back.
All right. We're down to questions, and I've got a few up here.
"I would like to know if you are on crack?
(LAUGHlNG)
"If so, that would explain a lot. If not, you may want to start,
"because it's going to be a long time before we trust you again."
It certainly wasn't clear to anyone at Enron,
much less anyone outside of Enron.
It wasn't really clear what was going on
or what was gonna happen.
I know this is a lot of...
There's a lot of speculation about Andy's involvement.
I and the board are also sure that Andy has operated
in the most ethical and appropriate manner possible.
NARRATOR: The next day, Andy Fastow was fired
when the Enron board discovered that he had made more than $45 million
from his LJM partnerships.
GREENWOOD: The question, Mr. Fastow, is how could you believe
that your actions were in any way consistent
with your fiduciary duties to Enron and its shareholders
or with common sense notions of corporate ethics and propriety?
How do you answer, sir?
Mr. Chairman, on the advice of my counsel,
I respectfully decline to answer the questions
based on the protection afforded me under the United States Constitution.
WATKINS: Andy, in many ways,
I think he was set up as the fall guy.
All of the Enron executives were saying,
"There's your man, Andy Fastow. He's the crook.
"You know, he's the one that stole from Enron, stole from LJM.
"He's the one that cooked the books. Go after him."
Excuse us.
REPORTER: How do you plead, Mr. Fastow?
EBERTS: I've thought about this and thought about this
and it couldn't have just been a few executives at Enron
that made this happen.
If you think of the banks involved,
Chase, Morgan,
Citibank.
The billions in loans
Arthur Andersen.
What about Vinson & Elkins,
the lawyers that represented us?
There had to have been complicity across the board
because it was all too easy.
All too easy.
LAY: The Enron collapse was an enormous tragedy.
This is a company that had over 30,000 employees,
and clearly in a company that size,
you have a lot of senior officers
that have a lot of authority in which you placed enormous trust.
Clearly in this case, there was at least one,
Andy Fastow,
that betrayed that trust
to the extent that I did not know what he was doing,
that he obviously didn't share with me what he was doing,
then, indeed, I cannot take responsibility for what he did.
MUCKLEROY: I never heard him say, "I take responsibility" for a thing.
Sounded to me like the wonderful movie Chicago.
I was reminded of the puppet strings and the dancers
and the tap dancing and pointing at the gun, the gun, the gun.
I mean, everybody's in step with Johnny.
I continue to grieve, as does my family,
over the loss of the company.
Linda and I saw our net worth reduced from several hundred million dollars
down to something less than $20 million on a net worth basis
and as you said, about $1 million or less in liquidity.
I don't know whether I'd
rather be shot as a crook or as an idiot.
I believe the only venue for me is the ride of broken dreams.
Oh, you mean the Enron ride. Let's go.
CHANOS: Enron hit the national psyche.
It hit it as the time-tested lesson
and that is if it looks too good to be true, sometimes it is.
(RATTLING)
WOMAN: We're all gonna be rich!
(ALL SCREAMING)
MAN: Broke even!
(SCREAMING)
(ALL SIGH)
SKILLING: It is my belief that Enron's failure
was due to a classic run on the bank.
Don't look now, but there's something funny going on
over there at the bank, George.
I've never really seen one,
but that's got all the earmarks of being a run.
NARRATOR: On December 2nd, 2001,
less than four months after Skilling's resignation,
Enron declared bankruptcy.
I remember.
It was just a strange, kind of a surreal day.
We learned around 9:30 about the bankruptcy,
and that we were all being let go.
We all felt like we were on the Titanic
and the last lifeboats had long gone
and we were just now on the sinking ship.
We had 30 minutes to leave the building and at that point
it was no longer like being on the Titanic.
It was kind of like being on the Lusitania.
The torpedo had hit, and there's 20 minutes to get out.
WICKMAN: There was a lot disbelief.
Very few of the rank and file people
ever dreamed that Enron would actually go bankrupt.
And then all of a sudden it was like a ghost town.
I can remember going into the old building on certain floors
late in the afternoon or evening and it was scary.
There'd be like papers blowing around and nobody there
and it was very eerie.
BOXER: Mr. Skilling, your opening statement
was extremely compassionate to the employees.
And I want to show you a tape. And I believe we have it ready to go.
Listen to this.
"Should we invest all of our 401k in Enron stock?"
Absolutely. Don't you guys agree?
Why is it that you had begun unloading your stock
pretty heavily before that date and yet
led the employees to think they should keep buying stock?
SKILLING: Mrs. Senator,
I have been a major shareholder in Enron Corporation,
and you can take the videotape to mean what you want it to mean.
I was a supporter of Enron Corporation.
You know what happened to those people. They lost everything.
I feel terrible about what happened to the employees.
MAN: Well, at one time, things were really rosy for us,
and we all had some really nice-looking 401 k's and pensions,
then it peaked and then it just started going down
and it went lower and lower and lower.
The peak, I had about 348,000
and I sold it all for $1 ,200, was what I got for it when it was done.
NARRATOR: While Enron stock was plummeting,
the retirement accounts of Enron's rank and file workers were frozen.
KASEWETER: We were frozen out of our accounts. It was right about $32, I believe.
And over that time, from when it was frozen to when it opened up,
I think it went down to nine and we could not access it.
And what came out later that was so bad was the fact that
Ken Lay and Skilling and all the top people were
moving their money then, but we couldn't.
LERACH: The insiders had sold off a billion dollars of their stock.
Compare that to the lineman
who worked for a state-owned utility company
for most of his life, put away money each month,
and what's he have to show at the end of the day
for his years of hard and decent labor?
He gets a big goose egg. And Pai is out in Hawaii somewhere
with $350 million in the bank. That's wrong.
NUTTER: There's still, to this city, a layer of anger and upset.
I am still doing counseling three years later with some families.
With some of those who are most reflective, it's gone to a deeper layer,
and they are looking at the corporate culture itself in this country.
You know, you can gain the whole world,
and all the trinkets and all the trophies of the world,
the corner office and all the perks,
and you really can lose your soul in the midst of this.
NARRATOR: On January 25, 2002,
seven weeks after the Enron bankruptcy,
Cliff Baxter committed suicide.
WATKINS: With the media hounding him because he was mentioned in my memos
and the fact that he had been sued civilly
because he'd cashed in for about $30 million worth of stock,
I guess it all came crashing down on him.
I think Cliff's suicide note tells it all.
You know, "where there was once great pride, now there is none."
MARTIN-BROCK: It's very hard for me to talk about Cliff.
We were very close for many years.
And he was a wonderful, wonderful man.
But a lot of who Cliff was,
was tied up in how he had succeeded at Enron.
It is hard to look at your life's work and say it's failed.
But you have to take a long, cold look at yourself and say,
"Who was I? Who did I become?"
And realize that you may have seen your shadow.
NARRATOR: Andy Fastow pled guilty to conspiracy to commit wire fraud.
He agreed to forfeit $23 million in assets.
His sentence was reduced to 10 years
in exchange for testifying against other Enron executives.
RAPOPORT: Why Enron? Why not WorldCom or Tyco or Global Crossings?
Ultimately, in Enron,
the fatal flaw was the sense that brains and wiliness
could outthink the way that the system eventually will work.
NARRATOR: In 2004,
Jeff Skilling was indicted for insider trading
and conspiracy to defraud investors.
Pleading innocent,
he paid his attorneys a retainer of $23 million to defend him.
WATKINS: Enron should not be viewed
as an aberration, something that can't happen anywhere else,
because it's all about the rationalization that you're not doing anything wrong.
We've involved Arthur Andersen, we've involved the lawyers,
the bankers know what we're doing.
There's a sense... The diffusion of responsibility.
Everyone was on the bandwagon.
And it can happen again.
NARRATOR: Enron's accounting firm, Arthur Andersen,
was convicted of obstructing justice.
With its reputation for honesty destroyed,
America's oldest accounting firm fell along with Enron,
and 29,000 people lost their jobs.
Enron shareholders are suing Enron and its banks for $20 billion.
Ken Lay was also indicted for conspiracy to commit fraud.
His attorney maintains that no one has been hurt more by the Enron bankruptcy
than Ken Lay.
Nice of all of you to show up this morning.
WEISSMANN: With today's arrest of Ken Lay,
the top echelon at Enron
has now been called to account for their crimes.
-MAN: Mr. Lay, you have anything to say, sir? -A little later today I will.
MCLEAN: Looking at Enron is like looking at the flip side of so much possibility,
because like most things that end terribly, it didn't start out that way.
It started with a lot of people who thought they were changing the world
and over time, they became victims of their own hubris,
victims of their own greed.
And so it's like taking so much promise and possibility
and looking at it in a mirror
and seeing the flip side reflected back at you.
WHITEHEAD: I think the larger lesson was what
Enron asked of its employees, which was "Ask why."
And, you know, I didn't ask myself why enough.
I didn't ask managers why enough.
I didn't ask my colleagues why enough.