Enron: The Smartest Guys in the Room Page #12

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 remember 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 fourteenth,

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

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 fourteenth,

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.

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.

Well, I'm delighted to be back.

I'm sorry Jeff did resign.

It was a stunning announcement,

that he was stepping

down as 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...

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.

August fourteenth 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.

The day after

Skilling resigned,

Sherron Watkins

sent a letter to Ken Lay.

We will begin with Ms. Watkins.

I am Sherron Watkins.

Would you identify your

counsel for the committee.

Yes. My counsel is

Mr. Philip Hilder.

When you hear the story

for the first time,

it's unbelievable.

What Sherron was telling me

it 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.

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

this spreadsheet and,

you know,

the math just didn't add up.

It didn't make sense to me.

I mean, 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.

Behind Fastow's partnerships

were enormous guarantees

of Enron's stock.

Fastow had gambled

Enron's future

on the hope that its stock

would never fall.

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 identified myself

in the hopes of really

making my point

that Enron really 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.

Ms. Watkins, I went through...

Ms. Watkins did not talk

to me, Senator.

Well, Ms. Watkins said

Clifford Baxter told her

that he met with you repeatedly

to express his concern.

Cliff and Andy have had a...

they didn't like each other.

They had a very strained

personal relationship

and Cliff's issue

had nothing to do

with the appropriateness

or inappropriateness of

the transactions

I mentioned Cliff Baxter

in these memos.

And I remember

I made the comment to him,

'you're one of the good guys,

you know,

you're one of the people

fighting against this.

And it'd be alright. '

And he said,

'oh I don't think

it's going to be alright

for any of us involved. '

When I started working

on the book with Sherron,

I was interested in writing

about a whistleblower.

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 some...

I mean, how would

she know that?

And I don't see that

it's at all inconsistent that

there would be some things

that 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've...

we've committed horrible fraud. '

And of course

all hell broke loose.

Within six short weeks Enron

was spinning out of control.

Probably in more

normal circumstances

I would have

a few more words to say

about September the eleventh.

Just like America is

under attack by terrorism,

I think we're under attack.

And of course.

Now we've got the SEC inquiry,

informal inquiry...

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 see foresee,

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

and lawyers and others.

But it will finally

put these issues to rest.

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.

He was making

all kinds of statements.

Reassuring employees

and not just employees,

reassuring investors,

'we have no

accounting irregularities,

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