Enron: The Smartest Guys in the Room Page #2
a new crusade
to liberate businessmen
from the rules
and regulations of government.
Government is not
the solution to our problem.
Government is the problem.
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.
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.
Ken Lay wasn't alone.
shared his views
on how to get government out
of the energy business.
understand each other.
It was a professional courtesy
between a sidewinder
and a timber rattlesnake.
Lay was closer to the father.
But while
he was governor of Texas
George W. Bush was
only too happy to
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.
When Rich Kinder,
one of Enron's Executives,
left the company,
Lay arranged
for a video valentine.
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,
in this stage of my life,
and Barbara's too,
that's what really matters.
Your family and your friends.
Early on, George Bush, Sr.
Helped secure billions
in government subsidies
for Enron International.
deregulation's
Ambassador-at-Large.
Enron is a company...
that deals with everyone
with absolute integrity.
We want people to leave
the transaction with Enron
thinking that
they've been dealt with
as far as integrity
and truthfulness.
in the cloak of moral rectitude.
But there was one episode,
early on,
that raised questions
about whether he was actually
walking the walk
This was the Enron oil scandal,
also know as
the Valhalla Scandal.
While you were
at Arthur Anderson,
were you involved
in an investigation
at a company called Enron Oil?"
Yes, I was.
The issue
with the company in 1997
involved the misappropriation
of moneys by two traders.
In 1987 two oil traders
made bets for Enron
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.
the tremendous risk that
you have in that market.
You can lose...
ten times your
original investment.
A veteran trader,
Mike Muckleroy,
was suspicious of Enron Oil's
steady high profits.
Well this oil trading
business had profits
understand and in fact,
that many of Ken Lay's
lieutenants questioned.
They said this
business can't be making
this much money legitimately.
The first hint came
from an anonymous tip
about the president
of the company,
Louis Borget.
Mr. Borget had taken
some three plus million dollars
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.
What name did you
suspect that was?
My ass, you know.
And M Smart,
well so that's Maxwell Smart.
I mean, these guys
are playing games
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.
It was brought to the attention
of the Enron Board.
Auditors were brought
in as well,
to look at the whole thing.
At the board meeting,
the auditors told Lay
that Borget and his traders
were manipulating earnings
destroying daily trading records,
and probably gambling
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.
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.
Two months later,
here I got this panic
call that they had
drawn down 90 million dollars
in the previous five days.
What we could do is
just try and find out
what kind of guerilla
we had loose up there.
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.
and I told him that one of
two things was going to happen.
Either one of
the trading partners
that was crooked with Borget
who was a German arms dealer
was going to kill him,
or I was.
I said 'I'll track you down
and find you
And sooner or later,
I'll get you. '
The next day, Mastroeni came
in with the real books.
all of Enron's reserves.
By acting fast,
Muckleroy bluffed the market,
and managed to
save the company.
After Valhalla 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
about the traders' behavior.
Since the fall of Enron,
Ken Lay has said that
he can't be responsible
for things
he didn't know about.
Sounds like what he said
about Valhalla.
Do you believe that
he didn't know?"
I can answer only for one.
I can answer for Valhalla
because Ken Lay did in fact
know about this thing.
Because I had told him myself.
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.
Mastroeni received
a suspended sentence.
Borget was convicted of fraud,
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