Enron: The Smartest Guys in the Room Page #5

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-percent 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 1990's.

As long as

a company met or exceeded

the analysts' projections for

quarterly earnings per share,

the stock went higher.

The game was called

'pump and dump. '

Top execs would push

the stock price up

and then cash in their

multi-million-dollar options.

People at Enron got paid,

in large part, through stock.

Everyone 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.

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...

of corporate enterprise.

Come work for us.

We encourage our 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.

You know

when you work for Enron

you're gonna see

the newest thinking.

You're going to see the

newest markets opening up.

Enron on-line, a fabulous,

fabulous story.

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.

They continued to

sell the company

as being a very stable place

where it could

predictably increase profits

10 to 15 percent 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 risk.

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.

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 a billion

dollars on the project,

Enron paid out

multi-million dollar

bonuses to executives based

on imaginary profits

that never arrived.

Where was the real money

going to come from?

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 buy-outs

in the corporate world...

the biggest:

Enron announcing a buy out

of Portland General.

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.

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. "

What brought all this

on was the deregulation

they said that

we would not survive,

unless we joined forces.

Enron, I'd never heard of 'em

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 'em.

I looked around me,

and all the guys that were

buyin' all this Enron,

they were doublin' their money.

And that whole time since then,

I put the maximum

I could into

my 401 and savings.

Portland General, again,

good earnings and cash flow.

It's what's they call on Wall

Street a "trust me" story.

People that had been

gas pipeline workers who

for decades kept

all their money in the company

because they thought

it was this traditional and,

you know, safe investment

as it... as it had always been.

And it was...

it wasn't anything close to that.

Should we invest all of

our 401k in Enron stock?

Absolutely.

Don't you guys agree?

Enron is a big winner today

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.

I 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.

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. '

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 a hundred to a hundred

and fifteen dollars a share.

Any analyst who didn't

buy the company line

became an enemy of Enron.

Enron's 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.

Merrill was informed by Fastow,

either you get somebody who is

on board with us as 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.

Merrill Lynch fired John Olson.

Soon after Fastow

rewarded the bank

with two investment

banking jobs

worth 50 million dollars.

Analysts were routinely

getting large bonuses

from the investment banking

departments to bring

in investment banking deals.

Ah... once that happens,

you know, never was heard

a discouraging word.

While Enron's stock

kept rising,

its businesses kept

losing money.

Looking at the soaring

stocks of the dot-coms,

Skilling decided to take

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