Enron: The Smartest Guys in the Room Page #8

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.

As you would expect,

Andy as Chief Financial

Officer of Enron,

is heavily banked, so to speak.

And as a result,

there are five or six

of the name brand banks

who have stepped up and said

they'll commit to this.

Commit they did.

And why not?

Fastow was letting them gamble

with Enron's chips.

Fastow was using Enron's stock

as collateral

for a lot of these things.

They were betting their own

company on the transactions.

With the prospect of returns

that would exceed

two thousand percent,

96 individual bankers

invested in LJM.

And America's major banks put up

as much as $25 million each.

It's sort of the Who's

Who of Wall Street:

JP Morgan Chase CS

First Boston Citibank

Merrill Lynch, DeutscheBank...

These are some of the premier

investment banks in the world.

It's hard for us

to poke holes in this.

Good.

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.

As disturbing as

Enron's own misconduct,

is the growing evidence that

leading U.S.

Financial institutions

not only took part in Enron's

deceptive practices,

but at times designed,

advanced and profited from them.

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.

Enron paid its advisers well.

In 2001 the accounting

firm Arthur Andersen

received one 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

come 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 email,

The email trail here

is all too lurid.

Oh, for instance,

one email 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

articipants in this wrong-doing.

Meryll Lynch assisted Enron

in cooking it's 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

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.

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

of Enron's books,

having Merill Lynch,

if you will,

warehouse them for five months

and then buying them back.

Mr. Martin, you...

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.

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.

Show up for work unshaven,

looking blurry-eyed.

And I think it was

the battle of holding these

two totally disjointed

thoughts in his mind at...

at the same time.

One is Enron

a super-star company

and the other of feeling like

it was all crumbling away.

The first cracks

in Skilling's public image

appeared in

a conference call with

analysts in April, 2001.

And then Jeff Skilling

took questions.

And about mid-way

through the session...

there was a question.

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 earning statement,

like most financial

institutions do.

You're the only financial

institution that can't produce

a balance sheet or a cash flow

statement with their earnings

Well, you, you...

Well, thank you very much.

We appreciate it, a**hole.

And then quite audibly

you could here

Skilling say a**hole!

And then he said, 'a**hole'.

As I understand it,

you called him an a**hole.

And this just

caused unbelievable

amounts of consternation

all across Wall Street

because people thought,

'A Fortune 500 CEO

losing it like this,

calling publicly

an investor an a**hole? '

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

when Skilling called this guy

an a**hole made him a sign.

It was a play off

Enron's motto

'Ask Why' and the sign said

'ask why a**hole. '

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. '

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.

And in the middle of all this,

Ken Lay walks in Jeff

Skilling's office holding up

fabric swatches for the new G5

45 million dollar 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? '

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 leuitenant,

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

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