Conspiracy of Fools (69 page)

The solution was price caps, Davis said again.

In Washington, Summers launched into one final lecture about the evils of price controls. Then he threw in the towel.

“I wonder if, in fact, it’s not best to decide that we are not going to solve this problem today, and let everybody go home to be with their families,” he said.

On the video screen, Davis appeared calm.

“I think that’s right,” he said.

The meeting ended, and the video was shut off. Several officials gathered in the anteroom, frustrated and angry. They complained that Davis was too big a stumbling block, seemingly focused on just saving his political skin.

“So if we get to the 2004 Democratic convention and this guy is a serious contender for President,” one Treasury official said, “which one of us is going to lead the ‘Anybody but Davis’ crowd?”

Fastow turned from the two connected computer monitors on the credenza behind his desk and waved his new general counsel, Jordan Mintz, into the office.

“Jordan, hey, thanks for coming up,” he said.

It was three days later, January 16. The two men took seats at the conference table. Fastow explained that a board meeting was coming up in a few weeks, and there needed to be a presentation on the LJM funds. Mintz’s predecessor used to handle them, Fastow said, recommending that he just follow the established format. Mintz agreed.

Fastow sat back. “We starting work on the proxy?”

Yes, Mintz said. The document sent to shareholders before the annual meeting was about half done. That was a filing that contained many of the disclosures about the LJM deals.

“Okay, good,” Fastow said. “Do you know the basis for why my compensation from LJM wasn’t disclosed last year?”

He did, Mintz said. The lawyers had concluded that enough transactions
were still open that it wasn’t practical to reveal Fastow’s financial rewards until later.

“That’s right,” Fastow said. “And I think we can make the same argument this year.”

Mintz shifted in his seat. “I don’t know if we’re going to be able to, Andy,” he said. “I’ve been through the files, and there have been a number of transactions that have already settled.”

Fastow argued the point, and Mintz promised to check everything with Ron Astin at Vinson & Elkins and Rex Rogers, the assistant general counsel, who both had extensive knowledge of securities law.

“Okay, fine,” Fastow said. “Just get back to me.”

Fastow walked over to his desk, checking the markets on his computer screen. After a moment, he turned and headed back toward Mintz, chuckling softly to himself.

“If Skilling ever found out how much I’ve made,” he laughed, “he’d have no choice but to shut down LJM.”

Mintz hesitantly joined in the laughter. “Oh, come on, Andy.”

Fastow chuckled again and nodded. “No, no. Really.”

Minutes later, Mintz was back in his office, typing an e-mail to Rogers and Astin. He explained what Fastow had just said, including the part about Skilling’s predicted reaction to the LJM payouts. Then he forwarded the message to Rob Walls in the general counsel’s office. Walls, in turn, sent the message to Derrick, Enron’s general counsel.

The lawyers all debated the meaning among themselves. Rogers and Astin were skeptical that Fastow’s compensation could be calculated. Still, no one tipped off Skilling that Fastow was afraid of what he might learn.

Finally, Astin came in with the final word. He was very comfortable with the previous year’s limited disclosure. Fastow’s compensation—an amount unknown to the lawyers—could stay secret.

Shortly after that decision, Walls bumped into Astin in the lobby of the Enron building and pushed him again on whether the company was going too far in keeping the information under wraps.

“Look, Ron, I’m not going to stick my neck out for Andy Fastow,” Walls said.

“I’m not sticking my neck out,” Astin replied. “I am playing it right down the middle.”

On January 19, few of Enron’s top executives could be found anywhere near the company headquarters. Instead, they were getting ready for the big event
that weekend—the inauguration of George W Bush as forty-third President of the United States. By early that Friday, much of the senior management team was headed out to Houston Intercontinental, ready to stamp Enron’s imprint on the new Administration.

That morning, Lay stood beside his wife, Linda, outside the Enron hangar, watching a few black sedans approach. Lay stepped forward as one pulled up nearby. Former President George Bush and his wife, Barbara, got out of the car.

“Mr. President, Barbara,” Lay said, “I’m so delighted this worked out. We’re just incredibly pleased you’re willing to share this time with us.”

Bush smiled. “Well, we’re pleased that you’re going to give us a ride up there.”

The Lays and the Bushes climbed aboard the Enron corporate jet and found their seats. Lay felt the moment; here he was, a onetime Missouri farm boy, with a front-row seat to history. This weekend, a former President would be watching his son assume the same high office, and Lay would be witnessing the events through the family’s eyes. He commented to the Bushes how incredible it all was to him.

“Well, it’s an honor for us to be able to do this, Ken,” Bush replied.

“Absolutely, Ken, Linda,” Barbara Bush added. “We’re just honored you could share this time with us.”

The plane taxied out to the runway and was aloft in seconds. Lay chuckled; apparently planes carrying former presidents were cleared more quickly for takeoff.

Corporate planes clogged the skies over Washington, but the Enron jet landed immediately. The Lays and the Bushes stepped off. A stretch limo, complete with police escort, waited on the tarmac. Bush walked to the passenger door. The Lays looked around for their car.

Bush signaled to them. “Linda, Ken, come on, get in here. We’ve got to go.”

The Lays hesitated, then climbed in, figuring they would get a lift to their hotel. As the car moved through Washington, the Bushes chatted about the first event, a Kennedy Center reception hosted by General Motors and its onetime top Washington representative, Andrew Card, who tomorrow would become White House Chief of Staff.

The car pulled up to the front of the arts center. Bush tugged on Lay’s arm. “Come in with us,” he said.

The Lays hadn’t been invited to the party, but they weren’t about to turn
down a former President. Inside, Card rushed over to greet the Bushes, who gestured toward the Lays. Card thrust out his hand.

“Nice to have you here,” he said. “Delighted you brought the President and Barbara here with you.”

About that moment, Jeff Skilling and Rebecca Carter stepped out of a black Lincoln Town Car in front of the Library of Congress. Carter’s taupe evening gown fluttered in the breeze as Skilling, in black tie, escorted her inside. They handed their invitations to security guards and passed through metal detectors.

The two milled about, chatting with industry executives. Suddenly, a staff person appeared, setting up a thin rope to hold back the crowds. Skilling and Carter were right against it.

The President-elect and his wife appeared in the entryway. Bush walked down the line of supporters, shaking everyone’s hand. He reached Rebecca Carter and smiled.

“Mr. President,” she said.

“Hey, how are you?” Bush replied, shaking her hand.

A woman shoved her way between Skilling and Carter, and Bush released Carter’s hand as he turned to greet the new arrival. Skilling glanced down and raised his eyebrows. Bush was on automatic pilot, his hand still drifting up and down beside Carter. Bush moved on, taking Skilling’s hand.

“Mr. President-elect,” Skilling said. “Jeff Skilling from Enron.”

Bush’s smile widened. “Hey!” he exclaimed. “That’s a great company!”

The next day, a chilly rain soaked Washington, transforming large portions of the inaugural grounds into slicks of mud. As a biting wind blew, George Bush took the oath of office, then stepped up to the podium.

“I am honored and humbled to stand here,” Bush said, “where so many of America’s leaders have come before me.”

On the great lawn in front of the inaugural platform, Skilling sat in a chair sinking into the ground. He was cold and uncomfortable. His clothes were wet, his cashmere overcoat ruined. Just before the inaugural, he had been in the office of Tom DeLay, the Republican congressman from Texas. He wished he had stayed there, and stayed dry.

He glanced at Carter, who was shivering beside him.

“Isn’t this cool?” he said softly. “Aren’t you glad we gave money to the Bush campaign?”

Well, he figured, at least he wasn’t the only Enron executive who was miserable right now.

———

Nearby, Ken Lay brought a steaming cup of coffee to his lips, blowing on it lightly. He was sitting with his daughter Elizabeth Vittor in the warmth of Bistro Bis, the restaurant at the Hotel George in downtown Washington. From their linen-covered table, the two stared at the restaurant television, watching Bush deliver his inaugural address.

They had considered attending the inaugural, even had VIP tickets, but it was just too cold. Besides, Lay would see Bush at the White House soon anyway.

Minutes before ten o’clock the next morning, a driver from Carey car service stopped in front of the east gate of the White House. He lowered his sedan window as a guard approached. “Mr. and Mrs. Kenneth Lay,” he said.

From the back, the Lays watched as the guard first checked a list, then conducted a quick security inspection of the car. The gate opened, and the sedan pulled around the driveway. Staffers opened both passenger doors, and the Lays stepped out, holding hands as they walked inside. Leaving their coats with a checker, they walked down a hallway into the expansive first floor of the White House.

There was a huge brunch buffet, with eggs, sweet rolls, and muffins for the select group invited to share the new President’s first morning meal at the White House. Lay glanced to one side and saw former President Bush at a table with Barbara, enjoying brunch as some of their grandchildren ran along the floor nearby.

The new President’s selections for his Cabinet secretaries were scattered about the room: Donald Rumsfeld from Defense, Colin Powell from State, Tommy Thompson from Health and Human Services. Nearby, Lay saw Don Evans, his longtime friend who had just been elevated from the Bush campaign’s national finance chairman to the post of Commerce Secretary. He and Linda walked over.

“Don,” Lay said, “congratulations on your selection. I know you’re going to do a great job.”

Evans smiled. “Thank you, Ken. And I want to thank you and Linda for all the strong support you gave George.”

Lay basked in the praise.

Minutes later, George and Laura Bush made their way through the hectic swirl of supporters on the main floor of the White House. They wandered into the West Room, shaking hands and accepting congratulations, then
moved on to an adjacent parlor. Bush was chatting with some well-wishers when he noticed Ken and Linda Lay walking toward him. He excused himself and moved through the crowds.

“Kenny boy!” Bush exclaimed. “Welcome to the White House!”

Bush shook Lay’s hand and gave Linda a hug and a kiss.

“I’m so glad you and Linda are here,” Bush said. “I really appreciate everything you’ve done for Laura and me, and for all the support you’ve given my campaigns.”

“Well, Mr. President, we were proud to play a role.”
Mr. President?
For Lay, it was such a strange thing to say. This was just good old George.

By noon, the White House brunch had begun to wind down, with most of the guests preparing to return to their lives. A White House staffer found the Lays, with word that former President and Barbara Bush were ready to leave. The Lays walked to an exit where they had agreed to meet before heading back to the airport together. The Bushes arrived, accompanied by the new President and Laura.

All the members of the Bush family hugged, making jokes about the hard part now beginning. The Bush parents headed out the door. The new President shook Lay’s hand.

“Take good care of them, Ken,” he said gently.

The next afternoon, Jeff Skilling was on a conference call, reviewing Enron’s quarterly performance with Wall Street analysts, when suddenly he gagged. He reached for a Diet Coke and took a sip, trying to clear his throat.

“I really apologize,” he told the listeners. “I sat outside in the rain in Washington, D.C., watching the inauguration, and I’m really paying for it.”

A moment later, Skilling broke into a coughing fit and hit the phone’s mute button. He returned, apologizing again. All in all, he said, Enron had experienced another fantastic quarter and was looking forward to a great 2001. “Let me comment for just a minute on California,” he said. “The situation in California had little impact on fourth-quarter results. Let me repeat that. For Enron, the situation in California had little impact on fourth-quarter results.”

There were several reasons, Skilling said. Enron was not a power generator in California and didn’t have significant investments in the state. He mentioned nothing about the billion dollars in California trading profits that Enron had stashed away in accounting reserves.

———

Later that same week, Linda Lay sat beside her husband on the Enron corporate plane as they traveled to Davos, Switzerland, for the World Economic Forum. On her lap she held the latest report on the family finances.

“Ken,” she said, “I’m really uncomfortable that we have so much debt.”

Lay smiled. All the borrowed money didn’t matter. They owned plenty of assets, particularly Enron stock. This was all part of the strategy to diversify their investments while still holding on to the company’s shares.

“Honey, it’s really all right,” he said. With a net worth upwards of $400 million, he added, having $70 million in debt really wasn’t a big deal.

It was to her, Linda retorted. The number bothered her a lot, she said. She had fretted about the debt before, but this time she seemed more disturbed by it than usual. Lay thought about his options.

Enron offered Lay and a few other executives short-term lines of credit, which allowed them to borrow as much as four million dollars at a time. Lay’s stepson and financial adviser, Beau Herrold, had told him that he could use it to pay some of the bank loans. If necessary, he could repay the company with Enron stock. When the stock price went up, he could repay his debt without trouble.