The Fall of Enron Series
With Peter Behr and April Witt
Washington Post Business staff writers
Thursday, Aug. 1, 2002; Noon EDT

Enron, once a Wall Street darling, is the second largest and most dramatic corporate failure in U.S. history. The energy trader's complex partnerships and accounting practices began to unravel in late 2001 and the company began to spiral out of control. Following a SEC inquiry into its partnerships, the company announced it had overstated earnings and was responsible for up to $3 billion in obligations to various partnerships.

As the company collapsed, investor confidence and the financial markets were shaken. Thousands of Enron employees were left unemployed and their retirement savings were wiped out. Enron's collapse was the first of several corporate scandals that prompted politicians to pass corporate accountability legislation, which was signed by President Bush just this week. Read the Post Business: Fall of Enron Special Report.

Join Post Business writers Peter Behr and April Witt on Thursday, Aug. 1 at Noon EDT to discuss their stories investigating the fall of Enron.

Below is the transcript.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Peter Behr and April Witt: Hi everybody. Thanks for joining the Enron chat. We appreciate your messages and your interest in the series. We hope you’ll keep reading. We’re ready for your questions now.

Washington, D.C.: Great reporting! When, if at all, shall we see indictments of Enron officials?

Peter Behr and April Witt:
It looks like the Justice Department is going to go after WorldCom first. Obviously, Enron is an especially complicated case. The government is likely to take their time in building it, particularly if they try to show that there was a pattern of deceptive dealmaking and misleading financial statements that came from the top.

Mt. Lebanon, Pa.: Who, if anyone, is on the trail of the loot stashed offshore as well as that spent on houses, girlfriends, automobiles, yachts, jet airplanes, and other treasures? And is the IRS, Justice Department, et al, trying to retrieve any of this booty? I'm not writing about bankrupt ENRON -- I'm interested in the seizure of the personal assets of tycoons: Lay, Skilling, Fastow, and the other principal bandits. Thanks much. HLB

Peter Behr and April Witt:

In addition to the federal prosecutors and the Securities and Exchange Commission there’s a small army of plaintiff’s lawyers who are hot on the trail of top executives and are seeking to recover damages on behalf of shareholders. These private suits probably will move much more slowly even than the federal cases.

Falls Church, Va.: Good afternoon, and I wanted to thank you guys for the very imformative series on Enron. Kudos also to the Post for running such an-depth series.

I have one question and one comment/question.

Wednesday's installment mentioned the Andersen lawyer's (Temple?) obstruction of justice verdict by a jury. I'm a little slow. Can you explain why her actions were thought to be obstruction?

It seems in all the Enron articles written by anyone, it's never really mentioned the nuts and bolts of how Enron trading energy. Who they bought it from, who they sold it to, how they made these deals, stuff like that. Usually, and for good reason, the emphasis is on the shady deals, the money pit purchases of plants in other countries, and the accounting swindle hedge companys.
It would be nice to understand what Enron was doing when they were doing it correctly and legally.

Thanks again.

washingtonpost.com: Losses, Conflicts Threaten Survival (Post, July 31)

Peter Behr and April Witt: On your trading question -- It has been a bit hard to get inside what happened at Enron's trading operation. We'll be finding out more soon, as the Federal Energy Regulatory Commission now is investigating what Enron and other energy traders were doing in the California crisis.

Madison, Wis.: Reading your 5 part series was, to say the least, incredidably entertaining - better than great fiction. Do you have any plans to expand on it & turn it into a book?

Peter Behr and April Witt: Are you a publisher, by chance???

Rockville, Md.: Mr. Behr and Ms. Witt:

I was fascinated earlier this year when Jeffrey Skilling decided to buck the trend and testified before Congress. Given that just about everyone else associated with Enron asserted their 5th Amendement rights, it raises this question. Was Skilling challenging Congress (and possibly federal law enforcement) with a "come and try and get me" attitude or was this a foolish mistake that opend him open to possible perjury charges?

Based on your knowledge of the man, wondering what you think?

Thanks.

Peter Behr and April Witt: We think his decision to testify was totally in character. He's just such a supremely confident man that he thinks he can handle any situation. Remember too, he didn't just testify, he went in there swinging. But he did break one of the central rules for people who are potential targets of government investigations and he made most defense attorney cringe when he did it. We'll find out how smart that was.

Washington, D.C.: Throughout the coverage of the Enron debacle, Ken Lay has been portrayed as Mr. Nice Guy CEO who was strong on selling the Enron name and political backslapping, but weak on accountability and knowing what was happening under his nose in the very company he built.

It seems that it's one of two interpretations: benevolent corporate exec that got blindsided by the evildoer underlings (Skilling and Fasstow), or an incompetent leader that continually put his head in the sand whenever he saw something that spooked him.

Your thoughts?

Kudos on a great series!

Peter Behr and April Witt: Machiavelli or Mr. Magoo? Those are the two extremes. Many people say that Ken Lay wasn't paying attention when Skilling ran the show and when Lay had to take the helm, it was too much. He has to answer, lawyers say, for his trust in others and how forthrightly he handled the crisis once it was on his shoulders.

Des Moines, Iowa: I'd like to read more of the original Enron documents. For instance, news stories indicate JP Morgan and Citigroup recently sent detailed descriptions of SPEs to Senate investigators, but I've been unable to locate them at the Senate or bank web sites. I'm a bit surprised the banks didn't file them with the SEC as Reg FD documents. Are there any public sources that are making available many of the Enron related documents? Thank you.

washingtonpost.com: Readers can read Enron reports and letters under the "Key Documents" section box on the Business: Enron Probe Special Report page.

Peter Behr and April Witt: A great many documents can be found on the Websites of the congressional committees investigating Enron. And there are informal chat rooms and document sites where more can be found. You could start with http://thomas.loc.gov/.

Reston, Va.: As a former employee of Andersen, I have found your reports on the Enron downfall to be very informative and interesting. My question to you is: how is it corporate reform when to my knowledge there has been no action taken against Enron? So far the only company punished has been Andersen. How is that a upstanding and well-respected firm of 89 years is gone and Enron (in some form) is still standing when it was the Enron execs that cooked up the money-grabbing schemes to begin with? Also, how are these Enron execs not in prison by now? That would seem to be the way to corporate reform! Punish the REAL wrongdoers.

Here is an idea: make Lay and Skilling return the money they made from the sale of their company stock and divide it amongst all of those poor employees that they pulled one over on!

Peter Behr and April Witt: It appears that Andersen got nailed immediately because the firm was on probation, in effect, because of wrongdoing in its audit of Waste Management. Andersen had two strikes against it. And maybe the government wanted a quick hit to demonstrate that it was taking corporate wrongdoing seriously.

Vienna, Va.: It seems to me that there has been a popular trend to use accounting loopholes to misrepresent the value of a company. In order to stay competitive in the market, some companies may be using faulty accounting practices simply to keep up with their competitors' faulty practices. Has a standard of misleading investors been set by Enron (etc.) in the business world? In other words, if everyone else is doing it, you have to in order to stay alive. And if that is the case, should a "follower" company (in regards to misrepresentation) be penalized as severly as a first mover such as Enron?

Peter Behr and April Witt: The accounting reform bill signed this week by President Bush creates tough penalties on CEOs and CFOs if they knowlingly sign deceptive financial statements. So that should help. However, the accounting maneuvers Enron employed are still available and the conflicts of interest involving the Wall Street investments banks have not been resolved.

Washington, D.C.: Great series guys. You make a very complex case easily understood by laymen. I had dinner last week with an attorney in town involved in the Enron civil litigation. He told me that one of the problems they're running into is the lack of a paper trail on a lot of the more incriminating elements. Apparenty Fastow, Skilling, et al were communicating primarily only verbally, at lest according to them leaving them with I'm sure what they hope will be "plausible deniability" so one can blame the other. What is your take on this?

Peter Behr and April Witt: That's our understanding, too. Skilling didn't send e-mails, apparently. One of the people we interviewed for the series told us that when he finished going over documents with Skilling on huge and potentially controversial deals, the CEO would approve them, but decline to accept any paperwork. When the meeting ended, Skilling would just slide the documents back across the table.

Knoxville, Tenn.: Great series of articles, I am currently looking through most of them, the reporting sounds quite complicated. Two questions; how did you develop the background information on such a convoluted story and prepare it in a way for the lay (no pun intended) person to understand. Second, it seems the goverment has acted quickly on other similar scandles i.e.: Anderson where they indited the entire firm or Worldcom where two people were arrested today. What is the delay with Enron, have you heard of any political connections that have aided Enron avoid the harsh treatment that other companies have recieved? Thanks for your time.

Peter Behr and April Witt: There are probably ten boxes of documents that we've collected from various sources. The interviews done by Wilmer, Cutler and Pickering on behalf of the board helped us tremendously in reconstructing what happened in Enron's inner sanctums. We can't remember another case where outside lawyers and accountants had free run of a company in trouble as happened here.

Washington, D.C.: What was the central ruling Jeff Skilling broke? - JRP

Peter Behr and April Witt: Of course the government hasn't charged him with anything yet. Jeff Skilling said he relied on his experts to try to make sure that Enron didn't violate any rules. But lawyers say that he is responsible for supervising his subordinates, and for responding to "red flags" indicating problems or possible misconduct. There were a lot of red flags waving. The flip answer to your question comes from Skilling himself in an old interview. He said somethign like, "If you don't have the cattle, don't wear a tall hat."

Des Moines, Iowa: I just want to say congrats on first-rate reporting and compelling writing in your series.

Can you tell us anything about how Lay, Skilling and Fastow are doing today? Are they hunkered in seclusion with attorneys each day, awaiting their dreadful fate? Or do they have anything close to a life at this point?

Peter Behr and April Witt: Thanks for your comment. We touch on that in today's story. SomeEnron's former top executives are no doubt living very stressful lives right now. Some are waiting to see if the government is going to make a case againstthem. Others are likely being asked to inform on their former colleagues. If any Enron executives are accused and convicted, they could expect harsh sentences.

New York, N.Y.: Your feature has been phenomenal thus far. I applaud you both. My question concerns the magnanimity of major financial insititutions. Why were juggernauts like Citicorp and J.P. Morgan so willing to grant loans to a struggling energy company?! Is it possible that the actual aim was to spare the fledgling Bush presidential campaign a political embarrassment by salvaging its principal supporter? Had Enron collapsed during the 1998-2000 period, questions would have been raised with respect to the relationship between Bush and Enron. Were Citicorp and others attempting to bolster Bush?

Peter Behr and April Witt: We don't see a Bush angle at this point. Citicorp and J.P. Morgan were involved in a very large, lucrative and multi-sided relationship with Enron. And that's what they were paying attention to in the months before Enron collapsed.

McLean, Va.: Your work on this series has undoubtedly been significant -- it shows the hardwork and long hours you've put in.

With Andersen indicted, will the other companies it has been working for fall under closer scrutiny even if no questionable transactions are suspected? In other words, should the CFOs of these companies reasonably suspect audits or are they able to sit comfortably with the armies of lawyers and auditors busy elsewhere?

Peter Behr and April Witt: Congress has created a new accounting oversite board to detect the kind of abuses that happened at Enron. How effective it will be remains to be seen. The IRS and congressional tax committees will probably look at the kinds of off-shore tax-shelter deals that Enron specialized in. But this part of the story hasn't yet unfolded.

Hartford, Conn.: In yesterday's article you described the discovery of the Chewco accounting errors Glison in Oct of 2001. That error, I assume was the failure of chewco to meet the 3% outside equity at risk test to keep Chewco off Enron's books. Bauer, an Andersen auditor has testified that the error was based on a "side agreement" to the Barkley's loan that Bauer said he saw until Oct/Nov 2001.
Are you aware of any evidence anyone from Andersen saw or was aware of that Barkley's side agreement before Oct 2001?

washingtonpost.com: Losses, Conflicts Threaten Survival (Part 4) (Post, July 31)

Peter Behr and April Witt: Good question. You're into this stuff. Andersen's Bauer has said he didn't know that the 3 percent rule hadn't been satisfied when Chewco was created, back in 1997. There are other, conflicting accounts about Andersen's' knowledge of the Chewco problem. The Chewco file that we mentioned in the October chapter had all the documents necessary to show that the Chewco partnership didn't meet the rules. If Bauer didn't see that file, was it because Enron hid it, or because Andersen didn't ask to see it? This is one of the unfinished parts of the story.

Laurel, Md.: This may seem rambling, maybe you can tie this together better than I can myself. Ignoring selfishness and greed, two thoughts keep coming to my mind about the actions and motivations described:

Once Enron became big enough, it seemed to lose interest in the "provide a service to customers and get paid for it" aspect of their company and became primarily a paper-trader. I think you used a phrase like "Wall Street had more to do with the company's future than the oil patch" in one of your articles.

Secondly, there definitely seemed to be a "the rich are not like the rest of us" attitude by their executives, like it was noblesse oblige in reverse; the way Lay convinced employees to buy stock while he was dumping his, or they manipulated the California power crises.

Did you get the impression, from the high-money people you talked with or about, that they saw themselves as a kind of nobility above the concerns of mere employees and customers, and that "gambling with paper" was a sort of higher calling that is the proper province of people who have reached their station on the corporate ladder?

Peter Behr and April Witt: Your question about whether Enron executives saw themselves as a kind of nobility is a good one. The culture at Enron was clearly a strong factor in what went wrong. Skilling encouraged people to see themselves as smarter than everybody else. From there it's not such a big leap to begin thinking that you don't have to follow the same rules as everybody else - you can make your own.

Baltimore, Md.: Great series. Thanks
Isn't the role of the banking institutions the next big chapter? Are there any revelations that could ignite that side of the story?

Peter Behr and April Witt: The details of the relationship between Enron and the banks is just starting to come out. Bank executives say they were fooled by Enron, too, not appreciating that it had changed from an energy company into an energy casino. But the banks partnered with Enron in many ways. Apparently, the banks failed to synthesize all the evidence their various departments had about the company's problems. The question is why?

Vienna, Va.: Why is the foolishness of so many Enron Employees being overlooked in this whole mess? While Enron does need to give some answers why they weren't allowed to cash their shares in before they were worthless, the truth is that putting all of one's eggs in one basket, especially one as volatile as a growth stock like Enron, was an incredibly stupid move on their part, and totally against almost every known form of investment common sense. Sometimes you reap what you sow.

Peter Behr and April Witt: That's a fascinating aspect of the story. The fact that so many Enron employees lost their life savings in the company's collapse is more proof of how compelling Enron's tale of success was even inside the company. People who were in a position to know better, still believed the dream. It looks like a classic case of group-think.

Shanghai, China: Terrific work!

I'm curious about the lives of Lay, Skilling, and Fastow since the grand house of cards collapsed.

Are they ostracized by their their former social circles? Have they retreated into hermitic solitude? Or are they lauded by their peers as heros who have been singled out for scapegoating?

Any idea? Thanks again!

- a Yankee abroad

Peter Behr and April Witt: Hello Shanghai! Lay still travels in some of his old circles, but is no longer the adored community leader. Skilling hasn't been seem around Houston nearly as much, former colleagues say. He once told an analyst that if he had been fired from Enron he couldn't hold his head up around town. He seems intent on fighting down to the last cartridge to clear himself. He's probably spending some time with his lawyers these days.

Alexandria, Va.: Who was the Enron executive employee who committed suicide earlier this year/late last year and was he an important player in the Enron debacle who may have been sitting on incriminating materials?

Forget about the book deal, this series should be made into a big-budget movie!

Thanks

Peter Behr and April Witt: J. Clifford Baxter was one of a small number of executives who have been described to us as being in Skilling's inner-circle. His death was a terrible tragedy. There is no way for us to know what he knew and what he might have said to investigators had he lived.

Washington, D.C.: Great articles. First rate. I am most interested in the moral of this story. Many people had gut feelings that unethical things were going on, but got caught up in the "succsess" of Enron. I find it most interesting that very few people stood up to the forceful personalities of Fastow and Skilling. And those that seemed to lost jobs or were transferred. How do you defend against that? I hope the lessons learned here are taught in business schools in the future. Your thoughts? Is it just to easy to get swept up in a big pay check?

Peter Behr and April Witt: This is a really important question. There are many ways to answer it. One vital lesson: companies have to provide avenues for questions, dissent and self-criticism. Inside Enron, critics and questioners were muzzled or sidetracked. The more risks they take, the more important internal candor is. Business schools need to teach ethics, but the problem is broader than that. The values on extreme display at Enron come from the broader culture we all share.

Peter Behr and April Witt: We're signing off. Thanks everyone for your questions and your continuing attention to this important story. Regards, Pete and April.

washingtonpost.com:

That wraps up today's show. Thanks to everyone who joined the discussion.

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