Alone at the End
(Page 2)
from the article, "THE FALL OF ENRON | Catastrophe
Hidden Debts, Deals Scuttle Last Chance "
By Peter Behr and April Witt
Washington Post Staff Writers
Thursday, August 1, 2002; Page
A01
Last of five articles
Ken Lay was alone. He drew back a privacy curtain in the
emergency room of St. Luke's Episcopal Hospital and padded
into view bare-legged, wearing a half-tied hospital gown,
slippers and a confused expression.
It was Saturday, Dec. 1, less than 24 hours before the
fast-ebbing braggadocio of Enron, the self-proclaimed World's
Leading Energy Company, finally dissolved into bankruptcy.
Lay wanted out of the hospital. He was needed at an
important meeting downtown. The besieged executive locked
eyes with the first person he encountered and mistook him
for a emergency-room worker.
"Do you know when I'm going to be able to get out of here?"
Lay asked a shocked Jeff S. Blumenthal, 38, an Enron tax
attorney. Blumenthal happened to be at St. Luke's waiting for
his wife, who had fallen off a horse, to be X-rayed.
"Well, I sure don't; I don't work here," Blumenthal recalled
saying, embarrassed, as he tugged his scruffy weekend
sweater to indicate it wasn't medical garb. He directed Lay to
a nearby nurse.
"I thought, 'surely, the guy's not in here with chest pains'
because nobody was paying much attention to him,"
Blumenthal recalled in an interview. In fact, Lay told him he
was there with an earache.
"There were six rooms in the emergency room," Blumenthal
said. "All six were filled with patients. Everybody had
somebody with them, a wife, a husband, a couple of kids. He
was the only one who was all alone."
Looking back on the fall of Enron, one former executive of the
company thinks about a 15th century allegorical poem and
the painting it inspired: "Ship of Fools."
The painting by Hieronymus Bosch depicts all humankind-
the saints and the sinners- aimlessly voyaging through the
ages toward unreachable harbors. Every passenger is a fool.
The Ship of Fools is not about other people, one commentator
observed, it is about us.
"The world wants to be deceived," the poem says.
The flaws of Enron began at the center and radiated outward
in ever-larger circles. Former chief executive Jeffrey K.
Skilling was determined to create a company like none other,
and he did. Enron was unique: a true innovator in energy
marketing.
But the company also was a master illusionist, taking
advantage of the most arcane accounting and legal
technicalities to turn debt into equity, loans into cash flow
and tax-deductions into earnings. A multitude of technical
truths added up to a false portrait of success.
Kenneth L. Lay was the paterfamilias, an inspiring and
comforting figurehead until he failed. Skilling was the
strategist, whose hubris drove Enron beyond the rules.
Andrew S. Fastow was his indispensable tactician.
They did not act alone. Inside Enron, a wider circle of
executives saw what was wrong and didn't stop it. Most never
thought to try. It wasn't only the bonuses, the $750 million
paid in 2000 alone. Enron's tale of success was so compelling
that people who had ethical doubts just doubted themselves.
"Bells and whistles go off, but then you say it's Jeff and Ken
and Andy and everybody is supporting it . . . so maybe if I don't
get it, maybe I'm wrong," one high-ranking executive said.
"You got lulled. You got seduced. If you didn't jump on the
bandwagon, maybe you just weren't smart."
One former Enron executive struggling to understand what
went wrong noted that a frog dropped in a pot of boiling water
will quickly jump out and save itself. But put a frog in cool
water and turn up the heat gradually, and it will stay until it
dies.
"That's us," Robert J. Hermann, the company's former general
tax counsel, agreed.
Beyond Enron, the cream of an entire generation- the
brightest minds at the best legal, accounting, investment and
consulting firms- helped the company present its charade of
profitability and success. Of Enron's $1.5 billion in earnings
in the 15 months leading up to September 2001, more than $1
billion came from financial and accounting gimmicks that
became the real business of Enron, investigators for Enron's
board concluded.
Accountants and lawyers would attest to the legality and
correctness of the particulars of Enron's dealmaking without
challenging the misleading impact of the whole.
A Merrill Lynch & Co. senior finance executive wrote a note
to himself in 1999 about the hazards of helping Enron write
its financial fiction: "Reputational risks i.e. aid/abet income
stmt [statement] manipulation."
Enron's chief accounting officer, Richard A. Causey, followed
accounting rules and had gotten Andersen's approval on
major accounting actions at the company, his lawyer said this
week. Enron's outside directors relied on Andersen's
judgment, an attorney for the directors said.
Enron was a product of its times. It became addicted to
growth, and when real growth stopped took greater and
greater risks to create the appearance of growth, said Robert
F. Bruner, a University of Virginia business professor who
studied the company.
The death spiral of Enron's stock price, from a pinnacle of $90
a share late in 2000 down to pennies, wiped out more than
$60 billion of stock market investment, much of it in the
mutual funds and retirement accounts of typical Americans.
Enron mirrored the cycle of speculation and market mania in
the 1990s stock market that brought woe to millions of
investors- all passengers on the ship of fools.
"Nobody wanted to hear bad news," said Tom Peters, the
famous management consultant who once was Skilling's
colleague at McKinsey & Co. "Did Miss Smith or Mr. Jones
whose entire pension fund was wiped out get what they
deserve? Of course not. But did we collectively get what we
deserved? Absolutely."
In the eight months since Enron's bankruptcy, a growing list
of companies have followed it on scandal's path, led by
WorldCom, Global Crossing, Tyco International, Adelphia
Communications and Qwest Communications.
Corporate wrongdoing has catapulted to the top of
Washington's agenda. A month ago, the accounting industry
and Republican allies had bottled up a major accounting
reform bill in Congress. Then WorldCom, the nation's
second-largest telecommunications company, followed Enron
into bankruptcy court, and reform suddenly became
bipartisan.
On Tuesday, President Bush signed accounting-reform
legislation that supporters call the most important crackdown
on corporate crime since the New Deal.
It creates an oversight board to investigate and punish
accounting violations. Chief executives and financial officers
must certify the accuracy of financial statements.
White-collar criminals will face fines as high as $5 million
and prison terms of up to 20 years.
"This law says to every dishonest corporate leader: You'll be
exposed and punished. The era of low standards and false
profits is over," Bush said.
Congress is working on legislation to protect workers'
pensions, an effort inspired by Enron's mishandling of its
employees' savings plans.
Corporate lobbyists have stalled proposals to require
companies to count stock options as business expenses. In
the wake of Enron and WorldCom, however, some companies
have made the change voluntarily, among them General
Electric Co., Coca-Cola, Wachovia, Bank One and the
Washington Post Co.
The excesses of Enron have turned government regulators
into reformers, too.
Enron was a prime beneficiary of the relaxed regulatory
climate of the 1990s.
Lay, an energy regulator in the 1970s, built the company to
take advantage of the deregulation of natural gas prices and
sales that began in the Reagan administration. Regulators
once were overwhelmed by Enron. "I don't think FERC [the
Federal Energy Regulatory Commission] could have
penetrated the operations of Enron in such a way to prevent
what has happened," said James A. Hoecker, who chaired the
commission during Enron's rise.
Energy and securities regulators, facing intense political and
public pressure, have vowed to learn from the lessons of
Enron. But important accounting rules exploited by Enron
haven't been touched by reforms, and the task of preventing
future scandals rests largely on the agencies that couldn't
stop Enron.
Enron's secrecy and complexity, which once bewildered
regulators and investors, now bedevils law enforcement.
The government has arrested some executives recently
accused of simple accounting, tax or stock fraud at other
companies. But prosecutors are moving slowly to document
their theory that fraud broadly permeated Enron.
Enron executives who are the central focus of that
investigation now live strange new lives, consulting with
criminal attorneys in between taking their kids to ball games.
No Enron executives have been charged.
In a criminal fraud complaint against three British bankers,
federal authorities said Fastow helped them organize a
scheme to cheat the bankers' employer, an investor in one of
Fastow's former partnerships. The former Enron CFO is
coaching a son's youth baseball team, fishing, jogging and
preparing to move into a 12,000-square-foot home in
Houston's elegant River Oaks neighborhood, according to
news reports.
Lay has begun showing up at charity events and board
meetings around Houston, but people don't defer to him as
they once did. "He is calm, poised and very thoughtful. But
anyone who thinks he hasn't been massively impacted and
deeply hurt by this is dead wrong," said James D. Calaway,
president of the Center for Houston's Future.
Sherron Watkins, 42, whose memo to Lay triggered the series
of events that ultimately exposed the folly that was Enron,
still works there. She's busy assessing the value of Enron's
assets for the creditors' committee in bankruptcy court. Her
oil executive husband remains enormously proud of what she
dared to do.
"She's the only one who felt compelled to come forward to say,
'wait a minute, what are we doing here? Is what we're doing
allowed?'‚" Richard Watkins, 52, said this week. "She doesn't
need anyone else to tell her what's right. She knows what's
right."
The human toll of Enron's fall is still being tallied. Thousands
of employees from Enron and its accounting firm, Arthur
Andersen, lost their jobs as the companies fell together.
Alberto Gude, an Enron retiree, lost his life savings and was
forced to go back to work in a consulting job that keeps him
on the road, away from his family, five nights a week.
"Sometimes I wake up in the middle of the night and say:
'This is not happening,'‚" Gude, 62, said last week.
In January, J. Clifford Baxter, 43, a former Enron executive
who had idolized his close friend Skilling, left his beautiful
suburban home in the middle of the night, parked his
Mercedes-Benz and shot and killed himself.
"He was heartbroken," said Bob Gray, a friend and Houston
attorney who eulogized Baxter at his funeral. "He felt all the
good things they had hoped to build were sullied."
Skilling proved a compelling and charismatic mourner.
"Did you ever see the movie the Big Chill?" Gray asked,
recalling the scene as he, Skilling and other Baxter friends
held vigil. "It was 10 days of intense crying together, laughing
together, working on trying to understand and get things
settled."
Skilling may have unwittingly written as good an epitaph as
Enron will ever get.
After taking over as Enron's chief executive in February 2001,
he gave an interview with the company's in-house magazine.
Asked about the best advice he had ever received, Skilling
replied: "If it doesn't make any sense, don't believe it."
Staff researchers Margot Williams and Lucy Shackelford
contributed to this report.
© 2002 The Washington Post Company
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