Up In Smoke

Enron used political ties to rid itself of regulators. But in the end, its supposed free-market trailblazing only burned investors.

"Enron came across as these flaming capitalists, but they wanted a monopoly," Wolkoff recalls. "They said, 'Keep the government out of my face and my No. 1 competitor at a disadvantage. Then we'll be a competitive company.' "

Enron had, indeed, been very successful in keeping government out of its affairs, beginning with natural gas deregulation in 1985. But whatever opportunities the company once saw in an open marketplace were squandered during its transformation from a real business into "an old-time Wild West casino gone crazy," says Greenberger, the former futures commission division chief.

Enron benefited from the Gramms. And they benefited from Enron.
Deron Neblett
Enron benefited from the Gramms. And they benefited from Enron.

But rather than walk away from the table down a little, Enron upped the stakes. The over-the-counter futures franchise it won from Congress gave traders the power to place even more bets on a house account that had already been drained.

Publicly, though, Enron had plenty of bluff left in it. With its shares trading at a respectable $84 last year, newly named CEO Jeff Skilling nonetheless chided a group of analysts, saying shares should have been selling for $126.

Pressures increased for the company to explain indecipherable accounting that had kept massive debts off the balance sheets. "We don't want anyone to know what's on those books," CFO Andy Fastow said at one point. "We don't want to tell anyone where we're making money."

Or where they were losing it. In late March, a deal to distribute Blockbuster videos over the Internet via Enron Broadband collapsed. Then the company revealed it was owed $570 million by the bankrupt California utility company Pacific Gas & Electric. Worse, analysts started questioning the company's ethics after Fastow's financial stake in Enron's off-balance-sheet partnerships was revealed.

In mid-August, Skilling stepped down as CEO after just seven months. Shares had sagged to $43. Lay returned as interim CEO and, in a series of meetings and e-mail messages, urged employees to continue "talking up" Enron. Lay himself, on the other hand, was bailing out, eventually cashing in more than $600 million worth of shares. Meanwhile, employees were locked out of liquidating pension shares as the price plummeted even faster.

When the SEC began investigating the company in October, Enron shifted more than $1 billion in losses back to its balance sheet, then admitted another $1.2 billion write-down was on the way.

Enron's trading operation stalled under the revelations. Suddenly there was no more buying and selling.

The biggest corporate collapse in history reached its stunning nadir with the December 2 bankruptcy filing. More than 4,500 people were laid off.

It could take years of forensic accounting to pin down how $70 billion disappeared. But this much is already known: Enron was an energy company like the Money Store is a U.S. mint. The company might have owned 37,000 miles of pipelines, but it had leveraged its value making markets where none existed.

Which, of course, isn't a crime. But it isn't a very good idea, either.

The formal exercise in assessing blame is under way in a dozen governmental venues. On January 24, members of the House Governmental Affairs Committee grilled executives from Arthur Andersen, Enron's accountants, over the shredding of Enron audit records and conflicts of interest as both company consultants and auditors. Andersen pointed fingers at Enron for misleading auditors, and at the legal giant Vinson & Elkins for endorsing suspect bookkeeping practices and helping to create the troublesome partnerships.

An Enron probe led by University of Texas law professor William C. Powers suggested massive financial fraud. Lay canceled scheduled testimony before a Senate panel after the Powers report came out. His likely defense -- and that of other executives -- is that he wasn't involved in the decisions that came to devastate the Enron empire. The appearance of his mournful wife, Linda, on national television indicates the spin control has begun on what has already spun so out of control.

Because Wendy Gramm is married to the ranking Republican on the Senate banking committee, her public inquisition should highlight the agenda.

High on the list of questions for investigators is why she and other Enron directors agreed to waive an ethics policy so executive Fastow could arrange a stake in the company's silent subsidiaries, and whether or not she knew they were used to inflate earnings. Someone will ask if her fiduciary duty to shareholders may have been compromised by the $915,000 to $1.8 million in salary, fees, stock options and dividends she received since joining Enron's board in 1993. (The figures are from SEC filings reviewed by Tyson Slocum of the D.C. watchdog group Public Citizen.)

Other inquiries may center on whether Gramm's appointment to the Enron board was a payback for being such a strong supporter of energy derivatives and unregulated commodity trading. One question to be posed is how much, if anything, Wendy Gramm shared with her husband about what Enron hoped to gain from Congress. And what she knew as a member of Enron's auditing committee.

The senator told a reporter recently that "most of the time," he and his wife talk about household chores and college football. Gramm has denied that his decision not to seek re-election, made less than a month after Skilling's departure, had anything to do with Enron. Public Citizen's Slocum isn't so sure, saying the timing is more than coincidental.

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