Living in a House of Cards

Then again, taking liberties with the balance sheet had become the Enron way. In addition to the other changes at EES, Enron folded the unit's risk assessment desk, which certified the contract values, into Enron Wholesale Services, where they were raking in the profits on the California spot market. That allowed Enron to shift about $500 million in losses off EES's June 2001 financial statement onto the books of a more profitable unit, where they would be absorbed undetected.

"One guy says, 'Hey, Jeff,' " Ceconi recalls. " 'You said the stock price is being penalized by analysts and that we should keep on buying, yet you're selling shares every week.' And Skilling says, 'Well, all executives have to register their stock sales, and I have a plan, and I don't know when it's going to sell, and I'm building a house and my accountant says I need to do some estate planning, and 80 percent of my worth is in Enron stock. But we still think it's a good buy and you guys should be buying.' "

Apparently, Delainey's predecessor as EES's chief, Lou Pai, was doing some estate planning as well. Pai began selling his Enron shares in January 1999 and didn't stop until June 2001. But by the time anyone knew EES was a failure, Pai had made $353 million -- three times the next-highest cash-out: $101.3 million by Ken Lay.

Ceconi says that everyone at the floor meeting knew the earnings reported on EES's June financial statement were bogus. Yet she remembers that Skilling touted EES as Enron's "next star," predicting that the unit would be generating $500 million in income in a year or two.

"I'm thinking, 'What drug is he on?' " Ceconi recalls. "I said, 'Hey, Jeff, what's your strategy for getting us there? I mean, do you know something we don't know? Because we have no product to sell.' He said, 'Oh, you guys are the creative ones. You'll come up with it.' He was totally blowing smoke. We all got laid off later that day."

Less than two weeks after gutting Enron Energy Services, Skilling resigned as CEO, after just six months on the job. A day after Lay announced that Skilling wanted to spend more time with his family, Skilling himself acknowledged in an interview that he had taken personally the steep decline in Enron's share price under his watch.

At the request of the board of directors, Lay once again took charge of the company. He told the Powers committee in January that at a management retreat in The Woodlands about a month after his return, he solicited comments about Enron's problems. That led to a one-hour discussion of off-balance-sheet transactions, which most of the two dozen attendees admitted they had used on occasion. According to notes of his interview, Lay said the consensus was that "so long as the vehicles were valid, they made a lot of sense."

Lay acknowledged that he had been consulted on the formation of most of the partnerships run by Fastow, but claimed not to have known they were being used to conceal huge debts and losses until October, when the company reported a quarterly loss of more than $500 million. By then, Lay had been working hard to rally the company's employees, starting with the "Lay It On The Line" survey. There is a somewhat surprising ambivalence among former Enron employees interviewed for this story about Lay's culpability in the company's collapse, although everyone believes he failed to respond quickly enough to Sherron Watkins's detailed warning of the accounting high jinks. For that reason -- and because he was, after all, CEO and chairman of the board -- nearly everyone agrees he bears ultimate responsibility.

Diana Peters is convinced Lay was "a patsy" who was "duped" by Skilling and Fastow. She believes Lay was sincere when he asked employees to "Lay It On The Line," and she senses nothing sinister in his exhortation in a September 26 online chat to "[t]alk up the stock and talk positively about Enron to your family and friends."

"I think he really thought he could make things better, smooth things out and move it forward," Peters says. "I don't think he had any intention of deliberately screwing anybody, excuse my French."

John Allario, creator and Webmaster of Laydoff.com, one of a handful of electronic gathering places for disenfranchised workers and an outlet for their frustrations, was initially encouraged by Lay's efforts at leadership, but eventually changed his mind. "At the time, I thought it was a very proactive thing for Lay to be doing," he says. "He had just taken over, and this was one of his efforts to get his hands around what the company was thinking. In hindsight, it seems like a well-planned PR campaign to give me that exact feeling of comfort, that Ken was at the helm and looking out for me."