Enron collapse laid bare -- what were the bosses doing, anyway?

April 06, 2003|By Jay Hancock | Jay Hancock,Sun Staff

Power Failure: The Inside Story of the Collapse of Enron, by Mimi Swartz with Sherron Watkins. Doubleday. 400 pages. $26.

It takes more than negligence to land corporate frauds in the cooler. Negligence -- duties left undone -- can send bosses to prison if they pollute rivers or kill workers. But if a company cooks the books, bamboozles investors and converts $70 billion of stock value to dust, as Enron did, only intent -- a willful act of obfuscation -- is sufficient to convict criminally. Covering your ears while the sirens of fraud blare through your building is enough for civil penalties but not jail time.

Kind of a shame, in Enron's case. Although there are good reasons to limit criminal and civil liability for corporate bigwigs, the complacency and breach of care by the people governing Enron were so egregious that one wishes, after reading Power Failure, for a tougher standard.

Criminal fraud undoubtedly occurred at Enron. Former finance executive Michael J. Kopper has already pleaded guilty to two felonies. But the crimes were made possible, Mimi Swartz's book makes clear, only by the larger stupidity, laziness, cowardice and esurience of the people in charge.

Power Failure is not the last word on Enron. An ideal Enron saga would be written two or three years from now, when various criminal and civil prosecutions will have added the juiciest bits to the narrative raw material: conversations between Kopper and Enron chief financial officer Andrew Fastow, for instance.

But this book is a good and entertaining account of the information that has spilled out so far. Swartz, an editor at Texas Monthly magazine, interviewed scores of former Enronians and apparently made good use of documents gathered by Congress and prosecutors. She also had, as partner in producing the book, Sherron Watkins, the now-famous Enron whistle-blower who presented Enron chief Kenneth Lay with strong evidence of fraud in August 2001, a few months before the company collapsed.

Watkins is interesting for her personal tale of spying the emperor naked and saying so. She also worked for Fastow, the spider at the center of Enron's irregularities, at the start and finish of her eight-year Enron career. Her story, told in the third-person, "Sherron did this or that" style, is woven well into the larger chronicle without dominating it.

Power Failure also illuminates other, less well-known Fastow skeptics such as Vince Kaminski, a risk-analysis executive who had concluded by 2000 that it was only a matter of time before the explosion of Fastow's off-the-books partnerships would cause widespread damage. Kaminski tried to relay his concerns to higher-ups; nobody listened.

A young lawyer named Stuart Zisman also sounded the fraud alarm. In examining some of those off-the-books partnerships in mid-2000, Zisman warned in a memo to his boss of "overall book manipulation, breach of confidentiality obligations, insider trading and liability" as well as the appearance that "the books at Enron are being 'cooked' in order to eliminate a drag on earnings." Zisman's note was relayed to Enron's top North American lawyer, a man named Mark Haedicke, who, according to Swartz, did nothing but reprimand Zisman for using inflammatory language in his analysis.

Like all good tale-tellers, Swartz ladles on the details. A contingent of Enron executives and traders regularly repaired to Houston's upscale strip clubs, where they reserved private VIP rooms and ran up five-figure bills. One senior executive, Lou Pai, got caught by security cameras bringing strippers into the office and later divorced his wife and married a dancer, which, Swartz says, "probably solved a lot of problems for him and probably saved Enron a lot of money."

Enron in the 1990s is similar to the 1980s Salomon Brothers, as described in Liar's Poker, the Michael Lewis best seller. Both included characters who rose from the merely obnoxious to the brilliantly, humorously insufferable. When the human resources department complained about blue language by Enron's traders, they set up a piggy bank, into which they promised to drop a dollar each time they swore. "Soon," Swartz says, "they started prepaying, effectively creating a futures market in cursing." Enron even cooked the books for Fortune magazine's annual "most admired corporation" contest, Swartz says, by getting its public relations employees to complete forms that were supposed to go randomly to employees.

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