Kurt Eichenwald - Conspiracy of Fools: A True Story

ALSO BY KURT EICHENWALD

THE INFORMANT

SERPENT ON THE ROCK

CONSPIRACY OF FOOLS. Copyright 2005 by Kurt Eichenwald. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. For information, address Broadway Books, a division of Random House, Inc.

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First edition published 2005.

Library of Congress Cataloging-in-Publication Data
Eichenwald, Kurt, 1961
Conspiracy of fools : a true story / Kurt Eichenwald.1st ed.
p. cm.
1. Enron Corp.Corrupt practices. 2. Energy industriesCorrupt practicesUnited States. 3. Lay, Kenneth L. 4. Business failuresUnited States. I. Title.
HD9502.U54E5736 2005
333.790973dc22 2004058216

eISBN: 978-0-7679-1180-1

v3.1

To my parents,
Elva Eichenwald and Heinz Eichenwald,
Who encouraged me to fight my windmills
And cheered me when I won.

Reason dreams of an empire of knowledge, a mansion of the mind. Yet sometimes we end up living in a hovel by its side.

Heinz R. Pagels, The Dreams of Reason

If I remember, I predicted fence integrity would fail.

The character of Ian Malcolm,
in Michael Crichtons Jurassic Park

This narrative account is based on more than a thousand hours of interviews with over a hundred participants in these events as well as a review of tens of thousands of confidential corporate and government documents. Those include FBI notes of interviews and testimony before federal grand juries, the SEC, and other federal bodies. The dialogue comes from those documents and contemporaneous recordsincluding personal diariesor from the best recollections of participants. This, then, is the full story of Americas biggest corporate scandal, one that, in the end, involved events that even now may seem difficult to believe. But theyre all real.

The Top Officers

Kenneth Lay, chairman and CEO

Jeffrey Skilling, president (19972001), CEO (2001)

Rich Kinder, president (19891996)

Greg Whalley, president (2001)

In the Finance Division

Andrew Fastow, chief financial officer (19982001)

Michael Kopper, head of special projects

Jeffrey McMahon, treasurer (19992000), CFO (20012002)

Ben Glisan Jr., treasurer (20002001)

Raymond Bowen Jr., treasurer (20012002)

Jordan Mintz, general counsel

Lea Fastow, assistant treasurer

Michael Jakubik, vice president

Jim Timmins, director, private equity

Tim Despain, vice president

Bill Brown, vice president

The Internal Accountants

Richard Causey, chief accounting officer

David Woytek, vice president, corporate auditing

Rodney Faldyn, vice president, transaction accounting group

Ryan Siurek, member, transaction accounting group

In Risk Assessment

Richard Buy, chief risk officer

Vince Kaminski, vice president of research

Stinson Gibner, analyst

Vasant Shanbhogue, analyst

Rakesh Bharati, analyst

Kevin Kindall, analyst

In Corporate Development

J. Clifford Baxter, executive vice president

Mark Muller, senior vice president

Sherron Watkins, vice president (2001)

The Corporate Staff

Rebecca Carter, investor relations representative, corporate secretary

Mark Palmer, head of corporate communications

Stephen Kean, head of government affairs (1998), chief of staff (19992001)

Mark Koenig, head of investor relations

Cindy Olson, head of community relations

In the Legal Department

James Derrick, general counsel

Rob Walls, deputy general counsel

Rex Rogers, associate general counsel

In Wholesale Energy

Kenneth Rice, chief executive

Kevin Hannon, president

Greg Whalley, president (2000)

Amanda Martin, managing director, asset management

Mark Haedicke, general counsel

Kristina Mordaunt, co-head of finance legal cluster (19971999)

Timothy Belden, managing director, west power trading division

John Forney, manager, west power real time trading desk

Stuart Zisman, senior counsel

Mark Frevert, president, London (1998), unit chairman (20002001)

In Retail Energy

Andrew Fastow, managing director (1996)

Lou Pai, chief executive (19962001)

David Delainey, chief executive (2001)

Raymond Bowen Jr., vice president

In the International Division

Rebecca Mark, chief executive

Joseph Sutton, deputy

In the Broadband Division

Kenneth Rice, co-chief executive (1999), chief commercial officer (2000)

Joseph Hirko, co-chief executive

Kevin Hannon, chief operating officer

Rex Shelby, senior vice president

Kristina Mordaunt, general counsel (19992001)

At Portland General, an Electric Utility

Kenneth Harrison, chairman

Joseph Hirko, chief financial officer (19911996)

At Azurix, a Water Company

Rebecca Mark, chief executive

Amanda Martin, executive director

Colin Skellett, executive director

On the Board of Directors

John Duncan

Herbert Pug Winokur Jr.

Norman Blake

Charles Mickey LeMaistre

Robert Jaedicke

Robert Belfer

Wendy Gramm

William Powers

Joseph Berardino, managing partner (20012002)

Andrew Pincus, general counsel

John Riley, practice director

Rich Corgel, practice director

In the Houston Office

David Duncan, partner

Stephen Goddard, partner

Thomas Bauer, partner

Carl Bass, partner

Debra Cash, partner

Patricia Grutzmacher, partner

Gary Goolsby, global managing partner

James Hecker, partner

In the Professional Standards Group, Chicago, Illinois

John Stewart, partner

Ben Neuhausen, partner

In the litigation group, Chicago, Illinois

Nancy Temple, lawyer

Chuck Watson, chairman and chief executive

Stephen Bergstrom, president

Keith Fullenweider, deputy general counsel

Rob Doty, chief financial officer

Daniel Bayly, head of global investment banking

James Brown, head of strategic asset lease and finance

Schuyler Tilney, relationship banker, Houston office

Robert Furst, relationship banker, Dallas office

John Olson, securities analyst

Gary Mulgrew, managing director

Giles Darby, managing director

David Bermingham, banker