Who Killed Enron

For the first time, Enron found itself fielding lots of hostile questions from its formerly docile constituency on Wall Street. Meanwhile, The Wall Street Journal had been picking away at the Enron facade, revealing, among other things, that Enron's chief financial officer, Andrew Fastow, had made more than $30 million in fees for running some of the supposedly independent partnerships. That, plus the losses and the vanished $1.2 billion of net worth, started a Wall Street uproar. This went virtually unnoticed in Washington, where all eyes were on Afghanistan. But a few days later the Securities and Exchange Commission informed Enron that it had begun an informal investigation. Enron did what comes naturally to any large company in trouble--it ran for a lawyer: University of Texas Law School Dean William Powers Jr. It put Powers on its board and named him to chair a special board committee to deal with the SEC, and to investigate. Powers hired William McLucas, a former head of the SEC's enforcement division and a partner at the Washington law firm of Wilmer, Cutler & Pickering. McLucas assembled a legal task force and hired accountants from Deloitte & Touche to dig into the books.

Guess what? Inside a month, McLucas & Co. found unpleasant truths that Enron's board (and presumably Andersen) had ignored or overlooked for years. Then again, McLucas didn't have a vested interest in ignoring them. McLucas's conclusion: Enron's profits had been grossly overstated and its debts understated for five years.

On Nov. 8, Enron issued a report, clearly crafted by McLucas, saying that its numbers dating back to 1997 could no longer be relied on. About 10 days later, it issued its third-quarter report, containing additional damaging information. The end was nearing. As a trading company, Enron needed huge amounts of credit to carry inventory (and, as we've seen, to cover losses) and also needed the confidence of trading partners. With Enron's numbers hinky, its credit failing, a cash crisis clearly on the horizon, Enron's beloved free market did it in. Creditors fled, trading partners fled, money gushed out the door. After an aborted attempt to sell out to crosstown rival Dynegy Inc., which walked away from the deal at the last moment, Enron was out of cash, out of credit, out of luck and out of time. It filed for bankruptcy on Dec. 2. And it may well never emerge from it. Its energy-trading business is still very valuable, but the bankruptcy is looking messy, even by bankruptcy standards.

Former Enron employees can't stop shaking their heads over the sorry saga. "There was a time not so long ago when we all thought Ken Lay was just the most wonderful person in the world," says Shane Yelverton, who had worked as a senior administrative assistant in Enron's engineering department. "But now we're hearing all this stuff: that he was selling off stock, even while he was telling us not to sell our stock. It's disgusting."

Charles Prestwood is more than disgusted. A pipeline operator who had been with Enron since day one, he retired in October 2000 with $1.3 million of Enron stock in his 401(k). Now, he's watching pennies. "All those dreams are gone now," he says. "I've lost everything I had. I'm just barely surviving."

Remember John Allario, the former Enron employee who so elegantly described the corporate culture in Enron's heyday? He's getting a measure of revenge. Invoking his former CEO's last name, he started a Web site, laydoff.com, that peddles i got lay'd by enron T shirts. "We've sold about 450 so far," Allario said last week. "It's my way of showing the company that its former employees whom they left in the lurch are still creative, and that we have something to offer."