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Speaker 1: Hey, guys, it's me Joshun For this week's select I've

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Speaker 1: chosen our twenty twenty three episode on the Enron scandal.

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Speaker 1: It's a pretty interesting episode, at the very least, just

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Speaker 1: because of the mind bogglingly nuts stuff that these guys

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Speaker 1: did all in the pursuit of money and personal gain.

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Speaker 1: Not only did they swindle entire states, they also, as

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Speaker 1: a nice cherry on top, wiped out the life savings

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Speaker 1: of thousands of their own employees. It's the kind of

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Speaker 1: thing that was such a big deal. It left us

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Speaker 1: stain on American society as a whole, just by how

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Speaker 1: cynical it made everybody about what people can get away

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Speaker 1: with just in the pursuit of wealth. At any rate,

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Speaker 1: I hope you enjoyed this episode. It's a good one.

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Speaker 2: Welcome to Stuff You Should Know a production of iHeartRadio.

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Speaker 3: Hey, and welcome to the podcast.

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Speaker 1: I'm Joshu and there's Chuck and Jerry's here, and it's

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Speaker 1: stuff you should know.

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Speaker 4: We you mean it.

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Speaker 3: You should know this stuff because this is serious.

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Speaker 1: Corporate malfeasance that I think it's probably not an American

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Speaker 1: over the age of twenty walking around who doesn't know

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Speaker 1: about this somehow, some way, to some degree. I know

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Speaker 1: they teach about this stuff in business school. It's been

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Speaker 1: written on extensively, but I mean I didn't understand the

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Speaker 1: ins and outs of it until I started researching this,

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Speaker 1: and it's quite shocking. And that shocking thing that I'm

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Speaker 1: talking about is the rise.

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Speaker 3: And fall of Enron, one of.

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Speaker 1: The greatest swindles in corporate American history, maybe in corporate

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Speaker 1: history in the world, definitely in corporate American.

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Speaker 4: History for sure.

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Speaker 2: I'm really glad you picked this because I didn't know

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Speaker 2: all the ins and outs either, because this is you know,

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Speaker 2: when I was a young late twenties, early thirty something,

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Speaker 2: didn't have a care in the world. Sure, And I

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Speaker 2: finally watched The Smartest Guys in the Room today.

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Speaker 3: Yeah, I saw it last night.

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Speaker 4: Yeah.

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Speaker 2: The documentary based on the book, and we'll get to

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Speaker 2: the authors and stuff. It was Peter Elkind and.

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Speaker 3: Who was a co author, Bethany McLain.

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Speaker 4: Okay, he was the lead author.

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Speaker 2: Even Okay, I knew she wrote the original articles and Forbes,

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Speaker 2: so she co authored the book and she's in the documentary,

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Speaker 2: as is Elkland. And it really is worth the watch.

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Speaker 2: But just want to point out that this is an

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Speaker 2: overview of the Enron scandal. It's pretty clear once you

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Speaker 2: start poking around that this could be like a ten

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Speaker 2: part series.

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Speaker 3: Yeah for sure.

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Speaker 2: And there probably is a podcast series out there that

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Speaker 2: covered just Enron. So there's lots of sort of ins

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Speaker 2: and outs that we won't be able to touch on,

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Speaker 2: but we can definitely give her the overview, which was

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Speaker 2: that Enron was a corporation. Originally it was a natural

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Speaker 2: gas line pipeline operator, but they quickly, well not quickly,

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Speaker 2: they got out of that business almost entirely when certain

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Speaker 2: people were hired and we'll sort of get to all

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Speaker 2: this in a minute too. Certain people, when certain people

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Speaker 2: were hired that basically said, you know what, we don't

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Speaker 2: we should even be in the pipeline industry. We should

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Speaker 2: invent almost a new kind of industry, which is to

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Speaker 2: use energy as financial instruments, and we should become a

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Speaker 2: trading company that trades natural gas and eventually paper pulp

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Speaker 2: and electricity and you name it. Like, we'll get into

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Speaker 2: all the things that they sort of pivoted to. But

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Speaker 2: in rounds started, I guess we should start at the

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Speaker 2: beginning when they in nineteen eighty five when Houston Natural

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Speaker 2: Gas Company merged with a company called Inter North and

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Speaker 2: they combined to form this b large energy corporation in Texas,

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Speaker 2: mainly natural gas, and the chief executive of HMNG at

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Speaker 2: the time was a man named ckn or Kenneth Lay,

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Speaker 2: who you might have heard of.

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Speaker 1: Yeah, and if you haven't prepared to meet ken Lay

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Speaker 1: several times across this episode from the outset, I think

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Speaker 1: Houston Natural Gas and Inner North, we're both profitable, but

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Speaker 1: I saw that neither one of their the companies really

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Speaker 1: benefited from the merger, although it did expand their pipeline network.

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Speaker 1: Really it just protected them from a hostile takeover. But

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Speaker 1: it was just a just a standard gas company, you know,

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Speaker 1: no big frills or anything like that. I think the

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Speaker 1: first year it posted a fourteen million dollar loss. Put

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Speaker 1: that in your in your hat and smoke it later

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Speaker 1: with a pin. Okay, in that the first year Enron

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Speaker 1: was around, in nineteen eighty five, it posted a fourteen

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Speaker 1: million dollar loss.

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Speaker 3: Remember that for later, Okay.

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Speaker 4: Yeah.

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Speaker 2: Also, something else you should put in your hat for

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Speaker 2: later is the fact that Kenneth Lay, the gentleman I

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Speaker 2: mentioned who was the CEO of Houston Natural Gas was

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Speaker 2: also very very tight with the Bush family, originally the

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Speaker 2: elder Bush and later on George W. As Governor of Texas,

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Speaker 2: big donor to their causes politically, and they ended up

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Speaker 2: having a very sort of you scratch my back, al

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Speaker 2: scratch yours kind of relationship.

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Speaker 1: Yeah, it's I mean like I just started twirling around

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Speaker 1: over and over again out of anger, like multiple times

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Speaker 1: throughout the documentary, because they really go into some good

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Speaker 1: details about that. But the upshot of the whole thing

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Speaker 1: is George H. W and George W. Bush would not

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Speaker 1: probably have been able to help en Ron out as

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Speaker 1: much as they did had it not been for, of course,

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Speaker 1: Ronald Reagan and the sweeping deregulations that occurred in starting

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Speaker 1: in the eighties. There was just a spirit of deregulation

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Speaker 1: which was, as Ronald Reagan said, they quoted in the documentary,

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Speaker 1: Government's not the solution to our problems. Government is the problem.

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Speaker 1: And there was this idea that was really huge in

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Speaker 1: the eighties that if you got government out of the way,

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Speaker 1: competition was going to drive innovation, was going to lower prices,

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Speaker 1: was going to benefit society in myriad ways. That is

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Speaker 1: not untrue The problem is when you deregulate fully and

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Speaker 1: just basically say we're checked out from now on until

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Speaker 1: something really bad happens. Something bad always happens. That's the

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Speaker 1: problem with deregulation in the eighties, not that there's a

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Speaker 1: problem with deregulation, that it was done incorrectly, like it

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Speaker 1: seems to be every single time.

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Speaker 2: Yeah, I mean, Reagan is also in the documentary quoted

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Speaker 2: as talking about the magic of the marketplace, and we

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Speaker 2: talked about this over and over on the show. And

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Speaker 2: this is not an attack on conservatism, but deregulation in

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Speaker 2: the marketplace and letting the free market decide things is

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Speaker 2: one of the core tenets of conservatism generally. And what

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Speaker 2: we've always kind of hammered home after years, and you

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Speaker 2: said it in one way, but I'll say it in another,

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Speaker 2: is it never takes into account humans are the ones

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Speaker 2: that are operating these systems. And when you have money,

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Speaker 2: lots and lots of money, and you have humans operating systems,

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Speaker 2: there are inevitably going to be greedy humans with so

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Speaker 2: much hubris that they sell their souls to make money.

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Speaker 2: And that's what happens every single time. Yet it's still

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Speaker 2: lessons are still not learned that there are certain kinds

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Speaker 2: of humans, and they always seem to be they always

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Speaker 2: seem to be the ones in charge here of these systems.

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Speaker 2: They will take advantage of them to the detriment of

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Speaker 2: the little guy and the little lady. And that is

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Speaker 2: that would happened with Enron.

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Speaker 1: Yeah, And I don't know if it's always like they're

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Speaker 1: not taking into account human greed. I think most of

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Speaker 1: the people who are powerful enough to deregulate federal energy

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Speaker 1: regulations don't really care. In a lot of cases, they

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Speaker 1: know that they're going to make a boatload of money

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Speaker 1: by the time the thing really kind of blows up

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Speaker 1: sometime down the line. I think it could be either one.

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Speaker 1: But there was a big c change in nineteen eighty four,

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Speaker 1: a big change to regulation. The Federal Energy Regulatory Commission said, Hey,

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Speaker 1: you can now buy and sell gas natural gas from

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Speaker 1: any seller anywhere in the United States. You don't have

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Speaker 1: to just buy and sell within your state. And that

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Speaker 1: opened up an entirely new market, and all of a sudden,

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Speaker 1: you can make a lot more money moving this stuff around.

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Speaker 1: But like you said, they figured out at Enron, you

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Speaker 1: can make even more money by selling this stuff as

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Speaker 1: commodities and trading on like futures and turning them into

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Speaker 1: financial instruments, not actual just natural gas or oil or electricity,

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Speaker 1: but the concepts of them, the right to sell it

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Speaker 1: or buy that. Sometime down the road that changed absolutely everything.

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Speaker 2: Yeah, and this is when things when you get into

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Speaker 2: finance like this, it's not that my eyeballs glaze over.

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Speaker 2: It just becomes almost and I say almost not real

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Speaker 2: because it's it is kind of not real. It becomes

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Speaker 2: a form of gambling in a way. And that's very

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Speaker 2: much what happened to Enron in a lot of ways.

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Speaker 2: And you'll kind of see here and there throughout the episode.

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Speaker 2: But they as a company, after that eighty four decision,

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Speaker 2: made a very faithful decision of their own in nineteen

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Speaker 2: eighty nine, just a few years later, when they got

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Speaker 2: a consulting firm on board Mackenzie and Company in particular

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Speaker 2: consultant for that company named Jeffrey Skilling, to create what

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Speaker 2: they called the a Gas Bank, which was basically, like

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Speaker 2: I said earlier, like, hey, why don't we just be

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Speaker 2: an intermediary between buying and selling of gas? And it

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Speaker 2: was going so well that two short years later, Skilling

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Speaker 2: left there and went to work full time.

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Speaker 3: At Enron that's the John Gooing theme, oh.

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Speaker 2: Sure, and eventually working his way up to the CEO

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Speaker 2: of that company.

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Speaker 1: Yes, so he was he but for the most part

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Speaker 1: he was the right hand man, but essentially co CEO

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Speaker 1: with Ken Lay, who I think took him on as

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Speaker 1: a protege. And Jeffrey Skilling was the one who said,

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Speaker 1: let's set up this market. And he also transformed the

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Speaker 1: company's culture. One of the things he came up with

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Speaker 1: was the idea that every year they should review and

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Speaker 1: rate every employee, and the bottom ten percent of employees

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Speaker 1: should be fired.

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Speaker 3: So every year he.

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Speaker 1: Was planning on fire hiring ten percent of their workforce,

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Speaker 1: so about two thousand people every year. And the reason

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Speaker 1: he was doing this is because he's saying, we can

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Speaker 1: do better. We can hire the best and the brightest,

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Speaker 1: We'll replace those people with much better people, and then

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Speaker 1: the ones who are doing really well now we'll get

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Speaker 1: moved to the back, and we'll just constantly be improving

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Speaker 1: on the people that we're hiring. It makes sense in

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Speaker 1: a really machiavellian kind of way, but it's also psychotic

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Speaker 1: as well.

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Speaker 2: Yeah, and the way I understood it from the documentary.

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Speaker 2: It wasn't just like regular upper management reviews of the

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Speaker 2: people that report to them, but it was all the

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Speaker 2: employees rating one another like within their department.

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Speaker 4: Isn't that right?

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Speaker 3: Yeah, that's what I took it as too, So.

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Speaker 2: I mean, you don't have to like be a a

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Speaker 2: soothsayer to see where that heads when. And it certainly

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Speaker 2: creates competition if that's what they're all about with, you know,

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Speaker 2: sort of the charter of the company creating more competition

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Speaker 2: by deregulating. They sort of did the same thing than

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Speaker 2: the ranks and created a very I mean I've seen

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Speaker 2: it described everywhere as just overly macho and testosterone fueled.

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Speaker 3: Yeah.

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Speaker 2: It seems like the traders there were were hired and

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Speaker 2: kept on that were especially aggressive. And there are interviews

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Speaker 2: in the documentary about some of these men who were

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Speaker 2: traders that were like, you would cut the throat of

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Speaker 2: the guy next to you on the trading floor, your

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Speaker 2: fellow employee if you felt like you could make a

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Speaker 2: few extra bucks.

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Speaker 1: Yeah, and that was very much encouraged, not just by

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Speaker 1: Jeffrey's skilling, but ken Lay had a history of at

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Speaker 1: the very least turning a blind eye, if not actively

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Speaker 1: encouraging people to break the law, do immoral stuff that

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Speaker 1: may or may not have been legal, all in the

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Speaker 1: interest of maximizing profits. Like, if you were making money

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Speaker 1: and you got in trouble, you didn't get fired because

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Speaker 1: you made money for the company. That's all all that

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Speaker 1: mattered was making money for the company. So in that sense,

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Speaker 1: Jeffrey Skilling was a really great protege for ken Lay.

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Speaker 1: But he was like ken Lay on steroids, and I

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Speaker 1: get the impression, and ken Lay is always or back

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Speaker 1: in the day, he was a master at presenting this

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Speaker 1: really laid back, almost.

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Speaker 3: Detached persona.

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Speaker 1: But if you watch the documentary and you read about him,

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Speaker 1: you really get the impression that he knew exactly what

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Speaker 1: outcome was ten steps down the road by just nudging

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Speaker 1: this thing over here, nudging that thing over there, all

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Speaker 1: with plausible deniability, but at the same time presiding over

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Speaker 1: this incredibly complex, complicated, masterful machination that was all dedicated

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Speaker 1: to the service of making money by whatever means possible.

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Speaker 2: Yeah, and Lay, I mean the reason the documentary is

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Speaker 2: called The Smartest Guys in the Room is because I

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Speaker 2: think an equivalent everyone would admit that kin Ley and

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Speaker 2: Jeffrey Skilling, and we should introduce you to a young

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Speaker 2: recruit named Andrew Fastaal who is a key player eventually

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Speaker 2: becoming the CFO, and was up to all kinds of shenanigans.

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Speaker 2: But these were brilliant guys with amazing ideas, and a

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Speaker 2: lot of the ideas that they had for this company

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Speaker 2: were really good and ahead of their time. But they

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Speaker 2: had the notion that you should be able to trade

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Speaker 2: and make money off of great ideas and not necessarily

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Speaker 2: the results of those great ideas, because time and time again,

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Speaker 2: as you'll see as we tell this story, these ideas

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Speaker 2: were not making actual money, maybe because some of them

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Speaker 2: were ahead of their time, but that didn't matter because

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Speaker 2: they had ways, very creative ways to hide those debts

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Speaker 2: and losses. And that's the whole sort of fall of

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Speaker 2: Enron is wrapped up in that statement. But these are

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Speaker 2: all really really smart guys, and they were really really

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Speaker 2: good at making money, and maybe we should take a

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Speaker 2: break there. It's a nice little set up, all right,

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Speaker 2: and we'll come back and talk a little bit more

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Speaker 2: about their lobby to deregulate, and then some of the

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Speaker 2: early Shenanigans.

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Speaker 4: Right after this.

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Speaker 3: Should know, large holds of.

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Speaker 5: SKUs watched s k as good.

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Speaker 1: Okay, So after about six years after that big deregulation

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Speaker 1: from FIRK that said you can buy gas and sell

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Speaker 1: it at wherever in the country. That opened up a

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Speaker 1: huge market, there was another watershed deregulate deregulation that's that

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Speaker 1: reversed an act that went back to nineteen thirty five,

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Speaker 1: the Public Utilities Holding Company Act. Pooka love that one

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Speaker 1: that said, if you are generating and selling electricity, you

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Speaker 1: are a local utility and we're going to regulate you

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Speaker 1: like you were providing the life blood of America, because

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Speaker 1: they are Electrical utilities provide the life blood of America

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Speaker 1: and have since long before nineteen thirty five. And in

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Speaker 1: nineteen ninety they managed to get that reversed and now

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Speaker 1: all of a sudden, anybody could buy an electric utility.

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Speaker 1: And Enron definitely jumped on that.

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Speaker 2: Yeah, for sure, their lobby was strong to put up mildly.

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Speaker 2: They hired lobbyists to lobby different states. In those states,

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Speaker 2: as no surprise, ended up getting millions of dollars flowing

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Speaker 2: back toward Enron. I think they hired a lobbyists for

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Speaker 2: at least thirty seven states. They also helped overturn along

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Speaker 2: nineteen eighty eight that said the military has to buy

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Speaker 2: power from local utilities, and now let's open that back up.

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Speaker 2: Pretty soon, Enron got a twenty five million dollar contract

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Speaker 2: for supplying electricity to Fort Hamilton and Brooklyn. And these

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Speaker 2: are just, I mean, twenty five million ins up being

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Speaker 2: peanuts in the grand scheme. But these are just examples

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Speaker 2: as they sort of ramped up to their schemes of

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Speaker 2: how they deregulated or lobbied to get things deregulated such

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Speaker 2: that it was allowed to happen.

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Speaker 4: Right.

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Speaker 1: And one of the things, one of the schemes that

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Speaker 1: got the attention of the entire country in two two

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Speaker 1: thousand and one was an electrical scheme in California. California

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Speaker 1: had undergone its own electrical deregulation power deregulation, but it

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Speaker 1: had had adopted this weird patchwork compromise law or set

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Speaker 1: of laws that just had loopholes you could drive a

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Speaker 1: truck through, and that were just really created all sorts

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Speaker 1: of legal gray areas. And so rather than just kind

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Speaker 1: of like here they're biting around the edges, seeing what

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Speaker 1: they could do. Instead, the energy traders at Enron started

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Speaker 1: figuring out how to move energy out of the state,

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Speaker 1: wait for the state to be like, hey, we need

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Speaker 1: some energy, and move it back at incredibly inflated prices.

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Speaker 1: They would purposefully take electrical utilities that they owned offline

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Speaker 1: to generate more demand, a spike in demand, and so

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Speaker 1: they could raise prices again. And they actually basically crippled California.

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Speaker 1: I think I saw that California had a couple dozen

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Speaker 1: blackouts in six months after that deregulation, after Enron started

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Speaker 1: coming in and messing with stuff, whereas the six months

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Speaker 1: before deregulation they had had one blackout. So if you

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Speaker 1: watch the documentary and you listen, you know, you read

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Speaker 1: some other sources about it. This was an entirely fabricated

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Speaker 1: scarcity of electricity. There's plenty of it, and Ron just

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Speaker 1: figured out that they could kind of pull this lever

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Speaker 1: in that lever and charge way more by creating this

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Speaker 1: fake scarcity.

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Speaker 2: Yeah, and by pulling a lever like literally sometimes they

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Speaker 2: called up a power company, a power plant and said

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Speaker 2: pull the lever to the off position, and they have

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Speaker 2: them on tape, you know, they played this in the documentary.

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Speaker 2: Well they'll they called one in Las Vegas and said, hey, man,

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Speaker 2: can you take this thing offline for a few hours

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Speaker 2: and just just make something up because a rolling blackout

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Speaker 2: meant big money all of a sudden, California again was

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Speaker 2: buying their own energy back at a higher rate. And

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Speaker 2: Governor Gray Davis at the time, and this is you know,

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Speaker 2: I'm not like giving some full throated endorsement to any

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Speaker 2: effectiveness of Gray Davis as a governor because I really

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Speaker 2: don't know, but he definitely was sort of left holding

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Speaker 2: the bag and scratching his head like what's going on here?

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Speaker 2: Like We've got plenty of energy, and it just all

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Speaker 2: through the document people are saying like this just isn't

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Speaker 2: adding up in California. And some of those tapes that

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Speaker 2: they play of these traders, like there was that natural,

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Speaker 2: uh wildfire that broke out that jeopardized one of the pipelines,

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Speaker 2: and these guys are on, you know, on tape on

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Speaker 2: the phone with each other saying burn, baby, burn, because

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Speaker 2: that's good for business if it knocks something offline, and

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Speaker 2: is you know, make laughing at like uh, you know,

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Speaker 2: old Grandma's like sweating in the summer heat because they

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Speaker 2: can't get air conditioning, like the most vile, reprehensible kind

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Speaker 2: of stuff in the name of making the alminer mighty

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Speaker 2: dollar that you could imagine.

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Speaker 1: What's also interesting is they don't really go into detail

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Speaker 1: about it, but it's it appears to have also been

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Speaker 1: a coup to get rid of Gray Davis and replace

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Speaker 1: him with Arnold Schwarzenegger. Yeah, because ken Lay held a

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Speaker 1: meeting at the Peninsula Hotel in Los Angeles and he

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Speaker 1: invited Arnold Schwarzenegger. This was long before Ard Arnold's Shortzenegger

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Speaker 1: was known to have had like real political aspirations. He

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Speaker 1: wasn't governor yet wasn't running for governor over a problem

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Speaker 1: that Enron created. It was like that level of In

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Speaker 1: addition to also just making billions and billions of dollars

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Speaker 1: by strangling the state, they also managed to replace the

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Speaker 1: executive of the state as well to somebody who is

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Speaker 1: much more friendly to them.

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Speaker 2: Yeah, and get rid of in the of course he

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Speaker 2: didn't like knock them off or anything. But in California,

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Speaker 2: you can ever recall it seems to come up every

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Speaker 2: twelve years or so where Californians aren't happy with the governor,

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Speaker 2: and so if recall vote passes, you can have just

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Speaker 2: an election out of nowhere and replace that governor. While

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Speaker 2: this is going on, you know, kin Leigh stands on

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Speaker 2: a stage and says, we're making money in spite of California,

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Speaker 2: not because of California. So just lying through their teeth

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Speaker 2: on stage to their shareholders. And you know, all these

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Speaker 2: little schemes had little nicknames. The one where they got

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Speaker 2: energy out of California just to make them buy it

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Speaker 2: back was called Ricochet. There was one called death Star,

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Speaker 2: and they're on tape like joking about like, hey, let's

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Speaker 2: have a nice friendly name for this one, like death Star.

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Speaker 2: So they're just they're playing games with people's livelihood essentially.

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Speaker 1: And lives you can make a case as well, for sure.

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Speaker 1: So three of those traders plagued guilty. Jeffrey Richter, John Forney,

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Speaker 1: and Timothy Belden were three of those traders who manipulated

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Speaker 1: California's energy market, costing the state between forty and forty

383
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Speaker 1: five billion dollars in retrospect of unnecessary electrical prices and costs.

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Speaker 2: All Right, so Enron is doing great, They're making a

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Speaker 2: lot of money and we should point out that this

386
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Speaker 2: is just you know, Ricochet was just one little scheme.

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Speaker 2: They had all sorts of schemes along the way to well,

388
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Speaker 2: we'll get to those between nine six though. In two

389
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Speaker 2: thousand and one, like as far as the stock market

390
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Speaker 2: world was concerned in Run was a Darling Fortune named them,

391
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Speaker 2: I think six years straight America's most innovative company.

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Speaker 4: Every single year in a row.

393
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Speaker 2: Yeah, But what was going on behind the scenes is

394
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Speaker 2: these ideas and these investments in schemes that they had.

395
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Speaker 2: You know, some of them made money, but a lot

396
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Speaker 2: of them didn't make any money at all, and they

397
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Speaker 2: just became really really good at hiding that fact.

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Speaker 1: Yes, that was the whole thing. Like, they were very innovative.

399
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Speaker 1: They were ahead of their time in a lot of ways.

400
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Speaker 1: Like they got into building broad band high speed internet

401
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Speaker 1: access in like two thousand or two thousand and one,

402
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Speaker 1: something like that, and.

403
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Speaker 4: This was I looked it up.

404
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Speaker 1: It wasn't until two thousand and seven that half of

405
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Speaker 1: all US Internet users had broadband, so this was way

406
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Speaker 1: ahead of time. And then also they also got into

407
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Speaker 1: the video on demand market. They tried to partner with Blockbuster,

408
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Speaker 1: and this was these things were basically like the progenitor

409
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Speaker 1: of Zoom and Netflix. But these guys were trying this

410
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Speaker 1: in two thousand and two thousand and one, so it's visionary.

411
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Speaker 1: The problem is they were ahead of their time. The

412
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Speaker 1: infrastructure wasn't there that the I think the customer base

413
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Speaker 1: even wasn't there. So there's stuff that they were doing

414
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Speaker 1: wasn't making money, which is not bad in and of itself.

415
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Speaker 1: What was bad was when they were covering it up.

416
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Speaker 1: And the schemes that they used to cover it up

417
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Speaker 1: are so involved in complex, but also so fascinating that

418
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Speaker 1: they would they would have the audacity to do this

419
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Speaker 1: because there's no there's no fudging it, there's no like, oh,

420
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Speaker 1: this is kind of questionable. This was just fleecing all

421
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Speaker 1: of their investors, all of their employees, fleecing the entire world.

422
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Speaker 1: There was a handful of executives at Enron who were

423
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Speaker 1: fleecing the entire world to the tune of tens and

424
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Speaker 1: tens and tens of billions of dollars every year in

425
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Speaker 1: revenue that apparently didn't actually exist.

426
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Speaker 2: Yeah, it's pretty clear that at a certain point they

427
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Speaker 2: lost their way and that they weren't as concerned about

428
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Speaker 2: being a company that made money, and the only thing

429
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Speaker 2: that mattered was that as a corporation was that they

430
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Speaker 2: kept their stock price high, right, because that's where that's

431
00:25:18,640 --> 00:25:21,280
Speaker 2: where all the money was they had as long as

432
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Speaker 2: they could keep that stock price high and keep shareholders,

433
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Speaker 2: especially their employees, encouraging their employees to get you know,

434
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Speaker 2: get paid in company stock, like use every penny of

435
00:25:31,640 --> 00:25:34,439
Speaker 2: your paycheck that you can to buy this company stock.

436
00:25:34,800 --> 00:25:38,160
Speaker 2: Because Ron stock was soaring, it was doing really, really well,

437
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Speaker 2: and all the while it was you know, it's called

438
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Speaker 2: pump and dump. They would drive up the value of

439
00:25:42,840 --> 00:25:45,360
Speaker 2: their stock and then the upper echelon and you see

440
00:25:45,359 --> 00:25:47,639
Speaker 2: this time and time again in the corporate world. The

441
00:25:47,640 --> 00:25:50,480
Speaker 2: CEOs and the CFOs and the upper management are the

442
00:25:50,520 --> 00:25:54,520
Speaker 2: one who then sell off their stock and walk away

443
00:25:54,600 --> 00:25:58,280
Speaker 2: with you know, some of them hundreds of millions of dollars.

444
00:25:59,480 --> 00:26:01,400
Speaker 2: And you know some of the schemes that you talked

445
00:26:01,400 --> 00:26:05,879
Speaker 2: about was they found ways to move debt around. We

446
00:26:06,000 --> 00:26:09,280
Speaker 2: mentioned Fastyle was one of their hires, and he was

447
00:26:09,320 --> 00:26:11,280
Speaker 2: hired and I think his late twenties, early thirties, and

448
00:26:11,480 --> 00:26:15,520
Speaker 2: quickly rose up the ranks to CFO and he started

449
00:26:15,600 --> 00:26:21,840
Speaker 2: a company called LSM which stood for Leah, Jeffrey, and Matthew,

450
00:26:21,880 --> 00:26:25,080
Speaker 2: which are named after his wife and kids. Sort of ironically.

451
00:26:25,520 --> 00:26:28,360
Speaker 2: That was like such a sweet tribute to them. And

452
00:26:28,560 --> 00:26:31,360
Speaker 2: the only purpose of this company was to have all

453
00:26:31,440 --> 00:26:35,000
Speaker 2: kinds of sort of little sub companies that would absorb

454
00:26:35,320 --> 00:26:37,920
Speaker 2: the debt and where they could move debt around from

455
00:26:38,040 --> 00:26:41,359
Speaker 2: Enron to make it invisible to the shareholders, right, so

456
00:26:41,400 --> 00:26:43,800
Speaker 2: they could prove on a balance sheet that you had

457
00:26:43,800 --> 00:26:46,040
Speaker 2: this money coming in in the way of you know,

458
00:26:46,080 --> 00:26:49,399
Speaker 2: people investing in the company, but then you're hiding the

459
00:26:49,480 --> 00:26:51,960
Speaker 2: losses and so everyone thinks you're doing great.

460
00:26:52,280 --> 00:26:55,280
Speaker 1: So the way that I saw it explained, Investipedia actually

461
00:26:55,320 --> 00:26:57,240
Speaker 1: has a couple of really good articles about this that

462
00:26:57,320 --> 00:26:59,880
Speaker 1: are just wonky enough to like understand it, but also

463
00:27:00,280 --> 00:27:02,000
Speaker 1: so wonky that you just like, I have no idea

464
00:27:02,040 --> 00:27:05,440
Speaker 1: what I'm reading. And the way they put it was basically,

465
00:27:06,119 --> 00:27:08,960
Speaker 1: if Enron had, like a good example is they build

466
00:27:08,960 --> 00:27:11,760
Speaker 1: a power station in India that was a huge loss.

467
00:27:12,000 --> 00:27:15,080
Speaker 1: It was just a generally bad idea, and they sunk

468
00:27:15,119 --> 00:27:17,960
Speaker 1: billions and millions of dollars into this power station and

469
00:27:18,000 --> 00:27:21,120
Speaker 1: without realizing any money whatsoever. I think they abandoned it

470
00:27:21,680 --> 00:27:25,240
Speaker 1: before it even came online. They would take this and

471
00:27:25,400 --> 00:27:29,119
Speaker 1: sell it to one of these special purpose vehicles or

472
00:27:29,160 --> 00:27:33,840
Speaker 1: special purpose entities, which was a tangentially related company that

473
00:27:34,240 --> 00:27:38,160
Speaker 1: the company Enron was not on the hook to pay

474
00:27:38,160 --> 00:27:42,160
Speaker 1: off its debts for right, and they would take that,

475
00:27:42,680 --> 00:27:45,320
Speaker 1: and then that special purpose vehicle would go out and

476
00:27:45,440 --> 00:27:50,640
Speaker 1: try to sell it, sell that terrible toxic asset, and

477
00:27:51,480 --> 00:27:57,840
Speaker 1: they would use Enron stock as the collateral right. And

478
00:27:57,880 --> 00:28:01,640
Speaker 1: because Enron stock was just through the room, everybody was saying, sure,

479
00:28:01,680 --> 00:28:03,119
Speaker 1: we'll give you a loan, sue, We'll give you some

480
00:28:03,160 --> 00:28:05,080
Speaker 1: money for that terrible idea of a power plant that

481
00:28:05,119 --> 00:28:08,439
Speaker 1: you abandoned, because you're backing it up with Enron stock.

482
00:28:08,720 --> 00:28:11,480
Speaker 1: And as long as the time that that stock came

483
00:28:11,560 --> 00:28:14,560
Speaker 1: to was far enough away, and as long as Enron

484
00:28:14,600 --> 00:28:17,600
Speaker 1: stock kept going up, this house of cards could be

485
00:28:17,640 --> 00:28:20,200
Speaker 1: held together. But that's not at all how it worked.

486
00:28:20,520 --> 00:28:24,280
Speaker 1: The upshot of it is that they could take toxic assets,

487
00:28:24,520 --> 00:28:27,480
Speaker 1: move them off of their books to these special purpose.

488
00:28:27,280 --> 00:28:29,960
Speaker 3: Entities, and then they would take.

489
00:28:29,880 --> 00:28:33,199
Speaker 1: The money that these special purpose entities would go borrow

490
00:28:33,400 --> 00:28:37,560
Speaker 1: against that toxic asset and they would count that on

491
00:28:37,680 --> 00:28:42,280
Speaker 1: their books as revenue. So they were hiding debt, boosting

492
00:28:42,320 --> 00:28:46,320
Speaker 1: their revenues to just ridiculous heights for stuff that just

493
00:28:46,440 --> 00:28:48,120
Speaker 1: should not have been counted as revenue.

494
00:28:48,480 --> 00:28:50,720
Speaker 2: Yeah, and just to be clear, they didn't invent the

495
00:28:50,720 --> 00:28:55,200
Speaker 2: special purpose entity, And an SPE is not some evil

496
00:28:55,280 --> 00:28:58,640
Speaker 2: creation in and of itself. It is it's an entity

497
00:28:58,680 --> 00:29:02,280
Speaker 2: that a lot of corporations, businesses use where it's just

498
00:29:02,560 --> 00:29:05,680
Speaker 2: it's sort of like has a very narrow purpose in

499
00:29:05,720 --> 00:29:08,680
Speaker 2: that they create this thing when they might use it

500
00:29:08,720 --> 00:29:11,440
Speaker 2: to purchase an asset or move an asset, so the

501
00:29:11,520 --> 00:29:13,520
Speaker 2: company as a whole may not be on the hook

502
00:29:14,360 --> 00:29:17,080
Speaker 2: if anything goes wrong. It sort of mitigates risks. So

503
00:29:17,520 --> 00:29:19,400
Speaker 2: it's not some evil purpose in and of itself. But

504
00:29:19,400 --> 00:29:22,960
Speaker 2: they were manipulating these such and starting all of these

505
00:29:23,640 --> 00:29:27,680
Speaker 2: things under Fastau's guidance with his LSM sort of sub corporation,

506
00:29:28,080 --> 00:29:31,600
Speaker 2: and eventually LSM two. I think that they were making

507
00:29:32,400 --> 00:29:37,760
Speaker 2: I think they hit ninety dollars in August of two thousand,

508
00:29:39,800 --> 00:29:43,280
Speaker 2: market cap of the whole company at seventy billion, which

509
00:29:43,400 --> 00:29:47,640
Speaker 2: made it the seventh largest publicly traded company in the

510
00:29:47,680 --> 00:29:49,080
Speaker 2: world at that point.

511
00:29:49,240 --> 00:29:54,280
Speaker 1: Yeah, so that's a market cap of seventy billion. Remember

512
00:29:54,640 --> 00:29:57,360
Speaker 1: that in nineteen eighty five. Its first year, it posted

513
00:29:57,440 --> 00:30:02,120
Speaker 1: losses of fourteen million. Within in fifteen years, they posted

514
00:30:02,200 --> 00:30:08,680
Speaker 1: revenue of one hundred billion dollars billion dollars in fifteen Yeah,

515
00:30:08,720 --> 00:30:11,320
Speaker 1: in sales in fifteen years. That's what happened to that

516
00:30:11,360 --> 00:30:14,840
Speaker 1: company when they brought Jeffrey Skilling on board. Jeffrey Skilling

517
00:30:14,840 --> 00:30:18,160
Speaker 1: brought Andrew Fastau on board, and people just started going

518
00:30:18,280 --> 00:30:20,520
Speaker 1: nuts making money anyway they could.

519
00:30:21,080 --> 00:30:21,240
Speaker 4: Yeah.

520
00:30:21,320 --> 00:30:24,280
Speaker 2: The other thing we should mention too is another sort

521
00:30:24,320 --> 00:30:28,080
Speaker 2: of slick trick is that Skilling's idea and they got

522
00:30:28,480 --> 00:30:31,720
Speaker 2: approval and I wasn't clear how or where this approval

523
00:30:31,760 --> 00:30:35,719
Speaker 2: comes from, but to use something called mark to market accounting,

524
00:30:36,560 --> 00:30:41,080
Speaker 2: which is basically when you can where you can rate

525
00:30:41,120 --> 00:30:46,920
Speaker 2: the financial health of your company based on not theorized

526
00:30:46,960 --> 00:30:51,400
Speaker 2: but just on future earnings basically and not necessarily what

527
00:30:51,480 --> 00:30:56,800
Speaker 2: they're worth that day, so anticipated future value instead of

528
00:30:56,840 --> 00:30:57,880
Speaker 2: its purchase costs.

529
00:30:58,640 --> 00:30:59,480
Speaker 4: Did you get how that.

530
00:30:59,440 --> 00:31:01,360
Speaker 2: They were because it seemed like they were all like

531
00:31:01,880 --> 00:31:04,520
Speaker 2: super psyched that they got approval for marked to market accounting.

532
00:31:04,880 --> 00:31:07,760
Speaker 1: Yeah, that would have been the sec the Securities and

533
00:31:08,040 --> 00:31:12,239
Speaker 1: Securities Exchange Commission, who would have given that approval. And

534
00:31:12,520 --> 00:31:15,920
Speaker 1: just like a special purpose entity marked to market accounting

535
00:31:16,040 --> 00:31:20,840
Speaker 1: is it's totally legitimate, it's recognized as generally accepted accounting principle.

536
00:31:21,400 --> 00:31:26,000
Speaker 1: But there's a lot of room for temptation to just

537
00:31:26,040 --> 00:31:30,640
Speaker 1: basically say this deal with Blockbuster, we haven't made a

538
00:31:30,680 --> 00:31:33,600
Speaker 1: penny off of it, but we can we can cite

539
00:31:33,760 --> 00:31:37,480
Speaker 1: the future earnings from it now now that we booked

540
00:31:37,480 --> 00:31:41,560
Speaker 1: this deal, and I think it'll probably be worth a

541
00:31:41,600 --> 00:31:46,480
Speaker 1: billion dollars, just a total guess. And you're not supposed

542
00:31:46,520 --> 00:31:47,840
Speaker 1: to do it like that. You're supposed to do it

543
00:31:47,880 --> 00:31:51,880
Speaker 1: much more realistically and legitimately. But they had enough leeway

544
00:31:51,920 --> 00:31:54,200
Speaker 1: that they were able to take marked to market accounting

545
00:31:54,480 --> 00:31:56,800
Speaker 1: and use it to their to their benefit in that way,

546
00:31:57,040 --> 00:32:00,400
Speaker 1: and in doing that, they pumped up their their revenue

547
00:32:00,920 --> 00:32:03,800
Speaker 1: through the roof. Like the deal would just be inked.

548
00:32:03,840 --> 00:32:05,440
Speaker 1: They wouldn't have seen a penny from it, and they

549
00:32:05,480 --> 00:32:07,520
Speaker 1: would add it to their balance sheets as revenue.

550
00:32:08,040 --> 00:32:10,040
Speaker 2: Yeah, it would become part of the ledger before like

551
00:32:10,280 --> 00:32:11,240
Speaker 2: a real penny.

552
00:32:10,960 --> 00:32:13,720
Speaker 1: Was made exactly, and sometimes the pennies weren't made. And

553
00:32:13,760 --> 00:32:16,720
Speaker 1: if the pennies weren't made, don't forget, those debts would

554
00:32:16,760 --> 00:32:19,600
Speaker 1: be moved to a special purpose entity, so they wouldn't

555
00:32:19,640 --> 00:32:22,479
Speaker 1: have these toxic assets on their books, even though they

556
00:32:22,880 --> 00:32:27,360
Speaker 1: very much owned and were indebted for these toxic assets.

557
00:32:27,360 --> 00:32:30,800
Speaker 2: Still yeah, I mean, like I said, these were brilliant

558
00:32:31,040 --> 00:32:34,920
Speaker 2: people and like they had all their bases covered except

559
00:32:34,920 --> 00:32:36,920
Speaker 2: for the fact that we all know that a house

560
00:32:36,960 --> 00:32:41,200
Speaker 2: of cards will eventually fall. It's that hubrius thing that

561
00:32:41,320 --> 00:32:45,520
Speaker 2: just blinds people into thinking that it will always like

562
00:32:45,560 --> 00:32:48,560
Speaker 2: when that kind of money is rolling in. I think

563
00:32:48,560 --> 00:32:52,840
Speaker 2: it blinds certain people so much that they don't understand

564
00:32:53,040 --> 00:32:56,520
Speaker 2: a who it's hurting at the time, or they don't care,

565
00:32:57,520 --> 00:32:59,360
Speaker 2: or they think it's always going to be rolling in

566
00:32:59,440 --> 00:33:02,400
Speaker 2: like this, or they think, hey, I'm gonna get mine now.

567
00:33:03,200 --> 00:33:05,840
Speaker 2: Because there were people in Enron. I mean, there will

568
00:33:05,840 --> 00:33:08,960
Speaker 2: talk about a whistleblower that eventually sort of came out

569
00:33:09,040 --> 00:33:12,600
Speaker 2: and a journalists who are poking around, but there were

570
00:33:12,600 --> 00:33:15,720
Speaker 2: people that started looking at this company the Darling of

571
00:33:15,760 --> 00:33:18,520
Speaker 2: Wall Street and saying something's not right here, like something's

572
00:33:18,520 --> 00:33:22,680
Speaker 2: not adding up, Like you can't even explain how your

573
00:33:22,720 --> 00:33:25,680
Speaker 2: cash flows through your business kind of way that makes

574
00:33:25,720 --> 00:33:28,880
Speaker 2: any kind of coherent sense. And anytime they were confronted

575
00:33:28,920 --> 00:33:33,480
Speaker 2: with this Skilling and his cronies would. They would get

576
00:33:33,600 --> 00:33:35,760
Speaker 2: very haughty about it and just be like, well, what

577
00:33:35,760 --> 00:33:38,440
Speaker 2: do you mean we can't explain that? Like, sure we can,

578
00:33:38,520 --> 00:33:39,440
Speaker 2: it's really easy.

579
00:33:39,960 --> 00:33:41,000
Speaker 3: You just can't understand.

580
00:33:41,080 --> 00:33:43,880
Speaker 2: Yeah, you just can't understand it, right, Oh, it makes

581
00:33:43,880 --> 00:33:44,520
Speaker 2: your blood boil.

582
00:33:44,960 --> 00:33:46,760
Speaker 1: Let's let's take a break and then we'll come back

583
00:33:46,800 --> 00:33:47,880
Speaker 1: and talk about the downfall.

584
00:33:47,920 --> 00:33:55,080
Speaker 3: How about that? Yeah, the downfall definitely should know draw

585
00:33:55,360 --> 00:33:56,600
Speaker 3: large Also r.

586
00:33:58,360 --> 00:34:06,440
Speaker 5: Y skid as what why sk as good.

587
00:34:08,239 --> 00:34:08,560
Speaker 4: To you?

588
00:34:08,560 --> 00:34:13,439
Speaker 3: Should? Okay, chuck.

589
00:34:13,520 --> 00:34:16,919
Speaker 1: So, one question that people might be asking is how

590
00:34:17,000 --> 00:34:20,440
Speaker 1: were these guys allowed to use this accounting and get

591
00:34:20,480 --> 00:34:23,520
Speaker 1: away with it? Why were people even investing in buying

592
00:34:23,600 --> 00:34:27,440
Speaker 1: shares of this this company when it was just so

593
00:34:27,680 --> 00:34:32,000
Speaker 1: fraudulent and and just ridiculously fraudulent too, not even subtly fraudulent.

594
00:34:32,600 --> 00:34:36,759
Speaker 1: And the answer is the the company was such a

595
00:34:36,800 --> 00:34:41,440
Speaker 1: Wall Street darling that financial analysts would not understand what

596
00:34:41,480 --> 00:34:44,640
Speaker 1: they were hearing on these earnings reports, but would still

597
00:34:44,640 --> 00:34:48,640
Speaker 1: give it a stamp of like buy. The other thing

598
00:34:48,680 --> 00:34:51,760
Speaker 1: that really really helped was the banks. Wall Street banks

599
00:34:51,840 --> 00:34:54,920
Speaker 1: were very much complicit in this as well. And then

600
00:34:55,360 --> 00:34:59,120
Speaker 1: the thing that helped the most was Arthur Anderson, the venerable,

601
00:34:59,560 --> 00:35:03,080
Speaker 1: eighty plus year old accounting firm.

602
00:35:02,840 --> 00:35:04,120
Speaker 4: The oldest one of the country.

603
00:35:04,440 --> 00:35:08,600
Speaker 1: Yeah, that was a third party accountant to Enron. Was

604
00:35:08,640 --> 00:35:13,000
Speaker 1: so cozy that they actually hired all of Enron's internal

605
00:35:13,040 --> 00:35:17,160
Speaker 1: auditing staff, made them Arthur Anderson's staff, and then opened

606
00:35:17,200 --> 00:35:21,480
Speaker 1: one hundred and fifty person office for Enron in Enron's

607
00:35:21,560 --> 00:35:25,960
Speaker 1: own in Enron's headquarters and Arthur Anderson office in Enron's

608
00:35:25,960 --> 00:35:29,960
Speaker 1: headquarters made up of former Enron auditors. That's who was

609
00:35:30,040 --> 00:35:34,880
Speaker 1: watching the show. And so Arthur Anderson had such a

610
00:35:34,880 --> 00:35:37,799
Speaker 1: good reputation that because they were signing off on this,

611
00:35:38,000 --> 00:35:40,560
Speaker 1: because the Wall Street analysts are saying, yeah, it's a buye,

612
00:35:40,680 --> 00:35:43,279
Speaker 1: people were just like, I'm buying, I'm buying, and it

613
00:35:43,400 --> 00:35:45,520
Speaker 1: kept the stock prices going up and up and up

614
00:35:45,840 --> 00:35:48,920
Speaker 1: because nobody was paying attention enough.

615
00:35:49,440 --> 00:35:52,040
Speaker 2: Yeah, there was one person in the dock that said

616
00:35:52,200 --> 00:35:55,799
Speaker 2: that kind of crystallized it, which was like, I'm paraphrasing,

617
00:35:55,880 --> 00:35:58,359
Speaker 2: but he was talking about the fact that when this

618
00:35:58,440 --> 00:36:02,000
Speaker 2: kind of stuff pops up in corporations, like it's not

619
00:36:02,080 --> 00:36:05,359
Speaker 2: like this, the n runs are everywhere. There is all

620
00:36:05,440 --> 00:36:08,560
Speaker 2: kinds of mouthfeasance. For sure, in the corporate world, but

621
00:36:09,280 --> 00:36:12,439
Speaker 2: he basically said, somewhere along the way, it doesn't get

622
00:36:12,440 --> 00:36:15,960
Speaker 2: this big because a legal team says you can't do this,

623
00:36:16,320 --> 00:36:19,000
Speaker 2: or your accountants say you can't do this, or the

624
00:36:19,040 --> 00:36:22,439
Speaker 2: bank say we can't get involved in this. And Ron

625
00:36:22,480 --> 00:36:26,160
Speaker 2: seemed to be one of those sort of unicorns where

626
00:36:26,280 --> 00:36:30,640
Speaker 2: every person along the way just zip their mouth shut

627
00:36:30,920 --> 00:36:33,360
Speaker 2: even though the numbers weren't adding up, and was complicit

628
00:36:33,360 --> 00:36:35,120
Speaker 2: in this right.

629
00:36:35,800 --> 00:36:37,520
Speaker 1: And there was a trader that was interviewed in the

630
00:36:37,520 --> 00:36:42,320
Speaker 1: documentary who said, like it was ironic that Enron's slogan

631
00:36:42,520 --> 00:36:44,880
Speaker 1: was asked, why why does something.

632
00:36:44,719 --> 00:36:45,200
Speaker 4: Happen like that?

633
00:36:45,239 --> 00:36:46,439
Speaker 3: Why can't we do it that way?

634
00:36:46,680 --> 00:36:49,120
Speaker 1: And that this trader said, I didn't ask myself why

635
00:36:49,320 --> 00:36:51,759
Speaker 1: because I didn't want to know. I suspected things were

636
00:36:52,200 --> 00:36:54,120
Speaker 1: weird or ry, and I just didn't want to know

637
00:36:54,200 --> 00:36:56,840
Speaker 1: because it was my job. I was making tons of money.

638
00:36:57,000 --> 00:36:59,080
Speaker 1: And I think you can probably get that excuse out

639
00:36:59,080 --> 00:37:01,880
Speaker 1: of just about anybody who was complicit in this larger

640
00:37:02,000 --> 00:37:05,960
Speaker 1: small but Arthur Anderson that was the one that really

641
00:37:06,000 --> 00:37:08,799
Speaker 1: really helped things along. And as we'll see, they didn't

642
00:37:08,880 --> 00:37:10,400
Speaker 1: manage to survive the scandal.

643
00:37:10,760 --> 00:37:13,000
Speaker 2: Yeah, they were Oh man, there was that one part

644
00:37:13,000 --> 00:37:17,239
Speaker 2: of the documentary where they were talking about Fastyles, you know,

645
00:37:17,400 --> 00:37:20,279
Speaker 2: Shell companies, and he was in a meeting that was

646
00:37:20,280 --> 00:37:23,000
Speaker 2: secretly taped and they're basically like, well, wait a minute,

647
00:37:23,000 --> 00:37:26,280
Speaker 2: it looks like you're on the buying and selling sides

648
00:37:26,320 --> 00:37:31,320
Speaker 2: of these transactions, right, And he was like, yeah, basically,

649
00:37:31,360 --> 00:37:34,799
Speaker 2: but I've always got Ellen Jay's interest at heart, and

650
00:37:34,880 --> 00:37:38,520
Speaker 2: the whole time he's skimming money and they believe that skilling,

651
00:37:38,560 --> 00:37:41,640
Speaker 2: and Ley knew that, like, hey, I'm sure that fast

652
00:37:41,640 --> 00:37:44,440
Speaker 2: Ols is skimming money off the top for himself, right,

653
00:37:44,480 --> 00:37:46,920
Speaker 2: Who cares? Because this guy's taking care of business for

654
00:37:47,040 --> 00:37:48,280
Speaker 2: us exactly.

655
00:37:48,320 --> 00:37:51,000
Speaker 1: And I think he skimmed about thirty five million dollars

656
00:37:51,360 --> 00:37:54,799
Speaker 1: for himself. He stole from Emron and they looked the

657
00:37:54,840 --> 00:37:58,400
Speaker 1: other way because the stuff he was doing was so unethical,

658
00:37:58,840 --> 00:38:02,839
Speaker 1: so illegal that he basically earned it as far as

659
00:38:02,880 --> 00:38:05,920
Speaker 1: they were concerned to have his hand in the cookie

660
00:38:06,000 --> 00:38:09,200
Speaker 1: jar like that. So I think you kind of mentioned

661
00:38:09,200 --> 00:38:11,320
Speaker 1: there were some people who were like, wait, what's going

662
00:38:11,360 --> 00:38:14,680
Speaker 1: on here. One of the first people was Bethany McClain,

663
00:38:14,760 --> 00:38:17,319
Speaker 1: the journalists who ended up writing the Smartest Guys in

664
00:38:17,320 --> 00:38:17,680
Speaker 1: the Room.

665
00:38:18,800 --> 00:38:19,480
Speaker 3: She is awesome.

666
00:38:19,520 --> 00:38:22,799
Speaker 1: She started out writing a story for Fortune magazine back

667
00:38:22,800 --> 00:38:26,640
Speaker 1: in March of two thousand and one titled is Enron Overpriced?

668
00:38:26,960 --> 00:38:30,200
Speaker 1: And she was one of the first people to publicly

669
00:38:30,280 --> 00:38:33,719
Speaker 1: say how is Enron making its money? But she wasn't

670
00:38:33,719 --> 00:38:36,440
Speaker 1: the first to hit on this. There's another guy named

671
00:38:36,520 --> 00:38:42,759
Speaker 1: Jim Chanos of Kainiko's Securities, I think maybe, and I

672
00:38:42,760 --> 00:38:46,480
Speaker 1: think he's in the documentary, but he started shorting Enron

673
00:38:46,880 --> 00:38:51,840
Speaker 1: in two thousand because he noticed very simply their cost

674
00:38:51,880 --> 00:38:54,920
Speaker 1: of capital, so the cost of doing business was more

675
00:38:55,320 --> 00:38:59,480
Speaker 1: than their return on investment, which automatically means that they

676
00:38:59,520 --> 00:39:03,520
Speaker 1: were not a profitable company, which totally was contradicted by

677
00:39:03,560 --> 00:39:06,879
Speaker 1: all of their earnings reports and filings. And he saw

678
00:39:06,920 --> 00:39:09,799
Speaker 1: this and he said, this is this is this is

679
00:39:09,840 --> 00:39:12,879
Speaker 1: not right, and I'm going to start making money off

680
00:39:12,920 --> 00:39:16,240
Speaker 1: of the future downfall of this company and made hundreds

681
00:39:16,320 --> 00:39:19,000
Speaker 1: and hundreds of millions of dollars shorting and Ron stock

682
00:39:19,040 --> 00:39:20,080
Speaker 1: starting in two thousand.

683
00:39:21,040 --> 00:39:22,400
Speaker 4: Yeah.

684
00:39:22,440 --> 00:39:27,000
Speaker 2: The whistleblower two was an executive main named Sharon Watkins,

685
00:39:27,840 --> 00:39:30,480
Speaker 2: and she pops up a lot in the documentary. Obviously

686
00:39:30,600 --> 00:39:34,640
Speaker 2: is key to the story. She didn't whistle blow while

687
00:39:35,200 --> 00:39:37,200
Speaker 2: this was all going on. It was sort of after

688
00:39:37,200 --> 00:39:41,400
Speaker 2: the ship started sinking. But we'll talk a little bit

689
00:39:41,440 --> 00:39:43,399
Speaker 2: about how that all happened and where she ended up.

690
00:39:44,239 --> 00:39:47,920
Speaker 2: But what happened in August of twenty twenty one. Skilling

691
00:39:48,080 --> 00:39:51,000
Speaker 2: had replaced lay a CEO in February of that year,

692
00:39:51,719 --> 00:39:55,360
Speaker 2: and on August fourteenth, twenty twenty one, Skilling out of nowhere,

693
00:39:55,440 --> 00:39:57,080
Speaker 2: and he had just taken the reins, you know, a

694
00:39:57,080 --> 00:40:00,840
Speaker 2: handful of months before he Skilling quit out of nowhere.

695
00:40:00,880 --> 00:40:05,640
Speaker 2: He resigns, he cited personal reasons, And what was going

696
00:40:05,680 --> 00:40:09,799
Speaker 2: on was the you know, the Titanic sprung a leak, right,

697
00:40:10,080 --> 00:40:13,640
Speaker 2: and as they described in the documentary, he was one

698
00:40:13,680 --> 00:40:15,920
Speaker 2: of the first rats to try and get off the

699
00:40:15,960 --> 00:40:16,560
Speaker 2: sinking ship.

700
00:40:17,560 --> 00:40:17,920
Speaker 3: Yeah.

701
00:40:17,960 --> 00:40:22,200
Speaker 1: And it's like, if you are a CEO of a

702
00:40:22,320 --> 00:40:26,080
Speaker 1: huge company, you don't just leave like that. That is

703
00:40:26,120 --> 00:40:29,160
Speaker 1: an enormous red flag. There's like a whole process and

704
00:40:29,239 --> 00:40:33,040
Speaker 1: procedure for finding your replacement, grooming them, introducing them to

705
00:40:33,160 --> 00:40:36,359
Speaker 1: the rest of the world. You don't just leave like that.

706
00:40:37,040 --> 00:40:39,800
Speaker 1: And that was such a red flag that that whistleblower,

707
00:40:40,480 --> 00:40:44,880
Speaker 1: what's her name, Sharon Watkins. Yeah, she wrote an anonymous

708
00:40:44,920 --> 00:40:48,160
Speaker 1: letter Delay basically saying, hey, there's a lot of fishy

709
00:40:48,200 --> 00:40:52,239
Speaker 1: stuff going on around here, and now that Skilling suddenly departed,

710
00:40:53,760 --> 00:40:56,359
Speaker 1: like everyone's going to start having questions and this whole

711
00:40:56,400 --> 00:40:59,880
Speaker 1: house of cards is going to fall, and Lay it

712
00:41:00,000 --> 00:41:03,200
Speaker 1: apparently didn't do much about it, and she came to

713
00:41:03,280 --> 00:41:05,879
Speaker 1: Lay later on and said, I'm the person who wrote

714
00:41:05,880 --> 00:41:09,239
Speaker 1: that anonymous letter, and I'm really concerned about this, and

715
00:41:09,520 --> 00:41:12,960
Speaker 1: ended up trying to keep it in the company because

716
00:41:12,960 --> 00:41:15,680
Speaker 1: I think I get the impression that she thought it

717
00:41:15,760 --> 00:41:18,879
Speaker 1: was something, especially now that Skilling was gone, that could

718
00:41:18,880 --> 00:41:24,760
Speaker 1: be resolved internally. I think she really underestimated the extensiveness

719
00:41:24,800 --> 00:41:29,520
Speaker 1: of the corruption and yeah at the company and thought

720
00:41:29,520 --> 00:41:31,880
Speaker 1: it was a few people, when really it was a

721
00:41:32,040 --> 00:41:34,799
Speaker 1: large cadre of people who all were complicit in this.

722
00:41:35,280 --> 00:41:38,960
Speaker 1: And I get the impression that's why she didn't really

723
00:41:39,320 --> 00:41:43,799
Speaker 1: blow the whistle publicly at that point. But apparently ken Lay,

724
00:41:43,840 --> 00:41:48,320
Speaker 1: once he found out that it was Sharon Watkins, consulted

725
00:41:48,400 --> 00:41:50,880
Speaker 1: legal council to figure out how to fire her legally.

726
00:41:51,200 --> 00:41:52,560
Speaker 4: Yeah.

727
00:41:52,640 --> 00:41:56,200
Speaker 2: The same day that Skilling resigned, on August fourteenth, the

728
00:41:56,239 --> 00:41:59,440
Speaker 2: broadband division that we talked about earlier reported one hundred

729
00:41:59,440 --> 00:42:03,399
Speaker 2: and thirty seven million dollar loss analysts and.

730
00:42:03,400 --> 00:42:04,239
Speaker 4: We should point out too.

731
00:42:04,280 --> 00:42:06,960
Speaker 2: As far as the analysts go, they were always installing

732
00:42:07,320 --> 00:42:10,799
Speaker 2: friendly analyst and only working with friendly analysts. But they

733
00:42:10,840 --> 00:42:13,680
Speaker 2: finally got the clue they dropped their ratings for the stock.

734
00:42:14,560 --> 00:42:19,080
Speaker 2: The end came very, very swiftly for Enron. On October twelfth,

735
00:42:19,520 --> 00:42:22,920
Speaker 2: Arthur Anderson's I mean you still remember all the shredding

736
00:42:23,000 --> 00:42:25,360
Speaker 2: jokes on late night TV that ran for months and months.

737
00:42:26,040 --> 00:42:31,880
Speaker 2: Arthur Anderson's legal counsel said, everybody shred everything, destroy every

738
00:42:31,920 --> 00:42:34,880
Speaker 2: file that you have on Enron, And in one day

739
00:42:35,320 --> 00:42:37,840
Speaker 2: they shredded literally one ton of paper.

740
00:42:38,400 --> 00:42:41,400
Speaker 1: Yeah, and that was just one day. They apparently shredded

741
00:42:41,440 --> 00:42:44,719
Speaker 1: around the clock from October twenty second to November eighth,

742
00:42:45,000 --> 00:42:47,440
Speaker 1: and that was just one ton one day. They shredded

743
00:42:47,880 --> 00:42:51,759
Speaker 1: literal tons of documents, just shred, shreded, shread. If you

744
00:42:51,760 --> 00:42:54,120
Speaker 1: were an executive at Anderson, you were probably working a

745
00:42:54,200 --> 00:42:58,560
Speaker 1: late night shift shredding alongside everybody else. It was like that,

746
00:42:58,920 --> 00:43:00,759
Speaker 1: And it was apparently at a time time where you could

747
00:43:00,920 --> 00:43:05,080
Speaker 1: legally do that and not be you know, indicted for it.

748
00:43:06,400 --> 00:43:08,759
Speaker 1: But that was not a good look when it came

749
00:43:08,800 --> 00:43:13,280
Speaker 1: out that Arthur Anderson was the auditors of this company

750
00:43:13,480 --> 00:43:16,879
Speaker 1: were shredding tons of documents, and the SEC got into

751
00:43:16,920 --> 00:43:19,160
Speaker 1: this and they said that they're going to start investigating

752
00:43:19,280 --> 00:43:24,200
Speaker 1: finally the special purpose entities that Fastau had set up,

753
00:43:24,480 --> 00:43:28,480
Speaker 1: and so Enron fired Fastau that same day. And I

754
00:43:28,520 --> 00:43:33,200
Speaker 1: think that was in November or late October of two

755
00:43:33,280 --> 00:43:37,800
Speaker 1: thousand and one. And right after that, on November eighth,

756
00:43:38,200 --> 00:43:41,920
Speaker 1: en Ron said, hey, everybody, do you remember all of

757
00:43:41,920 --> 00:43:45,080
Speaker 1: our all that money we said we made going back

758
00:43:45,120 --> 00:43:47,920
Speaker 1: to nineteen ninety seven, We're going to need to restate

759
00:43:47,920 --> 00:43:51,160
Speaker 1: our earnings. One of the first things they did was

760
00:43:51,200 --> 00:43:54,880
Speaker 1: they reported a six hundred and eighteen million dollar loss

761
00:43:55,360 --> 00:44:00,960
Speaker 1: for Q three of two thousand and one. Q one

762
00:44:00,360 --> 00:44:03,840
Speaker 1: they posted a four hundred and six million dollar profit,

763
00:44:04,400 --> 00:44:07,280
Speaker 1: Q two a four hundred and four million dollar profit,

764
00:44:07,680 --> 00:44:10,760
Speaker 1: Q three a six hundred and eighteen million dollar loss.

765
00:44:10,880 --> 00:44:14,280
Speaker 1: So they finally came clean. They finally said this accounting

766
00:44:14,360 --> 00:44:17,360
Speaker 1: is off, and this is how radically it's off.

767
00:44:17,880 --> 00:44:21,440
Speaker 2: Yeah, I mean that is if a company is restating

768
00:44:22,000 --> 00:44:26,000
Speaker 2: their earnings for that period of time at all, like

769
00:44:26,239 --> 00:44:28,839
Speaker 2: mistakes can happen, but that's a that's a real bad sign.

770
00:44:29,960 --> 00:44:35,080
Speaker 2: They almost got a lifeline in I guess late October

771
00:44:35,160 --> 00:44:38,000
Speaker 2: of that year when they tried to merge with a

772
00:44:38,040 --> 00:44:44,200
Speaker 2: company called Dynagy Incorporated, and that deal, that deal fell apart.

773
00:44:44,239 --> 00:44:47,000
Speaker 2: On November twenty eighth, they backed out of the deal

774
00:44:47,080 --> 00:44:51,040
Speaker 2: Dynagy did and then what is this Four days later

775
00:44:51,520 --> 00:44:56,120
Speaker 2: on December tewod Run filed for the largest Chapter eleven

776
00:44:56,160 --> 00:44:58,439
Speaker 2: bankruptcy in US history.

777
00:44:58,640 --> 00:44:59,359
Speaker 3: Up to that time.

778
00:44:59,480 --> 00:45:03,520
Speaker 1: Sixty five I zero point five billion dollar company filed

779
00:45:03,520 --> 00:45:06,120
Speaker 1: for bankruptcy. That just did not happen. If you had

780
00:45:06,160 --> 00:45:09,360
Speaker 1: that kind of money, you could have a fire sale

781
00:45:09,400 --> 00:45:11,640
Speaker 1: and sell off stuff for way less than you paid

782
00:45:11,680 --> 00:45:14,120
Speaker 1: for it, but you could still survive. And that just

783
00:45:14,160 --> 00:45:16,840
Speaker 1: goes to show you, like just how fraudulent this company was.

784
00:45:17,080 --> 00:45:19,600
Speaker 1: They couldn't have a fire sale and make up that

785
00:45:19,680 --> 00:45:22,600
Speaker 1: kind of that kind of the debt that they owed

786
00:45:22,640 --> 00:45:25,719
Speaker 1: I think was seventy two billion dollars I think in

787
00:45:25,800 --> 00:45:29,120
Speaker 1: debt that they finally were found to have owed, and

788
00:45:29,200 --> 00:45:31,560
Speaker 1: at the time it was the biggest. In two thousand

789
00:45:31,560 --> 00:45:34,640
Speaker 1: and eight, we saw what big really was. Yeah, Lehman Brothers,

790
00:45:34,640 --> 00:45:38,760
Speaker 1: for example, had six hundred and thirty nine billion dollars

791
00:45:38,760 --> 00:45:41,239
Speaker 1: in assets when it filed for bankruptcy and went under.

792
00:45:41,719 --> 00:45:45,520
Speaker 1: But at the time Enron was like eye popping as

793
00:45:45,560 --> 00:45:47,920
Speaker 1: far as bankruptcies went for corporations.

794
00:45:48,160 --> 00:45:53,000
Speaker 2: Can you imagine the wave of a relief that swept

795
00:45:53,000 --> 00:45:59,040
Speaker 2: through Dynagy Incorporated. Yeah, the particular bankruptcy a few days

796
00:45:59,120 --> 00:45:59,960
Speaker 2: later after they backed out.

797
00:46:00,719 --> 00:46:04,120
Speaker 1: Yeah, that one. Just offhand conversation at the vending machine

798
00:46:04,160 --> 00:46:09,080
Speaker 1: over a packet of checks mix, like, save Dynagy forever.

799
00:46:09,440 --> 00:46:11,600
Speaker 4: You know, this seems like a bad deal to me.

800
00:46:11,719 --> 00:46:14,759
Speaker 1: Crunch Crunch, You're right, and Dynagy, by the way, went

801
00:46:14,800 --> 00:46:15,840
Speaker 1: on to become Apple.

802
00:46:18,440 --> 00:46:21,840
Speaker 2: So the fallout from this, there are a lot of victims.

803
00:46:22,440 --> 00:46:28,719
Speaker 2: Twenty thousand employees. Twenty thousand employees lost their job. And

804
00:46:30,080 --> 00:46:31,640
Speaker 2: how long did they have to get out? What is

805
00:46:31,680 --> 00:46:33,560
Speaker 2: saying the second day? I think they had the day.

806
00:46:33,920 --> 00:46:35,239
Speaker 2: I think it was less than that. I feel like

807
00:46:35,280 --> 00:46:38,920
Speaker 2: it was hours or something. Basically, pack your s and

808
00:46:38,960 --> 00:46:42,200
Speaker 2: get out of here, everybody. Yeah, and like literally, this

809
00:46:42,440 --> 00:46:45,960
Speaker 2: huge tall building has thousands of people just leaving all

810
00:46:46,000 --> 00:46:49,120
Speaker 2: day with banker's boxes with their contents of their desk

811
00:46:49,200 --> 00:46:54,200
Speaker 2: in it, like the ultimate movie trope. Every employee that

812
00:46:54,280 --> 00:46:57,560
Speaker 2: had been told for years and years, hey, you got

813
00:46:57,719 --> 00:47:01,320
Speaker 2: to invest everything you can in that form because Enron

814
00:47:01,640 --> 00:47:05,360
Speaker 2: is I mean, look at the stock we're going places

815
00:47:05,400 --> 00:47:06,759
Speaker 2: and that money will be safe there.

816
00:47:07,239 --> 00:47:09,040
Speaker 4: They obviously lost.

817
00:47:09,040 --> 00:47:11,920
Speaker 2: Almost everything that was a you know, the rank and

818
00:47:11,920 --> 00:47:14,239
Speaker 2: file employees. That was one in the documentary that said

819
00:47:14,680 --> 00:47:16,920
Speaker 2: he had about close to three hundred and fifty thousand

820
00:47:16,920 --> 00:47:19,840
Speaker 2: dollars in stock that he ended up dumping for twelve

821
00:47:19,960 --> 00:47:21,000
Speaker 2: hundred dollars.

822
00:47:21,280 --> 00:47:23,280
Speaker 4: Yeah, they froze.

823
00:47:23,520 --> 00:47:26,760
Speaker 2: The stock accounts of the rank and file while upper

824
00:47:26,800 --> 00:47:29,319
Speaker 2: management was actively still cashing out.

825
00:47:29,960 --> 00:47:33,080
Speaker 1: Yeah, that was a really scummy move. They, i'm sure,

826
00:47:33,120 --> 00:47:36,200
Speaker 1: purposefully changed four oh one k providers in the midst

827
00:47:36,200 --> 00:47:39,239
Speaker 1: of all this. And when you do that, there's a

828
00:47:39,360 --> 00:47:42,960
Speaker 1: minimum thirty day freeze as you transfer assets over, so

829
00:47:43,080 --> 00:47:47,799
Speaker 1: these poor employees couldn't sell their shares, like you said,

830
00:47:47,920 --> 00:47:52,200
Speaker 1: while the executives were making tens and tens of millions

831
00:47:52,200 --> 00:47:56,399
Speaker 1: of dollars worth of option trades. Yeah, I mean it's

832
00:47:56,480 --> 00:47:58,640
Speaker 1: just mind boggling. That to me is probably the worst

833
00:47:58,680 --> 00:47:59,520
Speaker 1: part of the whole thing.

834
00:48:00,160 --> 00:48:03,080
Speaker 2: Well, and you know, tie with that, their severage package

835
00:48:03,400 --> 00:48:07,560
Speaker 2: averaged about four five hundred dollars for the average employees,

836
00:48:07,600 --> 00:48:11,719
Speaker 2: while management bonuses totaled more than fifty five million. And

837
00:48:11,719 --> 00:48:16,600
Speaker 2: that's just bonuses, that's not cashing out stocks and Livia

838
00:48:16,800 --> 00:48:20,440
Speaker 2: who helped us put this together, great job on this article. Yeah, agreed,

839
00:48:20,880 --> 00:48:23,560
Speaker 2: pointed out something like other fallout like you'd never even

840
00:48:23,600 --> 00:48:26,520
Speaker 2: think about, which was Ron was a very big investor

841
00:48:26,560 --> 00:48:30,480
Speaker 2: in donor in local nonprofits in Houston, and all of

842
00:48:30,480 --> 00:48:32,480
Speaker 2: a sudden, all that money is cut off, and like

843
00:48:32,560 --> 00:48:35,239
Speaker 2: the Red Cross chapter had to cut its budget from

844
00:48:35,360 --> 00:48:38,480
Speaker 2: twelve million dollars to nine million dollars in one year,

845
00:48:38,960 --> 00:48:42,000
Speaker 2: largely because the money dried up from Enron.

846
00:48:42,120 --> 00:48:44,480
Speaker 4: So the fallout was far and wide.

847
00:48:44,560 --> 00:48:46,560
Speaker 2: And that's not even mentioning, like we're talking about the

848
00:48:47,360 --> 00:48:50,959
Speaker 2: employees who had stock in the company, like every other

849
00:48:51,080 --> 00:48:53,759
Speaker 2: human being that had just stock in in Ron that

850
00:48:53,800 --> 00:48:56,399
Speaker 2: had nothing to do with it, lost all their money.

851
00:48:56,600 --> 00:49:00,359
Speaker 1: Yeah, I mean the stock price was at ninety at

852
00:49:00,440 --> 00:49:02,960
Speaker 1: one point and it dropped down to I think forty

853
00:49:03,080 --> 00:49:07,719
Speaker 1: something since in like a year basically, So, Yeah, the

854
00:49:08,239 --> 00:49:12,160
Speaker 1: employees in particular and the retirees who had already left

855
00:49:12,239 --> 00:49:16,040
Speaker 1: and whose pension funds were just totally evaporated, meaning you're

856
00:49:16,040 --> 00:49:18,120
Speaker 1: gonna have to go get a job as a Walmart

857
00:49:18,200 --> 00:49:22,360
Speaker 1: greeter now because you can't afford anything. They are definitely

858
00:49:22,400 --> 00:49:25,680
Speaker 1: the greatest victims of all this. I saw ken Lay's

859
00:49:25,760 --> 00:49:29,200
Speaker 1: lawyer afterward portray ken Lay as the greatest victim of

860
00:49:29,239 --> 00:49:32,040
Speaker 1: all of it, because he apparently lost a few hundred

861
00:49:32,040 --> 00:49:38,480
Speaker 1: million dollars, and he didn't say it himself, but he

862
00:49:38,600 --> 00:49:41,520
Speaker 1: definitely tried to say, like, I lost so much money,

863
00:49:41,560 --> 00:49:43,759
Speaker 1: there's no way I could have known what was going on,

864
00:49:44,440 --> 00:49:47,720
Speaker 1: and that fell on deaf ears. And that same defense

865
00:49:47,800 --> 00:49:49,960
Speaker 1: was used by Jeffrey Skilling too, I didn't know what

866
00:49:50,000 --> 00:49:52,200
Speaker 1: was going on. So what they tried to do was

867
00:49:52,239 --> 00:49:55,880
Speaker 1: pin the whole thing on Andrew Fastau, who had been fired,

868
00:49:56,280 --> 00:50:01,640
Speaker 1: who had skimmed thirty something million dollars himself, demonstrated he

869
00:50:01,680 --> 00:50:04,760
Speaker 1: was a criminal. They made it. They tried to play

870
00:50:05,239 --> 00:50:08,080
Speaker 1: like he was a rogue CFO that had done all

871
00:50:08,120 --> 00:50:10,719
Speaker 1: of this under the very nose of Jeffrey Skilling and

872
00:50:10,800 --> 00:50:15,080
Speaker 1: ken Lay, and that they hadn't known. And the public, Congress,

873
00:50:15,280 --> 00:50:20,600
Speaker 1: the courts, juries, everybody said, you have to be kidding us.

874
00:50:20,520 --> 00:50:22,839
Speaker 4: Yeah, And they were right. In the end.

875
00:50:22,840 --> 00:50:26,200
Speaker 2: Fastyle pleaded guilty to two counts of wirefraud and securities

876
00:50:26,200 --> 00:50:31,080
Speaker 2: fraud in return for being a witness against Skilling and Lay.

877
00:50:31,320 --> 00:50:34,360
Speaker 2: I think had a ten year sentence for what was

878
00:50:34,400 --> 00:50:37,040
Speaker 2: going to be a much larger sentence, ended up serving

879
00:50:37,080 --> 00:50:42,360
Speaker 2: five years and then got out into twenty eleven and started,

880
00:50:42,840 --> 00:50:46,520
Speaker 2: you know, getting paid as a speaker to corporations about

881
00:50:46,560 --> 00:50:48,640
Speaker 2: business ethics.

882
00:50:48,719 --> 00:50:48,960
Speaker 4: You know.

883
00:50:49,160 --> 00:50:52,520
Speaker 2: To his credit, I guess twenty years on he came

884
00:50:52,560 --> 00:50:57,719
Speaker 2: out officially and apologized for everything. Seems to really have

885
00:50:57,800 --> 00:51:00,520
Speaker 2: turned the corner and learned a less and although he

886
00:51:00,640 --> 00:51:03,600
Speaker 2: never knows what is going on in someone's heart from

887
00:51:03,680 --> 00:51:07,920
Speaker 2: the outside, Arthur Anderson completely went away, the oldest counting

888
00:51:08,040 --> 00:51:13,960
Speaker 2: form accounting firm in the country, never recovered, completely folded

889
00:51:13,960 --> 00:51:18,080
Speaker 2: and went out of business. The Sarbanes Oxley Act was

890
00:51:18,200 --> 00:51:21,239
Speaker 2: enacted basically because of Enron in two thousand and two,

891
00:51:21,960 --> 00:51:25,480
Speaker 2: which was and I remember, I remember years ago when

892
00:51:25,480 --> 00:51:28,120
Speaker 2: we were working in our early days at how Stuff Works,

893
00:51:28,840 --> 00:51:31,120
Speaker 2: there was a lot of like Sarbanes Oxley talk.

894
00:51:32,480 --> 00:51:33,440
Speaker 4: Do you remember that stuff?

895
00:51:33,760 --> 00:51:37,040
Speaker 1: Yeah, because they came up with the Frank Dodd Act

896
00:51:37,320 --> 00:51:42,360
Speaker 1: to basically undo or combat against future stuff from the

897
00:51:42,400 --> 00:51:44,920
Speaker 1: two thousand and eight financial crisis. Yeah, this was the

898
00:51:44,960 --> 00:51:49,120
Speaker 1: same thing six years prior. Like Enron had such a

899
00:51:49,160 --> 00:51:51,640
Speaker 1: huge effect that they passed the law that basically point

900
00:51:51,680 --> 00:51:55,279
Speaker 1: for point outlawed all the stuff that Enron had done.

901
00:51:55,400 --> 00:51:57,920
Speaker 1: They did the same thing with the Dodd Frank actor.

902
00:51:57,960 --> 00:52:01,080
Speaker 2: They tried to and of course know certain people will

903
00:52:01,120 --> 00:52:04,600
Speaker 2: say Sarbanes octually has no real teeth anymore because they're

904
00:52:04,640 --> 00:52:08,560
Speaker 2: not even funding the oversight that they promised. Other people,

905
00:52:08,960 --> 00:52:12,240
Speaker 2: you know, the diehard free marketers will say, that's actually

906
00:52:12,360 --> 00:52:16,360
Speaker 2: too restrictive. Uh, we're not able to be competitive anymore

907
00:52:16,440 --> 00:52:18,799
Speaker 2: because you've got all these rules now to make sure

908
00:52:18,800 --> 00:52:21,560
Speaker 2: we're not defraunding people of billions of dollars.

909
00:52:21,440 --> 00:52:23,960
Speaker 3: Right, Yeah, you're making it hard to exploit people.

910
00:52:24,160 --> 00:52:29,560
Speaker 1: Yeah. So there was actual convictions like this is crazy.

911
00:52:29,600 --> 00:52:31,560
Speaker 1: And one of the hardening things, Chuck is if you

912
00:52:31,640 --> 00:52:36,759
Speaker 1: watch like these congressional hearings on this, people from both

913
00:52:36,800 --> 00:52:39,680
Speaker 1: sides of the aisle are grilling these guys. Oh yeah,

914
00:52:40,080 --> 00:52:43,120
Speaker 1: No one was apologizing to them for their you know,

915
00:52:43,160 --> 00:52:45,600
Speaker 1: their colleague from the other side of the aisle asking

916
00:52:45,880 --> 00:52:49,720
Speaker 1: you know, mean questions. Everyone was mad at these guys.

917
00:52:49,760 --> 00:52:53,480
Speaker 1: The whole world hated Jeffrey Skilling and Ken Lay and

918
00:52:53,480 --> 00:52:54,360
Speaker 1: Andrew Fastow.

919
00:52:54,680 --> 00:52:57,719
Speaker 2: He was so smug up there man answering those questions. Oh,

920
00:52:58,200 --> 00:53:00,200
Speaker 2: in the face of all that he was still so

921
00:53:00,239 --> 00:53:01,040
Speaker 2: smug about it.

922
00:53:01,360 --> 00:53:03,920
Speaker 1: I looked up whether he ever apologized, and I could

923
00:53:04,160 --> 00:53:07,360
Speaker 1: not find it. I don't think Jeffrey Skilling ever apologized.

924
00:53:07,360 --> 00:53:10,840
Speaker 1: I think he went throughout his entire time in prison

925
00:53:10,920 --> 00:53:14,080
Speaker 1: basically saying like he was a victim, that this was unfair,

926
00:53:14,800 --> 00:53:17,279
Speaker 1: but he was imprisoned. He was an executive that was

927
00:53:17,280 --> 00:53:20,640
Speaker 1: in prison. That just does not happen lately. He was

928
00:53:20,680 --> 00:53:25,520
Speaker 1: convicted of nineteen counts froud conspiracy, insider trading. He got

929
00:53:25,560 --> 00:53:28,120
Speaker 1: twenty four years in prison and ended up serving twelve,

930
00:53:28,880 --> 00:53:32,759
Speaker 1: which is I mean, yeah, that sucks, but years not

931
00:53:33,040 --> 00:53:35,880
Speaker 1: to sneeze, No, for sure, that's a long time to

932
00:53:35,880 --> 00:53:39,839
Speaker 1: do in the clink. And then ken Lay he was

933
00:53:39,880 --> 00:53:42,680
Speaker 1: convicted on ten counts, but he wasn't able to be

934
00:53:42,719 --> 00:53:44,799
Speaker 1: sentenced because he died of a heart attack six weeks

935
00:53:44,840 --> 00:53:49,160
Speaker 1: after being convicted, and I think his conviction was vacated.

936
00:53:50,000 --> 00:53:56,120
Speaker 2: Yeah, Skilling now is out and works at an oil

937
00:53:56,160 --> 00:54:01,279
Speaker 2: and gas analytics startup. It seems that other people I

938
00:54:01,280 --> 00:54:03,000
Speaker 2: think we Yeah, I mentioned that fast I was on

939
00:54:03,040 --> 00:54:08,800
Speaker 2: the speaker circuit. The whistleblower. Ms Watkins was named Times

940
00:54:09,640 --> 00:54:12,839
Speaker 2: Person of the Year in two thousand and two and

941
00:54:13,200 --> 00:54:16,120
Speaker 2: I believe it is also now a paid speaker and

942
00:54:16,560 --> 00:54:21,040
Speaker 2: executive in residence at Texas State University. And then there

943
00:54:21,160 --> 00:54:25,080
Speaker 2: was a matter of because I was like, Lyvia didn't

944
00:54:25,080 --> 00:54:26,759
Speaker 2: get to it, but I was like, well, surely there

945
00:54:26,760 --> 00:54:31,600
Speaker 2: was some sort of making it right for these people

946
00:54:31,640 --> 00:54:35,920
Speaker 2: who lost all this money right. And there were lawsuits

947
00:54:35,960 --> 00:54:39,560
Speaker 2: that came out and settlements that came out. Different people

948
00:54:39,640 --> 00:54:41,840
Speaker 2: ended up being paying different things. I think it was

949
00:54:41,880 --> 00:54:47,200
Speaker 2: a seven point two billion dollar settlement from Enron. I

950
00:54:47,239 --> 00:54:50,160
Speaker 2: believe the banks were on the hook. I can tell

951
00:54:50,200 --> 00:54:51,480
Speaker 2: if the banks were on the hook for some of

952
00:54:51,480 --> 00:54:52,960
Speaker 2: that or if it was a separate thing.

953
00:54:54,480 --> 00:54:55,040
Speaker 3: I don't know.

954
00:54:55,600 --> 00:54:57,880
Speaker 1: I saw that they squeezed a total of twenty billion

955
00:54:57,920 --> 00:54:59,920
Speaker 1: out of Enron before they like let it go.

956
00:55:00,000 --> 00:55:01,360
Speaker 4: Oh okay.

957
00:55:02,160 --> 00:55:04,000
Speaker 1: I don't know, but I did see the banks were

958
00:55:04,040 --> 00:55:06,600
Speaker 1: definitely on the hook just for being complicit. I don't

959
00:55:06,640 --> 00:55:08,239
Speaker 1: know if that was an addition though, either.

960
00:55:08,760 --> 00:55:10,640
Speaker 4: Yeah. I think yeah.

961
00:55:10,640 --> 00:55:12,440
Speaker 2: It says right here that the bulk of the settlements,

962
00:55:13,040 --> 00:55:15,520
Speaker 2: almost seven billion of it, came from JP Morgan, Chase

963
00:55:16,000 --> 00:55:20,600
Speaker 2: City Group, the Canadian Imperial Bank of Commerce. Oh yeah,

964
00:55:20,840 --> 00:55:24,120
Speaker 2: Lehman Brothers chipped in, Bank of America chipped in the

965
00:55:24,160 --> 00:55:27,359
Speaker 2: Big five auditing firm Arthur Anderson. Of course we talked

966
00:55:27,400 --> 00:55:32,439
Speaker 2: about they chipped in. I think, well, I don't see

967
00:55:32,440 --> 00:55:33,719
Speaker 2: how they could have chipped in it they went out

968
00:55:33,719 --> 00:55:34,359
Speaker 2: of business, but.

969
00:55:34,719 --> 00:55:36,960
Speaker 1: I guess they chipped in before they went out of business,

970
00:55:37,239 --> 00:55:41,440
Speaker 1: all right. So you know, if you hear the story,

971
00:55:41,560 --> 00:55:44,319
Speaker 1: especially if you're used to us in our podcast, you

972
00:55:44,400 --> 00:55:47,080
Speaker 1: might be like, well, guys, you didn't really get to

973
00:55:47,120 --> 00:55:51,160
Speaker 1: the other side of the story. There is no other

974
00:55:51,280 --> 00:55:53,920
Speaker 1: side of the story. This is one of those rare

975
00:55:54,320 --> 00:55:58,640
Speaker 1: stories that is basically black and white. It was just

976
00:55:59,000 --> 00:56:03,520
Speaker 1: there's no redemption, there's no explaining it away, there's no

977
00:56:03,680 --> 00:56:07,440
Speaker 1: apologizing for it. It's just it was just as wrong

978
00:56:07,480 --> 00:56:10,520
Speaker 1: as it appears. So that's why we didn't include the

979
00:56:10,600 --> 00:56:12,040
Speaker 1: other side of the story in this one.

980
00:56:12,239 --> 00:56:15,080
Speaker 2: Yeah, I don't think there's anyone out there who's going

981
00:56:15,120 --> 00:56:15,920
Speaker 2: to bat for Enron.

982
00:56:16,080 --> 00:56:18,600
Speaker 1: It's there's somebody, there's somebody, and they will leave it

983
00:56:18,640 --> 00:56:19,759
Speaker 1: on our Apple.

984
00:56:19,840 --> 00:56:23,440
Speaker 2: Reviews, right, they totally will Ron didn't get a fair

985
00:56:23,520 --> 00:56:25,719
Speaker 2: shake from these times, totally.

986
00:56:26,560 --> 00:56:27,040
Speaker 3: Neither did a.

987
00:56:27,080 --> 00:56:28,000
Speaker 4: Hitler or Satan.

988
00:56:28,960 --> 00:56:30,919
Speaker 3: You got anything else, I got nothing else.

989
00:56:31,840 --> 00:56:34,120
Speaker 1: Well, I don't have anything else either. If you want

990
00:56:34,120 --> 00:56:36,959
Speaker 1: to know more about Enron, go watch the smartest Guys

991
00:56:36,960 --> 00:56:39,600
Speaker 1: in the Room. Definitely will leave you wanting more, and

992
00:56:39,680 --> 00:56:43,960
Speaker 1: there's plenty to read about, including some great contemporary articles

993
00:56:44,320 --> 00:56:47,160
Speaker 1: all over the internet. And since I said contemporary instead

994
00:56:47,200 --> 00:56:49,560
Speaker 1: of contemporaneous, it's time for listener mail.

995
00:56:53,000 --> 00:56:54,799
Speaker 2: This is a little wordy, but it's it's We don't

996
00:56:54,840 --> 00:56:57,239
Speaker 2: often do shout outs and tributes, but this is a

997
00:56:57,280 --> 00:57:00,439
Speaker 2: really special one, so we're doing it nice. Hey guys,

998
00:57:00,680 --> 00:57:04,480
Speaker 2: this is from Gavin, recent college graduate and history enthusiast,

999
00:57:04,600 --> 00:57:07,240
Speaker 2: and Gavin says, I've been listening since I was fifteen,

1000
00:57:07,719 --> 00:57:10,439
Speaker 2: over seven years now. My mom was the one who

1001
00:57:10,520 --> 00:57:12,600
Speaker 2: introduced me to the show, and we've both been listeners

1002
00:57:12,640 --> 00:57:15,280
Speaker 2: ever since. I'm pretty sure she listens to every episode

1003
00:57:15,280 --> 00:57:17,600
Speaker 2: that you guys put out. My mom was also the

1004
00:57:17,600 --> 00:57:20,600
Speaker 2: person who imparted a thirst for knowledge and learning in

1005
00:57:20,600 --> 00:57:23,200
Speaker 2: me as a child. I've had great many teachers in

1006
00:57:23,200 --> 00:57:24,840
Speaker 2: my life, and I'm very thankful for them, but my

1007
00:57:24,880 --> 00:57:27,600
Speaker 2: mom has always been my greatest encouragement and my role

1008
00:57:27,640 --> 00:57:30,680
Speaker 2: model as a student and as a person. Over the

1009
00:57:30,760 --> 00:57:33,000
Speaker 2: past four years in college and directly after I got

1010
00:57:33,040 --> 00:57:35,480
Speaker 2: really busy, moved twelve hours from home, and it meant

1011
00:57:35,520 --> 00:57:39,840
Speaker 2: I stopped listening to podcast including you guys. I know.

1012
00:57:40,520 --> 00:57:43,000
Speaker 2: More importantly, I also lost touch with my mom. I

1013
00:57:43,000 --> 00:57:45,680
Speaker 2: didn't completely ghost he or anything, but I still did

1014
00:57:45,680 --> 00:57:47,280
Speaker 2: not reach out to her nearly as much as I

1015
00:57:47,400 --> 00:57:50,200
Speaker 2: wanted to or needed to. But often when I eventually

1016
00:57:50,240 --> 00:57:52,080
Speaker 2: would that, she would ask me if I listen to

1017
00:57:52,120 --> 00:57:54,920
Speaker 2: stuff you should Know recently, and she'd have an episode

1018
00:57:54,960 --> 00:57:58,760
Speaker 2: to recommend because I think you'd really enjoyed this one. Luckily,

1019
00:57:58,960 --> 00:58:00,960
Speaker 2: now have a job where I'm having more flexible hours,

1020
00:58:01,360 --> 00:58:03,240
Speaker 2: and over that time, I've picked stuff he should Know

1021
00:58:03,280 --> 00:58:06,120
Speaker 2: back up, re energize my love for knowledge, and learned

1022
00:58:06,120 --> 00:58:09,080
Speaker 2: that my mom has given me that my mom had given.

1023
00:58:08,840 --> 00:58:09,880
Speaker 4: Me years ago.

1024
00:58:10,240 --> 00:58:11,800
Speaker 2: All this to say, you guys mean a lot to

1025
00:58:11,840 --> 00:58:14,240
Speaker 2: me and my mother, and I thank you for that.

1026
00:58:14,320 --> 00:58:16,560
Speaker 2: You've helped me stay connected to her in a way

1027
00:58:16,640 --> 00:58:18,800
Speaker 2: that I would not have been able to do otherwise.

1028
00:58:19,920 --> 00:58:22,120
Speaker 2: I'd just like to take this chance to thank my mom.

1029
00:58:22,480 --> 00:58:24,880
Speaker 2: I know you're listening, Mom, I know we'll talk about

1030
00:58:24,880 --> 00:58:27,560
Speaker 2: this episode later, And thank you for encouraging me and

1031
00:58:27,640 --> 00:58:30,640
Speaker 2: understanding that I love you even when I'm not great

1032
00:58:30,720 --> 00:58:31,720
Speaker 2: at communicating it.

1033
00:58:32,080 --> 00:58:35,160
Speaker 4: Man, boy, this one's really pulling at the heartstrings.

1034
00:58:35,320 --> 00:58:37,439
Speaker 2: Yeah, every time I pick up a book or listen

1035
00:58:37,480 --> 00:58:40,200
Speaker 2: to a podcast or write a paper, I think of you, Mom,

1036
00:58:40,560 --> 00:58:42,960
Speaker 2: and I know that I always will. I love you,

1037
00:58:43,120 --> 00:58:44,800
Speaker 2: And this is the only way I know how to

1038
00:58:44,840 --> 00:58:49,400
Speaker 2: tell you properly. Kevin, you can pick up the phone

1039
00:58:49,440 --> 00:58:50,640
Speaker 2: and say this stuff my friend.

1040
00:58:52,360 --> 00:58:54,640
Speaker 4: He is back to you. Guys, you got a great show.

1041
00:58:54,880 --> 00:58:57,440
Speaker 2: I hope we have many more years of remaining, learning

1042
00:58:57,440 --> 00:59:01,840
Speaker 2: and growing together. And that lovely, lovely sentiment is from

1043
00:59:01,880 --> 00:59:03,680
Speaker 2: Gavin and Fayetteville, Tennessee.

1044
00:59:04,040 --> 00:59:06,120
Speaker 3: That was amazing. Gavin, hats up, Chuck.

1045
00:59:06,240 --> 00:59:09,640
Speaker 1: I totally get why you chose that shout out to

1046
00:59:09,680 --> 00:59:10,919
Speaker 1: be the one to break the rule.

1047
00:59:11,160 --> 00:59:14,480
Speaker 2: Yeah, it should have been along Mother's Day, around Mother's.

1048
00:59:14,240 --> 00:59:17,640
Speaker 1: Day, but well we can replay it around Mother's Day first,

1049
00:59:17,640 --> 00:59:18,960
Speaker 1: select how about that instead?

1050
00:59:19,000 --> 00:59:21,480
Speaker 4: It's the the inrun episode, right.

1051
00:59:22,600 --> 00:59:24,440
Speaker 1: If you want to be like Gavin and just be

1052
00:59:24,520 --> 00:59:27,560
Speaker 1: a super great person, but not request a shout out,

1053
00:59:27,600 --> 00:59:30,120
Speaker 1: Just be a super great person, we want to hear

1054
00:59:30,280 --> 00:59:33,480
Speaker 1: from you. Also, while I'm thinking of it, go check

1055
00:59:33,520 --> 00:59:37,760
Speaker 1: out our social feeds. They used to suck, Now they're great. Also,

1056
00:59:37,960 --> 00:59:39,320
Speaker 1: if you want to get in touch with this, like

1057
00:59:39,360 --> 00:59:41,800
Speaker 1: I said, You can hit us up via email at

1058
00:59:41,880 --> 00:59:45,840
Speaker 1: stuff podcast at iHeartRadio dot com.

1059
00:59:47,240 --> 00:59:49,520
Speaker 5: Stuff you Should Know is a production of iHeartRadio.

1060
00:59:50,040 --> 00:59:53,240
Speaker 2: For more podcasts my heart Radio, visit the iHeartRadio app,

1061
00:59:53,440 --> 00:59:56,360
Speaker 2: Apple Podcasts, or wherever you listen to your favorite shows.