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Speaker 1: Welcome to Stuff You Should Know, a production of iHeartRadio.

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Speaker 2: Hey, and welcome to the podcast. I'm Josh, and there's

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Speaker 2: Chuck and Jerry's here and it's stuff you should know.

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Speaker 2: We you mean it. You should know this stuff because

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Speaker 2: this is serious corporate malfeasance that I think there's probably

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Speaker 2: not an American over the age of twenty walking around

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Speaker 2: who doesn't know about this somehow, some way, to some degree.

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Speaker 2: I know they teach about this stuff in business school.

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Speaker 2: It's been written on extensively, but I mean, I didn't

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Speaker 2: understand the ins and outs of it until I started

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Speaker 2: researching this, and it's quite shocking. And that shocking thing

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Speaker 2: that I'm talking about is the rise and fall of Enron,

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Speaker 2: one of the greatest swindles in corporate American history, maybe

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Speaker 2: in corporate history in the world, definitely corporate American history

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Speaker 2: for sure.

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Speaker 1: I'm really glad you picked this because I didn't know

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Speaker 1: all the ins and outs either, because this is you know,

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Speaker 1: when I was a young late twenties, early thirty something,

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Speaker 1: didn't have a care in the world. Sure, and I

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Speaker 1: finally watched the Smartest Guys in the Room today.

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Speaker 2: Yeah, I saw it last night.

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Speaker 1: Yeah, the documentary based on the book, and we'll get

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Speaker 1: to the authors and stuff. It was Peter Elkind and

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Speaker 1: who was a.

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Speaker 2: Co author, Bethanie McLain. Okay, he was the lead author even.

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Speaker 1: Oh, okay, I knew she wrote the original articles. Yeah,

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Speaker 1: and Forbes, so she co authored the book and she's

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Speaker 1: in the documentary, as is Elkland, and it really is

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Speaker 1: worth the watch. But just want to point out that

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Speaker 1: this is an overview of the Enron scandal. It's pretty

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Speaker 1: clear once you start poking around that this could be

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Speaker 1: like a ten part series. Yeah, for sure, and there

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Speaker 1: probably is a podcast series out there that covered just Enron.

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Speaker 1: So there's lots of sort of ins and outs that

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Speaker 1: we won't be able to touch on, but we can

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Speaker 1: definitely give you the overview, which was that Enron was

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Speaker 1: a corporation. Originally it was a natural gas line pipeline operator,

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Speaker 1: but they quickly, well not quickly, they got out of

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Speaker 1: that business almost entirely, when certain people were hired. And

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Speaker 1: we'll sort of get to all this in a minute too.

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Speaker 1: Certain people, when certain people were hired that basically said

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Speaker 1: you know what, we don't we should even be in

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Speaker 1: the pipeline industry. We should invent almost a new kind

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Speaker 1: of industry, which is to use energy as financial instruments,

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Speaker 1: and we should become a trading company that trades natural

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Speaker 1: gas and eventually paper pulp and electricity and you name it. Like,

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Speaker 1: we'll get into all the things that they sort of

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Speaker 1: pivoted to, but in rounds started, I guess we should

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Speaker 1: start at the beginning when they in nineteen eighty five,

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Speaker 1: when Houston Natural Gas Company merged with a company called

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Speaker 1: Inter North and they combined to form this large energy

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Speaker 1: corporation in Texas, mainly natural gas. And the chief executive

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Speaker 1: of HMNG at the time was a man named mckin

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Speaker 1: or Kenneth Leay, who you might have heard of.

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Speaker 2: Yeah, and if you haven't prepared to meet ken Lay

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Speaker 2: several times across this episode. From the outset, I think

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Speaker 2: Houston Natural Gas in Inner North, we're both profitable. But

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Speaker 2: I saw that neither one of their the companies really

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Speaker 2: benefited from the merger, although it did expand their pipeline network.

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Speaker 2: Really it just protected them from a hostile takeover. But

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Speaker 2: it was just just a standard gas company, you know,

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Speaker 2: no big frills or anything like that. I think the

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Speaker 2: first year it posted a fourteen million dollar loss. Put

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Speaker 2: that in your in your hat and smoke it later

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Speaker 2: with a pin. Okay, In that the first year Enron

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Speaker 2: was around, in nineteen eighty five, it posted a fourteen

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Speaker 2: million dollar loss. Just remember that for later, Okay. Yeah.

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Speaker 1: Also, something else you should put in your hat for

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Speaker 1: later is the fact that Kenneth Lay, the gentleman I

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Speaker 1: mentioned who was the CEO of Houston Natural Gas, was

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Speaker 1: also very very tight with the Bush family, oh, originally

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Speaker 1: the elder Bush and later on George W. As Governor

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Speaker 1: of Texas, big donor to their causes politically, and they

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Speaker 1: ended up having a very sort of you scratch my back,

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Speaker 1: al scratch yours kind of relationship.

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Speaker 2: Yeah, it's I mean like I just started twirling around

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Speaker 2: over and over again out of anger, like multiple times

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Speaker 2: throughout the documentary because they really go into some good

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Speaker 2: details about that. But the upshot of the whole thing

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Speaker 2: is George HW and George W. Bush would not probably

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Speaker 2: have been able to help Enron out as much as

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Speaker 2: they did had it not been for, of course, Ronald

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Speaker 2: Reagan and the sweeping deregulations that occurred in starting in

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Speaker 2: the eighties. There was just a spirit of deregulation, which

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Speaker 2: was this Ronald Reagan said, they quoted in the documentary.

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Speaker 2: Government's not the solution to our problems. Government is the problem.

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Speaker 2: And there was this idea that was really huge in

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Speaker 2: the eighties that if you got government out of the way,

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Speaker 2: competition was going to drive innovation, was going to lower prices,

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Speaker 2: was going to benefit society in myriad ways. That is

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Speaker 2: not untrue. The problem is when you deregulate fully and

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Speaker 2: just basically say we're checked out from now on until

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Speaker 2: something really bad happens. Something bad always happens. That's the

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Speaker 2: problem with deregulation in the eighties, not that there's a

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Speaker 2: deregulation that it was done incorrectly, like it seems to

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Speaker 2: be every single time.

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Speaker 1: Yeah, I mean, Reagan is also in the documentary quoted

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Speaker 1: as talking about the magic of the marketplace. And we've

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Speaker 1: talked about this over and over on the show. And

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Speaker 1: this is not an attack on conservatism, but deregulation in

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Speaker 1: the marketplace and letting the free market decide things is

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Speaker 1: one of the core tenets of conservatism generally. And what

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Speaker 1: we've always kind of hammered home after years and you

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Speaker 1: said it in one way, but I'll say it in

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Speaker 1: another is it never takes into account humans are the

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Speaker 1: ones that are operating these systems. And when you have money,

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Speaker 1: lots and lots of money, and you have humans operating systems,

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Speaker 1: there are inevitably going to be greedy humans with so

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Speaker 1: much hubris that they sell their souls to make money.

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Speaker 1: And that's what happens every single time. Yet it's still

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Speaker 1: lessons are still not learned that there are certain kinds

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Speaker 1: of humans and they always seem to be they always

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Speaker 1: seem to be the ones in charge here of these systems.

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Speaker 1: They will take advantage of them to the detriment of

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Speaker 1: the little guy and the little lady. And that is

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Speaker 1: what happened with Enron.

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Speaker 2: Yeah, and I don't know if it's always like they're

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Speaker 2: not taking into account human greed. I think most of

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Speaker 2: the people who are powerful enough to deregulate federal energy

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Speaker 2: regulations don't really care. In a lot of cases, they

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Speaker 2: know that they're going to make a boatload of money

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Speaker 2: by the time the thing really kind of blows up

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Speaker 2: sometime down the line. Yeah, I think it could be

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Speaker 2: either one. But there was a big sea change in

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Speaker 2: nineteen eighty four, a big change to regulation, the Federal

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Speaker 2: Energy Regulatory Commission said Hey, you can now buy and

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Speaker 2: sell gas natural gas from any seller anywhere in the

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Speaker 2: United States. You don't have to just buy and sell

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Speaker 2: within state. And that opened up an entirely new market

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Speaker 2: and all of a sudden, you can make a lot

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Speaker 2: more money moving this stuff around. But like you said,

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Speaker 2: they figured out at Enron, you can make even more

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Speaker 2: money by selling this stuff as commodities and trading on

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Speaker 2: like futures and turning them into financial instruments, not actual

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Speaker 2: just natural gas or oil or electricity, but the concepts

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Speaker 2: of them, the right to sell it or buy that

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Speaker 2: sometime down the road. That changed absolutely everything.

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Speaker 1: Yeah, and this is when things when you get into

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Speaker 1: finance like this, it's not that my eyeballs glaze over.

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Speaker 1: It just becomes almost and I say almost not real

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Speaker 1: because it's it is kind of not real. It's it

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Speaker 1: becomes a form of gambling in a way. And that's

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Speaker 1: very much what happened at Enron in a lot of ways.

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Speaker 1: And you'll kind of see here and there throughout the episode.

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Speaker 1: But they as a company, after that eighty four decision,

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Speaker 1: made a very faithful decision of their own in nineteen

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Speaker 1: eighty nine. Just a few years later when they got

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Speaker 1: a consulting firm on board McKenzie and Company, in particular

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Speaker 1: consultant for that company named Jeffrey Skilling to create what

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Speaker 1: they called the a Gas Bank, which was basically like

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Speaker 1: I said earlier, like, hey, why don't we just be

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Speaker 1: an intermediary between buying and selling of gas? And it

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Speaker 1: was going so well that two short years later Skilling

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Speaker 1: left there and went to work full time at Enron.

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Speaker 1: Oh sure, and eventually working his way up to the

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Speaker 1: CEO of that company.

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Speaker 2: Yes, so he was he but for the most part

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Speaker 2: he was the right hand man, but essentially co CEO

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Speaker 2: with Ken Lay, who I think took him on as

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Speaker 2: a protege, and Jeffrey Skilling was the one who said,

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Speaker 2: let's set up this market. And he also transformed the

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Speaker 2: company's culture. One of the things he came up with

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Speaker 2: was it the idea that every year they should review

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Speaker 2: and rate every employee man and the bottom ten percent

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Speaker 2: of employees should be fired. So every year he was

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Speaker 2: planning on firing ten percent of their workforce, so about

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Speaker 2: two thousand people every year. And the reason he was

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Speaker 2: doing this is because he's saying, we can do better,

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Speaker 2: we can hire the best and the brightest. We'll replace

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Speaker 2: those people with much better people, and then the ones

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Speaker 2: who are doing really well now we'll get moved to

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Speaker 2: the back and we'll just constantly be improving on the

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Speaker 2: people that we're hiring. It makes sense in a really

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Speaker 2: mocki Avalian kind of way, but it's also psychotic as well.

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Speaker 1: Yeah, and the way I understood it from the documentary,

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Speaker 1: it wasn't just like regular upper management reviews of the

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Speaker 1: people that report to them, but it was all the

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Speaker 1: employees rating one another like within their department.

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Speaker 2: Isn't that right? Yeah, that's what I took it as too, So.

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Speaker 1: I mean you don't have to like be a a

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Speaker 1: sus to see where that heads when. And it certainly

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Speaker 1: creates competition if that's what they're all about with, you know,

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Speaker 1: the sort of the charter of the company creating more

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Speaker 1: competition by deregulating. They sort of did the same thing

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Speaker 1: within the ranks and created a very I mean, I've

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Speaker 1: seen it described everywhere as it's just overly macho and

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Speaker 1: testosterone fueled. Yeah, it seems like the traders there were

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Speaker 1: were hired and kept on that were especially aggressive and

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Speaker 1: There are interviews in the documentary about about some of

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Speaker 1: these men who were traders that were like, you would

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Speaker 1: cut the throat of the guy next to you on

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Speaker 1: the trading floor, your fellow employee, if you felt like

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Speaker 1: you could make a few extra bucks.

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Speaker 2: Yeah, And that was very much encouraged, not just by

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Speaker 2: Jeffrey's Skilling, but ken Lay had a history of at

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Speaker 2: the very least turning a blind eye, if not actively

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Speaker 2: encouraging people to break the law, immoral stuff that may

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Speaker 2: or may not have been legal, all in the interest

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Speaker 2: of maximizing profits. Like if you were making money and

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Speaker 2: you got in trouble, you didn't get fired because you

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Speaker 2: made money for the company. That's all that mattered was

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Speaker 2: making money for the company. So in that sense, Jeffrey

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Speaker 2: Skilling was a really great protege for ken Lay. But

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Speaker 2: he was like ken Lay on steroids. And I get

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Speaker 2: the impression, and ken Lay is always or back in

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Speaker 2: the day, he was a master at presenting this really

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Speaker 2: laid back, almost detached persona. But if you watch the

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Speaker 2: documentary and you read about him, you really get the

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Speaker 2: impression that he knew exactly what outcome was ten steps

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Speaker 2: down the road by just nudging this thing over here,

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Speaker 2: nudging that thing over there, all with plausible deniability, but

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Speaker 2: at the same time presiding over this incredibly complex, complicated,

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Speaker 2: masterful machination that was all dedicated to the service of

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Speaker 2: making money by whatever means possible.

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Speaker 1: Yeah, and Lay, I mean, the reason the documentary is

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Speaker 1: called the Smartest Guys in the Room is because I

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Speaker 1: think unequivocally everyone would admit that Kin Lay and Jeffrey Skilling,

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Speaker 1: and we should introduce you to a young recruit named

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Speaker 1: Andrew Fastaal who was a key player, eventually becoming the CFO,

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Speaker 1: and was up to all kinds of shenanigans. But these

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Speaker 1: were brilliant guys with amazing ideas, and a lot of

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Speaker 1: the ideas that they had for this company were really

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Speaker 1: good and ahead of their time. But they had the

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Speaker 1: notion that you should be able to trade and make

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Speaker 1: money off of great ideas and not necessarily the results

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Speaker 1: of those great ideas, because time and time again, as

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Speaker 1: you'll see as we tell this story, these ideas were

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Speaker 1: not making actual money, maybe because some of them were

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Speaker 1: ahead of their time, but that didn't matter because they

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Speaker 1: had ways, your creative ways to hide those debts and losses,

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Speaker 1: and that's that's the whole sort of followed in ron

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Speaker 1: Is is wrapped up in that statement. But these are

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Speaker 1: all really really smart guys, and uh, they were really

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Speaker 1: really good at making money. And maybe we should take

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Speaker 1: a break there. It's a nice little set up, all right,

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Speaker 1: and we'll come back and talk a little bit more

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Speaker 1: about their lobby to deregulate and then some of the

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Speaker 1: early shenanigans right after this.

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Speaker 2: Definitely should know large holds of e y s k.

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Speaker 1: As Why y s k as big?

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Speaker 2: You should know? Okay. So after about six years after

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Speaker 2: that big deregulation from FIRK that said you can buy

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Speaker 2: gas and sell it at wherever in the country. That

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Speaker 2: opened up a huge market, there was another watershed deregulation

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Speaker 2: that reversed an act that went back to nineteen thirty five,

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Speaker 2: the Public Utilities Holding Company Act. Pooka love that one

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Speaker 2: that said, if you are generating and selling electricity, you

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Speaker 2: are a local utility, and we're going to regulate you

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Speaker 2: like you are providing the life blood of America, because

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Speaker 2: they are Electrical utilities provide the lifeblood of America and

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Speaker 2: have since long before nineteen thirty five. And in nineteen ninety,

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Speaker 2: they managed to get that reversed and now all of

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Speaker 2: a sudden, anybody could buy an electric utility. And Enron

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Speaker 2: definitely jumped on that.

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Speaker 1: Yeah, for sure, their lobby was strong to put up mildly.

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Speaker 1: They hired lobbyists to lobby different states. In those states,

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Speaker 1: as no surprise, ended up getting millions of dollars flowing

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Speaker 1: back toward Enron. I think they hired a lobbyists for

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Speaker 1: at least thirty seven states. They also helped overturn along

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Speaker 1: nineteen eighty eight that said the military has to buy

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Speaker 1: power from local utilities, and they said, no, let's open

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Speaker 1: that back up. Pretty soon, Enron got a twenty five

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Speaker 1: million dollar contract for supplying electricity to Fort Hamilton and Brooklyn.

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Speaker 1: And these are just I mean, twenty five million ends

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Speaker 1: up being peanuts in the grand scheme. But these are

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Speaker 1: just examples as they sort of ramped up to their

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Speaker 1: schemes of how they deregulated or lobbied to get things

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Speaker 1: deregulated such that it was allowed to happen.

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Speaker 2: Right. And one of the things, one of the schemes

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Speaker 2: that got the attention of the entire country in two

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Speaker 2: thousand and one was an electrical scheme in California. California

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Speaker 2: had undergone its own electrical deregulation power deregulation, but it

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Speaker 2: had adopted this weird patchwork compromise is law or set

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Speaker 2: of laws that just had loopholes you could drive a

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Speaker 2: truck through, and that were just really created all sorts

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Speaker 2: of legal gray areas. And so rather than just kind

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Speaker 2: of like here or they're biting around the edges seeing

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Speaker 2: what they could do, instead the energy traders at Enron

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Speaker 2: started figuring out how to move energy out of the state,

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Speaker 2: wait for the state to be like, hey, we need

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Speaker 2: some energy, and move it back at incredibly inflated prices.

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Speaker 2: They would purposefully take electrical utilities that they owned offline

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Speaker 2: to generate more demand, a spike in demand, and so

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Speaker 2: they could raise prices again, and they actually basically crippled California.

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Speaker 2: I think I saw that California had a couple dozen

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Speaker 2: blackouts in six months after that deregulation, after Enron started

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Speaker 2: coming in and messing with stuff, whereas the six months

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Speaker 2: before or deregulation, they had had one blackout. So if

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Speaker 2: you watch the documentary and you listen, you know you

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Speaker 2: read some other sources about it. This was an entirely

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Speaker 2: fabricated a scarcity of electricity. There's plenty of it, and

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Speaker 2: Ron just figured out that they could kind of pull

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Speaker 2: this lever in that lever and charge way more by

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Speaker 2: creating this this fake scarcity.

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Speaker 1: Yeah, and by pulling a lever like literally sometimes they

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Speaker 1: called up a power company, a power plant and said

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Speaker 1: pull the lever to the off position, and they they

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Speaker 1: have them on tape. You know, they played this in

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Speaker 1: the documentary. Well, they'll they called one in Las Vegas

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Speaker 1: and said, hey, man, can you take this thing offline

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Speaker 1: for a few hours and just just make something up?

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Speaker 1: Because a rolling blackout meant big money. All of a sudden,

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Speaker 1: California again was buying their own energy back at a

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Speaker 1: higher rate. And Governor Gray Davis at the time, and

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Speaker 1: this is you know, I'm not like giving some full

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Speaker 1: throated endorsement to any effectiveness of Gray Davis as a governor,

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Speaker 1: because I really don't know, but he definitely was sort

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Speaker 1: of left holding the bag and scratching his head like

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Speaker 1: what's going on here? Like We've got plenty of energy,

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Speaker 1: and it just all through the documentary people are saying

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Speaker 1: like this just isn't adding up in California. And some

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Speaker 1: of those tapes that they play of these traders, like

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Speaker 1: there was that natural, uh wildfire that broke out that

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Speaker 1: jeopardized one of the pipelines, and these guys are on,

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Speaker 1: you know, on tape on the phone with each other

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Speaker 1: saying burn, baby, burn, because that's good for business if

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Speaker 1: it knocks something offline. And is you know, make laughing

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Speaker 1: at like uh, you know, old Grandma's like sweating in

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Speaker 1: the summer heat because they can't get air conditioning, like

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Speaker 1: the most vile, reprehensible kind of stuff in the name

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Speaker 1: of making the almined mighty dollar that you could imagine.

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Speaker 2: What's also interesting is they don't really go into detail

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Speaker 2: about it, but it's it appears to have also been

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Speaker 2: a coup to get rid of Gray Davis and replace

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Speaker 2: him with Arnold Schwarzenegger because ken Lay held a meeting

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Speaker 2: at the Peninsula Hotel in Los Angeles and he invited

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Speaker 2: Arnold Schwarzenegger. This was long before Arnold Swarzenegger was known

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Speaker 2: to have had like real political aspirations. He wasn't governor

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Speaker 2: yet wasn't running for governor over a problem that Enron created.

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Speaker 2: It was like that level of In addition to also

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Speaker 2: just making billions and billions of dollars by strangling the state,

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Speaker 2: they also managed to replace the executive of the state

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Speaker 2: as well to somebody who is much more friendly to them.

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Speaker 1: Yeah, and get rid of in of course they didn't

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Speaker 1: like knock him off or anything. But in California, you

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Speaker 1: can ever recall. It seems to come up every twelve

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Speaker 1: years or so where Californians aren't happy with the governor,

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Speaker 1: and so if recall vote passes, you can have just

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Speaker 1: an election out of nowhere and replace that governor. While

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Speaker 1: this is going on, you know, Ken Lay stands on

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Speaker 1: a stage and says, we're making money in spite of California,

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Speaker 1: not because of California. So just lying through their teeth

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Speaker 1: on stage to their shareholders. And you know, all these

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Speaker 1: little schemes had little nicknames. The one where they got

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Speaker 1: energy out of California just to make them buy it

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Speaker 1: back was called Ricochet. There was one called death Star,

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Speaker 1: and they're on tape like joking about like, hey, let's

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Speaker 1: have a nice friendly name for this one, like death Star.

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Speaker 1: So they're just they're playing games with people's livelihood essentially.

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Speaker 2: And lives you can make a case as well well,

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Speaker 2: for sure. So three of those traders plagued guilty. Jeffrey Richter,

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Speaker 2: John Forney, and Timothy Belden were three of those traders

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Speaker 2: who manipulated California's energy market, costing the state between forty

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Speaker 2: and forty five billion dollars in retrospect of unnecessary electrical

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Speaker 2: prices and costs.

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Speaker 1: All right, so Enron is doing great, They're making a

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Speaker 1: lot of money, and we should point out that this

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Speaker 1: is just you know, Ricochet was just one little scheme.

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Speaker 1: They had all sorts of schemes along the way to well,

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Speaker 1: we'll get to those between ninety six though and two

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Speaker 1: thousand and one. Like, as far as the stock market

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Speaker 1: world was concerned in run was a darling Fortune named them,

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Speaker 1: I think six years straight America's most innovative company, every

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Speaker 1: single year in a row. But what was going on

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Speaker 1: behind the scenes is these ideas and these investments and

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Speaker 1: schemes that they had. You know, some of them made money,

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Speaker 1: but a lot of them didn't make any money at all,

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Speaker 1: and they just became really really good at hiding that fact.

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Speaker 2: Yes, that was the whole thing. Like, they were very innovative,

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Speaker 2: they were ahead of their time in a lot of ways.

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Speaker 2: Like they got into building broad band high speed internet

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Speaker 2: access in like two thousand or two thousand and one

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Speaker 2: something like that, and this was I looked it up.

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Speaker 2: It wasn't until two thousand and seven that half of

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Speaker 2: all US Internet users had broadband, so this was way

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Speaker 2: ahead of its time. And then also they also got

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Speaker 2: into the video on demand market. They tried to partner

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Speaker 2: with Blockbuster, and this was these things were basically like

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Speaker 2: the progenitor of Zoom and Netflix. But these guys were

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Speaker 2: trying this in two thousand and two thousand and one,

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Speaker 2: so it's visionary. The problem is they were ahead of

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Speaker 2: their time. The infrastructure wasn't there that the I think

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Speaker 2: the customer base even wasn't there, So there's stuff that

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Speaker 2: they were doing wasn't making money, which is not bad

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Speaker 2: in and of itself. What was bad was when they

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Speaker 2: were covering it up. And the schemes that they used

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Speaker 2: to cover it up are so involved in complex, but

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Speaker 2: also so fascinating that they would they would have the

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Speaker 2: audacity to do this because there's no there's no fudging it,

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Speaker 2: there's no like, oh, this is kind of questionable. This

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Speaker 2: was just fleecing all of their investors, all of their employees,

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Speaker 2: fleecing the entire world. There was a handful of executives

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Speaker 2: at Enron who were fleecing the entire world to the

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Speaker 2: tune of tens and tens and tens of billions of

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Speaker 2: dollars every year in revenue that apparently didn't actually exist.

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Speaker 1: Yeah, it's pretty clear that at a certain point they

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Speaker 1: lost their way and that they weren't as concerned about

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Speaker 1: being a company that made money. And the only thing

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Speaker 1: that mattered was that as a corporation was that they

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Speaker 1: kept their stock price high, right, because that's where that's

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Speaker 1: where all the money was they had as long as

402
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Speaker 1: they could keep that stock price high and keep shareholders,

403
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Speaker 1: especially their employees, encouraging their employees to get you know,

404
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Speaker 1: get paid in company stock, like use every penny of

405
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Speaker 1: your paycheck that you can to buy this company stock.

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Speaker 1: Because Ron stock was soaring, it was doing really, really well,

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Speaker 1: and all the while it was you know, it's called

408
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Speaker 1: pump and dump. They would drive up the value of

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Speaker 1: their stock and then the upper echelon and you see

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Speaker 1: this time and time again in the corporate world. The

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Speaker 1: CEOs and the CFOs and the upper management are the

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Speaker 1: one who then sell off their stock and walk away

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Speaker 1: with you know, some of them hundreds of millions of dollars.

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Speaker 1: And you know some of the schemes that you talked

415
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Speaker 1: about was they found ways to move debt around. We

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Speaker 1: mentioned Fastyle was one of their hires, and he was

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Speaker 1: hired and I think his late twenties, early thirties, and

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Speaker 1: quickly rose up the ranks to CFO, and he started

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Speaker 1: a company called LSM, which stood for Leah, Jeffrey and Matthew,

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Speaker 1: which are named after his wife and kids. Sort of ironically.

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Speaker 1: That was like such a sweet tribute to them. And

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Speaker 1: the only purpose of this company was to have all

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Speaker 1: kinds of sort of little sub companies that would absorb

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Speaker 1: the debt and where they could move debt around from

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Speaker 1: Enron to make it invisible to the shareholders, so they

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Speaker 1: could prove on a balance sheet that you had this

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Speaker 1: money coming in in the way of you know, people

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Speaker 1: in investing in the company, but then you're hiding the

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Speaker 1: losses and so everyone thinks you're doing great.

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Speaker 2: So the way that I saw it explained. Investipedia actually

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Speaker 2: has a couple of really good articles about this that

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Speaker 2: are just wonky enough to like understand it, but also

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00:26:13,600 --> 00:26:15,280
Speaker 2: not so wonky that you just like, I have no

434
00:26:15,359 --> 00:26:18,359
Speaker 2: idea what I'm reading. And the way they put it

435
00:26:18,400 --> 00:26:22,119
Speaker 2: was basically, if Enron had, like a good example is

436
00:26:22,160 --> 00:26:24,239
Speaker 2: they build a power station in India that was a

437
00:26:24,480 --> 00:26:28,159
Speaker 2: huge loss. It was just a generally bad idea, and

438
00:26:28,200 --> 00:26:30,560
Speaker 2: they sunk billions and millions of dollars into this power

439
00:26:30,600 --> 00:26:34,000
Speaker 2: station and without realizing any money whatsoever. I think they

440
00:26:34,040 --> 00:26:38,080
Speaker 2: abandoned it before it even came online. They would take

441
00:26:38,119 --> 00:26:41,640
Speaker 2: this and sell it to one of these special purpose

442
00:26:41,880 --> 00:26:46,360
Speaker 2: vehicles or special purpose entities, which was a tangentially related

443
00:26:46,400 --> 00:26:51,240
Speaker 2: company that the company Enron was not on the hook

444
00:26:51,359 --> 00:26:55,160
Speaker 2: to pay off its debts for right, and they would

445
00:26:55,240 --> 00:26:58,240
Speaker 2: take that and then that special purpose vehicle would go

446
00:26:58,280 --> 00:27:03,000
Speaker 2: out and try to sell it, sell that terrible toxic asset,

447
00:27:04,080 --> 00:27:10,640
Speaker 2: and they would use Enron stock as the collateral. Right.

448
00:27:11,280 --> 00:27:14,520
Speaker 2: And because Enron stock was just through the roof, everybody

449
00:27:14,600 --> 00:27:16,320
Speaker 2: was saying, sure, we'll give you a loan. True, we'll

450
00:27:16,320 --> 00:27:18,040
Speaker 2: give you some money for that terrible idea of a

451
00:27:18,080 --> 00:27:21,080
Speaker 2: power plant that you abandoned because you're backing it up

452
00:27:21,119 --> 00:27:24,240
Speaker 2: with Enron stock. And as long as the time that

453
00:27:24,240 --> 00:27:27,320
Speaker 2: that stock came to was far enough away, and as

454
00:27:27,320 --> 00:27:30,399
Speaker 2: long as Enron stock kept going up, this house of

455
00:27:30,480 --> 00:27:33,080
Speaker 2: cards could be held together. But that's not at all

456
00:27:33,119 --> 00:27:36,320
Speaker 2: how it worked. The upshot of it is that they

457
00:27:36,320 --> 00:27:39,639
Speaker 2: could take toxic assets, move them off of their books

458
00:27:39,680 --> 00:27:43,240
Speaker 2: to these special purpose entities, and then they would take

459
00:27:43,440 --> 00:27:46,760
Speaker 2: the money that these special purpose entities would go borrow

460
00:27:46,960 --> 00:27:51,119
Speaker 2: against that toxic asset, and they would count that on

461
00:27:51,240 --> 00:27:55,840
Speaker 2: their books as revenue. So they were hiding debt, boosting

462
00:27:55,880 --> 00:27:59,919
Speaker 2: their revenues to just ridiculous heights for stuff that just

463
00:28:00,040 --> 00:28:01,720
Speaker 2: should not have been counted as revenue.

464
00:28:02,040 --> 00:28:04,280
Speaker 1: Yeah, and just to be clear, they didn't invent the

465
00:28:04,320 --> 00:28:09,240
Speaker 1: special purpose entity. An SPE is not some evil creation

466
00:28:09,400 --> 00:28:12,480
Speaker 1: in and of itself. Is it's an entity that a

467
00:28:12,480 --> 00:28:16,280
Speaker 1: lot of corporations and businesses use where it's just it's

468
00:28:16,280 --> 00:28:19,399
Speaker 1: sort of like has a very narrow purpose in that

469
00:28:19,440 --> 00:28:22,359
Speaker 1: they create this thing when they might use it to

470
00:28:22,400 --> 00:28:25,480
Speaker 1: purchase an asset or move an asset, so the company

471
00:28:25,480 --> 00:28:28,040
Speaker 1: as a whole may not be on the hook if

472
00:28:28,080 --> 00:28:31,280
Speaker 1: anything goes wrong. It sort of mitigates risks. So it's

473
00:28:31,320 --> 00:28:33,080
Speaker 1: not some evil purpose in and of itself. But they

474
00:28:33,119 --> 00:28:37,520
Speaker 1: were manipulating these such and starting all of these things

475
00:28:37,600 --> 00:28:41,240
Speaker 1: under Fastau's guidance with his LSM sort of sub corporation,

476
00:28:41,640 --> 00:28:45,160
Speaker 1: and eventually LSM two. I think that they were making

477
00:28:45,960 --> 00:28:51,840
Speaker 1: I think they hit ninety dollars in August of two thousand.

478
00:28:53,360 --> 00:28:56,840
Speaker 1: Market cap of the whole company, it's seventy billion, which

479
00:28:56,960 --> 00:29:01,200
Speaker 1: made it the seventh largest publicly traded company in the

480
00:29:01,240 --> 00:29:02,640
Speaker 1: world at that point.

481
00:29:02,800 --> 00:29:07,840
Speaker 2: Yeah, so that's a market cap of seventy billion. Remember

482
00:29:08,240 --> 00:29:10,960
Speaker 2: that in nineteen eighty five, its first year, it posted

483
00:29:11,000 --> 00:29:16,280
Speaker 2: losses of fourteen million. Within fifteen years, they posted revenue

484
00:29:16,640 --> 00:29:22,240
Speaker 2: of one hundred billion dollars. Hundred billion dollars in fifteen Yeah,

485
00:29:22,280 --> 00:29:24,880
Speaker 2: in sales in fifteen years. That's what happened to that

486
00:29:24,960 --> 00:29:28,360
Speaker 2: company when they brought Jeffrey Skilling on board. Jeffrey Skilling

487
00:29:28,400 --> 00:29:32,200
Speaker 2: brought Andrew Fastau on board, and people just started going nuts,

488
00:29:32,560 --> 00:29:34,840
Speaker 2: making money anyway they could. Yeah.

489
00:29:34,880 --> 00:29:37,840
Speaker 1: The other thing we should mention too is another sort

490
00:29:37,880 --> 00:29:41,640
Speaker 1: of slick trick is that Skilling's idea and they got

491
00:29:42,040 --> 00:29:45,280
Speaker 1: approval and I wasn't clear how or where this approval

492
00:29:45,320 --> 00:29:49,280
Speaker 1: comes from, but to use something called mark to market accounting,

493
00:29:50,120 --> 00:29:54,640
Speaker 1: which is basically when you can where you can rate

494
00:29:54,680 --> 00:30:00,480
Speaker 1: the financial health of your company based on the your eyes,

495
00:30:00,520 --> 00:30:04,960
Speaker 1: but just on future earnings basically and not necessarily what

496
00:30:05,040 --> 00:30:10,400
Speaker 1: they're worth that day, so anticipated future value instead of

497
00:30:10,400 --> 00:30:13,320
Speaker 1: its purchase costs. Did you get how that they were

498
00:30:13,360 --> 00:30:16,080
Speaker 1: approved because it seemed like they were all like super psychic.

499
00:30:16,160 --> 00:30:18,120
Speaker 1: They got approval for marked to market accounting.

500
00:30:18,440 --> 00:30:21,200
Speaker 2: Yeah, that would have been the sec the Securities and

501
00:30:21,600 --> 00:30:25,800
Speaker 2: Securities Exchange Commission, who would have given that approval. And

502
00:30:26,080 --> 00:30:29,480
Speaker 2: just like a special purpose entity, marked to market accounting

503
00:30:29,600 --> 00:30:34,440
Speaker 2: is it's totally legitimate, it's recognized as generally accepted accounting principle.

504
00:30:34,960 --> 00:30:39,560
Speaker 2: But there's a lot of room for temptation to just

505
00:30:39,600 --> 00:30:44,160
Speaker 2: basically say this deal with Blockbuster, we haven't made a

506
00:30:44,240 --> 00:30:48,160
Speaker 2: penny off of it, but we can cite the future

507
00:30:48,200 --> 00:30:51,520
Speaker 2: earnings from it now now that we booked this deal,

508
00:30:52,360 --> 00:30:57,360
Speaker 2: and I think it'll probably be worth a billion dollars,

509
00:30:57,400 --> 00:31:00,240
Speaker 2: just a total guess. And you're not supposed to do

510
00:31:00,240 --> 00:31:01,840
Speaker 2: it like that. You're supposed to do it much more

511
00:31:01,880 --> 00:31:05,760
Speaker 2: realistically and legitimately. But they had enough leeway that they

512
00:31:05,760 --> 00:31:08,440
Speaker 2: were able to take mark to market accounting and use

513
00:31:08,480 --> 00:31:11,360
Speaker 2: it to their benefit in that way, and in doing that,

514
00:31:11,400 --> 00:31:16,080
Speaker 2: they pumped up their revenues through the roof, Like the

515
00:31:16,160 --> 00:31:18,240
Speaker 2: deal would just be inked. They wouldn't have seen a

516
00:31:18,240 --> 00:31:19,800
Speaker 2: penny from it, and they would add it to their

517
00:31:19,840 --> 00:31:21,040
Speaker 2: balance sheets as revenue.

518
00:31:21,600 --> 00:31:23,600
Speaker 1: Yeah, it would become part of the ledger before like

519
00:31:23,840 --> 00:31:24,640
Speaker 1: a real penny was.

520
00:31:24,640 --> 00:31:27,440
Speaker 2: Made exactly and sometimes the pennies weren't made. And if

521
00:31:27,480 --> 00:31:30,400
Speaker 2: the pennies weren't made, don't forget, those debts would be

522
00:31:30,440 --> 00:31:33,400
Speaker 2: moved to a special purpose entity so they wouldn't have

523
00:31:33,520 --> 00:31:36,560
Speaker 2: these toxic assets on their books, even though they very

524
00:31:36,680 --> 00:31:40,920
Speaker 2: much owned and were indebted for these toxic assets.

525
00:31:40,960 --> 00:31:44,360
Speaker 1: Still, yeah, I mean, like I said, these were brilliant

526
00:31:44,600 --> 00:31:48,440
Speaker 1: people and like they had all their bases covered except

527
00:31:48,480 --> 00:31:50,480
Speaker 1: for the fact that we all know that a house

528
00:31:50,520 --> 00:31:54,800
Speaker 1: of cards will eventually fall. It's that hubrius thing that

529
00:31:54,880 --> 00:31:59,040
Speaker 1: just blinds people into thinking that it will always Like

530
00:31:59,120 --> 00:32:01,920
Speaker 1: when when that kind of money is rolling in, I

531
00:32:01,960 --> 00:32:05,600
Speaker 1: think it blinds certain people so much that they don't

532
00:32:05,720 --> 00:32:09,560
Speaker 1: understand a who it's hurting at the time, or they

533
00:32:09,560 --> 00:32:12,480
Speaker 1: don't care, or they think it's always going to be

534
00:32:12,560 --> 00:32:15,240
Speaker 1: rolling in like this, or they think, hey, I'm gonna

535
00:32:15,280 --> 00:32:18,800
Speaker 1: get mine now. Because there were people in Enron, I mean,

536
00:32:18,800 --> 00:32:22,520
Speaker 1: there will talk about whistleblower that eventually sort of came out,

537
00:32:22,600 --> 00:32:26,480
Speaker 1: and journalists who are poking around. But there were people

538
00:32:26,520 --> 00:32:29,480
Speaker 1: that started looking at this company the darling of Wall

539
00:32:29,520 --> 00:32:32,200
Speaker 1: Street and saying something's not right here, like something's not

540
00:32:32,240 --> 00:32:36,600
Speaker 1: adding up, Like you can't even explain how your cash

541
00:32:36,640 --> 00:32:39,440
Speaker 1: flows through your business in a way that makes any

542
00:32:39,520 --> 00:32:42,560
Speaker 1: kind of coherent sense. And anytime they were confronted with

543
00:32:42,640 --> 00:32:47,280
Speaker 1: this Skilling and his cronies would they would get very

544
00:32:47,320 --> 00:32:49,400
Speaker 1: haughty about it and just be like, well, what do

545
00:32:49,440 --> 00:32:52,000
Speaker 1: you mean we can't explain that? Like, sure we can,

546
00:32:52,120 --> 00:32:53,040
Speaker 1: it's really easy.

547
00:32:53,520 --> 00:32:55,280
Speaker 2: You just can't understand. Yeah, you just.

548
00:32:55,240 --> 00:32:58,120
Speaker 1: Can't understand it, right, Oh, it makes your blood boil.

549
00:32:59,000 --> 00:33:00,600
Speaker 2: Let's take a break in the old come back and talk

550
00:33:00,640 --> 00:33:01,960
Speaker 2: about the downfall. How about that?

551
00:33:02,240 --> 00:33:04,680
Speaker 1: Yeah, the downfall that we should.

552
00:33:04,400 --> 00:33:13,960
Speaker 2: Know, y s K. I should.

553
00:33:15,280 --> 00:33:18,680
Speaker 1: As why why s K has good?

554
00:33:21,640 --> 00:33:28,280
Speaker 2: What tough? You should know? Okay, Chuck. So, one question

555
00:33:28,400 --> 00:33:31,280
Speaker 2: that people might be asking is how were these guys

556
00:33:31,400 --> 00:33:34,600
Speaker 2: allowed to use this accounting and get away with it?

557
00:33:34,840 --> 00:33:37,760
Speaker 2: Why were people even investing in buying shares of this

558
00:33:38,440 --> 00:33:42,240
Speaker 2: this company when it was just so fraudulent and and

559
00:33:42,440 --> 00:33:46,360
Speaker 2: just ridiculously fraudulent to not even subtly fraudulent. And the

560
00:33:46,440 --> 00:33:50,880
Speaker 2: answer is the the company was such a Wall Street

561
00:33:50,960 --> 00:33:55,360
Speaker 2: darling that financial analysts would not understand what they were

562
00:33:55,480 --> 00:33:58,440
Speaker 2: hearing on these earnings reports, but would still give it

563
00:33:58,520 --> 00:34:02,600
Speaker 2: a stamp of like buy. The other thing that really

564
00:34:02,680 --> 00:34:05,760
Speaker 2: really helped was the banks. Wall Street banks were very

565
00:34:05,840 --> 00:34:09,520
Speaker 2: much complicit in this as well. And then the thing

566
00:34:09,600 --> 00:34:13,440
Speaker 2: that helped the most was Arthur Anderson, the venerable eighty

567
00:34:13,680 --> 00:34:16,319
Speaker 2: plus year old accounting firm.

568
00:34:16,400 --> 00:34:17,600
Speaker 1: The oldest was the country.

569
00:34:18,000 --> 00:34:22,120
Speaker 2: Yeah, that was a third party accountant to Enron. Was

570
00:34:22,200 --> 00:34:26,520
Speaker 2: so cozy that they actually hired all of Enron's internal

571
00:34:26,600 --> 00:34:30,680
Speaker 2: auditing staff, made them Arthur Anderson's staff, and then opened

572
00:34:30,760 --> 00:34:34,960
Speaker 2: one hundred and fifty person office for Enron in Enron's

573
00:34:35,120 --> 00:34:40,000
Speaker 2: own in Enron's headquarters at Arthur Anderson office in Enron's headquarters,

574
00:34:40,200 --> 00:34:43,960
Speaker 2: made up of former Enron auditors. That's who was watching

575
00:34:44,960 --> 00:34:48,600
Speaker 2: the show. And so Arthur Anderson had such a good

576
00:34:48,640 --> 00:34:51,880
Speaker 2: reputation that because they were signing off on this, because

577
00:34:51,920 --> 00:34:54,520
Speaker 2: the Wall Street analysts are saying yeah, to buy, people

578
00:34:54,600 --> 00:34:57,120
Speaker 2: were just like I'm buying, I'm buying. And it kept

579
00:34:57,160 --> 00:34:59,800
Speaker 2: the stock prices going up and up and up because

580
00:35:00,120 --> 00:35:02,399
Speaker 2: nobody was paying attention enough.

581
00:35:03,000 --> 00:35:05,560
Speaker 1: Yeah, there was one person in the dock that said

582
00:35:05,760 --> 00:35:09,360
Speaker 1: that kind of crystallized it, which was like, I'm paraphrasing,

583
00:35:09,440 --> 00:35:11,840
Speaker 1: but he was talking about the fact that when this

584
00:35:12,000 --> 00:35:15,440
Speaker 1: kind of stuff pops up in corporations, like, it's not

585
00:35:15,640 --> 00:35:19,239
Speaker 1: like this. The runs are everywhere. There is all kinds

586
00:35:19,239 --> 00:35:22,880
Speaker 1: of mouthfeasance, for sure in the corporate world. But he

587
00:35:22,960 --> 00:35:26,040
Speaker 1: basically said, somewhere along the way, it doesn't get this

588
00:35:26,239 --> 00:35:29,480
Speaker 1: big because a legal team says you can't do this,

589
00:35:29,880 --> 00:35:32,520
Speaker 1: or your accountants say you can't do this, or the

590
00:35:32,600 --> 00:35:35,960
Speaker 1: bank say we can't get involved in this. And Ron

591
00:35:36,040 --> 00:35:39,640
Speaker 1: seemed to be one of those sort of unicorns where

592
00:35:39,840 --> 00:35:44,080
Speaker 1: every person along the way just zip their mouth shut

593
00:35:44,480 --> 00:35:46,880
Speaker 1: even though the numbers weren't adding up, and was complicit

594
00:35:46,960 --> 00:35:48,640
Speaker 1: in this right.

595
00:35:49,360 --> 00:35:51,040
Speaker 2: And there was a trader that was interviewed in the

596
00:35:51,080 --> 00:35:55,880
Speaker 2: documentary who said, like it was ironic that Enron's slogan

597
00:35:56,080 --> 00:35:58,960
Speaker 2: was asked, why why does something happen like that? Why

598
00:35:59,040 --> 00:36:01,359
Speaker 2: can't we do it that way? And that this trader said,

599
00:36:01,400 --> 00:36:03,840
Speaker 2: I didn't ask myself why because I didn't want to know.

600
00:36:04,040 --> 00:36:06,920
Speaker 2: I suspected things were weird or ry and I just

601
00:36:07,000 --> 00:36:09,160
Speaker 2: didn't want to know because it was my job. I

602
00:36:09,280 --> 00:36:11,239
Speaker 2: was making tons of money. And I think you can

603
00:36:11,320 --> 00:36:13,719
Speaker 2: probably get that excuse out of just about anybody who

604
00:36:13,800 --> 00:36:18,200
Speaker 2: was complicited in this large or small, but Arthur Anderson

605
00:36:18,239 --> 00:36:20,760
Speaker 2: that was the one that really really helped things along.

606
00:36:21,080 --> 00:36:23,920
Speaker 2: And as we'll see, they didn't manage to survive the scandal.

607
00:36:24,320 --> 00:36:26,520
Speaker 1: Yeah, they were Oh man, there was that one part

608
00:36:26,560 --> 00:36:30,719
Speaker 1: of the documentary where they were talking about Fastyles, you know,

609
00:36:30,960 --> 00:36:33,840
Speaker 1: Shell companies, and he was in a meeting that was

610
00:36:33,840 --> 00:36:36,520
Speaker 1: secretly taped and they're basically like, well, wait a minute,

611
00:36:36,560 --> 00:36:39,840
Speaker 1: it looks like you're on the buying and selling sides

612
00:36:39,880 --> 00:36:44,800
Speaker 1: of these transactions, right, And he was like, yeah, basically,

613
00:36:44,960 --> 00:36:48,320
Speaker 1: But I've always got Ellen J's interest at heart, and

614
00:36:48,440 --> 00:36:52,040
Speaker 1: the whole time he's skimming money. And they believed that skilling,

615
00:36:52,160 --> 00:36:55,120
Speaker 1: and Ley knew that, like, hey, I'm sure that fast

616
00:36:55,200 --> 00:36:57,839
Speaker 1: Ole is skimming money off the top for himself, right,

617
00:36:58,040 --> 00:37:00,719
Speaker 1: Who cares because this guy's taking care of business.

618
00:37:00,400 --> 00:37:03,439
Speaker 2: For us exactly. And I think he skimmed about thirty

619
00:37:03,480 --> 00:37:07,680
Speaker 2: five million dollars for himself. He stole from Mron and

620
00:37:07,800 --> 00:37:09,880
Speaker 2: they looked the other way because the stuff he was

621
00:37:09,960 --> 00:37:15,400
Speaker 2: doing was so unethical, so illegal, that he basically earned

622
00:37:15,400 --> 00:37:18,360
Speaker 2: it as far as they were concerned to have his

623
00:37:18,480 --> 00:37:22,000
Speaker 2: hand in the cookie jar like that. So I think

624
00:37:22,040 --> 00:37:24,200
Speaker 2: you kind of mentioned there were some people who were like, wait,

625
00:37:24,280 --> 00:37:27,120
Speaker 2: what's going on here. One of the first people was

626
00:37:27,360 --> 00:37:30,560
Speaker 2: Bethany McClain, the journalists who ended up writing the Smartest

627
00:37:30,600 --> 00:37:33,759
Speaker 2: Guys in the Room. She is awesome. She started out

628
00:37:33,760 --> 00:37:36,840
Speaker 2: writing a story for Fortune magazine back in March of

629
00:37:36,880 --> 00:37:40,920
Speaker 2: two thousand and one titled is Enron Overpriced? And she

630
00:37:41,160 --> 00:37:44,399
Speaker 2: was one of the first people to publicly say how

631
00:37:44,520 --> 00:37:47,640
Speaker 2: is Enron making its money? But she wasn't the first

632
00:37:47,680 --> 00:37:50,880
Speaker 2: to hit on this. There's another guy named Jim Chanos

633
00:37:51,480 --> 00:37:56,719
Speaker 2: of Kainiko's Securities, I think maybe, and I think he's

634
00:37:56,760 --> 00:38:00,839
Speaker 2: in the documentary, but he started shorting Enron in two

635
00:38:00,880 --> 00:38:06,040
Speaker 2: thousand because he noticed very simply their cost of capital,

636
00:38:06,160 --> 00:38:09,200
Speaker 2: so the cost of doing business was more than their

637
00:38:09,239 --> 00:38:13,400
Speaker 2: return on investment, which automatically means that they were not

638
00:38:13,680 --> 00:38:17,360
Speaker 2: a profitable company, which totally was contradicted by all of

639
00:38:17,400 --> 00:38:20,680
Speaker 2: their earnings reports and filings. And he saw this and

640
00:38:20,800 --> 00:38:24,399
Speaker 2: he said, this is this is not right, and I'm

641
00:38:24,440 --> 00:38:27,800
Speaker 2: going to start making money off of the future downfall

642
00:38:27,880 --> 00:38:30,920
Speaker 2: of this company and made hundreds and hundreds of millions

643
00:38:30,960 --> 00:38:33,640
Speaker 2: of dollars shorting and Ron stock starting in two thousand.

644
00:38:34,640 --> 00:38:40,520
Speaker 1: Yeah, the Whistleblower two was an executive main named Sharon Watkins,

645
00:38:41,400 --> 00:38:44,040
Speaker 1: and she pops up a lot in the documentary. Obviously

646
00:38:44,160 --> 00:38:48,800
Speaker 1: is key to the story. She didn't whistleblow while this

647
00:38:49,040 --> 00:38:50,840
Speaker 1: was all going on. It was sort of after the

648
00:38:50,920 --> 00:38:55,239
Speaker 1: ship started sinking. But we'll talk a little bit about

649
00:38:55,360 --> 00:38:57,840
Speaker 1: how that all happened and where she ended up. But

650
00:38:58,239 --> 00:39:01,799
Speaker 1: what happened in August of twenty twenty one. Skilling had

651
00:39:01,880 --> 00:39:05,360
Speaker 1: replaced lay a CEO in February of that year, and

652
00:39:05,440 --> 00:39:08,920
Speaker 1: on August fourteenth, twenty twenty one, Skilling out of nowhere,

653
00:39:09,000 --> 00:39:10,600
Speaker 1: and he had just taken the reins, you know, a

654
00:39:10,640 --> 00:39:14,400
Speaker 1: handful of months before he Skilling quits out of nowhere.

655
00:39:14,440 --> 00:39:19,160
Speaker 1: He resigns. He cited personal reasons. And what was going

656
00:39:19,200 --> 00:39:22,480
Speaker 1: on was the you know, the Titanic sprung a leak,

657
00:39:23,640 --> 00:39:27,200
Speaker 1: and as they described in the documentary, he was one

658
00:39:27,239 --> 00:39:29,480
Speaker 1: of the first rats to try and get off the

659
00:39:29,480 --> 00:39:30,080
Speaker 1: sinking ship.

660
00:39:31,120 --> 00:39:35,320
Speaker 2: Yeah, And it's like, if you are a CEO of

661
00:39:35,440 --> 00:39:39,400
Speaker 2: a huge company, you don't just leave like that that

662
00:39:39,600 --> 00:39:42,520
Speaker 2: is an enormous red flag. There's like a whole process

663
00:39:42,680 --> 00:39:46,560
Speaker 2: and procedure for finding your replacement, grooming them, introducing him

664
00:39:46,560 --> 00:39:49,480
Speaker 2: to the rest of the world. You don't just leave

665
00:39:49,640 --> 00:39:52,279
Speaker 2: like that. And that was such a red flag that

666
00:39:52,440 --> 00:39:57,720
Speaker 2: that whistleblower, what's her name, Sharon Watkins. Yeah, she wrote

667
00:39:57,719 --> 00:40:01,160
Speaker 2: an anonymous letter Delay basically saying, Hey, there's a lot

668
00:40:01,200 --> 00:40:04,000
Speaker 2: of fishy stuff going on around here, and now that

669
00:40:04,160 --> 00:40:09,440
Speaker 2: Skilling suddenly departed, like everyone's going to start having questions

670
00:40:09,480 --> 00:40:11,319
Speaker 2: in this whole house of cards is going to fall

671
00:40:12,120 --> 00:40:16,279
Speaker 2: and Lay apparently didn't do much about it. And she

672
00:40:16,480 --> 00:40:19,000
Speaker 2: came to Lay later on and said, I'm the person

673
00:40:19,040 --> 00:40:21,840
Speaker 2: who wrote that anonymous letter, and I'm really concerned about this,

674
00:40:22,640 --> 00:40:26,160
Speaker 2: and ended up trying to keep it in the company

675
00:40:26,239 --> 00:40:28,439
Speaker 2: because I think I get the impression that she thought

676
00:40:29,120 --> 00:40:32,120
Speaker 2: it was something, especially now that Skilling was gone, that

677
00:40:32,239 --> 00:40:36,480
Speaker 2: could be resolved internally. I think she really underestimated the

678
00:40:37,360 --> 00:40:42,759
Speaker 2: extensiveness of the corruption and yeah at the company and

679
00:40:42,880 --> 00:40:44,759
Speaker 2: thought it was a few people, when really it was

680
00:40:45,360 --> 00:40:48,320
Speaker 2: a large cadre of people who all were complicit in this.

681
00:40:48,840 --> 00:40:52,439
Speaker 2: And I get the impression that's why she didn't really

682
00:40:52,880 --> 00:40:57,319
Speaker 2: blow the whistle publicly at that point, but apparently ken Lay,

683
00:40:57,360 --> 00:41:01,880
Speaker 2: once he found out that it was Aaron Watkins, consulted

684
00:41:01,960 --> 00:41:04,960
Speaker 2: legal council to figure out how to fire her legally. Yeah.

685
00:41:06,200 --> 00:41:09,719
Speaker 1: The same day that Skilling resigned, on August fourteenth, the

686
00:41:09,800 --> 00:41:13,000
Speaker 1: broadband division that we talked about earlier reported one hundred

687
00:41:13,040 --> 00:41:17,320
Speaker 1: and thirty seven million dollar loss analysts. And we should

688
00:41:17,320 --> 00:41:18,920
Speaker 1: point out too, as far as the analysts go, they

689
00:41:18,960 --> 00:41:23,280
Speaker 1: were always installing friendly analyst and only working with friendly analysts.

690
00:41:23,920 --> 00:41:26,640
Speaker 1: But they finally got the clue they dropped their ratings

691
00:41:26,680 --> 00:41:30,520
Speaker 1: for the stock. The end came very, very swiftly for Enron.

692
00:41:31,520 --> 00:41:35,880
Speaker 1: On October twelfth, Arthur Anderson's I mean you still remember

693
00:41:35,920 --> 00:41:38,000
Speaker 1: all the shredding jokes on late night TV that ran

694
00:41:38,040 --> 00:41:42,880
Speaker 1: for months and months. Arthur Anderson's legal council said, everybody

695
00:41:43,160 --> 00:41:46,920
Speaker 1: shred everything, destroy every file that you have on Enron.

696
00:41:47,320 --> 00:41:51,360
Speaker 1: And in one day they shredded literally one ton of paper.

697
00:41:51,960 --> 00:41:54,920
Speaker 2: Yeah, and that was just one day. They apparently shredded

698
00:41:55,000 --> 00:41:58,000
Speaker 2: around the clock from October twenty second to November eighth,

699
00:41:58,560 --> 00:42:00,960
Speaker 2: and that was just one ton one day. They shredded

700
00:42:01,440 --> 00:42:05,279
Speaker 2: literal tons of documents, just shred, shread, shread. If you

701
00:42:05,320 --> 00:42:07,680
Speaker 2: were an executive at Anderson, you were probably working a

702
00:42:07,760 --> 00:42:12,000
Speaker 2: late night shift shredding alongside everybody else. It was like that,

703
00:42:12,480 --> 00:42:14,279
Speaker 2: and it was apparently at a time where you could

704
00:42:14,480 --> 00:42:18,560
Speaker 2: legally do that and not be you know, indicted for it.

705
00:42:19,960 --> 00:42:22,319
Speaker 2: But that was not a good look when it came

706
00:42:22,360 --> 00:42:26,800
Speaker 2: out that Arthur Anderson was the auditors of this company

707
00:42:27,040 --> 00:42:30,440
Speaker 2: were shredding tons of documents, and the SEC got into

708
00:42:30,520 --> 00:42:32,719
Speaker 2: this and they said that they're going to start investigating

709
00:42:32,840 --> 00:42:37,719
Speaker 2: finally the special purpose entities that Fastau had set up.

710
00:42:38,040 --> 00:42:42,000
Speaker 2: And so Enron fired Fastau that same day. And I

711
00:42:42,080 --> 00:42:46,759
Speaker 2: think that was in November or late October of two

712
00:42:46,800 --> 00:42:51,160
Speaker 2: thousand and one. And right after that, on November eighth,

713
00:42:51,760 --> 00:42:55,400
Speaker 2: en Ron said, hey, everybody, do you remember all of

714
00:42:55,520 --> 00:42:58,640
Speaker 2: our all that money we said we made going back

715
00:42:58,680 --> 00:43:02,160
Speaker 2: to nineteen ninety seven, We're gonna need to restate our earnings.

716
00:43:03,000 --> 00:43:05,400
Speaker 2: One of the first things they did was they reported

717
00:43:05,440 --> 00:43:09,239
Speaker 2: a six hundred and eighteen million dollar loss for Q

718
00:43:09,600 --> 00:43:15,120
Speaker 2: three of two thousand and one. Q one they posted

719
00:43:15,160 --> 00:43:18,359
Speaker 2: a four hundred and six million dollar profit, Q two

720
00:43:18,640 --> 00:43:21,680
Speaker 2: a four hundred and four million dollar profit. Q three

721
00:43:21,960 --> 00:43:24,719
Speaker 2: a six hundred and eighteen million dollar loss. So they

722
00:43:24,840 --> 00:43:28,279
Speaker 2: finally came clean. They finally said, this accounting is off,

723
00:43:28,520 --> 00:43:30,879
Speaker 2: and this is how radically it's off.

724
00:43:31,440 --> 00:43:34,920
Speaker 1: Yeah, I mean that is if a company is restating

725
00:43:35,560 --> 00:43:39,359
Speaker 1: their earnings for that period of time right at all,

726
00:43:39,480 --> 00:43:41,640
Speaker 1: Like mistakes can happen, but that's a that's a real

727
00:43:41,840 --> 00:43:48,000
Speaker 1: bad sign. They almost got a lifeline in I guess

728
00:43:48,080 --> 00:43:51,360
Speaker 1: late October of that year when they tried to merge

729
00:43:51,360 --> 00:43:56,920
Speaker 1: with a company called Dynag Incorporated, and that deal, that

730
00:43:57,000 --> 00:44:00,000
Speaker 1: deal fell apart on November twenty eighth, they backed up

731
00:44:00,040 --> 00:44:03,600
Speaker 1: out of the deal Dynagy did and then what is

732
00:44:03,680 --> 00:44:07,719
Speaker 1: this Four days later on December second, Enron filed for

733
00:44:07,880 --> 00:44:12,359
Speaker 1: the largest Chapter eleven bankruptcy in US history up.

734
00:44:12,360 --> 00:44:15,760
Speaker 2: To that time. Sixty five point five billion dollar company

735
00:44:16,719 --> 00:44:19,400
Speaker 2: filed for bankruptcy. That just did not happen. If you

736
00:44:19,520 --> 00:44:22,560
Speaker 2: had that kind of money, you could have a fire

737
00:44:22,680 --> 00:44:24,880
Speaker 2: sale and sell off stuff for way less than you

738
00:44:24,960 --> 00:44:27,440
Speaker 2: paid for it, but you could still survive. And that

739
00:44:27,600 --> 00:44:29,719
Speaker 2: just goes to show you, like just how fraudulent this

740
00:44:29,840 --> 00:44:32,799
Speaker 2: company was. They couldn't have a fire sale and make

741
00:44:32,880 --> 00:44:35,880
Speaker 2: up that kind of that kind of debt that they

742
00:44:35,920 --> 00:44:39,160
Speaker 2: owed I think was seventy two billion dollars I think

743
00:44:39,200 --> 00:44:42,080
Speaker 2: in debt that they finally were found to have owed,

744
00:44:42,600 --> 00:44:44,799
Speaker 2: and at the time it was the biggest. In two

745
00:44:44,840 --> 00:44:47,120
Speaker 2: thousand and eight we saw what big really was. Yeah.

746
00:44:47,440 --> 00:44:51,520
Speaker 2: Lehman Brothers, for example, had six hundred and thirty nine

747
00:44:51,640 --> 00:44:54,200
Speaker 2: billion dollars in assets when it filed for bankruptcy and

748
00:44:54,280 --> 00:44:57,879
Speaker 2: went under. But at the time Enron was like eye

749
00:44:58,000 --> 00:45:01,439
Speaker 2: popping as far as bankruptcy these went for corporations.

750
00:45:01,719 --> 00:45:06,520
Speaker 1: Can you imagine the wave of a relief that swept

751
00:45:06,600 --> 00:45:12,640
Speaker 1: through Dynagy Incorporated. Yeah, then particular bankruptcy a few days

752
00:45:12,680 --> 00:45:13,680
Speaker 1: later after they backed out.

753
00:45:14,280 --> 00:45:17,680
Speaker 2: Yeah, that one just offhand conversation at the vending machine

754
00:45:17,719 --> 00:45:22,520
Speaker 2: over a packet of checks mix like, save Dynagy forever.

755
00:45:23,000 --> 00:45:25,160
Speaker 2: You know, this seems like a bad deal to me.

756
00:45:25,280 --> 00:45:28,400
Speaker 2: Crunch crunch right, And Dynagy, by the way, went on

757
00:45:28,520 --> 00:45:29,400
Speaker 2: to become Apple.

758
00:45:32,040 --> 00:45:35,360
Speaker 1: So the fallout from this, there are a lot of victims.

759
00:45:36,000 --> 00:45:42,200
Speaker 1: Twenty thousand employees. Twenty thousand employees lost their job. And

760
00:45:43,640 --> 00:45:44,719
Speaker 1: how long did they have to get out?

761
00:45:44,760 --> 00:45:46,680
Speaker 2: What is saying the second day I think they had

762
00:45:46,719 --> 00:45:47,040
Speaker 2: the day.

763
00:45:47,440 --> 00:45:48,800
Speaker 1: I think it was less than that. I feel like

764
00:45:48,840 --> 00:45:52,440
Speaker 1: it was hours or something. Basically pack your s and

765
00:45:52,520 --> 00:45:55,680
Speaker 1: get out of here, everybody. Yeah, and like literally, this

766
00:45:56,000 --> 00:45:59,480
Speaker 1: huge tall building has thousands of people just leaving all

767
00:45:59,560 --> 00:46:02,680
Speaker 1: day with anchor's boxes with their contents of their desk

768
00:46:02,760 --> 00:46:07,680
Speaker 1: in it. Like the ultimate movie trope. Every employee that

769
00:46:07,880 --> 00:46:11,160
Speaker 1: had been told for years and years, Hey, you got

770
00:46:11,280 --> 00:46:14,360
Speaker 1: to invest everything you can in that for OLMA because

771
00:46:14,520 --> 00:46:18,880
Speaker 1: Enron is I mean, look at the stock we're going places,

772
00:46:18,960 --> 00:46:22,200
Speaker 1: and that money will be safe there. They obviously lost

773
00:46:22,600 --> 00:46:25,440
Speaker 1: almost everything that was a you know, the rank and

774
00:46:25,480 --> 00:46:27,759
Speaker 1: file employees. That was one in the documentary that said

775
00:46:28,239 --> 00:46:30,480
Speaker 1: he had about close to three hundred and fifty thousand

776
00:46:30,480 --> 00:46:33,400
Speaker 1: dollars in stock that he ended up dumping for twelve

777
00:46:33,520 --> 00:46:38,279
Speaker 1: hundred dollars. Yeah, they froze the stock accounts of the

778
00:46:38,400 --> 00:46:42,399
Speaker 1: rank and file while upper management was actively still cashing out.

779
00:46:43,520 --> 00:46:46,520
Speaker 2: Yeah, that was a really scummy move. They, I'm sure,

780
00:46:46,680 --> 00:46:49,800
Speaker 2: purposefully changed four one K providers in the midst of

781
00:46:49,840 --> 00:46:53,320
Speaker 2: all this. And when you do that, there's a minimum

782
00:46:53,480 --> 00:46:56,799
Speaker 2: thirty day freeze as you transfer assets over, So these

783
00:46:56,920 --> 00:47:01,719
Speaker 2: poor employees couldn't sell their shares, like you said, while

784
00:47:02,360 --> 00:47:05,800
Speaker 2: the executives were making tens and tens of millions of

785
00:47:05,920 --> 00:47:10,080
Speaker 2: dollars worth of option trades. Yeah, I mean it's just

786
00:47:10,200 --> 00:47:12,399
Speaker 2: mind boggling. That to me is probably the worst part

787
00:47:12,440 --> 00:47:13,040
Speaker 2: of the whole thing.

788
00:47:13,719 --> 00:47:16,600
Speaker 1: Well, and you know, tie with that, their severange package

789
00:47:16,960 --> 00:47:21,080
Speaker 1: averaged about four five hundred dollars for the average employees,

790
00:47:21,160 --> 00:47:25,200
Speaker 1: while management bonuses totaled more than fifty five million. And

791
00:47:25,280 --> 00:47:30,160
Speaker 1: that's just bonuses, that's not cashing out stocks. And Lvia,

792
00:47:30,360 --> 00:47:34,000
Speaker 1: who helped us put this together, great job on this article, yeah, agreed,

793
00:47:34,440 --> 00:47:37,080
Speaker 1: pointed out something like other fallout like you'd never even

794
00:47:37,160 --> 00:47:40,000
Speaker 1: think about, which was Ron was a very big investor

795
00:47:40,120 --> 00:47:44,000
Speaker 1: in donor and local nonprofits in Houston, and all of

796
00:47:44,040 --> 00:47:46,000
Speaker 1: a sudden, all that money is cut off, and like

797
00:47:46,120 --> 00:47:48,799
Speaker 1: the Red Cross chapter had to cut its budget from

798
00:47:48,920 --> 00:47:52,000
Speaker 1: twelve million dollars to nine million dollars in one year,

799
00:47:52,520 --> 00:47:56,040
Speaker 1: largely because the money dried up from Enron. So the

800
00:47:56,120 --> 00:47:59,360
Speaker 1: fallout was far and wide. And that's not even mentioning,

801
00:47:59,400 --> 00:48:02,759
Speaker 1: like we're talking about the employees who had stock in

802
00:48:02,840 --> 00:48:06,080
Speaker 1: the company, like every other human being that had just

803
00:48:06,440 --> 00:48:08,040
Speaker 1: stock in and Ron that had nothing to do with

804
00:48:08,160 --> 00:48:09,479
Speaker 1: it lost all their money.

805
00:48:10,160 --> 00:48:13,920
Speaker 2: Yeah, I mean the stock price was at ninety at

806
00:48:14,000 --> 00:48:16,480
Speaker 2: one point, and it dropped down to I think forty

807
00:48:16,680 --> 00:48:22,400
Speaker 2: something since like a year basically, So yeah, the employees

808
00:48:22,440 --> 00:48:25,840
Speaker 2: in particular, and the retirees who had already left and

809
00:48:25,920 --> 00:48:29,880
Speaker 2: whose pension funds were just totally evaporated, meaning you're gonna

810
00:48:29,880 --> 00:48:31,960
Speaker 2: have to go get a job as a Walmart greeter

811
00:48:32,120 --> 00:48:36,000
Speaker 2: now because you can't afford anything. They are definitely the

812
00:48:36,040 --> 00:48:39,600
Speaker 2: greatest victims of all this. I saw ken Lay's lawyer

813
00:48:40,080 --> 00:48:42,920
Speaker 2: afterward portray ken Lay is the greatest victim of all

814
00:48:43,000 --> 00:48:46,320
Speaker 2: of it because he apparently lost a few hundred million dollars,

815
00:48:47,640 --> 00:48:52,000
Speaker 2: and he did. He didn't say it himself, but he

816
00:48:52,160 --> 00:48:55,040
Speaker 2: definitely tried to say, like, I lost so much money,

817
00:48:55,120 --> 00:48:57,200
Speaker 2: there's no way I could have known what was going on,

818
00:48:58,000 --> 00:49:01,400
Speaker 2: And that fell on deafiar and that same defense was

819
00:49:01,480 --> 00:49:03,640
Speaker 2: used by Jeffrey Skilling too, I didn't know what was

820
00:49:03,680 --> 00:49:05,960
Speaker 2: going on. So what they tried to do was pin

821
00:49:06,040 --> 00:49:09,400
Speaker 2: the whole thing on Andrew Fastau, who had been fired,

822
00:49:09,840 --> 00:49:13,319
Speaker 2: who had skimmed thirty something million dollars himself, so had

823
00:49:13,640 --> 00:49:17,560
Speaker 2: proven demonstrated he was a criminal. They made it. They

824
00:49:17,640 --> 00:49:20,840
Speaker 2: tried to play like he was a rogue CFO that

825
00:49:20,960 --> 00:49:23,400
Speaker 2: had done all of this under the very nose of

826
00:49:23,440 --> 00:49:26,359
Speaker 2: Jeffrey Skilling and Ken Lay and that they hadn't known,

827
00:49:26,760 --> 00:49:32,000
Speaker 2: and the public, Congress, the courts, juries, everybody said, you

828
00:49:32,280 --> 00:49:33,680
Speaker 2: have to be kidding.

829
00:49:33,440 --> 00:49:36,880
Speaker 1: Us, Yeah, And they were right. In the end. Fastyle

830
00:49:37,320 --> 00:49:39,719
Speaker 1: pleaded guilty to two counts of wire fraud and securities

831
00:49:39,760 --> 00:49:44,600
Speaker 1: fraud in return for being a witness against Skilling and Lay.

832
00:49:44,880 --> 00:49:47,920
Speaker 1: I think had a ten year sentence for what was

833
00:49:47,960 --> 00:49:50,560
Speaker 1: going to be a much larger sentence, ended up serving

834
00:49:50,680 --> 00:49:55,840
Speaker 1: five years, and then got out into twenty eleven and started,

835
00:49:56,400 --> 00:49:59,959
Speaker 1: you know, getting paid as a speaker to corporations about

836
00:50:00,160 --> 00:50:04,839
Speaker 1: business ethics, you know. To his credit, I guess twenty

837
00:50:04,920 --> 00:50:08,800
Speaker 1: years on he came out officially and apologized for everything.

838
00:50:09,640 --> 00:50:13,680
Speaker 1: Seems to really have turned the corner and learned a lesson,

839
00:50:13,719 --> 00:50:16,040
Speaker 1: although he never knows what is going on in someone's

840
00:50:16,080 --> 00:50:20,800
Speaker 1: heart from the outside. Arthur Anderson completely went away, the

841
00:50:20,840 --> 00:50:26,200
Speaker 1: oldest counting form accounting firm in the country, never recovered,

842
00:50:26,600 --> 00:50:30,840
Speaker 1: completely folded and went out of business. The Sarbanes Oxley

843
00:50:30,920 --> 00:50:34,520
Speaker 1: Act was enacted basically because of Enron in two thousand

844
00:50:34,520 --> 00:50:38,600
Speaker 1: and two, which was and I remember, I remember years

845
00:50:38,640 --> 00:50:40,880
Speaker 1: ago when we were working in our early days at

846
00:50:40,920 --> 00:50:43,880
Speaker 1: how stuff works. There was a lot of like Sarbanes

847
00:50:43,960 --> 00:50:46,960
Speaker 1: Oxley talk, Do you remember that stuff?

848
00:50:47,320 --> 00:50:50,560
Speaker 2: Yeah, because they came up with the Frank Dodd Act

849
00:50:50,880 --> 00:50:55,880
Speaker 2: to basically undo or combat against future stuff from the

850
00:50:55,960 --> 00:50:58,440
Speaker 2: two thousand and eight financial crisis. Yes, this was the

851
00:50:58,520 --> 00:51:02,959
Speaker 2: same thing six years like Enron had such a huge

852
00:51:02,960 --> 00:51:05,279
Speaker 2: effect that they passed the law that basically, point for

853
00:51:05,400 --> 00:51:09,080
Speaker 2: point outlawed all the stuff that Enron had done. They

854
00:51:09,120 --> 00:51:11,640
Speaker 2: did the same thing with the Dodd Frank Actor. They

855
00:51:11,719 --> 00:51:12,920
Speaker 2: tried to Uh.

856
00:51:13,000 --> 00:51:15,920
Speaker 1: And of course, you know, certain people will say Sarbines

857
00:51:15,920 --> 00:51:18,560
Speaker 1: actually has no real teeth anymore because they're not even

858
00:51:19,080 --> 00:51:22,680
Speaker 1: funding the oversight that they promised other people, you know,

859
00:51:22,800 --> 00:51:27,640
Speaker 1: the diehard free marketers will say, that's actually too restrictive. Uh,

860
00:51:27,920 --> 00:51:30,560
Speaker 1: we're not able to be competitive anymore because you've got

861
00:51:30,600 --> 00:51:33,160
Speaker 1: all these rules now to make sure we're not defraunding

862
00:51:33,239 --> 00:51:35,040
Speaker 1: people of billions of dollars.

863
00:51:35,000 --> 00:51:37,959
Speaker 2: Right, Yeah, you're making it hard to exploit people. Yeah.

864
00:51:39,480 --> 00:51:43,200
Speaker 2: So there was actual convictions like this is crazy. And

865
00:51:43,320 --> 00:51:45,439
Speaker 2: one of the heartening things, Chuck is if you watch

866
00:51:45,560 --> 00:51:50,640
Speaker 2: like these congressional hearings on this, people from both sides

867
00:51:50,680 --> 00:51:53,680
Speaker 2: of the aisle are grilling these guys. Oh yeah, No

868
00:51:53,840 --> 00:51:56,879
Speaker 2: one was apologizing to them for their you know, their

869
00:51:56,960 --> 00:51:59,480
Speaker 2: colleague from the other side of the aisle asking you

870
00:51:59,560 --> 00:52:03,360
Speaker 2: know me questions. Everyone was mad at these guys. The

871
00:52:03,440 --> 00:52:07,920
Speaker 2: whole world hated Jeffrey Skilling and Ken Lay and Andrew Fastow.

872
00:52:08,239 --> 00:52:10,880
Speaker 1: He was so smug up there man answering those questions.

873
00:52:11,160 --> 00:52:13,200
Speaker 1: Oh dude, in the face of all that, he was

874
00:52:13,239 --> 00:52:14,480
Speaker 1: still so smug about it.

875
00:52:14,920 --> 00:52:17,399
Speaker 2: I looked up whether he ever apologized, and I could

876
00:52:17,719 --> 00:52:20,920
Speaker 2: not find it. I don't think Jeffrey Skilling ever apologized.

877
00:52:20,960 --> 00:52:24,400
Speaker 2: I think he went throughout his entire time in prison

878
00:52:24,480 --> 00:52:27,560
Speaker 2: basically saying like he was a victim, that this was unfair,

879
00:52:28,360 --> 00:52:30,800
Speaker 2: but he was imprisoned. He was an executive that was

880
00:52:30,840 --> 00:52:34,160
Speaker 2: in prison. That just does not happen lately. He was

881
00:52:34,239 --> 00:52:39,040
Speaker 2: convicted of nineteen counts frog conspiracy, insider trading. He got

882
00:52:39,120 --> 00:52:41,600
Speaker 2: twenty four years in prison and ended up serving twelve,

883
00:52:42,440 --> 00:52:47,440
Speaker 2: which is I mean, yeah, that sucks, but years, no,

884
00:52:47,800 --> 00:52:50,200
Speaker 2: for sure, that's a long time to do in the clink.

885
00:52:51,960 --> 00:52:54,840
Speaker 2: And then ken Lay he was convicted on ten counts,

886
00:52:55,239 --> 00:52:57,160
Speaker 2: but he wasn't able to be sentenced because he died

887
00:52:57,160 --> 00:53:00,560
Speaker 2: of a heart attack six weeks after being convicted, and

888
00:53:00,680 --> 00:53:02,680
Speaker 2: I think his conviction was vacated.

889
00:53:03,560 --> 00:53:09,680
Speaker 1: Yeah, Skilling now is out and works at an oil

890
00:53:09,719 --> 00:53:14,800
Speaker 1: and gas analytics startup. It seems that other people I

891
00:53:14,840 --> 00:53:16,520
Speaker 1: think we Yeah. I mentioned that fast I was on

892
00:53:16,600 --> 00:53:22,320
Speaker 1: the speaker circuit. The whistleblower. Ms Watkins was named Times

893
00:53:23,239 --> 00:53:26,279
Speaker 1: Person of the Year in two thousand and two, and

894
00:53:26,760 --> 00:53:30,640
Speaker 1: I believe is also now a paid speaker and executive

895
00:53:30,719 --> 00:53:34,759
Speaker 1: in residence at Texas State University. And then there was

896
00:53:35,120 --> 00:53:38,759
Speaker 1: a matter of because I was like, Olvia didn't get

897
00:53:38,800 --> 00:53:40,400
Speaker 1: to it. But I was like, well, surely there was

898
00:53:40,440 --> 00:53:45,319
Speaker 1: some sort of making it right for these people who

899
00:53:45,440 --> 00:53:49,560
Speaker 1: lost all this money right. And there were lawsuits that

900
00:53:49,719 --> 00:53:53,399
Speaker 1: came out and settlements that came out. Different people ended

901
00:53:53,480 --> 00:53:55,480
Speaker 1: up being paying different things. I think it was a

902
00:53:55,920 --> 00:54:01,080
Speaker 1: seven point two billion dollar settlement from Enroun. I believe

903
00:54:01,160 --> 00:54:03,840
Speaker 1: the banks were on the hook. I can't tell if

904
00:54:03,840 --> 00:54:05,080
Speaker 1: the banks were on the hook for some of that

905
00:54:05,320 --> 00:54:06,480
Speaker 1: or if it was a separate thing.

906
00:54:08,040 --> 00:54:10,600
Speaker 2: I don't know. I saw that they squeezed a total

907
00:54:10,680 --> 00:54:13,319
Speaker 2: of twenty billion out of Enron before they like let

908
00:54:13,400 --> 00:54:16,920
Speaker 2: it go, Okay, I don't know, but I did see

909
00:54:16,960 --> 00:54:19,640
Speaker 2: the banks were definitely on the hook just for being complicit.

910
00:54:19,880 --> 00:54:21,759
Speaker 2: I don't know if that was in addition though either.

911
00:54:22,320 --> 00:54:24,960
Speaker 1: Yeah, I think yeah. It says right here that the

912
00:54:25,040 --> 00:54:27,880
Speaker 1: bulk of the settlements, almost seven billion of it, came

913
00:54:27,920 --> 00:54:32,319
Speaker 1: from JP Morgan, Chase City Group, the Canadian Imperial Bank

914
00:54:32,480 --> 00:54:35,960
Speaker 1: of Commerce. Oh yeah, Lehman Brothers chipped in. Bank of

915
00:54:36,040 --> 00:54:40,240
Speaker 1: America chipped in, the Big five auditing firm Arthur Anderson.

916
00:54:40,280 --> 00:54:44,879
Speaker 1: Of course we talked about they chipped in. I think, well,

917
00:54:45,520 --> 00:54:46,840
Speaker 1: I don't see how they could have chipped in it

918
00:54:46,880 --> 00:54:47,840
Speaker 1: they went out of business, but.

919
00:54:48,280 --> 00:54:50,480
Speaker 2: I guess they chipped in before they went out of business,

920
00:54:50,760 --> 00:54:54,960
Speaker 2: all right. So you know, if you hear the story,

921
00:54:55,120 --> 00:54:57,840
Speaker 2: especially if you're used to us in our podcast, you

922
00:54:57,960 --> 00:55:00,600
Speaker 2: might be like, well, guys, you didn't really get to

923
00:55:00,680 --> 00:55:04,680
Speaker 2: the other side of the story. There is no other

924
00:55:04,840 --> 00:55:07,439
Speaker 2: side of the story. This is one of those rare

925
00:55:07,880 --> 00:55:12,160
Speaker 2: stories that is basically black and white. It was just

926
00:55:12,560 --> 00:55:17,080
Speaker 2: there's no redemption, there's no explaining it away, there's no

927
00:55:17,239 --> 00:55:20,959
Speaker 2: apologizing for it. It's just it was just as wrong

928
00:55:21,080 --> 00:55:24,040
Speaker 2: as it appears. So that's why we didn't include the

929
00:55:24,160 --> 00:55:25,560
Speaker 2: other side of the story in this one.

930
00:55:25,840 --> 00:55:28,640
Speaker 1: Yeah, I don't think there's anyone out there who's going

931
00:55:28,680 --> 00:55:29,759
Speaker 1: to bat for Enron.

932
00:55:29,640 --> 00:55:32,040
Speaker 2: It's there's somebody. There's somebody, and they will leave it

933
00:55:32,200 --> 00:55:33,319
Speaker 2: on our Apple.

934
00:55:33,400 --> 00:55:37,000
Speaker 1: Reviews right the totally will Ron didn't get a fair

935
00:55:37,080 --> 00:55:41,520
Speaker 1: shake from these times, totally neither be a Hitler or Satan.

936
00:55:42,520 --> 00:55:43,439
Speaker 2: You got anything else?

937
00:55:43,640 --> 00:55:44,439
Speaker 1: I got nothing else?

938
00:55:45,400 --> 00:55:47,680
Speaker 2: Well I don't have anything else either. If you want

939
00:55:47,680 --> 00:55:50,480
Speaker 2: to know more about Enron, go watch the Smartest Guys

940
00:55:50,520 --> 00:55:53,160
Speaker 2: in the Room. Definitely will leave you wanting more. And

941
00:55:53,239 --> 00:55:57,440
Speaker 2: there's plenty to read about, including some great contemporary articles

942
00:55:57,920 --> 00:56:00,120
Speaker 2: all over the Internet. And since I said con I'm

943
00:56:00,160 --> 00:56:03,120
Speaker 2: prairie instead of contemporaneous, it's time for listener mail.

944
00:56:06,600 --> 00:56:08,800
Speaker 1: This is a little wordy, but we don't often do

945
00:56:09,320 --> 00:56:11,759
Speaker 1: shout outs and tributes, but this was a really special one,

946
00:56:11,840 --> 00:56:15,000
Speaker 1: so we're doing it nice. Hey guys, this is from Gavin,

947
00:56:15,080 --> 00:56:19,120
Speaker 1: recent college graduate and history enthusiast, and Gavin says, I've

948
00:56:19,120 --> 00:56:22,160
Speaker 1: been listening since I was fifteen, over seven years now.

949
00:56:22,280 --> 00:56:25,120
Speaker 1: My mom was the one who introduced me to the show,

950
00:56:25,160 --> 00:56:27,719
Speaker 1: and we've both been listeners ever since. I'm pretty sure

951
00:56:27,760 --> 00:56:29,640
Speaker 1: she listens to every episode that you guys put out.

952
00:56:30,320 --> 00:56:32,319
Speaker 1: My mom was also the person who imparted a thirst

953
00:56:32,360 --> 00:56:35,719
Speaker 1: for knowledge and learning in me as a child. I've

954
00:56:35,760 --> 00:56:37,480
Speaker 1: had great many teachers in my life, and I'm very

955
00:56:37,520 --> 00:56:39,719
Speaker 1: thankful for them, but my mom has always been my

956
00:56:39,760 --> 00:56:42,440
Speaker 1: greatest encouragement and my role model as a student and

957
00:56:42,480 --> 00:56:45,600
Speaker 1: as a person. Over the past four years in college

958
00:56:45,600 --> 00:56:48,280
Speaker 1: and directly after, I got really busy, moved twelve hours

959
00:56:48,280 --> 00:56:51,040
Speaker 1: from home, and it meant I stopped listening to podcast

960
00:56:51,160 --> 00:56:52,120
Speaker 1: including you guys.

961
00:56:53,120 --> 00:56:53,360
Speaker 2: I know.

962
00:56:54,080 --> 00:56:56,520
Speaker 1: More importantly, I also lost touch with my mom. I

963
00:56:56,560 --> 00:56:59,279
Speaker 1: didn't completely ghost or anything, but I still did not

964
00:56:59,400 --> 00:57:01,200
Speaker 1: reach out to her nearly as much as I wanted

965
00:57:01,239 --> 00:57:04,000
Speaker 1: to or needed to. But often when I eventually would,

966
00:57:04,120 --> 00:57:06,000
Speaker 1: she would ask me if I listen to stuff you

967
00:57:06,000 --> 00:57:09,040
Speaker 1: should Know recently, and she'd have an episode to recommend,

968
00:57:09,080 --> 00:57:12,600
Speaker 1: because I think you'd really enjoy this one. Luckily, now

969
00:57:12,640 --> 00:57:14,960
Speaker 1: have a job where I'm having more flexible hours, and

970
00:57:15,080 --> 00:57:17,200
Speaker 1: over that time I've picked stuff you should Know back up,

971
00:57:17,800 --> 00:57:19,840
Speaker 1: re energize my love for knowledge, and learn that my

972
00:57:19,920 --> 00:57:22,440
Speaker 1: mom has given me that my mom had given me

973
00:57:22,560 --> 00:57:25,040
Speaker 1: years ago. All this to say, you guys mean a

974
00:57:25,080 --> 00:57:27,480
Speaker 1: lot to me and my mother, and I thank you

975
00:57:27,560 --> 00:57:29,720
Speaker 1: for that. You've helped me stay connected to her in

976
00:57:29,800 --> 00:57:31,440
Speaker 1: a way that I would not have been able to

977
00:57:31,520 --> 00:57:34,800
Speaker 1: do otherwise. I'd just like to take this chance to

978
00:57:34,880 --> 00:57:37,680
Speaker 1: thank my mom. I know you're listening, Mom, I know

979
00:57:37,760 --> 00:57:40,360
Speaker 1: we'll talk about this episode later, And thank you for

980
00:57:40,480 --> 00:57:43,520
Speaker 1: encouraging me and understanding that I love you even when

981
00:57:43,560 --> 00:57:47,200
Speaker 1: I'm not great at communicating it. Man, boy, this one's

982
00:57:47,240 --> 00:57:48,640
Speaker 1: really pulling at the heartstrings.

983
00:57:48,880 --> 00:57:49,080
Speaker 2: Yeah.

984
00:57:49,560 --> 00:57:51,080
Speaker 1: Every time I pick up a book or listen to

985
00:57:51,120 --> 00:57:53,720
Speaker 1: a podcast or write a paper, I think of you, Mom,

986
00:57:54,120 --> 00:57:56,360
Speaker 1: and I know that I always will. I love you,

987
00:57:56,680 --> 00:57:58,320
Speaker 1: And this is the only way I know how to

988
00:57:58,400 --> 00:58:02,960
Speaker 1: tell you properly. Gavin, you can pick up the phone

989
00:58:03,000 --> 00:58:06,959
Speaker 1: and say this stuff my friend, heasys back to you. Guys,

990
00:58:07,280 --> 00:58:09,240
Speaker 1: you got a great show. I hope we have many

991
00:58:09,320 --> 00:58:13,520
Speaker 1: more years of remaining learning and growing together. And that lovely,

992
00:58:13,680 --> 00:58:17,120
Speaker 1: lovely sentiment is from Gavin and Fayetteuilt, Tennessee.

993
00:58:17,600 --> 00:58:21,040
Speaker 2: That was amazing, Gavin. Hats up, Chuck. I totally get

994
00:58:21,120 --> 00:58:23,680
Speaker 2: why you chose that shout out to be the one

995
00:58:23,760 --> 00:58:24,480
Speaker 2: to break the rule.

996
00:58:24,720 --> 00:58:27,680
Speaker 1: Yeah, it should have been along Mother's Day, around.

997
00:58:27,480 --> 00:58:30,720
Speaker 2: Mother's Day, but well we can replay it around Mother's

998
00:58:30,800 --> 00:58:32,120
Speaker 2: Day first, select how about.

999
00:58:31,920 --> 00:58:34,160
Speaker 1: That instead, it's the the inrun episode.

1000
00:58:34,760 --> 00:58:37,840
Speaker 2: Right. If you want to be like Gavin and just

1001
00:58:37,920 --> 00:58:41,000
Speaker 2: be a super great person, but not request a shout out,

1002
00:58:41,160 --> 00:58:43,600
Speaker 2: just be a super great person, we want to hear

1003
00:58:43,840 --> 00:58:47,040
Speaker 2: from you. Also, while I'm thinking of it, go check

1004
00:58:47,080 --> 00:58:51,320
Speaker 2: out our social feeds. They used to suck, now they're great. Also,

1005
00:58:51,520 --> 00:58:52,800
Speaker 2: if you want to get in touch with this, like

1006
00:58:52,880 --> 00:58:55,320
Speaker 2: I said, you can hit us up via email at

1007
00:58:55,440 --> 00:59:00,320
Speaker 2: stuff podcast at iHeartRadio dot com. Do you Know.

1008
00:59:00,800 --> 00:59:03,640
Speaker 1: Stuff You Should Know is a production of iHeartRadio. For

1009
00:59:03,760 --> 00:59:07,920
Speaker 1: more podcasts my heart Radio, visit the iHeartRadio app, Apple Podcasts,

1010
00:59:08,040 --> 00:59:09,880
Speaker 1: or wherever you listen to your favorite shows.