Speaker 1: Welcome to Stuff you should Know, a production of I
Speaker 1: Heart Radio. Hey, and welcome to the podcast. I'm Josh,
Speaker 1: and there's Chuck and Jerry's here, and it's stuff you
Speaker 1: should know. We mean it, you should know this stuff
Speaker 1: because this is serious corporate mouthfeasance that I think it's
Speaker 1: probably not an American over the age of twenty walking
Speaker 1: around who doesn't know about this somehow, some way, to
Speaker 1: some degree. I know they teach about this stuff in
Speaker 1: business school. Um, it's been written on extensively, but I
Speaker 1: mean I didn't understand the ins and outs of it until, um,
Speaker 1: until I started researching this, and it's quite shocking. And
Speaker 1: that shocking thing that I'm talking about is the rise
Speaker 1: and fall of Enron, one of the greatest um swindles
Speaker 1: in corporate American history, maybe in corporate history in the world,
Speaker 1: definitely in corporate American history for sure. I'm really glad
Speaker 1: you picked this because I didn't know all the ins
Speaker 1: and outs either, because this is you know, when I
Speaker 1: was a young late twenties, early thirties something, didn't have
Speaker 1: a care in the world. Uh, And I finally watched
Speaker 1: the smartest guys in the room today. Yeah, Yeah, the
Speaker 1: documentary based on the book. UM, and we'll get to
Speaker 1: the authors and stuff. It was Peter Elkind and who
Speaker 1: was a co author, Bethany McClain. Okay, that was the
Speaker 1: lead author even Okay, I knew she wrote the original
Speaker 1: articles and Ford, so she co authored the book and
Speaker 1: she's in the documentary, as is Elkland, and it really
Speaker 1: is worth the watch. But just want to point out
Speaker 1: that this is an overview of the Enron scandal. It's
Speaker 1: pretty clear once you start poking around that this could
Speaker 1: be like a ten part series. Yeah, for sure. And
Speaker 1: there there probably is a podcast series out there that
Speaker 1: covered just in Ron. UM. So there's lots of sort
Speaker 1: of ins and outs that we won't be able to
Speaker 1: touch on, UM, but we can definitely give her the overview,
Speaker 1: which was the Enron was a corporation. Um. Originally it
Speaker 1: was a natural gas line pipeline operator. UM. But they quickly,
Speaker 1: well not quickly, UM, they got out of that business
Speaker 1: almost entirely. When certain people were hired and we'll we'll
Speaker 1: sort of get to all this in a minute too.
Speaker 1: When certain people were hired that basically said you know what,
Speaker 1: we don't we should even be in the pipeline industry.
Speaker 1: We should invent almost a new kind of industry, which
Speaker 1: is to use energy as financial instruments, and we should
Speaker 1: become a trading company that trades natural gas and eventually
Speaker 1: paper pulp and and electricity and you name it. Like,
Speaker 1: we'll get into all the things that they sort of
Speaker 1: pivoted to. But um in rounds started, I guess we
Speaker 1: should start at the beginning when they when Houston Natural
Speaker 1: Gas Company merged with a company called Enter North and
Speaker 1: they combined to form this large energy corporation in Texas,
Speaker 1: mainly natural gas. UH, and the chief executive of h
Speaker 1: n G at the time was a man named mckin
Speaker 1: or Kenneth Lay, who you might have heard of. Yeah,
Speaker 1: and if you haven't prepared to meet ken Lay several
Speaker 1: times across this episode. UM from the outset, I think, uh,
Speaker 1: Houston Natural Gas and Inner North, we're both profitable. But
Speaker 1: I saw that neither one of their um the companies
Speaker 1: really benefited from the merger, although it did expand their
Speaker 1: pipeline network. Really it just protected them from a hostile takeover.
Speaker 1: But it was just a just a standard gas company,
Speaker 1: you know, no big frills or anything like that. I
Speaker 1: think the first year it posted a fourteen million dollar loss.
Speaker 1: Put that in your uh, in your hat and smoke
Speaker 1: it later with a pin. Okay uh. In that the
Speaker 1: first year end Ron was around in it posted a
Speaker 1: four two million dollar loss. Just remember that for later, Okay. Yeah. Also,
Speaker 1: something else you should put in your hat for later
Speaker 1: is the fact that Kenneth Lay, the gentleman I mentioned
Speaker 1: who was the ZEO of Houston Natural Gas, was also
Speaker 1: a very very tight with the Bush family, originally the
Speaker 1: elder Bush and later on George W. As Governor of Texas,
Speaker 1: big donor to their causes politically, and they ended up
Speaker 1: having a very sort of you scratch my back, al
Speaker 1: scratch yours kind of relationship. Yeah, it's I mean like
Speaker 1: I just started twirling around over and over again out
Speaker 1: of anger, like multiple times throughout the documentary because they
Speaker 1: really go into um some good details about that. But
Speaker 1: the upshot of the whole thing is George H. W
Speaker 1: and George W. Bush Um would not probably have been
Speaker 1: able to help Endron out as much as they did
Speaker 1: had it not been for, of course, Ronald Reagan and
Speaker 1: the sweeping deregulations that occurred in starting in the eighties.
Speaker 1: There was just a spirit of deregulation, which was this
Speaker 1: Ronald Reagan said, and they quoted in the documentary. Government's
Speaker 1: not the solution to our problems. Government is the problem.
Speaker 1: And there was this idea that was really huge in
Speaker 1: the eighties, um that if you got government out of
Speaker 1: the way, competition was going to drive innovation, was going
Speaker 1: to lower prices, was going to benefit society in myriad ways.
Speaker 1: That is not untrue. The problem is when you deregulate
Speaker 1: fully and just basically say we're checked out from now
Speaker 1: on until something really bad happens. Something bad always happens.
Speaker 1: That's the problem with deregulation in the eighties, not that
Speaker 1: there's am with deregulation, that it was done incorrectly, like
Speaker 1: it seems to be every single time. Yeah, I mean
Speaker 1: Reagan is also in the documentary quoted as talking about
Speaker 1: the magic of the marketplace, and uh, we've talked about
Speaker 1: this over and over on the show. And this is
Speaker 1: not um an attack on conservatism, but deregulation in in
Speaker 1: the marketplace and letting the free market decide things is
Speaker 1: one of the core tenets of conservatism generally. And what
Speaker 1: we've always kind of hammered home year after years, And
Speaker 1: you said it in one way, but I'll satting another
Speaker 1: is it never takes into account humans are the ones
Speaker 1: that are operating these systems. And when you have money,
Speaker 1: lots and lots of money, and you have humans operating systems,
Speaker 1: there are inevitably gonna be greedy humans with so much
Speaker 1: hubrists that they sell their souls to make money. And
Speaker 1: that's that's what happens every single time. Yet it's still
Speaker 1: lessons are still not learned that that there are certain
Speaker 1: kinds of humans and they always seems to be they
Speaker 1: always seem to be the ones in charge here of
Speaker 1: these systems. They will take advantage of them to the
Speaker 1: detriment of the little guy and the little lady. And
Speaker 1: that is would happened with en Ron. Yeah, And I
Speaker 1: don't know if it's always like they're not taking into
Speaker 1: account human greed. I think most of the people who
Speaker 1: are powerful enough to deregulate UM in federal energy regulations
Speaker 1: UM don't really care. In a lot of cases, they
Speaker 1: know that they're going to make a boatload of money
Speaker 1: by the time the thing really kind of blows up
Speaker 1: sometime down the line. I think it could be either one,
Speaker 1: but the there was a big sea change in UM,
Speaker 1: a big change to regulation. The Federal Energy Regulatory Commission said, hey, um,
Speaker 1: you can now buy and sell gas natural gas UM
Speaker 1: from any seller anywhere in the United States. You don't
Speaker 1: have to just buy and sell within your state. And
Speaker 1: that opened up an entirely new market and all of
Speaker 1: a sudden, you can make a lot more money moving
Speaker 1: this stuff around. But like you said, they figured out
Speaker 1: and run, you can make even more money by selling
Speaker 1: this stuff as commodities UM and trading on like futures
Speaker 1: and turning them into financial instruments, not actual just natural
Speaker 1: gas or oil or electricity, but the concepts of them,
Speaker 1: the right to sell it or buy that sometime down
Speaker 1: the road. And that changed absolutely everything. Yeah, and this
Speaker 1: is when things when you get into finance like this.
Speaker 1: My it's not that my eyeballs glaze over. It just
Speaker 1: becomes almost uh and I say almost not real because
Speaker 1: it's it is kind of not real. It's it becomes
Speaker 1: a form of gambling in a way. And that's very
Speaker 1: much what happened to en Ron in a lot of ways.
Speaker 1: And you'll you'll kind of see here and there throughout
Speaker 1: the episode. UM. But they as a company UM. After
Speaker 1: that eight four s Jean made a very faithful decision
Speaker 1: of their own in nine nine, just a few years later,
Speaker 1: when they got a consulting firm on board Mackenzie and Company,
Speaker 1: in particular consultant for that company named Jeffrey Skilling UH
Speaker 1: to create what they called the Gas Bank, which was
Speaker 1: basically like I said earlier, like, hey, why don't we
Speaker 1: just be an intermediary between buying and selling of gas?
Speaker 1: And it was going so well that two short years
Speaker 1: later Skilling left there and Uh went to work full
Speaker 1: time at en Ron. Oh sure, and eventually working his
Speaker 1: way up to the CEO of that company. Yes, so
Speaker 1: UM he was he but for the most part he
Speaker 1: was the right hand man, but essentially co CEO with
Speaker 1: ken Ley, who I think took him on as a protege.
Speaker 1: And Jeffrey Skilling was the one who said, let's set
Speaker 1: up this market UM. And he also transformed the company's culture.
Speaker 1: One of the things he came him up with was
Speaker 1: um the idea that every year they should review and
Speaker 1: rate every employee, and the bottom ten percent of employees
Speaker 1: should be fired. So every year he was planning on
Speaker 1: firing ten percent of their workforce. About two thousand people
Speaker 1: every year. And the reason he was doing this is
Speaker 1: because he's saying, we can do better. We can hire
Speaker 1: the best and the brightest, We'll replace those people with
Speaker 1: much better people, and then the ones who are doing
Speaker 1: really well now we'll get moved to the back and
Speaker 1: we'll just constantly be improving on the people that were hiring.
Speaker 1: It makes sense in a really Machia Valley and kind
Speaker 1: of way, but it's also psychotics as well. Yeah, And
Speaker 1: the way I understood it from the documentary, it wasn't
Speaker 1: just like regular upper management reviews of the people that
Speaker 1: that that report to them, but it was all the
Speaker 1: employees rating one another like within their department. Isn't that right?
Speaker 1: That's what I took it as too. So, I mean,
Speaker 1: you don't have to like be a Sue Sayer to
Speaker 1: see where that heads when uh, And it certainly creates
Speaker 1: competition if that's what they're all about with uh, you know,
Speaker 1: the sort of the charter of the company creating more
Speaker 1: competition by deregulating. They sort of did the same thing
Speaker 1: within the ranks and created a very I mean I've
Speaker 1: seen it described everywhere as uh, it's just overly macho
Speaker 1: and testosterone fueled UM. It seems like the traders there
Speaker 1: were uh were hired and kept on that were especially aggressive.
Speaker 1: And there are interviews in the documentary about about some
Speaker 1: of these men who were traders that were like, you
Speaker 1: would uh cut the throat of the guy next to
Speaker 1: you on the trading floor, your fellow employee if you
Speaker 1: felt like you could make a few extra bucks. Yeah,
Speaker 1: and that was very much encouraged, not just by Jeffrey Skilling,
Speaker 1: but ken Leigh had a history of UM at the
Speaker 1: very least turning a blind eye, if not actively encouraging
Speaker 1: people to break the law. Um you immoral stuff that
Speaker 1: may or may not have been legal, all in the
Speaker 1: interest of maximizing profits. Like if you were making money
Speaker 1: and you got in trouble, you didn't get fired because
Speaker 1: you made money for the company. That's all that mattered
Speaker 1: was making money for the company. So in that sense,
Speaker 1: Jeffrey Skilling was a really great protegee for Kenley. But
Speaker 1: he was like ken Lay on steroids, UM and I
Speaker 1: get the impression. And Kenley has always or back in
Speaker 1: the day, he was a master at presenting this really
Speaker 1: laid back, almost um detached persona. But if you watch
Speaker 1: the documentary and you read about him, you really get
Speaker 1: the impression that he knew exactly what outcome was ten
Speaker 1: steps down the road by just nudging this thing over here,
Speaker 1: nudging that thing over there, all with plausible deniability, but
Speaker 1: at the same time presiding over this incredibly complex, complicated,
Speaker 1: masterful machination um that was all dedicated to the service
Speaker 1: of making money for by by whatever means possible. Yeah,
Speaker 1: and and Lay. I mean, the reason the documentary is
Speaker 1: called the Smartest Guys in the Room is because I
Speaker 1: think unequivocally everyone would admit that Ken Lay and Jeffrey
Speaker 1: Skilling and uh, we should introduce you to a younger
Speaker 1: recruit named Andrew fast Al who was a key player
Speaker 1: eventually becoming the CFO and was up to all kinds
Speaker 1: of shenanigans. But these were brilliant guys with amazing ideas
Speaker 1: and a lot of the ideas that they had for
Speaker 1: this company. We're really good and ahead of their time.
Speaker 1: But they had the notion that you should be able
Speaker 1: to trade and make money off of great ideas and
Speaker 1: not necessarily the results of those great ideas. Because time
Speaker 1: and time again, as you'll see as we tell this story,
Speaker 1: these ideas were not making actual money, maybe because some
Speaker 1: of them were ahead of their time, but that didn't
Speaker 1: matter because they had way very creative ways to hide
Speaker 1: those debts and losses. And that's that's the whole sort
Speaker 1: of followed in ron Is is wrapped up in that statement.
Speaker 1: But these are all really really smart guys, and uh,
Speaker 1: they were really really good at making money. And maybe
Speaker 1: we should take a break there. It's a nice little
Speaker 1: set up, and we'll come back and talk a little
Speaker 1: bit more about their lobby to deregulate. And then some
Speaker 1: of the early shenanigans right after this a large sk
Speaker 1: as watch sks you should know. Okay, So after about
Speaker 1: six years after that big deregulation from Firk that said
Speaker 1: you can buy gas and sell it at wherever in
Speaker 1: the country. That opened up a huge market, there was
Speaker 1: another or watershed deregulate deregulation UM that that reverse an
Speaker 1: act that went back to nineteen thirty five, the Public
Speaker 1: Utilities Holding Company Act PUKA. I love that one that
Speaker 1: said if you UM are generating and selling electricity, you
Speaker 1: are a local utility and we're going to regulate you
Speaker 1: like you are providing the life blood of America. Because
Speaker 1: electrical utilities provide the lifeblood of America and have since
Speaker 1: long before nineteen thirty five. And in ninete they managed
Speaker 1: to get that reversed and now all of a sudden,
Speaker 1: anybody could buy an electric utility. And Enron definitely jumped
Speaker 1: on that. Yeah, for sure, they their lobby UH was
Speaker 1: strong to put up mildly, they hired lobbyists to lobby
Speaker 1: different states. In those states, as no surprise, ended up
Speaker 1: getting millions of dollars flowing back towards en Ron UM.
Speaker 1: I think they hired lobbyists for at least thirty seven states.
Speaker 1: They also helped overturn along that said the military has
Speaker 1: to buy power UM from local utilities, and they said,
Speaker 1: now let's open that back up UM pretty soon, and
Speaker 1: Ron got its twenty five million dollar contract for supplying
Speaker 1: electricity to Fort Hamilton's in Brooklyn. And these are just
Speaker 1: I mean, twenty million ends up being peanuts in the
Speaker 1: grand scheme. But these are just examples as they sort
Speaker 1: of ramped up to their schemes of how they deregulated
Speaker 1: or lobbied to get things deregulated such that it was
Speaker 1: allowed to happen. Right, And one of the things one
Speaker 1: of the schemes that got the attention of the entire country.
Speaker 1: UM in two thousand, two thousand one, UM was an
Speaker 1: electrical scheme in California. California had undergone its own electrical
Speaker 1: deregulation power deregulation, but it had had adopted this weird
Speaker 1: patchwork compromise. Is UM law or set of laws that
Speaker 1: just had looped loopholes you could drive a truck through,
Speaker 1: and that we're just really created all sorts of legal
Speaker 1: gray areas. And so rather than just kind of like
Speaker 1: here they're biting around the edges seeing what they could do, instead,
Speaker 1: the energy traders at UM enron UM started figuring out
Speaker 1: how to move energy out of the state, wait for
Speaker 1: the state to be like, hey, we need some energy,
Speaker 1: and move it back at incredibly inflated prices. UM. They
Speaker 1: would purposefully UM take electrical utilities that they owned offline
Speaker 1: to generate more demand, a spike in demand, and so
Speaker 1: they could raise prices again, and they actually basically crippled California.
Speaker 1: I think I saw that California had UM a couple
Speaker 1: dozen blackouts in six months after that deregulation. After Enron
Speaker 1: started coming in and messing with stuff. Whereas the six
Speaker 1: months before deregulation they had had one blackout. So if
Speaker 1: you watch the documentary and you listen, you know, you
Speaker 1: read some other sources about it. This was an entirely
Speaker 1: fabricated um a scarcity of electricity. There's plenty of it,
Speaker 1: and run just figured out that they could kind of
Speaker 1: pull this lever and that lever and charge way more
Speaker 1: by creating this this fake scarcity. Yeah. Uh, and by
Speaker 1: pulling a lever like literally sometimes they called up a
Speaker 1: power company, a power plant and said pull the lever
Speaker 1: to the off position, and they have them on tape.
Speaker 1: You know, they played this in the documentary. Well they'll
Speaker 1: they called one in Las Vegas and said, hey man,
Speaker 1: can you take this thing offline, uh for a few
Speaker 1: hours and just just make something up? Because of rolling
Speaker 1: blackout meant big money, um, all of a sudden, California
Speaker 1: again was was buying their own energy back at a
Speaker 1: higher rate. And Governor Gray Davis at the time, and
Speaker 1: this is you know, I'm not like giving some full
Speaker 1: throated endorsement to any um effectiveness of Gray Davis as
Speaker 1: a governor because I really don't know, but he definitely
Speaker 1: was sort of left holding the bag and scratching his
Speaker 1: head like what's going on here? Like We've got plenty
Speaker 1: of energy, and it just all through the documentary people
Speaker 1: are saying like this just isn't adding up in California,
Speaker 1: and some of those tapes that they play of these traders,
Speaker 1: like there was that that natural, uh wildfire that broke
Speaker 1: out that jeopardize one of the pipelines, and these guys
Speaker 1: are on, you know, on tape on the phone with
Speaker 1: each other saying burn, baby, burn, because that's good for
Speaker 1: business if it knocks something offline. And is you know,
Speaker 1: making laughing at like uh, you know, old Grandma's like
Speaker 1: sweating in the summer heat because they can't get air conditioning,
Speaker 1: like the most vile, reprehensible kind of stuff in the
Speaker 1: name of making the all my mighty dollar that you
Speaker 1: could imagine. What's also interesting is they don't really go
Speaker 1: into detail about it, but it's um. It appears to
Speaker 1: have also been a coup to get rid of Gray
Speaker 1: Davis and replace him with Arnold Schwarzenegger because ken Lay
Speaker 1: held a meeting at the Peninsula Hotel in Los Angeles,
Speaker 1: UM and he invited Arnold Schwartzenegger. This was long before
Speaker 1: Arnold Schwartzenegger was known to have had like real political aspirations.
Speaker 1: He wasn't governor yet wasn't running for governor over a
Speaker 1: problem that Enron created. It was like that level of
Speaker 1: In addition to also just making billions and billions of
Speaker 1: dollars by strangling the state, they also managed to replace
Speaker 1: the executive of the state as well to somebody who
Speaker 1: is much more friendly to them. Yeah, and get rid
Speaker 1: of in the Uh. Of course he didn't like knock
Speaker 1: him off or anything. But in California you can you
Speaker 1: can never recall. It seems to come up every I
Speaker 1: don't know twelve years or so where Californians aren't happy
Speaker 1: with the governor. And so if recall vote passes, you
Speaker 1: can have a have just an election out of nowhere,
Speaker 1: uh and replace that governor. UM. While this is going on,
Speaker 1: you know, Ken Lay stands on a stage and says,
Speaker 1: we're making money in spite of California, not because of California.
Speaker 1: So just lying through their teeth on stage to their shareholders. Uh.
Speaker 1: And all. You know, all these little schemes had little nicknames,
Speaker 1: the one where they got energy out of California just
Speaker 1: to make them buy it. Back was called Ricochet. There
Speaker 1: was one called death Star, and they're on tape like
Speaker 1: joking about like, hey, let's have a nice friendly name
Speaker 1: for this one, like death Star. So they're just they're
Speaker 1: playing games with people's livelihood essentially, and lives you can
Speaker 1: make a case as well. Um, So three of those
Speaker 1: traders played guilty. Jeffrey Richter, John Forney, and Timothy Belden
Speaker 1: were three of those traders who manipulated California's energy market UM,
Speaker 1: costing the state between forty and forty five billion dollars
Speaker 1: in retrospect of unnecessary UM electrical prices and costs. All Right,
Speaker 1: so in Ron is doing great, they're making a lot
Speaker 1: of money. Um, And we should point out that this
Speaker 1: is just you know, Ricochet was just one little scheme.
Speaker 1: They had all sorts of schemes along the way to uh,
Speaker 1: well we'll we'll get to those, um. Between two thousand one,
Speaker 1: like as far as the stock market world was concerned,
Speaker 1: and run was a darling. Uh Fortune named them I
Speaker 1: think six years straight America's most innovative company, every single
Speaker 1: year in a row. But what was going on behind
Speaker 1: the scenes is these ideas and these investments and uh,
Speaker 1: schemes that they had. You know, some of them made money,
Speaker 1: but a lot of them didn't make any money at all,
Speaker 1: and they just became really really good at hiding that fact. Yes,
Speaker 1: that was the whole thing. Like they were very innovative.
Speaker 1: They were ahead of their time in a lot of ways.
Speaker 1: Like they got into building broadband high speed internet access
Speaker 1: in like two thousand or two thousand one something like that,
Speaker 1: and this was I looked it up. It wasn't until
Speaker 1: two thousand seven that half of all US Internet users
Speaker 1: had broadband, so this was way ahead it's time. And
Speaker 1: then also they also got into the video on demand market.
Speaker 1: They tried to partner with Blockbuster um and this was
Speaker 1: these things were basically like the progenitor of Zoom and Netflix.
Speaker 1: But these guys were trying this in two thousand and
Speaker 1: two thousand one, so it's visionary. The problem is they
Speaker 1: were ahead of their time. The infrastructure wasn't there that that,
Speaker 1: the I think the customer base even wasn't there. So
Speaker 1: there's stuff that they were doing wasn't making money, which
Speaker 1: is not bad in and of itself. What was bad
Speaker 1: was when they were covering it up and the schemes
Speaker 1: that they used to cover it up. Are so um
Speaker 1: involved in complex but also so fascinating that they would
Speaker 1: they would have the audacity to do this because there's
Speaker 1: no there's no fudging it, there's no like, oh, this
Speaker 1: is kind of questionable. This was just fleecing all of
Speaker 1: their investors, all of their employs, fleecing the entire world.
Speaker 1: There was a handful of executives at and Ron who
Speaker 1: were fleecing the entire world to the tune of tens
Speaker 1: intens in tens of billions of dollars every year in
Speaker 1: revenue that apparently didn't actually exist. Yeah, it's pretty clear
Speaker 1: that at certain point they lost their way and that
Speaker 1: they weren't as concerned about being a company that made money,
Speaker 1: and the only thing that mattered was that as a
Speaker 1: corporation was that they kept their stock price high because
Speaker 1: that's where that's where all the money was they had
Speaker 1: as long as they could keep that stock price high
Speaker 1: and keep shareholders, especially their employees, encouraging their employees to
Speaker 1: get you know, get paid in company stock, like use
Speaker 1: every penny of your paycheck that you can to buy
Speaker 1: this company's stock. Because and en Ron stock was was soaring,
Speaker 1: it was doing really, really well, and all the while
Speaker 1: it was you know, it's called pump and dump. They
Speaker 1: would drive up the value of their stock and then
Speaker 1: the upper echelon and you see this time and time
Speaker 1: again in the corporate world, the CEOs and the CFOs
Speaker 1: and the upper management of the one who then sell
Speaker 1: off their stock and walk away with you know, some
Speaker 1: of them hundreds of millions of dollars. Uh. And you
Speaker 1: know some of the schemes that you talked about was
Speaker 1: they found ways to move debt around. Uh. We mentioned
Speaker 1: Fastyle was one of their hires, and he was hired
Speaker 1: I think his late twenties, early thirties, and quickly rose
Speaker 1: up the ranks to CFO. And he started a company
Speaker 1: called L s M, which stood for Leah, Jeffrey and Matthew,
Speaker 1: which are named after his wife and kids. Sort of ironically.
Speaker 1: It was like such a sweet tribute to them. And
Speaker 1: the only purpose of this company was to have all
Speaker 1: kinds of sort of little sub companies that would absorb
Speaker 1: the debt and where they could move debt around from
Speaker 1: en Ron to make it invisible to the shareholders, so
Speaker 1: they could prove on a balance sheet that you had
Speaker 1: this money coming in. And the way of you know,
Speaker 1: people in vesting in the company, but then you're hiding
Speaker 1: the losses and so everyone thinks you're doing great. So
Speaker 1: the way that I saw it explained, Investipedia actually has
Speaker 1: a couple of really good articles about this that are
Speaker 1: just wonky enough to like understand it, but also not
Speaker 1: so wonky that you're just like, I have no idea
Speaker 1: what I'm reading um. And the way they put it
Speaker 1: was basically, if Enron had, like a good example is
Speaker 1: they build a power station in India that was a
Speaker 1: huge loss. It was just a generally bad idea, and
Speaker 1: they sunk billions and millions of dollars into this power
Speaker 1: station and without realizing any money whatsoever. I think they
Speaker 1: abandoned it before it even came online. They would take
Speaker 1: this and sell it to one of these special purpose
Speaker 1: vehicles or special purpose entities, which was a tangentially related
Speaker 1: company that the company Enron was not on the hook
Speaker 1: to pay off its debts for right, and they would
Speaker 1: take that, and then that special purpose vehicle would go
Speaker 1: out and try to sell it, sell that terrible toxic
Speaker 1: asset um, and they would use Enron stock as the collateral. Right.
Speaker 1: And because Enron stock was just through the roof. Everybody
Speaker 1: was saying, sure, we'll give you a loan. Sure we'll
Speaker 1: give you some money for that terrible idea of a
Speaker 1: power plant that you abandoned because you're backing in up
Speaker 1: with Enron stock. And as long as the time that
Speaker 1: that stock came do was far enough away, and as
Speaker 1: long as Enron stock kept going up, this house of
Speaker 1: cards could be held together. But that's not at all
Speaker 1: how it worked. The upshot of it is that they
Speaker 1: could take toxic assets, move them off of their books
Speaker 1: to these special purpose entities, and then they would take
Speaker 1: the money that the special purpose entities would go borrow
Speaker 1: against like that that toxic asset, and they would count
Speaker 1: that on their books as revenue. So they were hiding debt,
Speaker 1: boosting their revenues to just ridiculous um heights for stuff
Speaker 1: that just should not have been counted as revenue. Yeah,
Speaker 1: and just to be clear, they didn't invent the special
Speaker 1: purpose entity. And an SPE is not some evil creation
Speaker 1: in and of itself. It is uh, it's an entity
Speaker 1: that a lot of corporations and businesses use. Where it's
Speaker 1: just it's sort of like has a very um narrow
Speaker 1: purpose in that they create this thing when they might
Speaker 1: use it to purchase an asset or move an asset,
Speaker 1: so the company as a whole may not be on
Speaker 1: the hook. Uh if anything goes wrong. It sort of
Speaker 1: mitigates risks. So it's not some evil purpose in and
Speaker 1: of itself. But they were manipulating these such and starting
Speaker 1: all of these things under Fastiles guidance with his LSM
Speaker 1: sort of sub corporation, and eventually l s M two.
Speaker 1: I think, uh that they were making I think they
Speaker 1: hit ninety dollars in August of two thousand. Uh, market
Speaker 1: cap of the whole company, it's seventy billion, which made
Speaker 1: it the seventh largest publicly traded company any in the
Speaker 1: world at that point. Yeah. Um, so that's a market
Speaker 1: cap of seventy billion. Remember in the first year that
Speaker 1: posted losses of fourteen million. Within fifteen years, they posted
Speaker 1: revenue of one hundred billion dollars billion dollars in fifteen in. Yeah,
Speaker 1: in sales in fifteen years. That's what happened to that
Speaker 1: company when they brought Jeffrey Skilling on board. Jeffrey Skilling
Speaker 1: brought Andrew fast Ole onboard, and people just started going
Speaker 1: nuts making money anyway they could. Yeah, The other thing
Speaker 1: we should mention too is another uh sort of slick trick,
Speaker 1: is that Skilling's idea and they got approval and I
Speaker 1: wasn't clear how or where this approval comes from, but
Speaker 1: to use something called mark to market accounting, which is
Speaker 1: basically when you can where you can rate the financial
Speaker 1: health of your company based on uh, that's the arise,
Speaker 1: but just on a future earnings basically and not necessarily
Speaker 1: what they're worth that day, so and to anticipated future
Speaker 1: value instead of its purchase costs. UM, did you get
Speaker 1: how that they were approved because it seemed like they
Speaker 1: were all like super psyched that they got approval for
Speaker 1: mark a market accounting. Yeah, that would have been the
Speaker 1: sec the Securities and UM Securities Exchange Commission, UM, who
Speaker 1: would have given that approval. And just like a special purposentity,
Speaker 1: mark a market accounting is it's totally legitimate, it's recognizes
Speaker 1: generally accepted accounting principle. But there's a lot of room
Speaker 1: for temptation to just basically say this deal with Blockbuster, Um,
Speaker 1: we haven't made a penny off of it, but we
Speaker 1: can we can cite the future earnings from it now
Speaker 1: now that we booked this deal and I think it
Speaker 1: will probably we worth a billion dollars just a total
Speaker 1: gas And you're not supposed to do it like that.
Speaker 1: You're supposed to do it much more realistically and legitimately.
Speaker 1: But they had enough leeway that they were able to
Speaker 1: take mark to market accounting and use it to their
Speaker 1: to their benefit in that way, and in doing that,
Speaker 1: they pumped up their their revenues through the roof. Like
Speaker 1: the deal would just be inked. They wouldn't have seen
Speaker 1: a penny from it, and they would add it to
Speaker 1: their balance sheets as revenue. Yeah, it would become part
Speaker 1: of the ledger before like a real penny was made exactly,
Speaker 1: and sometimes the pennies weren't made. And if the pennies
Speaker 1: weren't made, don't forget, those debts would be moved to
Speaker 1: a special purpose entity so they wouldn't have these toxic
Speaker 1: assets on their books, even though they very much owned
Speaker 1: and were indebted for these toxic assets. Still, yeah, I mean,
Speaker 1: like I said, these were brilliant people and like they
Speaker 1: had all their bases covered except for the fact that
Speaker 1: we all know that a house of cards will eventually fall. Uh.
Speaker 1: It's that hubrist thing that just blinds people into thinking
Speaker 1: that it will always like when that when that kind
Speaker 1: money is rolling in. I think it blinds certain people
Speaker 1: so much that they don't understand a who it's hurting
Speaker 1: at the time, or they don't care, or they think
Speaker 1: it's always going to be rolling in like this, or
Speaker 1: they think, hey, I'm gonna get mine now. Because there
Speaker 1: were people in in Ron I mean there we'll talk
Speaker 1: about whistleblower that eventually sort of came out and a
Speaker 1: journalists who are poking around, But there were people that
Speaker 1: started looking at this company, the darling of Wall Street
Speaker 1: and saying something's not right here, like something's not adding up,
Speaker 1: Like you can't even explain how your cash flows through
Speaker 1: your business in a way that makes any kind of
Speaker 1: coherent sense. And anytime they were confronted with this Skilling
Speaker 1: and the his cronies would they would get very haughty
Speaker 1: about it and just be like, well, what do you
Speaker 1: mean we can't explain that? Like, sure we can, it's
Speaker 1: really easy. You just can't understand. You just can't understand.
Speaker 1: It makes your blood boil. Let's let's take a breaking
Speaker 1: the I'm back and talk about the downfall. How about that? Yeah,
Speaker 1: the downfall? Sk as skof should know, okay, Chuck. So
Speaker 1: one question that people might be asking is how were
Speaker 1: these guys allowed to use this accounting and get away
Speaker 1: with it? Why were people even investing in buying shares
Speaker 1: of this this company UM when it was just so
Speaker 1: fraudulent and and just ridiculously fraudulent to not even subtly fraudulent.
Speaker 1: And the answer is the the company was such a
Speaker 1: Wall Street darling that financial analysts would not understand what
Speaker 1: they were hearing on these earnings reports, but would still
Speaker 1: give it a stamp of like buy um. The other
Speaker 1: thing that really really helped was the banks. Wall Street
Speaker 1: banks were very much complicit in this as well. And
Speaker 1: then the thing that helped the most was Arthur Anderson,
Speaker 1: the venerable eighty plus year old um accounting firm. Yeah,
Speaker 1: that was the third party accountant to Enron. Was so
Speaker 1: cozy that they actually hired all of Enron's internal auditing staff,
Speaker 1: made them Arthur Anderson's staff, and then opened a hundred
Speaker 1: and fifty person office for Enron in Enron's own in
Speaker 1: Enron's headquarters, and Arthur Anderson office in Enron's headquarters made
Speaker 1: up a former Enron auditors. That's who was watching the show,
Speaker 1: and so Arthur Anderson had such a good reputation that
Speaker 1: because they were signing off on this, because the Wall
Speaker 1: Street analysts are saying yeah to buy, people were just like,
Speaker 1: I'm buying, I'm buying. And it kept the stock prices
Speaker 1: going up and up and up because nobody was paying
Speaker 1: attention enough. Yeah, there was one person in the dock
Speaker 1: that said that kind of crystallize it, which was like,
Speaker 1: I'm paraphrasing, but he was talking about the fact that
Speaker 1: when this kind of stuff pops up in corporations, like,
Speaker 1: it's not like this. The in runs are everywhere. There
Speaker 1: is all kinds of mouthfeasance, for sure in the corporate world.
Speaker 1: But he basically said, somewhere along the way, it doesn't
Speaker 1: get this big because a legal team says you can't
Speaker 1: do this, or your accountants say you can't do this,
Speaker 1: or the bank say we can't get involved in this.
Speaker 1: And in Ron seemed to be one of those sort
Speaker 1: of unicorns where every person along the way just zip
Speaker 1: their mouth shut even though the numbers weren't adding up,
Speaker 1: and was complicit in this right um. And there was
Speaker 1: a trader that was interviewed in the documentary who said
Speaker 1: like it was ironic that um and Ron's slogan was
Speaker 1: asked why, like why why does something happen like that?
Speaker 1: Why can't we do it that way? And that this
Speaker 1: trader said, I didn't ask myself why, I because I
Speaker 1: didn't want to know. I suspected things were weird or ryan.
Speaker 1: I just didn't want to know because it was my job.
Speaker 1: I was making tons of money. And I think you
Speaker 1: could probably get that excuse out. It's just about anybody
Speaker 1: who was complicited in this large or small um. But
Speaker 1: Arthur Anderson that was the one that really really helped
Speaker 1: things along. And as we'll see, they didn't manage to
Speaker 1: survive the scandal. Yeah, they were Oh man, there was
Speaker 1: that one part of the documentary where they were talking
Speaker 1: about uh fast Ols, you know, shell companies, and he
Speaker 1: was in a meeting that was secretly taped and they're
Speaker 1: basically like, well, wait a minute, it looks like you're
Speaker 1: on the buying and selling sides of these transactions. And
Speaker 1: he was like, yeah, basically, but I've always got Ellen
Speaker 1: Jay's interest at heart, and the whole time he's skimming money.
Speaker 1: And they believed that skilling and lay knew that, like, hey,
Speaker 1: I'm sure that fast Ours is skimming money off the
Speaker 1: top for himself, but who cares because this guy is
Speaker 1: taking care of business for us exactly. And I think
Speaker 1: he skimmed about thirty five million dollars for himself from
Speaker 1: he stole from Mron and they looked the other way
Speaker 1: because the stuff he was doing was so unethical, so
Speaker 1: illegal that he basically earned it as far as they
Speaker 1: were concerned to have his hand in the in the
Speaker 1: cookie jar like that. So, um, I think you kind
Speaker 1: of mentioned there were some people who were like, wait,
Speaker 1: what's going on here. One of the first people was
Speaker 1: Bethanie McClain, the journalists who ended up writing the Smartest
Speaker 1: Guys in the Room. She is awesome. She started out
Speaker 1: writing a story for Fortune magazine back in March of
Speaker 1: two thousand one titled is Enron Overpriced? And she was
Speaker 1: one of the first people to publicly say how is
Speaker 1: Enron making its money? But she wasn't the first to
Speaker 1: hit on this. Um. There's another guy named Jim Chanos
Speaker 1: of um Kinkos um Securities, I think maybe, and I
Speaker 1: think he's in the documentary, but he started shorting Enron
Speaker 1: in two thousand because he noticed very simply their cost
Speaker 1: of capital, so the cost of doing business was more
Speaker 1: than the return on investment, which automatically means that they
Speaker 1: were not a profitable company, which totally was contradicted by
Speaker 1: all of their earnings reports and filings. And he saw
Speaker 1: this and he said, this is this is this is
Speaker 1: not right, and I'm going to start making money off
Speaker 1: of the future downfall of this company and made hundreds
Speaker 1: and hundreds of millions of dollars shorting and Ron stock
Speaker 1: starting in two thousand. Yeah. The whistle blower two was
Speaker 1: um An executive. Main name Sharon Watkins, and she pops
Speaker 1: up a lot in the documentary obviously is key to
Speaker 1: the story. Uh. She didn't whistle blow while this was
Speaker 1: all going on. It was sort of after the ship
Speaker 1: started sinking. Uh. But we'll talk a little bit about
Speaker 1: how that all happened where she ended up. Um but
Speaker 1: what happened in August one. Uh Skilling had replaced lay
Speaker 1: as CEO in February of that year, and in August
Speaker 1: fourte Skilling out of nowhere, and he had just taken
Speaker 1: the reins, you know, a handful of months before he
Speaker 1: uh Skilling quits out of nowhere, he resigns. Uh, he
Speaker 1: stided personal reasons, And what was going on was the
Speaker 1: you know, the Titanic sprung a leak, and as they
Speaker 1: described in the documentary, he was one of the first
Speaker 1: rats to to try and get off the sinking ship. Yeah.
Speaker 1: And it's like, if you are a CEO of a
Speaker 1: huge company, you don't just leave like that. That is
Speaker 1: an enormous red flag. There's like a whole process and
Speaker 1: procedure for finding your replacement, grooming them, introducing him to
Speaker 1: the to the rest of the world. Um, you don't
Speaker 1: just leave like that. And that was such a red
Speaker 1: flag that that whistle blower, UM, what's her name is,
Speaker 1: Sharon Watkins. She um wrote an anonymous letter Delay basically saying, Hey,
Speaker 1: there's a lot of fishy stuff going on around here,
Speaker 1: and now that Skilling suddenly departed, Um, like everyone's going
Speaker 1: to start having questions in this whole house of cards
Speaker 1: is going to fall and um, Lay apparently didn't do
Speaker 1: much about it, and she came to Lay later on
Speaker 1: and said, I'm the person who wrote that anonymous letter,
Speaker 1: and I'm really concerned about this, and ended up trying
Speaker 1: to keep it in the company because I think I
Speaker 1: get the impression that she thought it was something, especially
Speaker 1: now that Skilling was gone, that could be resolved internally.
Speaker 1: I think she really underestimated the extensiveness of the corruption
Speaker 1: and um yeah at the company and thought it was
Speaker 1: a few people when really it was a large cadre
Speaker 1: of people who all were complicit in this. And UM,
Speaker 1: I get the impression that's why she didn't really um
Speaker 1: blow the whistle publicly at that point. Um. But apparently
Speaker 1: ken Ley, once he found out that it was Aaron
Speaker 1: Watkins um consulted legal counsel to figure out how to
Speaker 1: fire her legally. Yeah. Uh. The same day that uh,
Speaker 1: Skilling resigned on August fourteenth, the broadband division that we
Speaker 1: talked about earlier reported a hundred and thirty seven million
Speaker 1: dollar loss analysts, and we should point out to as
Speaker 1: far as the analysts go, they were always installing friendly
Speaker 1: analyst and only working with friendly analysts. But they finally
Speaker 1: got the clue they dropped their ratings for the stock. Uh.
Speaker 1: The end came very very swiftly for en ron Um.
Speaker 1: On October twelve, Arthur Anderson's I mean you still remember
Speaker 1: all the shredding jokes on Late Night TV that ran
Speaker 1: for months and months. Arthur Anderson's legal counsel said, everybody
Speaker 1: shred everything, destroy every file that you have on en Ron.
Speaker 1: And in one day they shredded literally one ton of paper. Yeah,
Speaker 1: and that was just one day. They apparently shredded around
Speaker 1: the clock from October twenty two to November eight, and
Speaker 1: that was just one ton one day. They shredded literal
Speaker 1: tons of documents, just shred, shred, shred. If you're an
Speaker 1: executive at Anderson, you were probably working a late night
Speaker 1: shift shredding alongside everybody else. Um. It was like that.
Speaker 1: And it was apparently at a time where you could
Speaker 1: legally do that and not be you know, indicted for it. Um.
Speaker 1: But that was not a good look when it came
Speaker 1: out that Arthur Anderson was the auditors of this company
Speaker 1: were shredding tons of documents, and the SEC got w
Speaker 1: into this and they said that they're going to start
Speaker 1: investigating finally the special purpose entities that fast Out had
Speaker 1: had set up, and so Enron fired fast Out that
Speaker 1: same day. And I think that was in November or
Speaker 1: late October of two thousand, two thousand one, and um,
Speaker 1: right after that on November eight and Ron said, Hey, everybody,
Speaker 1: do you remember all of our all that money we
Speaker 1: said we made going back to We're gonna need to
Speaker 1: restate our earnings. One of one of the first things
Speaker 1: they did was they reported a six hundred and eighteen
Speaker 1: million dollar loss for Q three of two thousand one
Speaker 1: Q one. They pro they posted a four hundred and
Speaker 1: six million dollar profit Q two, four hundred and four
Speaker 1: million dollar profit, Q three a six hundred and eighteen
Speaker 1: million dollar loss. So they finally came clean. They finally said,
Speaker 1: this accounting is off, and this is how radically it's off. Yeah,
Speaker 1: I mean that is uh if a company is restating
Speaker 1: their earnings for that period of time right at all,
Speaker 1: Like mistakes can happen, but that's a that's a real
Speaker 1: bad sign. Um. They almost got a lifeline in I
Speaker 1: guess late October of that year when they tried to
Speaker 1: merge with a company called Dyna g Incorporated, and that deal,
Speaker 1: that deal fell apart on November they backed out of
Speaker 1: the deal Dyna Gy did and then what what is this?
Speaker 1: Four days later on December two, in Ron filed for
Speaker 1: the largest Chapter eleven bankruptcy in US history up to
Speaker 1: that time, sixty five point five billion dollar company UM
Speaker 1: filed for bankruptcy. That just did not happen. If you
Speaker 1: had that that kind of money, you could have a
Speaker 1: fire sale and sell off stuff for way less than
Speaker 1: you paid for it, but you could still survive. And
Speaker 1: that just goes to show you, like just how fraudulent
Speaker 1: this company was. They couldn't have a fire sale and
Speaker 1: make up that kind of UM. That kind of the
Speaker 1: debt that they owed I think was seventy two billion
Speaker 1: dollars I think in debt that they finally UM were
Speaker 1: found to have owed. And at the time it was
Speaker 1: the biggest UM. In two thousand and eight we saw
Speaker 1: what big really was. Lehman Brothers for example, UM had
Speaker 1: six hundred and thirty nine billion dollars in assets when
Speaker 1: it filed for bankruptcy and went under. But at the
Speaker 1: time and Ron was like eye popping as far as
Speaker 1: bankruptcy these went for corporations. Can you imagine the wave
Speaker 1: of relief that swept through dyna Gy Incorporated. Yeah, when
Speaker 1: the particular bankruptcy a few days later after they backed out. Yeah,
Speaker 1: that one just off hand conversation at the vending machine
Speaker 1: over a packet of checks mix like save Dynagy forever.
Speaker 1: You know, this seems like a bad deal to me.
Speaker 1: Crunch Crunch right, and Dynagy, by the way, went on
Speaker 1: to become Apple. Uh So the fallout from this, uh,
Speaker 1: there are a lot of victims. Twenty thousand employees. Twenty
Speaker 1: thousand employees lost their job. And how how long did
Speaker 1: they have to get out? What? What is saying the
Speaker 1: day I think they had the day? I think it
Speaker 1: was less than that. I feel like it was hours
Speaker 1: or something. Basically, pack your s and get out of
Speaker 1: here everybody. And like literally this huge tall building has
Speaker 1: thousands of people just leaving all day with anchors boxes
Speaker 1: with their contents of their desk in it, like the
Speaker 1: ultimate movie troupe Um. Every employee that had been told
Speaker 1: for years and years, hey, you gotta invest everything you
Speaker 1: can in that for because en Ron is I mean,
Speaker 1: look at the stock we're going places and that money
Speaker 1: will be safe there. They obviously lost almost everything. There
Speaker 1: was a you know, the rank and file employees that
Speaker 1: was one in the documentary that said he had about
Speaker 1: close to three fifty dollars in stock that he ended
Speaker 1: up dumping for twelve hundred dollars. Uh. They froze the
Speaker 1: stock accounts of the ranking file while upper management was
Speaker 1: actively still cashing out. Yeah, that was a really scummy move.
Speaker 1: They I'm sure, purposefully changed for one K providers in
Speaker 1: the midst of all this. And when you do that,
Speaker 1: it's there's a minimum thirty day freeze as you transfer
Speaker 1: assets over, so these poor employees couldn't sell their shares.
Speaker 1: Like you said, Wow, the executives were making tens and
Speaker 1: tens of millions of dollars worth of of option trades. Yeah,
Speaker 1: I mean, it's just mind boggling. That to me is
Speaker 1: probably the worst part of the whole thing. Well, and
Speaker 1: you know, tie with that, their severange package averaged about
Speaker 1: four thousand, five dollars for the average employees, while management
Speaker 1: bonuses totaled more than fifty five million. And that's just bonuses,
Speaker 1: that's not cashing out stocks. Uh. And Livia, who helped
Speaker 1: us put this together, great job on this article, pointed
Speaker 1: out something like other fallout like you never even think about,
Speaker 1: which was en Ron was a very big investor and
Speaker 1: donor and local nonprofits in Houston, and all of a sudden,
Speaker 1: all that money is cut off and like the Red
Speaker 1: Cross chapter had to cut its budget from twelve million
Speaker 1: dollars to nine million dollars in one year, largely because
Speaker 1: the money dried up from en Ron. So the fallout
Speaker 1: was far and wide. And that's not even mentioning, like
Speaker 1: we're talking about the employees who had stock in the company,
Speaker 1: like every other human being that had just stock in
Speaker 1: and Ron had nothing to do with it, lost all
Speaker 1: their money. Yeah. I mean the stock price was at
Speaker 1: ninety at one point and it dropped down to I
Speaker 1: think forty something since in like a year. Basically. Um So, Yeah,
Speaker 1: the the employees in particular, and the retirees who had
Speaker 1: already left and whose pension funds were just totally evaporated,
Speaker 1: meaning you're gonna have to go get a job as
Speaker 1: a Walmart Greater now because you can't afford anything. Um.
Speaker 1: They are definitely the greatest victims of all this. I
Speaker 1: saw um ken Lay's lawyer afterward, Portray Kenley is the
Speaker 1: greatest victim of all of it, because he apparently lost
Speaker 1: a few hundred million dollars um and he um, I did.
Speaker 1: He didn't say it himself, but he definitely tried to say, like,
Speaker 1: I lost so much money, There's no way I could
Speaker 1: have known what was going on, and that fell on
Speaker 1: deaf or and that same defense was used by Jeffrey
Speaker 1: Skilling too. I didn't know what was going on, and
Speaker 1: so what they tried to do was pin the whole
Speaker 1: thing on Andrew fast Out, who had been fired, who
Speaker 1: had skimmed thirty something million dollars himself, so had proven
Speaker 1: demonstrated he was a criminal. They made it. They tried
Speaker 1: to play like he was a rogue CFO that had
Speaker 1: done all of this under the very nose of Jeffrey
Speaker 1: Skilling and Ken Lay and that they hadn't known. And
Speaker 1: the public, Congress, the courts, juries, everybody said, you have
Speaker 1: to be kidding us. Yeah, And and they were right.
Speaker 1: In the end. Fastile pleading guilty to two counts of
Speaker 1: wire frauds and securities fraud uh in return for being
Speaker 1: a witness against Skilling and Lay I think had a
Speaker 1: tenure sentence for what was going to be a much
Speaker 1: larger sentence, ended up serving five years. Uh, and then
Speaker 1: got out into and started, you know, getting paid as
Speaker 1: a speaker to corporations about business ethics. UH. You know,
Speaker 1: to his credit, I guess twenty years on he he
Speaker 1: came out officially and apologized for everything seems to really
Speaker 1: have turned the corner. UH and learned a lesson, although
Speaker 1: you never knows what is going on in someone's heart
Speaker 1: from the outside. UM. Arthur Anderson completely went away, the
Speaker 1: oldestcounting form accounting firm in the country. UH. Never recovered,
Speaker 1: completely folded and went out of business. UH. The Sarbanes
Speaker 1: Oxley Act was enacted basically because of Enron in two
Speaker 1: thousand two, which was UH. And I remember I remembered
Speaker 1: years ago when we were working in our early days
Speaker 1: at how stuff works, there was a lot of like
Speaker 1: Sarbanes Oxley talk. Uh. Do you remember that stuff? Yeah,
Speaker 1: because they came up with the Frank Dodd Um Act
Speaker 1: to to basically undo or combat against future stuff from
Speaker 1: the two thousand and eight financial crisis. This was the
Speaker 1: same thing six years here, Like Enron was had such
Speaker 1: a huge effect that they passed the law that basically,
Speaker 1: point for point outlawed all the stuff that Enron had done.
Speaker 1: They did the same thing with the Dodd Frank Actor.
Speaker 1: They tried to UH. And of course, you know, certain
Speaker 1: people say Sarbanes oxually has no real teeth anymore because
Speaker 1: they're not even funding the oversight that they promised. Other people,
Speaker 1: you know, the die hard free marketers will say it's
Speaker 1: actually too restrictive. Uh, we're not able to be competitive
Speaker 1: anymore because you've got all these rules now to make
Speaker 1: sure we're not defraunding people of billions of dollars. Yeah,
Speaker 1: you're making it hard to exploit people. So um, there
Speaker 1: was actually convictions like this is crazy. And one of
Speaker 1: the heartening things, Chuck is if you watch like these
Speaker 1: congressional hearings on this um, people from both sides of
Speaker 1: the aisle are grilling these guys. No one was apologizing
Speaker 1: to them for their you know, their colleague from the
Speaker 1: other side of the aisle asking you know me questions.
Speaker 1: Everyone was mad at these guys. The whole world hated
Speaker 1: Jeffrey Skilling and Ken Lay and Andrew fast Out. He
Speaker 1: was smug up there man answering those questions in the
Speaker 1: face of all that, he was still so smug about it.
Speaker 1: I looked up whether he ever apologized, and I could
Speaker 1: not find it. I don't think Jeffrey Skilling ever apologized.
Speaker 1: To think, he went throughout his entire time in prison
Speaker 1: basically saying like he was a victim, that this was unfair,
Speaker 1: but he was imprisoned. He was an executive that was
Speaker 1: in prison. That just does not happen lately. Um. He
Speaker 1: was convicted of nineteen counts frog conspiracy, insider trading. He
Speaker 1: got twenty four years in prison and ended up serving twelve,
Speaker 1: which is I mean, yeah, that sucks, but no, for sure,
Speaker 1: that's a long time to do in the clink. Um.
Speaker 1: And then ken Lay he was convicted on ten counts,
Speaker 1: but he wasn't able to be sentenced because he died
Speaker 1: of a heart attack six weeks after being convicted. Um,
Speaker 1: and I think his his conviction was vacated. Yeah, skilling
Speaker 1: uh now is out and works uh and an oil
Speaker 1: and gas analytics startup. Uh. It seems that other people, Um,
Speaker 1: I think we Yeah. I mentioned that Fastile was on
Speaker 1: the speaker circuit um the whistleblower. Um. Miss Watkins was
Speaker 1: named Times UH Person of the Year in two thousand two,
Speaker 1: and I believe is also now a paid speaker and
Speaker 1: executive in residence at Texas State University. And then there
Speaker 1: was a matter of because I was like, uh, Olvia
Speaker 1: didn't get to it. But I was like, well, surely
Speaker 1: there was some sort of um making it right for
Speaker 1: these people. Who lost all this money? Right? Uh? And
Speaker 1: there were lawsuits that came out and settlements that came out.
Speaker 1: Different people ended up being paying different things. I think
Speaker 1: it was a seven point two billion dollar settlement from
Speaker 1: inn Ron Um. I believe the banks were on the hook.
Speaker 1: I can tell if the banks were on the hook
Speaker 1: for some of that or if it was a separate thing.
Speaker 1: I don't know. I saw that they squeezed a total
Speaker 1: of twenty billion out of and Ron before they like
Speaker 1: let it go. Okay, I don't know, but I did
Speaker 1: see the banks were definitely on the hook, but just
Speaker 1: for being complicit. I don't know if that was in
Speaker 1: addition though either Yeah, I think, uh yeah. It says
Speaker 1: right here that the bulk of the settlements, almost seven
Speaker 1: billion of it, came from JP Morgan, Chase City Group, Uh,
Speaker 1: the Canadian Imperial Bank of Commerce, Oh yeah, Lehman Brothers
Speaker 1: chipped in. Bank of America chipped in. The Big five
Speaker 1: auditing firm Arthur Anderson. Of course we talked about they
Speaker 1: chipped in. I think, well, I don't see how they
Speaker 1: could have chipped in it they went out of business,
Speaker 1: but I guess they chipped in before they went out
Speaker 1: of business all right. So, um, you know, if you
Speaker 1: hear the story, especially if you're used to us in
Speaker 1: our podcast, you might be like, well, guys, you didn't
Speaker 1: really get to the other side of the story. There
Speaker 1: is no other side of the story. This is one
Speaker 1: of those rare stories that is basically black and white.
Speaker 1: It was just there's no redemption, there's no explaining it away,
Speaker 1: there's no apologizing for it. It's just it was just
Speaker 1: as wrong as it appears. So that's why we didn't
Speaker 1: include the other side of the story in this one. Yeah,
Speaker 1: I don't think there's anyone out there who's who's going
Speaker 1: to bat for Enron. If there's somebody, there's somebody, and
Speaker 1: they will leave it on our Apple reviews right, totally
Speaker 1: will didn't get a fair shake from these totally Hitler
Speaker 1: or Satan. You got anything else? I got nothing else.
Speaker 1: Uh well, I don't have anything else either. If you
Speaker 1: want to know more about Enron, go watch the Smartest
Speaker 1: Guys in the Room. Definitely will leave you wanting more.
Speaker 1: And there's plenty to read about, including some great contemporary
Speaker 1: articles all over the Internet. And since I said content
Speaker 1: a prairie instead of contemporanius, it's time for listener mail. Uh.
Speaker 1: This is a little wordy, but it's it's We don't
Speaker 1: often do UM shoutouts and tributes, but this was a
Speaker 1: really special one, so we're doing it. Hey, guys, this
Speaker 1: is from Gavin, recent college graduate and history enthusiast, and
Speaker 1: Gavin says, I've been listening since I was fifteen, over
Speaker 1: seven years now. My mom was the one who introduced
Speaker 1: me to the show, and we've both been listeners ever since.
Speaker 1: I'm pretty sure she listens every episode that you guys
Speaker 1: put out. My mom was also the person who imparted
Speaker 1: a thirst for knowledge and learning in me as a child.
Speaker 1: I've had great many teachers in my life, and I'm
Speaker 1: very thankful for them, but my mom has always been
Speaker 1: my greatest encouragement and my role model as a student
Speaker 1: and as a person. Over the past four years in
Speaker 1: college and directly after, I got really busy, moved twelve
Speaker 1: hours from home, and it meant I stopped listening to podcast,
Speaker 1: including you guys. I know, more importantly, also lost touch
Speaker 1: with my mom. I didn't completely ghost or anything, but
Speaker 1: I still did not reach out to her nearly as
Speaker 1: much as I wanted to or needed to. But often
Speaker 1: when I eventually would, she would ask me if I
Speaker 1: listen to stuff you should know recently, and she'd have
Speaker 1: an episode to recommend because I think you'd really enjoyed
Speaker 1: this one. Luckily, now have a job where I'm having
Speaker 1: more flexible hours, and over that time, I've picked stuff
Speaker 1: he should know, back up, re energize my love for knowledge,
Speaker 1: and learned that my mom has given me that was
Speaker 1: my mom had given me years ago. All this to say,
Speaker 1: you guys mean a lot to me and my mother. Uh,
Speaker 1: And I thank you for that. You've helped me stay
Speaker 1: connected to her in a way that I would not
Speaker 1: have been able to do otherwise. I'd just like to
Speaker 1: take this chance to thank my mom. I know you're listening, Mom,
Speaker 1: I know we'll talk about this episode later, And thank
Speaker 1: you for encouraging me and understanding that I love you
Speaker 1: even when I'm not great at communicating it. And boy,
Speaker 1: this one's really pulling at the heartstrings. Every time I
Speaker 1: pick up a book or listen to a podcast or
Speaker 1: write a paper, I think of you, Mom, and I
Speaker 1: know that I always will. I love you, And this
Speaker 1: is the only way I know how to tell you properly. Uh. Kevin,
Speaker 1: you can pick up the phone and saying this stuff
Speaker 1: my friend. Uh, he's back to you. Guys, you got
Speaker 1: a great show. I hope we have many more years
Speaker 1: of remaining learning and growing together. And that lovely, lovely
Speaker 1: sentiment is from Gavin in fayette Ville, Tennessee. That was amazing, Kevin, hatsop, Chuck.
Speaker 1: I totally get why you chose that shout out to
Speaker 1: be the one to break the rule. Yeah, it should
Speaker 1: have been along Mother's Day, around Mother's Day, but well
Speaker 1: we can replay it around Mother's Day first select how
Speaker 1: about that instead it's the end run episode, right. Uh.
Speaker 1: If you want to be like Gavin and just be
Speaker 1: a super great person, but not request to shout out,
Speaker 1: just be a super great person, we want to hear
Speaker 1: from you. Also, while I'm thinking of it, go check
Speaker 1: out our social feeds. They used to suck, now they're great. Also,
Speaker 1: if you want to get in touch with this, like
Speaker 1: I said, you can hit us up via email at
Speaker 1: stuff podcast at iHeart radio dot com. Stuff you Should
Speaker 1: Know is a production of I Heart Radio. For more
Speaker 1: podcasts my heart Radio, visit the i heart Radio app,
Speaker 1: Apple Podcasts, or wherever you listen to your favorite shows,
Speaker 1: h