WEBVTT - How Enron Fooled the World 0:00:01.440 --> 0:00:04.240 Welcome to Stuff you should Know, a production of I 0:00:04.360 --> 0:00:13.000 Heart Radio. Hey, and welcome to the podcast. I'm Josh, 0:00:13.039 --> 0:00:15.560 and there's Chuck and Jerry's here, and it's stuff you 0:00:15.560 --> 0:00:18.600 should know. We mean it, you should know this stuff 0:00:19.520 --> 0:00:23.800 because this is serious corporate mouthfeasance that I think it's 0:00:23.840 --> 0:00:26.800 probably not an American over the age of twenty walking 0:00:26.840 --> 0:00:30.280 around who doesn't know about this somehow, some way, to 0:00:30.400 --> 0:00:33.280 some degree. I know they teach about this stuff in 0:00:33.360 --> 0:00:38.479 business school. Um, it's been written on extensively, but I 0:00:38.520 --> 0:00:41.720 mean I didn't understand the ins and outs of it until, um, 0:00:41.800 --> 0:00:45.640 until I started researching this, and it's quite shocking. And 0:00:46.000 --> 0:00:49.560 that shocking thing that I'm talking about is the rise 0:00:49.600 --> 0:00:55.200 and fall of Enron, one of the greatest um swindles 0:00:55.760 --> 0:00:59.360 in corporate American history, maybe in corporate history in the world, 0:00:59.560 --> 0:01:03.080 definitely in corporate American history for sure. I'm really glad 0:01:03.120 --> 0:01:04.440 you picked this because I didn't know all the ins 0:01:04.480 --> 0:01:08.440 and outs either, because this is you know, when I 0:01:08.480 --> 0:01:11.840 was a young late twenties, early thirties something, didn't have 0:01:11.880 --> 0:01:16.480 a care in the world. Uh, And I finally watched 0:01:16.480 --> 0:01:21.880 the smartest guys in the room today. Yeah, Yeah, the 0:01:21.920 --> 0:01:25.880 documentary based on the book. UM, and we'll get to 0:01:25.920 --> 0:01:28.720 the authors and stuff. It was Peter Elkind and who 0:01:28.840 --> 0:01:32.360 was a co author, Bethany McClain. Okay, that was the 0:01:32.480 --> 0:01:35.480 lead author even Okay, I knew she wrote the original 0:01:35.560 --> 0:01:38.399 articles and Ford, so she co authored the book and 0:01:38.440 --> 0:01:41.919 she's in the documentary, as is Elkland, and it really 0:01:42.240 --> 0:01:45.600 is worth the watch. But just want to point out 0:01:45.640 --> 0:01:49.360 that this is an overview of the Enron scandal. It's 0:01:49.400 --> 0:01:52.320 pretty clear once you start poking around that this could 0:01:52.360 --> 0:01:55.200 be like a ten part series. Yeah, for sure. And 0:01:55.200 --> 0:01:57.560 there there probably is a podcast series out there that 0:01:57.600 --> 0:02:00.520 covered just in Ron. UM. So there's lots of sort 0:02:00.520 --> 0:02:01.960 of ins and outs that we won't be able to 0:02:01.960 --> 0:02:05.440 touch on, UM, but we can definitely give her the overview, 0:02:05.520 --> 0:02:11.000 which was the Enron was a corporation. Um. Originally it 0:02:11.040 --> 0:02:17.079 was a natural gas line pipeline operator. UM. But they quickly, 0:02:17.320 --> 0:02:20.200 well not quickly, UM, they got out of that business 0:02:20.240 --> 0:02:24.399 almost entirely. When certain people were hired and we'll we'll 0:02:24.440 --> 0:02:25.960 sort of get to all this in a minute too. 0:02:28.280 --> 0:02:31.239 When certain people were hired that basically said you know what, 0:02:32.000 --> 0:02:35.160 we don't we should even be in the pipeline industry. 0:02:35.240 --> 0:02:38.960 We should invent almost a new kind of industry, which 0:02:39.040 --> 0:02:44.480 is to use energy as financial instruments, and we should 0:02:44.520 --> 0:02:49.840 become a trading company that trades natural gas and eventually 0:02:50.520 --> 0:02:55.200 paper pulp and and electricity and you name it. Like, 0:02:55.200 --> 0:02:56.920 we'll get into all the things that they sort of 0:02:57.520 --> 0:03:01.280 pivoted to. But um in rounds started, I guess we 0:03:01.280 --> 0:03:05.840 should start at the beginning when they when Houston Natural 0:03:05.880 --> 0:03:09.960 Gas Company merged with a company called Enter North and 0:03:10.000 --> 0:03:15.560 they combined to form this large energy corporation in Texas, 0:03:15.680 --> 0:03:20.280 mainly natural gas. UH, and the chief executive of h 0:03:20.440 --> 0:03:22.600 n G at the time was a man named mckin 0:03:23.240 --> 0:03:26.320 or Kenneth Lay, who you might have heard of. Yeah, 0:03:26.480 --> 0:03:29.320 and if you haven't prepared to meet ken Lay several 0:03:29.360 --> 0:03:34.080 times across this episode. UM from the outset, I think, uh, 0:03:34.520 --> 0:03:38.480 Houston Natural Gas and Inner North, we're both profitable. But 0:03:38.560 --> 0:03:41.200 I saw that neither one of their um the companies 0:03:41.240 --> 0:03:44.800 really benefited from the merger, although it did expand their 0:03:44.800 --> 0:03:48.320 pipeline network. Really it just protected them from a hostile takeover. 0:03:49.440 --> 0:03:52.760 But it was just a just a standard gas company, 0:03:52.840 --> 0:03:55.360 you know, no big frills or anything like that. I 0:03:55.400 --> 0:03:58.640 think the first year it posted a fourteen million dollar loss. 0:03:59.160 --> 0:04:01.840 Put that in your uh, in your hat and smoke 0:04:01.920 --> 0:04:07.800 it later with a pin. Okay uh. In that the 0:04:07.920 --> 0:04:11.760 first year end Ron was around in it posted a 0:04:11.800 --> 0:04:15.560 four two million dollar loss. Just remember that for later, Okay. Yeah. Also, 0:04:15.720 --> 0:04:17.800 something else you should put in your hat for later 0:04:18.800 --> 0:04:21.040 is the fact that Kenneth Lay, the gentleman I mentioned 0:04:21.120 --> 0:04:24.800 who was the ZEO of Houston Natural Gas, was also 0:04:24.920 --> 0:04:30.359 a very very tight with the Bush family, originally the 0:04:30.440 --> 0:04:35.120 elder Bush and later on George W. As Governor of Texas, 0:04:35.480 --> 0:04:40.279 big donor to their causes politically, and they ended up 0:04:40.320 --> 0:04:42.920 having a very sort of you scratch my back, al 0:04:43.000 --> 0:04:46.920 scratch yours kind of relationship. Yeah, it's I mean like 0:04:47.160 --> 0:04:49.920 I just started twirling around over and over again out 0:04:49.960 --> 0:04:53.640 of anger, like multiple times throughout the documentary because they 0:04:53.680 --> 0:04:57.200 really go into um some good details about that. But 0:04:57.320 --> 0:05:02.320 the upshot of the whole thing is George H. W 0:05:02.640 --> 0:05:06.560 and George W. Bush Um would not probably have been 0:05:06.600 --> 0:05:09.160 able to help Endron out as much as they did 0:05:09.480 --> 0:05:12.680 had it not been for, of course, Ronald Reagan and 0:05:12.760 --> 0:05:17.560 the sweeping deregulations that occurred in starting in the eighties. 0:05:17.680 --> 0:05:20.479 There was just a spirit of deregulation, which was this 0:05:20.720 --> 0:05:24.280 Ronald Reagan said, and they quoted in the documentary. Government's 0:05:24.320 --> 0:05:27.120 not the solution to our problems. Government is the problem. 0:05:27.440 --> 0:05:29.760 And there was this idea that was really huge in 0:05:29.800 --> 0:05:34.120 the eighties, um that if you got government out of 0:05:34.160 --> 0:05:38.400 the way, competition was going to drive innovation, was going 0:05:38.440 --> 0:05:42.400 to lower prices, was going to benefit society in myriad ways. 0:05:42.880 --> 0:05:47.160 That is not untrue. The problem is when you deregulate 0:05:47.839 --> 0:05:50.960 fully and just basically say we're checked out from now 0:05:51.000 --> 0:05:55.839 on until something really bad happens. Something bad always happens. 0:05:56.279 --> 0:05:59.560 That's the problem with deregulation in the eighties, not that 0:05:59.600 --> 0:06:03.040 there's am with deregulation, that it was done incorrectly, like 0:06:03.080 --> 0:06:05.840 it seems to be every single time. Yeah, I mean 0:06:05.839 --> 0:06:09.200 Reagan is also in the documentary quoted as talking about 0:06:09.200 --> 0:06:12.800 the magic of the marketplace, and uh, we've talked about 0:06:12.839 --> 0:06:14.479 this over and over on the show. And this is 0:06:14.480 --> 0:06:19.160 not um an attack on conservatism, but deregulation in in 0:06:19.240 --> 0:06:22.320 the marketplace and letting the free market decide things is 0:06:22.360 --> 0:06:26.520 one of the core tenets of conservatism generally. And what 0:06:26.680 --> 0:06:29.920 we've always kind of hammered home year after years, And 0:06:30.279 --> 0:06:32.120 you said it in one way, but I'll satting another 0:06:32.200 --> 0:06:36.000 is it never takes into account humans are the ones 0:06:36.080 --> 0:06:39.680 that are operating these systems. And when you have money, 0:06:40.400 --> 0:06:43.359 lots and lots of money, and you have humans operating systems, 0:06:44.040 --> 0:06:49.080 there are inevitably gonna be greedy humans with so much 0:06:49.200 --> 0:06:53.880 hubrists that they sell their souls to make money. And 0:06:53.920 --> 0:06:57.960 that's that's what happens every single time. Yet it's still 0:06:58.480 --> 0:07:02.039 lessons are still not learned that that there are certain 0:07:02.120 --> 0:07:04.240 kinds of humans and they always seems to be they 0:07:04.279 --> 0:07:06.520 always seem to be the ones in charge here of 0:07:06.560 --> 0:07:09.440 these systems. They will take advantage of them to the 0:07:09.480 --> 0:07:13.040 detriment of the little guy and the little lady. And 0:07:13.080 --> 0:07:16.840 that is would happened with en Ron. Yeah, And I 0:07:16.840 --> 0:07:19.000 don't know if it's always like they're not taking into 0:07:19.000 --> 0:07:22.560 account human greed. I think most of the people who 0:07:22.640 --> 0:07:27.800 are powerful enough to deregulate UM in federal energy regulations 0:07:28.400 --> 0:07:31.280 UM don't really care. In a lot of cases, they 0:07:31.360 --> 0:07:33.320 know that they're going to make a boatload of money 0:07:33.360 --> 0:07:35.440 by the time the thing really kind of blows up 0:07:35.480 --> 0:07:38.840 sometime down the line. I think it could be either one, 0:07:39.440 --> 0:07:43.760 but the there was a big sea change in UM, 0:07:43.800 --> 0:07:49.960 a big change to regulation. The Federal Energy Regulatory Commission said, hey, um, 0:07:50.040 --> 0:07:55.000 you can now buy and sell gas natural gas UM 0:07:55.040 --> 0:07:58.440 from any seller anywhere in the United States. You don't 0:07:58.440 --> 0:08:01.000 have to just buy and sell within your state. And 0:08:01.080 --> 0:08:04.920 that opened up an entirely new market and all of 0:08:04.960 --> 0:08:07.760 a sudden, you can make a lot more money moving 0:08:07.800 --> 0:08:11.840 this stuff around. But like you said, they figured out 0:08:11.880 --> 0:08:15.400 and run, you can make even more money by selling 0:08:15.440 --> 0:08:19.120 this stuff as commodities UM and trading on like futures 0:08:19.160 --> 0:08:23.320 and turning them into financial instruments, not actual just natural 0:08:23.360 --> 0:08:26.680 gas or oil or electricity, but the concepts of them, 0:08:26.840 --> 0:08:29.600 the right to sell it or buy that sometime down 0:08:29.680 --> 0:08:33.280 the road. And that changed absolutely everything. Yeah, and this 0:08:33.360 --> 0:08:35.640 is when things when you get into finance like this. 0:08:36.400 --> 0:08:39.800 My it's not that my eyeballs glaze over. It just 0:08:39.840 --> 0:08:45.959 becomes almost uh and I say almost not real because 0:08:46.000 --> 0:08:48.560 it's it is kind of not real. It's it becomes 0:08:48.559 --> 0:08:51.520 a form of gambling in a way. And that's very 0:08:51.559 --> 0:08:53.360 much what happened to en Ron in a lot of ways. 0:08:53.360 --> 0:08:55.000 And you'll you'll kind of see here and there throughout 0:08:55.000 --> 0:08:59.080 the episode. UM. But they as a company UM. After 0:08:59.120 --> 0:09:02.400 that eight four s Jean made a very faithful decision 0:09:02.480 --> 0:09:05.000 of their own in nine nine, just a few years later, 0:09:05.440 --> 0:09:09.160 when they got a consulting firm on board Mackenzie and Company, 0:09:09.600 --> 0:09:13.920 in particular consultant for that company named Jeffrey Skilling UH 0:09:13.960 --> 0:09:17.280 to create what they called the Gas Bank, which was 0:09:17.320 --> 0:09:19.720 basically like I said earlier, like, hey, why don't we 0:09:19.760 --> 0:09:23.079 just be an intermediary between buying and selling of gas? 0:09:23.640 --> 0:09:26.080 And it was going so well that two short years 0:09:26.160 --> 0:09:30.600 later Skilling left there and Uh went to work full 0:09:30.600 --> 0:09:35.160 time at en Ron. Oh sure, and eventually working his 0:09:35.200 --> 0:09:39.600 way up to the CEO of that company. Yes, so 0:09:39.800 --> 0:09:42.600 UM he was he but for the most part he 0:09:42.720 --> 0:09:46.760 was the right hand man, but essentially co CEO with 0:09:46.920 --> 0:09:50.480 ken Ley, who I think took him on as a protege. 0:09:50.920 --> 0:09:52.920 And Jeffrey Skilling was the one who said, let's set 0:09:53.000 --> 0:09:58.559 up this market UM. And he also transformed the company's culture. 0:09:59.120 --> 0:10:01.640 One of the things he came him up with was 0:10:01.960 --> 0:10:05.679 um the idea that every year they should review and 0:10:05.760 --> 0:10:09.920 rate every employee, and the bottom ten percent of employees 0:10:09.960 --> 0:10:13.280 should be fired. So every year he was planning on 0:10:13.360 --> 0:10:17.400 firing ten percent of their workforce. About two thousand people 0:10:17.800 --> 0:10:20.040 every year. And the reason he was doing this is 0:10:20.080 --> 0:10:22.360 because he's saying, we can do better. We can hire 0:10:22.400 --> 0:10:24.520 the best and the brightest, We'll replace those people with 0:10:24.600 --> 0:10:27.240 much better people, and then the ones who are doing 0:10:27.280 --> 0:10:29.600 really well now we'll get moved to the back and 0:10:29.600 --> 0:10:32.560 we'll just constantly be improving on the people that were hiring. 0:10:33.200 --> 0:10:35.760 It makes sense in a really Machia Valley and kind 0:10:35.760 --> 0:10:39.679 of way, but it's also psychotics as well. Yeah, And 0:10:40.200 --> 0:10:42.600 the way I understood it from the documentary, it wasn't 0:10:42.720 --> 0:10:46.520 just like regular upper management reviews of the people that 0:10:46.520 --> 0:10:49.040 that that report to them, but it was all the 0:10:49.120 --> 0:10:53.120 employees rating one another like within their department. Isn't that right? 0:10:53.640 --> 0:10:55.480 That's what I took it as too. So, I mean, 0:10:56.480 --> 0:11:00.520 you don't have to like be a Sue Sayer to 0:11:00.559 --> 0:11:04.440 see where that heads when uh, And it certainly creates 0:11:04.440 --> 0:11:07.600 competition if that's what they're all about with uh, you know, 0:11:07.640 --> 0:11:10.440 the sort of the charter of the company creating more 0:11:10.440 --> 0:11:13.480 competition by deregulating. They sort of did the same thing 0:11:13.520 --> 0:11:16.800 within the ranks and created a very I mean I've 0:11:16.840 --> 0:11:21.079 seen it described everywhere as uh, it's just overly macho 0:11:21.240 --> 0:11:25.560 and testosterone fueled UM. It seems like the traders there 0:11:25.600 --> 0:11:29.679 were uh were hired and kept on that were especially aggressive. 0:11:30.400 --> 0:11:34.160 And there are interviews in the documentary about about some 0:11:34.240 --> 0:11:37.360 of these men who were traders that were like, you 0:11:37.400 --> 0:11:40.320 would uh cut the throat of the guy next to 0:11:40.360 --> 0:11:43.640 you on the trading floor, your fellow employee if you 0:11:43.720 --> 0:11:46.280 felt like you could make a few extra bucks. Yeah, 0:11:46.320 --> 0:11:49.120 and that was very much encouraged, not just by Jeffrey Skilling, 0:11:49.120 --> 0:11:53.559 but ken Leigh had a history of UM at the 0:11:53.679 --> 0:11:57.000 very least turning a blind eye, if not actively encouraging 0:11:57.080 --> 0:12:01.320 people to break the law. Um you immoral stuff that 0:12:01.400 --> 0:12:04.000 may or may not have been legal, all in the 0:12:04.040 --> 0:12:07.520 interest of maximizing profits. Like if you were making money 0:12:07.600 --> 0:12:11.800 and you got in trouble, you didn't get fired because 0:12:11.840 --> 0:12:14.280 you made money for the company. That's all that mattered 0:12:14.320 --> 0:12:16.600 was making money for the company. So in that sense, 0:12:16.679 --> 0:12:20.240 Jeffrey Skilling was a really great protegee for Kenley. But 0:12:20.320 --> 0:12:23.400 he was like ken Lay on steroids, UM and I 0:12:23.440 --> 0:12:26.600 get the impression. And Kenley has always or back in 0:12:26.640 --> 0:12:30.640 the day, he was a master at presenting this really 0:12:30.760 --> 0:12:39.000 laid back, almost um detached persona. But if you watch 0:12:39.040 --> 0:12:41.839 the documentary and you read about him, you really get 0:12:41.880 --> 0:12:45.400 the impression that he knew exactly what outcome was ten 0:12:45.480 --> 0:12:48.840 steps down the road by just nudging this thing over here, 0:12:49.000 --> 0:12:52.120 nudging that thing over there, all with plausible deniability, but 0:12:52.160 --> 0:12:57.359 at the same time presiding over this incredibly complex, complicated, 0:12:57.559 --> 0:13:02.680 masterful machination um that was all dedicated to the service 0:13:02.720 --> 0:13:06.079 of making money for by by whatever means possible. Yeah, 0:13:06.120 --> 0:13:08.240 and and Lay. I mean, the reason the documentary is 0:13:08.280 --> 0:13:12.800 called the Smartest Guys in the Room is because I 0:13:12.800 --> 0:13:17.160 think unequivocally everyone would admit that Ken Lay and Jeffrey 0:13:17.160 --> 0:13:20.480 Skilling and uh, we should introduce you to a younger 0:13:20.480 --> 0:13:23.760 recruit named Andrew fast Al who was a key player 0:13:23.800 --> 0:13:26.640 eventually becoming the CFO and was up to all kinds 0:13:26.640 --> 0:13:31.000 of shenanigans. But these were brilliant guys with amazing ideas 0:13:31.080 --> 0:13:33.400 and a lot of the ideas that they had for 0:13:33.440 --> 0:13:36.880 this company. We're really good and ahead of their time. 0:13:37.400 --> 0:13:40.520 But they had the notion that you should be able 0:13:40.559 --> 0:13:44.360 to trade and make money off of great ideas and 0:13:44.400 --> 0:13:48.240 not necessarily the results of those great ideas. Because time 0:13:48.240 --> 0:13:51.000 and time again, as you'll see as we tell this story, 0:13:52.200 --> 0:13:56.200 these ideas were not making actual money, maybe because some 0:13:56.280 --> 0:13:58.640 of them were ahead of their time, but that didn't 0:13:58.640 --> 0:14:01.640 matter because they had way very creative ways to hide 0:14:01.640 --> 0:14:05.440 those debts and losses. And that's that's the whole sort 0:14:05.480 --> 0:14:08.320 of followed in ron Is is wrapped up in that statement. 0:14:08.360 --> 0:14:12.280 But these are all really really smart guys, and uh, 0:14:12.600 --> 0:14:16.480 they were really really good at making money. And maybe 0:14:16.480 --> 0:14:18.160 we should take a break there. It's a nice little 0:14:18.160 --> 0:14:20.880 set up, and we'll come back and talk a little 0:14:20.880 --> 0:14:24.160 bit more about their lobby to deregulate. And then some 0:14:24.240 --> 0:14:36.800 of the early shenanigans right after this a large sk 0:14:37.800 --> 0:14:51.040 as watch sks you should know. Okay, So after about 0:14:51.080 --> 0:14:54.840 six years after that big deregulation from Firk that said 0:14:54.880 --> 0:14:56.840 you can buy gas and sell it at wherever in 0:14:56.880 --> 0:14:59.600 the country. That opened up a huge market, there was 0:14:59.640 --> 0:15:06.360 another or watershed deregulate deregulation UM that that reverse an 0:15:06.360 --> 0:15:09.440 act that went back to nineteen thirty five, the Public 0:15:09.560 --> 0:15:14.080 Utilities Holding Company Act PUKA. I love that one that 0:15:14.240 --> 0:15:18.600 said if you UM are generating and selling electricity, you 0:15:18.640 --> 0:15:22.400 are a local utility and we're going to regulate you 0:15:22.840 --> 0:15:26.320 like you are providing the life blood of America. Because 0:15:26.960 --> 0:15:32.160 electrical utilities provide the lifeblood of America and have since 0:15:32.200 --> 0:15:36.400 long before nineteen thirty five. And in ninete they managed 0:15:36.440 --> 0:15:38.720 to get that reversed and now all of a sudden, 0:15:38.920 --> 0:15:42.920 anybody could buy an electric utility. And Enron definitely jumped 0:15:42.920 --> 0:15:46.160 on that. Yeah, for sure, they their lobby UH was 0:15:46.240 --> 0:15:50.840 strong to put up mildly, they hired lobbyists to lobby 0:15:50.840 --> 0:15:55.720 different states. In those states, as no surprise, ended up 0:15:56.040 --> 0:16:00.680 getting millions of dollars flowing back towards en Ron UM. 0:16:00.720 --> 0:16:04.520 I think they hired lobbyists for at least thirty seven states. 0:16:05.240 --> 0:16:09.960 They also helped overturn along that said the military has 0:16:10.000 --> 0:16:13.640 to buy power UM from local utilities, and they said, 0:16:13.680 --> 0:16:16.320 now let's open that back up UM pretty soon, and 0:16:16.480 --> 0:16:19.920 Ron got its twenty five million dollar contract for supplying 0:16:19.920 --> 0:16:24.520 electricity to Fort Hamilton's in Brooklyn. And these are just 0:16:25.120 --> 0:16:27.320 I mean, twenty million ends up being peanuts in the 0:16:27.320 --> 0:16:30.280 grand scheme. But these are just examples as they sort 0:16:30.280 --> 0:16:34.640 of ramped up to their schemes of how they deregulated 0:16:34.720 --> 0:16:37.120 or lobbied to get things deregulated such that it was 0:16:37.160 --> 0:16:40.120 allowed to happen. Right, And one of the things one 0:16:40.120 --> 0:16:43.920 of the schemes that got the attention of the entire country. 0:16:44.480 --> 0:16:48.440 UM in two thousand, two thousand one, UM was an 0:16:48.480 --> 0:16:53.840 electrical scheme in California. California had undergone its own electrical 0:16:53.880 --> 0:16:58.400 deregulation power deregulation, but it had had adopted this weird 0:16:58.600 --> 0:17:03.880 patchwork compromise. Is UM law or set of laws that 0:17:04.520 --> 0:17:06.920 just had looped loopholes you could drive a truck through, 0:17:06.960 --> 0:17:09.959 and that we're just really created all sorts of legal 0:17:10.080 --> 0:17:13.280 gray areas. And so rather than just kind of like 0:17:13.359 --> 0:17:17.080 here they're biting around the edges seeing what they could do, instead, 0:17:17.080 --> 0:17:22.280 the energy traders at UM enron UM started figuring out 0:17:22.320 --> 0:17:25.560 how to move energy out of the state, wait for 0:17:25.680 --> 0:17:27.439 the state to be like, hey, we need some energy, 0:17:27.840 --> 0:17:32.719 and move it back at incredibly inflated prices. UM. They 0:17:32.760 --> 0:17:38.879 would purposefully UM take electrical utilities that they owned offline 0:17:39.200 --> 0:17:42.439 to generate more demand, a spike in demand, and so 0:17:42.520 --> 0:17:47.480 they could raise prices again, and they actually basically crippled California. 0:17:48.000 --> 0:17:51.639 I think I saw that California had UM a couple 0:17:51.720 --> 0:17:56.439 dozen blackouts in six months after that deregulation. After Enron 0:17:56.520 --> 0:17:59.440 started coming in and messing with stuff. Whereas the six 0:17:59.480 --> 0:18:02.840 months before deregulation they had had one blackout. So if 0:18:02.880 --> 0:18:05.520 you watch the documentary and you listen, you know, you 0:18:05.600 --> 0:18:08.960 read some other sources about it. This was an entirely 0:18:09.080 --> 0:18:14.439 fabricated um a scarcity of electricity. There's plenty of it, 0:18:14.680 --> 0:18:16.520 and run just figured out that they could kind of 0:18:16.520 --> 0:18:18.600 pull this lever and that lever and charge way more 0:18:18.960 --> 0:18:22.600 by creating this this fake scarcity. Yeah. Uh, and by 0:18:22.600 --> 0:18:26.680 pulling a lever like literally sometimes they called up a 0:18:26.680 --> 0:18:30.280 power company, a power plant and said pull the lever 0:18:30.440 --> 0:18:33.680 to the off position, and they have them on tape. 0:18:33.720 --> 0:18:36.280 You know, they played this in the documentary. Well they'll 0:18:36.320 --> 0:18:38.400 they called one in Las Vegas and said, hey man, 0:18:38.720 --> 0:18:41.240 can you take this thing offline, uh for a few 0:18:41.240 --> 0:18:45.119 hours and just just make something up? Because of rolling 0:18:45.160 --> 0:18:48.359 blackout meant big money, um, all of a sudden, California 0:18:48.440 --> 0:18:51.439 again was was buying their own energy back at a 0:18:51.480 --> 0:18:54.600 higher rate. And Governor Gray Davis at the time, and 0:18:54.600 --> 0:18:57.240 this is you know, I'm not like giving some full 0:18:57.280 --> 0:19:01.320 throated endorsement to any um effectiveness of Gray Davis as 0:19:01.320 --> 0:19:04.120 a governor because I really don't know, but he definitely 0:19:04.200 --> 0:19:06.879 was sort of left holding the bag and scratching his 0:19:06.920 --> 0:19:10.000 head like what's going on here? Like We've got plenty 0:19:10.080 --> 0:19:14.000 of energy, and it just all through the documentary people 0:19:14.000 --> 0:19:17.520 are saying like this just isn't adding up in California, 0:19:17.680 --> 0:19:21.560 and some of those tapes that they play of these traders, 0:19:21.600 --> 0:19:25.600 like there was that that natural, uh wildfire that broke 0:19:25.640 --> 0:19:29.080 out that jeopardize one of the pipelines, and these guys 0:19:29.119 --> 0:19:30.960 are on, you know, on tape on the phone with 0:19:31.000 --> 0:19:34.439 each other saying burn, baby, burn, because that's good for 0:19:34.480 --> 0:19:37.879 business if it knocks something offline. And is you know, 0:19:37.960 --> 0:19:41.800 making laughing at like uh, you know, old Grandma's like 0:19:41.880 --> 0:19:44.840 sweating in the summer heat because they can't get air conditioning, 0:19:44.880 --> 0:19:48.960 like the most vile, reprehensible kind of stuff in the 0:19:49.080 --> 0:19:51.480 name of making the all my mighty dollar that you 0:19:51.480 --> 0:19:54.560 could imagine. What's also interesting is they don't really go 0:19:54.600 --> 0:19:57.679 into detail about it, but it's um. It appears to 0:19:57.760 --> 0:20:00.840 have also been a coup to get rid of Gray 0:20:00.920 --> 0:20:04.800 Davis and replace him with Arnold Schwarzenegger because ken Lay 0:20:04.880 --> 0:20:07.800 held a meeting at the Peninsula Hotel in Los Angeles, 0:20:08.400 --> 0:20:12.760 UM and he invited Arnold Schwartzenegger. This was long before 0:20:13.160 --> 0:20:17.440 Arnold Schwartzenegger was known to have had like real political aspirations. 0:20:17.440 --> 0:20:20.439 He wasn't governor yet wasn't running for governor over a 0:20:20.520 --> 0:20:24.280 problem that Enron created. It was like that level of 0:20:24.440 --> 0:20:27.600 In addition to also just making billions and billions of 0:20:27.600 --> 0:20:30.680 dollars by strangling the state, they also managed to replace 0:20:31.080 --> 0:20:33.680 the executive of the state as well to somebody who 0:20:33.760 --> 0:20:35.879 is much more friendly to them. Yeah, and get rid 0:20:35.920 --> 0:20:38.040 of in the Uh. Of course he didn't like knock 0:20:38.119 --> 0:20:40.639 him off or anything. But in California you can you 0:20:40.680 --> 0:20:43.199 can never recall. It seems to come up every I 0:20:43.240 --> 0:20:46.640 don't know twelve years or so where Californians aren't happy 0:20:46.640 --> 0:20:49.720 with the governor. And so if recall vote passes, you 0:20:49.720 --> 0:20:52.600 can have a have just an election out of nowhere, 0:20:53.200 --> 0:20:57.200 uh and replace that governor. UM. While this is going on, 0:20:57.320 --> 0:21:00.560 you know, Ken Lay stands on a stage and says, 0:21:00.600 --> 0:21:05.160 we're making money in spite of California, not because of California. 0:21:05.880 --> 0:21:10.520 So just lying through their teeth on stage to their shareholders. Uh. 0:21:10.560 --> 0:21:13.320 And all. You know, all these little schemes had little nicknames, 0:21:13.720 --> 0:21:16.639 the one where they got energy out of California just 0:21:16.680 --> 0:21:19.080 to make them buy it. Back was called Ricochet. There 0:21:19.119 --> 0:21:21.960 was one called death Star, and they're on tape like 0:21:22.040 --> 0:21:24.159 joking about like, hey, let's have a nice friendly name 0:21:24.200 --> 0:21:26.920 for this one, like death Star. So they're just they're 0:21:26.920 --> 0:21:31.840 playing games with people's livelihood essentially, and lives you can 0:21:31.880 --> 0:21:36.160 make a case as well. Um, So three of those 0:21:36.200 --> 0:21:41.080 traders played guilty. Jeffrey Richter, John Forney, and Timothy Belden 0:21:41.440 --> 0:21:45.640 were three of those traders who manipulated California's energy market UM, 0:21:45.680 --> 0:21:49.560 costing the state between forty and forty five billion dollars 0:21:49.560 --> 0:21:56.280 in retrospect of unnecessary UM electrical prices and costs. All Right, 0:21:56.359 --> 0:21:58.880 so in Ron is doing great, they're making a lot 0:21:58.920 --> 0:22:01.920 of money. Um, And we should point out that this 0:22:02.000 --> 0:22:05.320 is just you know, Ricochet was just one little scheme. 0:22:05.359 --> 0:22:10.680 They had all sorts of schemes along the way to uh, 0:22:10.680 --> 0:22:14.760 well we'll we'll get to those, um. Between two thousand one, 0:22:14.800 --> 0:22:17.560 like as far as the stock market world was concerned, 0:22:17.600 --> 0:22:20.800 and run was a darling. Uh Fortune named them I 0:22:20.800 --> 0:22:25.119 think six years straight America's most innovative company, every single 0:22:25.200 --> 0:22:27.760 year in a row. But what was going on behind 0:22:27.840 --> 0:22:33.240 the scenes is these ideas and these investments and uh, 0:22:33.560 --> 0:22:36.040 schemes that they had. You know, some of them made money, 0:22:36.080 --> 0:22:38.560 but a lot of them didn't make any money at all, 0:22:38.600 --> 0:22:41.840 and they just became really really good at hiding that fact. Yes, 0:22:43.080 --> 0:22:47.080 that was the whole thing. Like they were very innovative. 0:22:47.200 --> 0:22:49.200 They were ahead of their time in a lot of ways. 0:22:49.240 --> 0:22:53.639 Like they got into building broadband high speed internet access 0:22:53.640 --> 0:22:56.480 in like two thousand or two thousand one something like that, 0:22:57.240 --> 0:22:59.640 and this was I looked it up. It wasn't until 0:22:59.680 --> 0:23:03.640 two thousand seven that half of all US Internet users 0:23:03.680 --> 0:23:07.359 had broadband, so this was way ahead it's time. And 0:23:07.400 --> 0:23:10.679 then also they also got into the video on demand market. 0:23:10.680 --> 0:23:14.239 They tried to partner with Blockbuster um and this was 0:23:14.600 --> 0:23:18.719 these things were basically like the progenitor of Zoom and Netflix. 0:23:19.080 --> 0:23:21.080 But these guys were trying this in two thousand and 0:23:21.119 --> 0:23:25.040 two thousand one, so it's visionary. The problem is they 0:23:25.080 --> 0:23:28.040 were ahead of their time. The infrastructure wasn't there that that, 0:23:28.280 --> 0:23:31.840 the I think the customer base even wasn't there. So 0:23:31.880 --> 0:23:34.920 there's stuff that they were doing wasn't making money, which 0:23:34.960 --> 0:23:37.240 is not bad in and of itself. What was bad 0:23:37.320 --> 0:23:40.000 was when they were covering it up and the schemes 0:23:40.040 --> 0:23:44.880 that they used to cover it up. Are so um 0:23:44.920 --> 0:23:49.320 involved in complex but also so fascinating that they would 0:23:49.359 --> 0:23:51.320 they would have the audacity to do this because there's 0:23:51.359 --> 0:23:54.280 no there's no fudging it, there's no like, oh, this 0:23:54.320 --> 0:23:59.119 is kind of questionable. This was just fleecing all of 0:23:59.160 --> 0:24:02.040 their investors, all of their employs, fleecing the entire world. 0:24:02.040 --> 0:24:05.120 There was a handful of executives at and Ron who 0:24:05.119 --> 0:24:07.600 were fleecing the entire world to the tune of tens 0:24:07.800 --> 0:24:11.080 intens in tens of billions of dollars every year in 0:24:11.160 --> 0:24:17.000 revenue that apparently didn't actually exist. Yeah, it's pretty clear 0:24:17.040 --> 0:24:19.720 that at certain point they lost their way and that 0:24:19.880 --> 0:24:23.720 they weren't as concerned about being a company that made money, 0:24:23.880 --> 0:24:26.560 and the only thing that mattered was that as a 0:24:26.560 --> 0:24:31.280 corporation was that they kept their stock price high because 0:24:31.320 --> 0:24:34.240 that's where that's where all the money was they had 0:24:34.280 --> 0:24:36.359 as long as they could keep that stock price high 0:24:36.640 --> 0:24:41.840 and keep shareholders, especially their employees, encouraging their employees to 0:24:41.880 --> 0:24:44.520 get you know, get paid in company stock, like use 0:24:44.600 --> 0:24:47.040 every penny of your paycheck that you can to buy 0:24:47.040 --> 0:24:50.439 this company's stock. Because and en Ron stock was was soaring, 0:24:50.480 --> 0:24:53.080 it was doing really, really well, and all the while 0:24:53.520 --> 0:24:54.919 it was you know, it's called pump and dump. They 0:24:54.920 --> 0:24:57.200 would drive up the value of their stock and then 0:24:57.240 --> 0:24:59.520 the upper echelon and you see this time and time 0:24:59.560 --> 0:25:02.960 again in the corporate world, the CEOs and the CFOs 0:25:03.000 --> 0:25:05.720 and the upper management of the one who then sell 0:25:05.760 --> 0:25:09.919 off their stock and walk away with you know, some 0:25:10.040 --> 0:25:13.600 of them hundreds of millions of dollars. Uh. And you 0:25:13.640 --> 0:25:16.159 know some of the schemes that you talked about was 0:25:16.280 --> 0:25:19.920 they found ways to move debt around. Uh. We mentioned 0:25:20.400 --> 0:25:23.080 Fastyle was one of their hires, and he was hired 0:25:23.119 --> 0:25:25.600 I think his late twenties, early thirties, and quickly rose 0:25:25.680 --> 0:25:29.720 up the ranks to CFO. And he started a company 0:25:30.640 --> 0:25:35.320 called L s M, which stood for Leah, Jeffrey and Matthew, 0:25:35.400 --> 0:25:38.600 which are named after his wife and kids. Sort of ironically. 0:25:39.040 --> 0:25:41.920 It was like such a sweet tribute to them. And 0:25:42.080 --> 0:25:44.880 the only purpose of this company was to have all 0:25:44.960 --> 0:25:48.520 kinds of sort of little sub companies that would absorb 0:25:48.800 --> 0:25:51.440 the debt and where they could move debt around from 0:25:51.560 --> 0:25:54.919 en Ron to make it invisible to the shareholders, so 0:25:54.960 --> 0:25:57.360 they could prove on a balance sheet that you had 0:25:57.359 --> 0:25:59.560 this money coming in. And the way of you know, 0:25:59.600 --> 0:26:02.560 people in vesting in the company, but then you're hiding 0:26:02.840 --> 0:26:06.040 the losses and so everyone thinks you're doing great. So 0:26:06.200 --> 0:26:08.959 the way that I saw it explained, Investipedia actually has 0:26:09.000 --> 0:26:11.000 a couple of really good articles about this that are 0:26:11.080 --> 0:26:13.679 just wonky enough to like understand it, but also not 0:26:13.760 --> 0:26:15.520 so wonky that you're just like, I have no idea 0:26:15.600 --> 0:26:18.320 what I'm reading um. And the way they put it 0:26:18.359 --> 0:26:22.080 was basically, if Enron had, like a good example is 0:26:22.119 --> 0:26:24.320 they build a power station in India that was a 0:26:24.400 --> 0:26:28.119 huge loss. It was just a generally bad idea, and 0:26:28.160 --> 0:26:30.520 they sunk billions and millions of dollars into this power 0:26:30.600 --> 0:26:33.959 station and without realizing any money whatsoever. I think they 0:26:34.000 --> 0:26:38.040 abandoned it before it even came online. They would take 0:26:38.080 --> 0:26:41.600 this and sell it to one of these special purpose 0:26:41.880 --> 0:26:46.320 vehicles or special purpose entities, which was a tangentially related 0:26:46.359 --> 0:26:51.160 company that the company Enron was not on the hook 0:26:51.320 --> 0:26:55.119 to pay off its debts for right, and they would 0:26:55.200 --> 0:26:58.199 take that, and then that special purpose vehicle would go 0:26:58.240 --> 0:27:02.400 out and try to sell it, sell that terrible toxic 0:27:02.520 --> 0:27:10.560 asset um, and they would use Enron stock as the collateral. Right. 0:27:11.280 --> 0:27:14.480 And because Enron stock was just through the roof. Everybody 0:27:14.560 --> 0:27:16.280 was saying, sure, we'll give you a loan. Sure we'll 0:27:16.320 --> 0:27:18.000 give you some money for that terrible idea of a 0:27:18.000 --> 0:27:21.080 power plant that you abandoned because you're backing in up 0:27:21.080 --> 0:27:24.240 with Enron stock. And as long as the time that 0:27:24.240 --> 0:27:27.280 that stock came do was far enough away, and as 0:27:27.320 --> 0:27:30.399 long as Enron stock kept going up, this house of 0:27:30.440 --> 0:27:33.040 cards could be held together. But that's not at all 0:27:33.080 --> 0:27:36.280 how it worked. The upshot of it is that they 0:27:36.280 --> 0:27:39.600 could take toxic assets, move them off of their books 0:27:39.640 --> 0:27:43.280 to these special purpose entities, and then they would take 0:27:43.400 --> 0:27:46.760 the money that the special purpose entities would go borrow 0:27:46.920 --> 0:27:50.480 against like that that toxic asset, and they would count 0:27:50.600 --> 0:27:54.639 that on their books as revenue. So they were hiding debt, 0:27:55.320 --> 0:27:59.560 boosting their revenues to just ridiculous um heights for stuff 0:27:59.600 --> 0:28:02.200 that just should not have been counted as revenue. Yeah, 0:28:02.240 --> 0:28:04.680 and just to be clear, they didn't invent the special 0:28:04.680 --> 0:28:09.280 purpose entity. And an SPE is not some evil creation 0:28:09.359 --> 0:28:12.159 in and of itself. It is uh, it's an entity 0:28:12.200 --> 0:28:15.600 that a lot of corporations and businesses use. Where it's 0:28:15.640 --> 0:28:18.560 just it's sort of like has a very um narrow 0:28:18.600 --> 0:28:21.440 purpose in that they create this thing when they might 0:28:21.920 --> 0:28:24.320 use it to purchase an asset or move an asset, 0:28:24.680 --> 0:28:26.600 so the company as a whole may not be on 0:28:26.640 --> 0:28:29.479 the hook. Uh if anything goes wrong. It sort of 0:28:29.480 --> 0:28:32.399 mitigates risks. So it's not some evil purpose in and 0:28:32.400 --> 0:28:35.800 of itself. But they were manipulating these such and starting 0:28:35.840 --> 0:28:39.760 all of these things under Fastiles guidance with his LSM 0:28:40.120 --> 0:28:42.760 sort of sub corporation, and eventually l s M two. 0:28:42.840 --> 0:28:46.960 I think, uh that they were making I think they 0:28:47.040 --> 0:28:53.680 hit ninety dollars in August of two thousand. Uh, market 0:28:53.760 --> 0:28:57.160 cap of the whole company, it's seventy billion, which made 0:28:57.160 --> 0:29:01.160 it the seventh largest publicly traded company any in the 0:29:01.200 --> 0:29:06.000 world at that point. Yeah. Um, so that's a market 0:29:06.000 --> 0:29:10.360 cap of seventy billion. Remember in the first year that 0:29:10.480 --> 0:29:15.680 posted losses of fourteen million. Within fifteen years, they posted 0:29:15.720 --> 0:29:22.200 revenue of one hundred billion dollars billion dollars in fifteen in. Yeah, 0:29:22.240 --> 0:29:24.840 in sales in fifteen years. That's what happened to that 0:29:24.920 --> 0:29:28.400 company when they brought Jeffrey Skilling on board. Jeffrey Skilling 0:29:28.400 --> 0:29:31.680 brought Andrew fast Ole onboard, and people just started going 0:29:31.800 --> 0:29:35.280 nuts making money anyway they could. Yeah, The other thing 0:29:35.280 --> 0:29:38.560 we should mention too is another uh sort of slick trick, 0:29:39.240 --> 0:29:42.880 is that Skilling's idea and they got approval and I 0:29:42.920 --> 0:29:46.680 wasn't clear how or where this approval comes from, but 0:29:46.800 --> 0:29:50.480 to use something called mark to market accounting, which is 0:29:50.480 --> 0:29:55.360 basically when you can where you can rate the financial 0:29:55.560 --> 0:30:00.400 health of your company based on uh, that's the arise, 0:30:00.520 --> 0:30:04.840 but just on a future earnings basically and not necessarily 0:30:04.840 --> 0:30:08.959 what they're worth that day, so and to anticipated future 0:30:09.040 --> 0:30:12.640 value instead of its purchase costs. UM, did you get 0:30:12.680 --> 0:30:14.520 how that they were approved because it seemed like they 0:30:14.520 --> 0:30:16.920 were all like super psyched that they got approval for 0:30:17.000 --> 0:30:19.320 mark a market accounting. Yeah, that would have been the 0:30:19.440 --> 0:30:24.200 sec the Securities and UM Securities Exchange Commission, UM, who 0:30:24.280 --> 0:30:27.920 would have given that approval. And just like a special purposentity, 0:30:28.240 --> 0:30:31.960 mark a market accounting is it's totally legitimate, it's recognizes 0:30:32.400 --> 0:30:37.680 generally accepted accounting principle. But there's a lot of room 0:30:37.800 --> 0:30:43.520 for temptation to just basically say this deal with Blockbuster, Um, 0:30:43.560 --> 0:30:45.320 we haven't made a penny off of it, but we 0:30:45.360 --> 0:30:49.760 can we can cite the future earnings from it now 0:30:50.240 --> 0:30:53.720 now that we booked this deal and I think it 0:30:53.760 --> 0:30:57.920 will probably we worth a billion dollars just a total 0:30:58.000 --> 0:31:00.560 gas And you're not supposed to do it like that. 0:31:00.560 --> 0:31:03.320 You're supposed to do it much more realistically and legitimately. 0:31:03.720 --> 0:31:06.280 But they had enough leeway that they were able to 0:31:06.280 --> 0:31:09.000 take mark to market accounting and use it to their 0:31:09.040 --> 0:31:11.280 to their benefit in that way, and in doing that, 0:31:11.360 --> 0:31:15.880 they pumped up their their revenues through the roof. Like 0:31:15.960 --> 0:31:18.120 the deal would just be inked. They wouldn't have seen 0:31:18.120 --> 0:31:19.600 a penny from it, and they would add it to 0:31:19.640 --> 0:31:22.600 their balance sheets as revenue. Yeah, it would become part 0:31:22.600 --> 0:31:25.640 of the ledger before like a real penny was made exactly, 0:31:25.640 --> 0:31:27.840 and sometimes the pennies weren't made. And if the pennies 0:31:27.880 --> 0:31:30.720 weren't made, don't forget, those debts would be moved to 0:31:30.760 --> 0:31:34.080 a special purpose entity so they wouldn't have these toxic 0:31:34.120 --> 0:31:37.320 assets on their books, even though they very much owned 0:31:37.680 --> 0:31:42.320 and were indebted for these toxic assets. Still, yeah, I mean, 0:31:43.000 --> 0:31:46.040 like I said, these were brilliant people and like they 0:31:46.040 --> 0:31:49.200 had all their bases covered except for the fact that 0:31:49.440 --> 0:31:53.160 we all know that a house of cards will eventually fall. Uh. 0:31:53.160 --> 0:31:57.200 It's that hubrist thing that just blinds people into thinking 0:31:57.280 --> 0:31:59.920 that it will always like when that when that kind 0:32:00.080 --> 0:32:03.480 money is rolling in. I think it blinds certain people 0:32:03.560 --> 0:32:08.640 so much that they don't understand a who it's hurting 0:32:08.680 --> 0:32:11.480 at the time, or they don't care, or they think 0:32:11.480 --> 0:32:13.960 it's always going to be rolling in like this, or 0:32:14.040 --> 0:32:17.240 they think, hey, I'm gonna get mine now. Because there 0:32:17.240 --> 0:32:19.560 were people in in Ron I mean there we'll talk 0:32:19.560 --> 0:32:22.760 about whistleblower that eventually sort of came out and a 0:32:23.880 --> 0:32:26.560 journalists who are poking around, But there were people that 0:32:26.680 --> 0:32:29.760 started looking at this company, the darling of Wall Street 0:32:29.760 --> 0:32:32.760 and saying something's not right here, like something's not adding up, 0:32:33.040 --> 0:32:37.160 Like you can't even explain how your cash flows through 0:32:37.200 --> 0:32:39.760 your business in a way that makes any kind of 0:32:39.760 --> 0:32:44.320 coherent sense. And anytime they were confronted with this Skilling 0:32:44.360 --> 0:32:47.600 and the his cronies would they would get very haughty 0:32:47.640 --> 0:32:49.480 about it and just be like, well, what do you 0:32:49.520 --> 0:32:52.240 mean we can't explain that? Like, sure we can, it's 0:32:52.280 --> 0:32:56.000 really easy. You just can't understand. You just can't understand. 0:32:56.040 --> 0:32:59.720 It makes your blood boil. Let's let's take a breaking 0:32:59.720 --> 0:33:02.440 the I'm back and talk about the downfall. How about that? Yeah, 0:33:02.520 --> 0:33:27.280 the downfall? Sk as skof should know, okay, Chuck. So 0:33:27.760 --> 0:33:30.680 one question that people might be asking is how were 0:33:30.720 --> 0:33:34.320 these guys allowed to use this accounting and get away 0:33:34.360 --> 0:33:37.479 with it? Why were people even investing in buying shares 0:33:37.520 --> 0:33:41.080 of this this company UM when it was just so 0:33:41.200 --> 0:33:45.520 fraudulent and and just ridiculously fraudulent to not even subtly fraudulent. 0:33:46.120 --> 0:33:50.240 And the answer is the the company was such a 0:33:50.280 --> 0:33:54.960 Wall Street darling that financial analysts would not understand what 0:33:55.040 --> 0:33:58.160 they were hearing on these earnings reports, but would still 0:33:58.160 --> 0:34:01.960 give it a stamp of like buy um. The other 0:34:02.000 --> 0:34:04.920 thing that really really helped was the banks. Wall Street 0:34:04.960 --> 0:34:08.120 banks were very much complicit in this as well. And 0:34:08.160 --> 0:34:11.480 then the thing that helped the most was Arthur Anderson, 0:34:11.840 --> 0:34:18.240 the venerable eighty plus year old um accounting firm. Yeah, 0:34:18.400 --> 0:34:22.359 that was the third party accountant to Enron. Was so 0:34:22.440 --> 0:34:27.480 cozy that they actually hired all of Enron's internal auditing staff, 0:34:28.000 --> 0:34:31.160 made them Arthur Anderson's staff, and then opened a hundred 0:34:31.200 --> 0:34:35.840 and fifty person office for Enron in Enron's own in 0:34:36.160 --> 0:34:40.359 Enron's headquarters, and Arthur Anderson office in Enron's headquarters made 0:34:40.440 --> 0:34:45.440 up a former Enron auditors. That's who was watching the show, 0:34:45.680 --> 0:34:49.680 and so Arthur Anderson had such a good reputation that 0:34:49.800 --> 0:34:52.160 because they were signing off on this, because the Wall 0:34:52.200 --> 0:34:55.080 Street analysts are saying yeah to buy, people were just like, 0:34:55.320 --> 0:34:57.920 I'm buying, I'm buying. And it kept the stock prices 0:34:57.960 --> 0:35:01.000 going up and up and up because nobody was paying 0:35:01.480 --> 0:35:04.960 attention enough. Yeah, there was one person in the dock 0:35:05.080 --> 0:35:07.879 that said that kind of crystallize it, which was like, 0:35:08.520 --> 0:35:11.520 I'm paraphrasing, but he was talking about the fact that 0:35:11.560 --> 0:35:14.160 when this kind of stuff pops up in corporations, like, 0:35:15.160 --> 0:35:18.520 it's not like this. The in runs are everywhere. There 0:35:18.600 --> 0:35:22.040 is all kinds of mouthfeasance, for sure in the corporate world. 0:35:22.040 --> 0:35:25.720 But he basically said, somewhere along the way, it doesn't 0:35:25.760 --> 0:35:29.240 get this big because a legal team says you can't 0:35:29.239 --> 0:35:32.160 do this, or your accountants say you can't do this, 0:35:32.320 --> 0:35:34.799 or the bank say we can't get involved in this. 0:35:35.400 --> 0:35:38.200 And in Ron seemed to be one of those sort 0:35:38.239 --> 0:35:43.319 of unicorns where every person along the way just zip 0:35:43.400 --> 0:35:46.000 their mouth shut even though the numbers weren't adding up, 0:35:46.000 --> 0:35:49.680 and was complicit in this right um. And there was 0:35:49.719 --> 0:35:52.000 a trader that was interviewed in the documentary who said 0:35:52.120 --> 0:35:56.120 like it was ironic that um and Ron's slogan was 0:35:56.160 --> 0:35:58.759 asked why, like why why does something happen like that? 0:35:58.800 --> 0:36:00.640 Why can't we do it that way? And that this 0:36:00.719 --> 0:36:03.160 trader said, I didn't ask myself why, I because I 0:36:03.200 --> 0:36:06.600 didn't want to know. I suspected things were weird or ryan. 0:36:06.680 --> 0:36:09.000 I just didn't want to know because it was my job. 0:36:09.080 --> 0:36:11.080 I was making tons of money. And I think you 0:36:11.080 --> 0:36:13.560 could probably get that excuse out. It's just about anybody 0:36:13.560 --> 0:36:17.360 who was complicited in this large or small um. But 0:36:17.480 --> 0:36:20.160 Arthur Anderson that was the one that really really helped 0:36:20.160 --> 0:36:22.840 things along. And as we'll see, they didn't manage to 0:36:22.880 --> 0:36:25.520 survive the scandal. Yeah, they were Oh man, there was 0:36:25.560 --> 0:36:28.040 that one part of the documentary where they were talking 0:36:28.040 --> 0:36:32.719 about uh fast Ols, you know, shell companies, and he 0:36:32.800 --> 0:36:34.879 was in a meeting that was secretly taped and they're 0:36:34.880 --> 0:36:37.919 basically like, well, wait a minute, it looks like you're 0:36:37.920 --> 0:36:42.120 on the buying and selling sides of these transactions. And 0:36:42.160 --> 0:36:46.200 he was like, yeah, basically, but I've always got Ellen 0:36:46.280 --> 0:36:50.719 Jay's interest at heart, and the whole time he's skimming money. 0:36:50.800 --> 0:36:53.680 And they believed that skilling and lay knew that, like, hey, 0:36:53.840 --> 0:36:56.600 I'm sure that fast Ours is skimming money off the 0:36:56.600 --> 0:36:59.480 top for himself, but who cares because this guy is 0:36:59.520 --> 0:37:02.279 taking care of business for us exactly. And I think 0:37:02.360 --> 0:37:06.000 he skimmed about thirty five million dollars for himself from 0:37:06.080 --> 0:37:08.799 he stole from Mron and they looked the other way 0:37:08.840 --> 0:37:12.560 because the stuff he was doing was so unethical, so 0:37:12.680 --> 0:37:16.560 illegal that he basically earned it as far as they 0:37:16.560 --> 0:37:19.120 were concerned to have his hand in the in the 0:37:19.120 --> 0:37:22.319 cookie jar like that. So, um, I think you kind 0:37:22.320 --> 0:37:24.239 of mentioned there were some people who were like, wait, 0:37:24.280 --> 0:37:27.080 what's going on here. One of the first people was 0:37:27.320 --> 0:37:30.560 Bethanie McClain, the journalists who ended up writing the Smartest 0:37:30.560 --> 0:37:33.759 Guys in the Room. She is awesome. She started out 0:37:33.760 --> 0:37:36.840 writing a story for Fortune magazine back in March of 0:37:36.840 --> 0:37:41.239 two thousand one titled is Enron Overpriced? And she was 0:37:41.400 --> 0:37:44.560 one of the first people to publicly say how is 0:37:44.680 --> 0:37:47.759 Enron making its money? But she wasn't the first to 0:37:47.840 --> 0:37:51.000 hit on this. Um. There's another guy named Jim Chanos 0:37:51.480 --> 0:37:56.279 of um Kinkos um Securities, I think maybe, and I 0:37:56.320 --> 0:37:59.960 think he's in the documentary, but he started shorting Enron 0:38:00.400 --> 0:38:05.360 in two thousand because he noticed very simply their cost 0:38:05.400 --> 0:38:08.440 of capital, so the cost of doing business was more 0:38:08.840 --> 0:38:13.000 than the return on investment, which automatically means that they 0:38:13.040 --> 0:38:17.040 were not a profitable company, which totally was contradicted by 0:38:17.080 --> 0:38:20.399 all of their earnings reports and filings. And he saw 0:38:20.440 --> 0:38:23.360 this and he said, this is this is this is 0:38:23.400 --> 0:38:26.399 not right, and I'm going to start making money off 0:38:26.440 --> 0:38:29.840 of the future downfall of this company and made hundreds 0:38:29.840 --> 0:38:32.520 and hundreds of millions of dollars shorting and Ron stock 0:38:32.600 --> 0:38:37.160 starting in two thousand. Yeah. The whistle blower two was 0:38:37.400 --> 0:38:42.560 um An executive. Main name Sharon Watkins, and she pops 0:38:42.640 --> 0:38:44.520 up a lot in the documentary obviously is key to 0:38:44.560 --> 0:38:49.040 the story. Uh. She didn't whistle blow while this was 0:38:49.080 --> 0:38:51.120 all going on. It was sort of after the ship 0:38:51.200 --> 0:38:55.240 started sinking. Uh. But we'll talk a little bit about 0:38:55.320 --> 0:38:57.840 how that all happened where she ended up. Um but 0:38:58.200 --> 0:39:02.879 what happened in August one. Uh Skilling had replaced lay 0:39:02.960 --> 0:39:05.880 as CEO in February of that year, and in August 0:39:05.880 --> 0:39:09.800 fourte Skilling out of nowhere, and he had just taken 0:39:09.800 --> 0:39:12.359 the reins, you know, a handful of months before he 0:39:12.800 --> 0:39:15.840 uh Skilling quits out of nowhere, he resigns. Uh, he 0:39:15.920 --> 0:39:20.279 stided personal reasons, And what was going on was the 0:39:20.880 --> 0:39:24.839 you know, the Titanic sprung a leak, and as they 0:39:24.840 --> 0:39:27.640 described in the documentary, he was one of the first 0:39:27.760 --> 0:39:31.360 rats to to try and get off the sinking ship. Yeah. 0:39:31.480 --> 0:39:35.760 And it's like, if you are a CEO of a 0:39:35.880 --> 0:39:39.600 huge company, you don't just leave like that. That is 0:39:39.640 --> 0:39:42.719 an enormous red flag. There's like a whole process and 0:39:42.760 --> 0:39:46.640 procedure for finding your replacement, grooming them, introducing him to 0:39:46.680 --> 0:39:49.000 the to the rest of the world. Um, you don't 0:39:49.040 --> 0:39:51.520 just leave like that. And that was such a red 0:39:51.560 --> 0:39:54.520 flag that that whistle blower, UM, what's her name is, 0:39:54.560 --> 0:40:00.319 Sharon Watkins. She um wrote an anonymous letter Delay basically saying, Hey, 0:40:00.680 --> 0:40:03.160 there's a lot of fishy stuff going on around here, 0:40:03.520 --> 0:40:08.399 and now that Skilling suddenly departed, Um, like everyone's going 0:40:08.440 --> 0:40:10.560 to start having questions in this whole house of cards 0:40:10.640 --> 0:40:14.759 is going to fall and um, Lay apparently didn't do 0:40:14.840 --> 0:40:17.480 much about it, and she came to Lay later on 0:40:17.560 --> 0:40:20.279 and said, I'm the person who wrote that anonymous letter, 0:40:20.320 --> 0:40:24.720 and I'm really concerned about this, and ended up trying 0:40:24.760 --> 0:40:26.960 to keep it in the company because I think I 0:40:27.000 --> 0:40:30.400 get the impression that she thought it was something, especially 0:40:30.400 --> 0:40:33.600 now that Skilling was gone, that could be resolved internally. 0:40:33.680 --> 0:40:39.239 I think she really underestimated the extensiveness of the corruption 0:40:39.760 --> 0:40:43.239 and um yeah at the company and thought it was 0:40:43.280 --> 0:40:46.360 a few people when really it was a large cadre 0:40:46.400 --> 0:40:49.439 of people who all were complicit in this. And UM, 0:40:49.719 --> 0:40:52.799 I get the impression that's why she didn't really um 0:40:52.840 --> 0:40:56.800 blow the whistle publicly at that point. Um. But apparently 0:40:56.920 --> 0:41:00.200 ken Ley, once he found out that it was Aaron 0:41:00.239 --> 0:41:03.319 Watkins um consulted legal counsel to figure out how to 0:41:03.360 --> 0:41:07.520 fire her legally. Yeah. Uh. The same day that uh, 0:41:08.000 --> 0:41:11.279 Skilling resigned on August fourteenth, the broadband division that we 0:41:11.320 --> 0:41:14.440 talked about earlier reported a hundred and thirty seven million 0:41:14.480 --> 0:41:17.920 dollar loss analysts, and we should point out to as 0:41:17.920 --> 0:41:21.200 far as the analysts go, they were always installing friendly 0:41:21.200 --> 0:41:24.720 analyst and only working with friendly analysts. But they finally 0:41:24.760 --> 0:41:28.000 got the clue they dropped their ratings for the stock. Uh. 0:41:28.080 --> 0:41:31.319 The end came very very swiftly for en ron Um. 0:41:31.480 --> 0:41:35.880 On October twelve, Arthur Anderson's I mean you still remember 0:41:35.880 --> 0:41:38.000 all the shredding jokes on Late Night TV that ran 0:41:38.040 --> 0:41:43.000 for months and months. Arthur Anderson's legal counsel said, everybody 0:41:43.120 --> 0:41:46.879 shred everything, destroy every file that you have on en Ron. 0:41:47.320 --> 0:41:52.200 And in one day they shredded literally one ton of paper. Yeah, 0:41:52.239 --> 0:41:55.360 and that was just one day. They apparently shredded around 0:41:55.360 --> 0:41:58.680 the clock from October twenty two to November eight, and 0:41:58.760 --> 0:42:01.760 that was just one ton one day. They shredded literal 0:42:01.920 --> 0:42:05.520 tons of documents, just shred, shred, shred. If you're an 0:42:05.520 --> 0:42:08.040 executive at Anderson, you were probably working a late night 0:42:08.120 --> 0:42:12.120 shift shredding alongside everybody else. Um. It was like that. 0:42:12.440 --> 0:42:14.320 And it was apparently at a time where you could 0:42:14.480 --> 0:42:19.879 legally do that and not be you know, indicted for it. Um. 0:42:19.920 --> 0:42:22.279 But that was not a good look when it came 0:42:22.320 --> 0:42:26.840 out that Arthur Anderson was the auditors of this company 0:42:27.000 --> 0:42:30.200 were shredding tons of documents, and the SEC got w 0:42:30.200 --> 0:42:32.000 into this and they said that they're going to start 0:42:32.040 --> 0:42:36.359 investigating finally the special purpose entities that fast Out had 0:42:36.520 --> 0:42:40.000 had set up, and so Enron fired fast Out that 0:42:40.080 --> 0:42:44.239 same day. And I think that was in November or 0:42:44.320 --> 0:42:49.000 late October of two thousand, two thousand one, and um, 0:42:49.239 --> 0:42:53.279 right after that on November eight and Ron said, Hey, everybody, 0:42:54.560 --> 0:42:56.960 do you remember all of our all that money we 0:42:57.000 --> 0:43:00.799 said we made going back to We're gonna need to 0:43:00.880 --> 0:43:04.120 restate our earnings. One of one of the first things 0:43:04.160 --> 0:43:07.200 they did was they reported a six hundred and eighteen 0:43:07.239 --> 0:43:11.600 million dollar loss for Q three of two thousand one 0:43:13.000 --> 0:43:15.920 Q one. They pro they posted a four hundred and 0:43:16.000 --> 0:43:19.759 six million dollar profit Q two, four hundred and four 0:43:19.800 --> 0:43:23.240 million dollar profit, Q three a six hundred and eighteen 0:43:23.239 --> 0:43:26.840 million dollar loss. So they finally came clean. They finally said, 0:43:27.120 --> 0:43:31.720 this accounting is off, and this is how radically it's off. Yeah, 0:43:32.000 --> 0:43:34.920 I mean that is uh if a company is restating 0:43:35.520 --> 0:43:39.359 their earnings for that period of time right at all, 0:43:39.440 --> 0:43:41.600 Like mistakes can happen, but that's a that's a real 0:43:41.800 --> 0:43:47.799 bad sign. Um. They almost got a lifeline in I 0:43:47.800 --> 0:43:50.040 guess late October of that year when they tried to 0:43:51.000 --> 0:43:55.920 merge with a company called Dyna g Incorporated, and that deal, 0:43:56.840 --> 0:44:00.200 that deal fell apart on November they backed out of 0:44:00.239 --> 0:44:03.719 the deal Dyna Gy did and then what what is this? 0:44:03.800 --> 0:44:07.759 Four days later on December two, in Ron filed for 0:44:07.840 --> 0:44:12.400 the largest Chapter eleven bankruptcy in US history up to 0:44:12.440 --> 0:44:16.680 that time, sixty five point five billion dollar company UM 0:44:16.680 --> 0:44:19.400 filed for bankruptcy. That just did not happen. If you 0:44:19.480 --> 0:44:22.279 had that that kind of money, you could have a 0:44:22.320 --> 0:44:24.759 fire sale and sell off stuff for way less than 0:44:24.800 --> 0:44:27.319 you paid for it, but you could still survive. And 0:44:27.360 --> 0:44:29.600 that just goes to show you, like just how fraudulent 0:44:29.680 --> 0:44:32.520 this company was. They couldn't have a fire sale and 0:44:32.600 --> 0:44:35.160 make up that kind of UM. That kind of the 0:44:35.320 --> 0:44:38.440 debt that they owed I think was seventy two billion 0:44:38.440 --> 0:44:41.080 dollars I think in debt that they finally UM were 0:44:41.120 --> 0:44:43.480 found to have owed. And at the time it was 0:44:43.520 --> 0:44:45.719 the biggest UM. In two thousand and eight we saw 0:44:45.760 --> 0:44:49.839 what big really was. Lehman Brothers for example, UM had 0:44:50.000 --> 0:44:53.000 six hundred and thirty nine billion dollars in assets when 0:44:53.000 --> 0:44:55.719 it filed for bankruptcy and went under. But at the 0:44:55.800 --> 0:44:59.440 time and Ron was like eye popping as far as 0:44:59.480 --> 0:45:04.320 bankruptcy these went for corporations. Can you imagine the wave 0:45:04.480 --> 0:45:10.040 of relief that swept through dyna Gy Incorporated. Yeah, when 0:45:10.160 --> 0:45:14.520 the particular bankruptcy a few days later after they backed out. Yeah, 0:45:14.520 --> 0:45:17.640 that one just off hand conversation at the vending machine 0:45:17.680 --> 0:45:22.560 over a packet of checks mix like save Dynagy forever. 0:45:22.960 --> 0:45:25.160 You know, this seems like a bad deal to me. 0:45:25.239 --> 0:45:28.440 Crunch Crunch right, and Dynagy, by the way, went on 0:45:28.480 --> 0:45:34.200 to become Apple. Uh So the fallout from this, uh, 0:45:34.239 --> 0:45:38.080 there are a lot of victims. Twenty thousand employees. Twenty 0:45:38.280 --> 0:45:44.040 thousand employees lost their job. And how how long did 0:45:44.080 --> 0:45:45.520 they have to get out? What? What is saying the 0:45:45.880 --> 0:45:47.759 day I think they had the day? I think it 0:45:47.800 --> 0:45:49.440 was less than that. I feel like it was hours 0:45:49.520 --> 0:45:52.960 or something. Basically, pack your s and get out of 0:45:53.000 --> 0:45:57.560 here everybody. And like literally this huge tall building has 0:45:57.719 --> 0:46:00.720 thousands of people just leaving all day with anchors boxes 0:46:00.800 --> 0:46:03.480 with their contents of their desk in it, like the 0:46:03.560 --> 0:46:08.680 ultimate movie troupe Um. Every employee that had been told 0:46:08.760 --> 0:46:12.319 for years and years, hey, you gotta invest everything you 0:46:12.360 --> 0:46:16.560 can in that for because en Ron is I mean, 0:46:16.600 --> 0:46:19.439 look at the stock we're going places and that money 0:46:19.440 --> 0:46:24.040 will be safe there. They obviously lost almost everything. There 0:46:24.080 --> 0:46:26.239 was a you know, the rank and file employees that 0:46:26.320 --> 0:46:28.800 was one in the documentary that said he had about 0:46:28.920 --> 0:46:32.120 close to three fifty dollars in stock that he ended 0:46:32.200 --> 0:46:37.120 up dumping for twelve hundred dollars. Uh. They froze the 0:46:37.200 --> 0:46:41.000 stock accounts of the ranking file while upper management was 0:46:41.040 --> 0:46:45.520 actively still cashing out. Yeah, that was a really scummy move. 0:46:45.719 --> 0:46:49.279 They I'm sure, purposefully changed for one K providers in 0:46:49.280 --> 0:46:51.880 the midst of all this. And when you do that, 0:46:52.080 --> 0:46:55.280 it's there's a minimum thirty day freeze as you transfer 0:46:55.360 --> 0:47:00.800 assets over, so these poor employees couldn't sell their shares. 0:47:00.840 --> 0:47:04.799 Like you said, Wow, the executives were making tens and 0:47:04.800 --> 0:47:09.240 tens of millions of dollars worth of of option trades. Yeah, 0:47:09.480 --> 0:47:11.400 I mean, it's just mind boggling. That to me is 0:47:11.400 --> 0:47:14.440 probably the worst part of the whole thing. Well, and 0:47:14.520 --> 0:47:17.680 you know, tie with that, their severange package averaged about 0:47:17.760 --> 0:47:22.280 four thousand, five dollars for the average employees, while management 0:47:22.320 --> 0:47:26.280 bonuses totaled more than fifty five million. And that's just bonuses, 0:47:26.400 --> 0:47:30.799 that's not cashing out stocks. Uh. And Livia, who helped 0:47:30.880 --> 0:47:34.720 us put this together, great job on this article, pointed 0:47:34.760 --> 0:47:37.560 out something like other fallout like you never even think about, 0:47:37.600 --> 0:47:40.160 which was en Ron was a very big investor and 0:47:40.200 --> 0:47:44.400 donor and local nonprofits in Houston, and all of a sudden, 0:47:44.480 --> 0:47:46.439 all that money is cut off and like the Red 0:47:46.440 --> 0:47:49.439 Cross chapter had to cut its budget from twelve million 0:47:49.480 --> 0:47:53.360 dollars to nine million dollars in one year, largely because 0:47:54.000 --> 0:47:56.600 the money dried up from en Ron. So the fallout 0:47:57.239 --> 0:47:59.400 was far and wide. And that's not even mentioning, like 0:47:59.440 --> 0:48:03.240 we're talking about the employees who had stock in the company, 0:48:03.400 --> 0:48:06.840 like every other human being that had just stock in 0:48:06.880 --> 0:48:09.040 and Ron had nothing to do with it, lost all 0:48:09.080 --> 0:48:13.000 their money. Yeah. I mean the stock price was at 0:48:13.080 --> 0:48:15.840 ninety at one point and it dropped down to I 0:48:15.880 --> 0:48:21.160 think forty something since in like a year. Basically. Um So, Yeah, 0:48:21.239 --> 0:48:25.000 the the employees in particular, and the retirees who had 0:48:25.040 --> 0:48:28.120 already left and whose pension funds were just totally evaporated, 0:48:28.480 --> 0:48:31.160 meaning you're gonna have to go get a job as 0:48:31.200 --> 0:48:34.920 a Walmart Greater now because you can't afford anything. Um. 0:48:34.960 --> 0:48:37.759 They are definitely the greatest victims of all this. I 0:48:37.800 --> 0:48:41.920 saw um ken Lay's lawyer afterward, Portray Kenley is the 0:48:41.960 --> 0:48:44.879 greatest victim of all of it, because he apparently lost 0:48:44.920 --> 0:48:50.359 a few hundred million dollars um and he um, I did. 0:48:50.520 --> 0:48:53.319 He didn't say it himself, but he definitely tried to say, like, 0:48:53.880 --> 0:48:56.120 I lost so much money, There's no way I could 0:48:56.120 --> 0:48:59.440 have known what was going on, and that fell on 0:48:59.520 --> 0:49:02.200 deaf or and that same defense was used by Jeffrey 0:49:02.200 --> 0:49:04.400 Skilling too. I didn't know what was going on, and 0:49:04.440 --> 0:49:06.359 so what they tried to do was pin the whole 0:49:06.360 --> 0:49:10.000 thing on Andrew fast Out, who had been fired, who 0:49:10.080 --> 0:49:13.960 had skimmed thirty something million dollars himself, so had proven 0:49:14.360 --> 0:49:17.880 demonstrated he was a criminal. They made it. They tried 0:49:17.920 --> 0:49:21.120 to play like he was a rogue CFO that had 0:49:21.160 --> 0:49:23.840 done all of this under the very nose of Jeffrey 0:49:23.840 --> 0:49:26.880 Skilling and Ken Lay and that they hadn't known. And 0:49:26.920 --> 0:49:32.319 the public, Congress, the courts, juries, everybody said, you have 0:49:32.520 --> 0:49:35.520 to be kidding us. Yeah, And and they were right. 0:49:35.920 --> 0:49:38.560 In the end. Fastile pleading guilty to two counts of 0:49:38.600 --> 0:49:42.319 wire frauds and securities fraud uh in return for being 0:49:42.400 --> 0:49:46.160 a witness against Skilling and Lay I think had a 0:49:46.280 --> 0:49:48.440 tenure sentence for what was going to be a much 0:49:48.520 --> 0:49:52.719 larger sentence, ended up serving five years. Uh, and then 0:49:53.239 --> 0:49:57.839 got out into and started, you know, getting paid as 0:49:57.840 --> 0:50:02.520 a speaker to corporations about business ethics. UH. You know, 0:50:02.680 --> 0:50:05.799 to his credit, I guess twenty years on he he 0:50:05.880 --> 0:50:10.560 came out officially and apologized for everything seems to really 0:50:11.040 --> 0:50:14.000 have turned the corner. UH and learned a lesson, although 0:50:14.040 --> 0:50:16.239 you never knows what is going on in someone's heart 0:50:17.000 --> 0:50:20.799 from the outside. UM. Arthur Anderson completely went away, the 0:50:20.800 --> 0:50:26.200 oldestcounting form accounting firm in the country. UH. Never recovered, 0:50:26.560 --> 0:50:30.360 completely folded and went out of business. UH. The Sarbanes 0:50:30.400 --> 0:50:34.160 Oxley Act was enacted basically because of Enron in two 0:50:34.200 --> 0:50:38.240 thousand two, which was UH. And I remember I remembered 0:50:38.360 --> 0:50:40.759 years ago when we were working in our early days 0:50:40.760 --> 0:50:43.239 at how stuff works, there was a lot of like 0:50:43.280 --> 0:50:47.560 Sarbanes Oxley talk. Uh. Do you remember that stuff? Yeah, 0:50:47.600 --> 0:50:50.560 because they came up with the Frank Dodd Um Act 0:50:50.800 --> 0:50:55.759 to to basically undo or combat against future stuff from 0:50:55.800 --> 0:50:58.480 the two thousand and eight financial crisis. This was the 0:50:58.520 --> 0:51:02.560 same thing six years here, Like Enron was had such 0:51:02.560 --> 0:51:04.840 a huge effect that they passed the law that basically, 0:51:04.880 --> 0:51:08.799 point for point outlawed all the stuff that Enron had done. 0:51:08.960 --> 0:51:11.440 They did the same thing with the Dodd Frank Actor. 0:51:11.520 --> 0:51:14.200 They tried to UH. And of course, you know, certain 0:51:14.239 --> 0:51:17.879 people say Sarbanes oxually has no real teeth anymore because 0:51:17.960 --> 0:51:22.080 they're not even funding the oversight that they promised. Other people, 0:51:22.520 --> 0:51:25.359 you know, the die hard free marketers will say it's 0:51:25.360 --> 0:51:29.400 actually too restrictive. Uh, we're not able to be competitive 0:51:29.440 --> 0:51:32.120 anymore because you've got all these rules now to make 0:51:32.160 --> 0:51:35.399 sure we're not defraunding people of billions of dollars. Yeah, 0:51:35.440 --> 0:51:40.719 you're making it hard to exploit people. So um, there 0:51:40.800 --> 0:51:43.560 was actually convictions like this is crazy. And one of 0:51:43.560 --> 0:51:45.839 the heartening things, Chuck is if you watch like these 0:51:45.840 --> 0:51:50.719 congressional hearings on this um, people from both sides of 0:51:50.719 --> 0:51:55.120 the aisle are grilling these guys. No one was apologizing 0:51:55.160 --> 0:51:57.719 to them for their you know, their colleague from the 0:51:57.719 --> 0:52:00.640 other side of the aisle asking you know me questions. 0:52:01.120 --> 0:52:04.680 Everyone was mad at these guys. The whole world hated 0:52:04.719 --> 0:52:08.239 Jeffrey Skilling and Ken Lay and Andrew fast Out. He 0:52:08.360 --> 0:52:11.960 was smug up there man answering those questions in the 0:52:11.960 --> 0:52:14.560 face of all that, he was still so smug about it. 0:52:14.880 --> 0:52:17.600 I looked up whether he ever apologized, and I could 0:52:17.640 --> 0:52:20.880 not find it. I don't think Jeffrey Skilling ever apologized. 0:52:20.920 --> 0:52:24.440 To think, he went throughout his entire time in prison 0:52:24.480 --> 0:52:27.600 basically saying like he was a victim, that this was unfair, 0:52:28.320 --> 0:52:30.800 but he was imprisoned. He was an executive that was 0:52:30.840 --> 0:52:34.040 in prison. That just does not happen lately. Um. He 0:52:34.080 --> 0:52:38.759 was convicted of nineteen counts frog conspiracy, insider trading. He 0:52:38.880 --> 0:52:41.640 got twenty four years in prison and ended up serving twelve, 0:52:42.440 --> 0:52:48.200 which is I mean, yeah, that sucks, but no, for sure, 0:52:48.280 --> 0:52:51.880 that's a long time to do in the clink. Um. 0:52:51.960 --> 0:52:54.840 And then ken Lay he was convicted on ten counts, 0:52:55.200 --> 0:52:57.120 but he wasn't able to be sentenced because he died 0:52:57.160 --> 0:53:00.479 of a heart attack six weeks after being convicted. Um, 0:53:00.480 --> 0:53:04.640 and I think his his conviction was vacated. Yeah, skilling 0:53:05.680 --> 0:53:09.680 uh now is out and works uh and an oil 0:53:09.719 --> 0:53:14.640 and gas analytics startup. Uh. It seems that other people, Um, 0:53:14.719 --> 0:53:16.520 I think we Yeah. I mentioned that Fastile was on 0:53:16.560 --> 0:53:21.520 the speaker circuit um the whistleblower. Um. Miss Watkins was 0:53:21.640 --> 0:53:25.400 named Times UH Person of the Year in two thousand two, 0:53:26.280 --> 0:53:29.680 and I believe is also now a paid speaker and 0:53:30.040 --> 0:53:34.560 executive in residence at Texas State University. And then there 0:53:34.680 --> 0:53:38.320 was a matter of because I was like, uh, Olvia 0:53:38.360 --> 0:53:40.120 didn't get to it. But I was like, well, surely 0:53:40.120 --> 0:53:44.600 there was some sort of um making it right for 0:53:44.680 --> 0:53:47.920 these people. Who lost all this money? Right? Uh? And 0:53:47.960 --> 0:53:51.720 there were lawsuits that came out and settlements that came out. 0:53:52.520 --> 0:53:55.120 Different people ended up being paying different things. I think 0:53:55.120 --> 0:53:58.680 it was a seven point two billion dollar settlement from 0:53:58.719 --> 0:54:02.280 inn Ron Um. I believe the banks were on the hook. 0:54:03.200 --> 0:54:04.600 I can tell if the banks were on the hook 0:54:04.640 --> 0:54:06.520 for some of that or if it was a separate thing. 0:54:08.040 --> 0:54:10.600 I don't know. I saw that they squeezed a total 0:54:10.640 --> 0:54:13.040 of twenty billion out of and Ron before they like 0:54:13.160 --> 0:54:16.719 let it go. Okay, I don't know, but I did 0:54:16.719 --> 0:54:18.759 see the banks were definitely on the hook, but just 0:54:18.800 --> 0:54:20.759 for being complicit. I don't know if that was in 0:54:20.880 --> 0:54:24.480 addition though either Yeah, I think, uh yeah. It says 0:54:24.560 --> 0:54:27.160 right here that the bulk of the settlements, almost seven 0:54:27.200 --> 0:54:30.799 billion of it, came from JP Morgan, Chase City Group, Uh, 0:54:30.840 --> 0:54:35.120 the Canadian Imperial Bank of Commerce, Oh yeah, Lehman Brothers 0:54:35.200 --> 0:54:38.200 chipped in. Bank of America chipped in. The Big five 0:54:38.239 --> 0:54:42.120 auditing firm Arthur Anderson. Of course we talked about they 0:54:42.200 --> 0:54:46.160 chipped in. I think, well, I don't see how they 0:54:46.160 --> 0:54:47.720 could have chipped in it they went out of business, 0:54:47.719 --> 0:54:49.920 but I guess they chipped in before they went out 0:54:49.960 --> 0:54:54.080 of business all right. So, um, you know, if you 0:54:54.160 --> 0:54:56.840 hear the story, especially if you're used to us in 0:54:56.880 --> 0:55:00.000 our podcast, you might be like, well, guys, you didn't 0:55:00.040 --> 0:55:03.399 really get to the other side of the story. There 0:55:03.680 --> 0:55:06.600 is no other side of the story. This is one 0:55:06.640 --> 0:55:11.400 of those rare stories that is basically black and white. 0:55:11.480 --> 0:55:16.719 It was just there's no redemption, there's no explaining it away, 0:55:16.760 --> 0:55:20.440 there's no apologizing for it. It's just it was just 0:55:20.480 --> 0:55:23.359 as wrong as it appears. So that's why we didn't 0:55:23.360 --> 0:55:25.960 include the other side of the story in this one. Yeah, 0:55:26.000 --> 0:55:28.600 I don't think there's anyone out there who's who's going 0:55:28.640 --> 0:55:31.359 to bat for Enron. If there's somebody, there's somebody, and 0:55:31.360 --> 0:55:35.200 they will leave it on our Apple reviews right, totally 0:55:35.200 --> 0:55:40.920 will didn't get a fair shake from these totally Hitler 0:55:41.040 --> 0:55:44.480 or Satan. You got anything else? I got nothing else. 0:55:45.120 --> 0:55:47.440 Uh well, I don't have anything else either. If you 0:55:47.480 --> 0:55:50.240 want to know more about Enron, go watch the Smartest 0:55:50.239 --> 0:55:52.719 Guys in the Room. Definitely will leave you wanting more. 0:55:53.080 --> 0:55:56.839 And there's plenty to read about, including some great contemporary 0:55:56.960 --> 0:55:59.919 articles all over the Internet. And since I said content 0:56:00.000 --> 0:56:06.520 a prairie instead of contemporanius, it's time for listener mail. Uh. 0:56:06.560 --> 0:56:08.359 This is a little wordy, but it's it's We don't 0:56:08.400 --> 0:56:10.799 often do UM shoutouts and tributes, but this was a 0:56:10.840 --> 0:56:14.359 really special one, so we're doing it. Hey, guys, this 0:56:14.400 --> 0:56:18.279 is from Gavin, recent college graduate and history enthusiast, and 0:56:18.320 --> 0:56:21.439 Gavin says, I've been listening since I was fifteen, over 0:56:21.480 --> 0:56:24.520 seven years now. My mom was the one who introduced 0:56:24.560 --> 0:56:26.680 me to the show, and we've both been listeners ever since. 0:56:27.080 --> 0:56:29.239 I'm pretty sure she listens every episode that you guys 0:56:29.280 --> 0:56:32.000 put out. My mom was also the person who imparted 0:56:32.000 --> 0:56:35.000 a thirst for knowledge and learning in me as a child. 0:56:35.560 --> 0:56:37.279 I've had great many teachers in my life, and I'm 0:56:37.360 --> 0:56:39.640 very thankful for them, but my mom has always been 0:56:39.640 --> 0:56:42.320 my greatest encouragement and my role model as a student 0:56:42.360 --> 0:56:45.200 and as a person. Over the past four years in 0:56:45.239 --> 0:56:47.960 college and directly after, I got really busy, moved twelve 0:56:48.000 --> 0:56:51.040 hours from home, and it meant I stopped listening to podcast, 0:56:51.120 --> 0:56:55.319 including you guys. I know, more importantly, also lost touch 0:56:55.360 --> 0:56:58.080 with my mom. I didn't completely ghost or anything, but 0:56:58.160 --> 0:57:00.360 I still did not reach out to her nearly as 0:57:00.440 --> 0:57:03.080 much as I wanted to or needed to. But often 0:57:03.160 --> 0:57:04.880 when I eventually would, she would ask me if I 0:57:04.920 --> 0:57:07.840 listen to stuff you should know recently, and she'd have 0:57:07.880 --> 0:57:10.560 an episode to recommend because I think you'd really enjoyed 0:57:10.640 --> 0:57:13.480 this one. Luckily, now have a job where I'm having 0:57:13.480 --> 0:57:16.320 more flexible hours, and over that time, I've picked stuff 0:57:16.320 --> 0:57:19.320 he should know, back up, re energize my love for knowledge, 0:57:19.320 --> 0:57:21.560 and learned that my mom has given me that was 0:57:21.640 --> 0:57:24.439 my mom had given me years ago. All this to say, 0:57:24.480 --> 0:57:26.920 you guys mean a lot to me and my mother. Uh, 0:57:26.960 --> 0:57:28.480 And I thank you for that. You've helped me stay 0:57:28.480 --> 0:57:30.720 connected to her in a way that I would not 0:57:30.800 --> 0:57:34.000 have been able to do otherwise. I'd just like to 0:57:34.040 --> 0:57:37.080 take this chance to thank my mom. I know you're listening, Mom, 0:57:37.480 --> 0:57:40.160 I know we'll talk about this episode later, And thank 0:57:40.160 --> 0:57:42.520 you for encouraging me and understanding that I love you 0:57:43.000 --> 0:57:46.800 even when I'm not great at communicating it. And boy, 0:57:46.840 --> 0:57:50.040 this one's really pulling at the heartstrings. Every time I 0:57:50.040 --> 0:57:51.880 pick up a book or listen to a podcast or 0:57:51.880 --> 0:57:54.320 write a paper, I think of you, Mom, and I 0:57:54.360 --> 0:57:56.960 know that I always will. I love you, And this 0:57:57.040 --> 0:58:02.040 is the only way I know how to tell you properly. Uh. Kevin, 0:58:02.040 --> 0:58:03.680 you can pick up the phone and saying this stuff 0:58:03.720 --> 0:58:07.520 my friend. Uh, he's back to you. Guys, you got 0:58:07.560 --> 0:58:09.800 a great show. I hope we have many more years 0:58:10.120 --> 0:58:13.960 of remaining learning and growing together. And that lovely, lovely 0:58:14.000 --> 0:58:19.680 sentiment is from Gavin in fayette Ville, Tennessee. That was amazing, Kevin, hatsop, Chuck. 0:58:19.800 --> 0:58:23.200 I totally get why you chose that shout out to 0:58:23.240 --> 0:58:25.200 be the one to break the rule. Yeah, it should 0:58:25.200 --> 0:58:29.200 have been along Mother's Day, around Mother's Day, but well 0:58:29.280 --> 0:58:31.640 we can replay it around Mother's Day first select how 0:58:31.640 --> 0:58:36.000 about that instead it's the end run episode, right. Uh. 0:58:36.120 --> 0:58:37.960 If you want to be like Gavin and just be 0:58:38.040 --> 0:58:40.960 a super great person, but not request to shout out, 0:58:41.120 --> 0:58:43.680 just be a super great person, we want to hear 0:58:43.840 --> 0:58:47.000 from you. Also, while I'm thinking of it, go check 0:58:47.040 --> 0:58:51.360 out our social feeds. They used to suck, now they're great. Also, 0:58:51.520 --> 0:58:52.840 if you want to get in touch with this, like 0:58:52.880 --> 0:58:55.360 I said, you can hit us up via email at 0:58:55.440 --> 0:59:01.400 stuff podcast at iHeart radio dot com. Stuff you Should 0:59:01.440 --> 0:59:03.880 Know is a production of I Heart Radio. For more 0:59:03.920 --> 0:59:06.720 podcasts my heart Radio, visit the i heart Radio app, 0:59:06.920 --> 0:59:09.840 Apple Podcasts, or wherever you listen to your favorite shows, 0:59:12.680 --> 0:59:12.720 h