Table Of Content

Conspiracy of Fools By: Kurt Eichenwald From an award-winning New York Times reporter comes the full, mind-boggling story of the lies, crimes, and ineptitude behind the spectacular scandal that imperiled a presidency, destroyed a marketplace, and changed Washington and Wall Street forever. It was the corporate collapse that appeared to come out of nowhere. In late 2001, the Enron Corporation-a darling of the financial world, a company whose executives were friends of presidents and the powerful-imploded virtually overnight, leaving vast wreckage in its wake and sparking a criminal investigation that would last for years. But for all that has been written about the Enron debacle, no one has yet to re-create the full drama of what has already become a near-mythic American tale. Until now. With Conspiracy of Fools, Kurt Eichen-wald transforms the unbelievable story of the Enron scandal into a rip-roaring narrative of epic proportions, one that is sure to delight readers of thrillers and business books alike, achieving for this new decade what books like Barbarians at the Gate and A Civil Action accomplished in the 1990s. Written in the roller-coaster style of a novel, the compelling narrative takes readers behind every closed door-from the Oval Office to the executive suites, from the highest reaches of the Justice Department to the homes and bedrooms of the top officers. It is a tale of global reach-from Houston to Washington, from Bombay to London, from Munich to Sao Paulo-laying out the unbelievable scenes that twisted together to create this shocking true story. Eichenwald reveals never-disclosed details of a story that features a cast including George W. Bush, Dick Cheney, Pai , Harvey Pitt, Colin Powell, Gray Davis, Arnold Schwarzenegger, Alan Greenspan, Ken Lay, Andy Fastow, Jeff Skilling, Bill Clinton, Rupert Murdoch, and Sumner Redstone. With its you-are-there glimpse into the secretive worlds of corporate power, Conspiracy of Fools is an all-true financial and political thriller of cinematic proportions. KURT EICHENWALD has written for the New York Times for more than seventeen years. A two-time winner of the George Polk Award for Excellence in Journalism and a finalist for the 2000 Pulitzer Prize, he has been selected repeatedly for the TJFR Business News Reporter as one of the nation's most influential financial journalists. His last book, The Informant, is currently in development as a major motion picture. He lives in Dallas with his wife and three children. www.broadwaybooks.com www.conspiracyoffools.com Jacket photograph Mafford/Photodisc/Getty Images CONSPIRACY OF FOOLS ALSO BY KURT EICHENWALD THE iNFORMANT SERPENT ON THE ROCK A TRUE. STORY KURT EICHENWALD BROADWAY BOOKS NEW YORK CONSPIRACY OF FOOLS. Copyright 2005 by Kurt Eichenwald. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. For information, address Broadway Books, a division of Random House, Inc. PRINTED IN THE UNITED STATES OF AMERICA BROADWAY BOOKS and its logo, a letter B bisected on the diagonal, are trademarks of Random House, Inc. Visit our website at www.broadwaybooks.com First edition published 2005. Book design by Lovedog Studio. Library of Congress Cataloging-in-Publication Data Eichenwald, Kurt, 1961 Conspiracy of fools : a true story / Kurt Eichenwald.- 1st ed. p. cm. 1. Enron Corp.-Corrupt practices. 2. Energy industries-Corrupt practices-United States. 3. Lay, Kenneth L. 4. Business failures-United States. I.Title. HD9502.U54E5736 2005 333.79'0973-dc22 2004058216 ISBN 0-7679-1178-4 10 987654321 To my parents, Elva Eichenwald and Heinz Eichenwald, Who encouraged me to fight my windmills And cheered me when I won. Reason dreams of an empire of knowledge, a mansion of the mind. Yet sometimes we end up living in a hovel by its side. -Heinz R. Pagels, The Dreams of Reason If I remember, I predicted fence integrity would fail. -The character of Ian Malcolm, in Michael Crichton's Jurassic Park AUTHOR'S NOTE This narrative account is based on more than a thousand hours of interviews with over a hundred participants in these events as well as a review of tens of thousands of confidential corporate and government documents. Those include FBI notes of interviews and testimony before federal grand juries, the SEC, and other federal bodies. The dialogue comes from those documents and contemporaneous records-including personal diaries-or from the best recollections of participants. This, then, is the full story of America's biggest corporate scandal, one that, in the end, involved events that even now may seem difficult to believe. But they're all real. THE CAST OF CHARACTERS and Their Primary Roles WITH THE EN RON CORPORATION, HOUSTON, TEXAS The Top Officers Kenneth Lay, chairman and CEO Rich Kinder, president (1989-1996) Jeffrey Skilling,president (1997-2001), GregWhalley,president (2001) CEO (2001) In the Finance Division Andrew Fastow, chief financial officer (1998-2001) Michael Kopper, head of special projects Jeffrey McMahon, treasurer (1999-2000), CFO (2001-2002) Ben Glisan Jr." treasurer (2000-2001) Raymond Bowen Jr." treasurer (2001-2002) Jordan Mintz, general counsel Lea Fastow, assistant treasurer Michael Jakubik, vice president JimTimmins, director, private equity Tim Despain, vice president Bill Brown, vice president The Internal Accountants Richard Causey, chief accounting officer David Woytek, vice president, corporate auditing Rodney Faldyn, vice president, transaction accounting group Ryan Siurek, member, transaction accounting group In Risk Assessment Richard Buy, chief risk officer Vasant Shanbhogue, analyst Vince Kaminski, vice president of Rakesh Bharati, analyst research Kevin Kindall, analyst Stinson Gibner, analyst In Corporate Development J. Clifford Baxter, executive vice Mark Muller, senior vice president president Sherron Watkins, vice president (2001) The Corporate Staff Rebecca Carter, investor relations Mark Koenig, head of investor relations representative, corporate secretary Cindy Olson, head of community Mark Palmer, head of corporate relations communications Stephen Kean, head of government affairs (1998), chief of staff (1999-2001) In the Legal Department James Derrick, general counsel Rex Rogers, associate general counsel Rob Walls, deputy general counsel In Wholesale Energy Kenneth Rice, chief executive Kevin Harmon, president Greg Whalley, president (2000) Amanda Martin, managing director, asset management Mark Haedicke, general counsel Kristina Mordaunt, co-head of finance legal cluster (1997-1999) Timothy Belden, managing director, west power trading division John Forney, manager, west power real time trading desk Stuart Zisman, senior counsel Mark Frevert, president, London (1998), unit chairman (2000-2001) In Retail Energy Andrew Fastow, managing director (1996) David Delainey, chief executive (2001) Lou Pai, chief executive (1996-2001) Raymond Bowen Jr." vice president In the International Division Rebecca Mark, chief executive Joseph Sutton, deputy In the Broadband Division Kenneth Rice, co-chief executive (1999), Rex Shelby, senior vice president chief commercial officer (2000) Kristina Mordaunt, general counsel Joseph Hirko, co-chief executive (1999-2001) Kevin Harmon, chief operating officer At Portland General, an Electric Utility Kenneth Harrison, chairman Joseph Hirko, chief financial officer (1991-1996) AtAzurix, a Water Company Rebecca Mark, chief executive Colin Skellett, executive director Amanda Martin, executive director On the Board of Directors John Duncan Robert Jaedicke Herbert "Pug" Winokur Jr. Robert Belfer Norman Blake Wendy Gramm Charles "Mickey" LeMaistre William Powers WITH ARTHUR ANDERSEN & CO. Joseph Berardino, managing partner (2001-2002) Andrew Pincus, general counsel John Riley, practice director Rich Corgel, practice director David Duncan, partner Stephen Goddard, partner Thomas Bauer, partner Carl Bass, partner In the Houston Office Debra Cash, partner Patricia Grutzmacher, partner Gary Goolsby, global managing partner James Hecker, partner In the Professional Standards Group, Chicago, Illinois John Stewart, partner Ben Neuhausen, partner In the litigation group, Chicago, Illinois Nancy Temple, lawyer WITH DYNEGY CORPORATION, HOUSTON, TEXAS Chuck Watson, chairman and chief executive Stephen Bergstrom, president Keith Fullenweider, deputy general counsel Rob Doty, chief financial officer WITH MERRILL LYNCH & COMPANY Daniel Bayly, head of global investment Robert Furst, relationship banker, banking Dallas office James Brown, head of strategic asset John Olson, securities analyst lease and finance Schuyler Tilney, relationship banker, Houston office WITH GREENWICH NAT WEST GREENWICH, CONNECTICUT, AND LONDON, ENGLAND Gary Mulgrew, managing director Giles Darby, managing director David Bermingham, banker WITH J. P. MORGAN CHASE James (Jimmy) Lee, vice chairman Rick Walker, relationship banker WITH KYNIKOS ASSOCIATES James Chanos, president THE OTHER CHIEF EXECUTIVES Dennis Kozlowski, Tyco International Sumner Redstone'Viacom Rupert Murdoch, News Corporation WITH THE LAW FIRMS At Vinson & Elkins, Houston, Texas Joseph Dilg, managing partner Max Hendrick III, partner Ronald Astin, partner At Wilmer, Cutler & Pickering, Washington, D. C. William McLucas, partner William Joor, partner Charles Davidow, partner Reed Brodsky, counsel Joseph Brenner, partner At Weil, Gotshal & Manges, New York City Thomas Roberts, partner Mary Korby, partner THE PRESIDENTS George H.WBush (1988-1992) Bill Clinton (1992-2001) George W. Bush (2001-2004) AT THE WHITE HOUSE OF GEORGE W. BUSH, WASHINGTON, D.C. Dick Cheney, Vice President Andrew Card, Chief of Staff AT THE UNITED STATES DEPARTMENT OF JUSTICE, WASHINGTON, D.C. John Ashcroft, Attorney General Larry Thompson, Deputy Attorney General Michael Chertoff, head of the criminal division On the Enron Task Force Leslie Caldwell, director Andrew Weissmann, deputy director

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From an award-winning New York Times reporter comes the full, mind-boggling story of the lies, crimes, and ineptitude behind the spectacular scandal that imperiled a presidency, destroyed a marketplace, and changed Washington and Wall Street forever . . . It was the corporate collapse that appeared