American Scandal

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Every scandal begins with a lie. But the truth will come out. And then comes the fallout and the outrage.

Scandals have shaped America since its founding. From business and politics to sports and society, we look on aghast as corruption, deceit and ambition bring down heroes and celebrities, politicians and moguls. And when the dust finally settles, we’re left to wonder: how did this happen? Where did they trip up, and who is to blame? From the creators of American History Tellers, Business Wars and Tides of History comes American Scandal, where we take you deep into the heart of America’s dark side to look at what drives someone to break the rules and what happens when they’re caught. Hosted by Lindsay Graham.

Encore: Enron | Death Spiral | 4

Encore: Enron | Death Spiral | 4

Tue, 27 Jul 2021 09:00

The Wall Street Journal works to expose the shady financial deals key to Enron’s success. With his company pushed to the brink of bankruptcy, Ken Lay engages in a desperate ploy to avert disaster.

This episode originally aired on September 17, 2019.

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It's late October 2001. Wall Street Journal reporter John R. M. Schweiler sits in his office at the paper's Los Angeles Bureau in shock. He stares at the computer screen in front of him, rereading the text again and again. M. Schweiler, a 29 year veteran of the journal, covers white collar crime. Anron landed on his radar in a big way back when Jeff Skilling resigned in August. The press release said he did it for personal reasons, but M. Schweiler's instincts told him that there was more to the story. With the help of the journal's National Energy Reporter Rebecca Smith, it's a story he's been trying to get to the bottom of ever since. Smith and M. Schweiler have yet to call Anron out for doing anything illegal. It's simply too soon to tell, but each day since Skilling's resignation has seemed to generate more and more smoke. Applomiting stock price, the uncovering of two mysterious financial vehicles, one called LJM, another Chouco. The reporter's wonder if all this smoke is leading them to a fire, especially now that a true bombshell has dropped. At 7am, M. Schweiler grabs the phone and dials his partner. Rebecca Smith grabs the phone midway through the first ring. It's John. I guess I better pay up. The press release. Yeah, listen to this part. Andy Fastow previously and Ron CFO will be on leave of absence from the company. Les said, in my continuing discussions with the financial community, it became clear to me that restoring investor confidence would require us to replace Andy as CFO. M. Schweiler pauses. He just lost a bet. Smith called it days ago, but M. Schweiler thought it just wasn't possible. In recent weeks, Les had repeatedly expressed total support for Fastow. Well, looks like you were right. Looks like it. So what do you think is going on over there? Fastow was just too big a liability. If you actually did all the things that you and I think he did, he deserves to be fired. Yeah, but isn't firing him like admitting wrongdoing? I mean, back in August, Les said that Enron was completely aware of everything that Fastow was doing. They M. Chico everything and completely supported it. Yeah, he even said that Enron had asked Fastow to take on those partnerships. But there's this really weird line in the press release. Continue discussions with the financial community. What do you think Les means when he says that? Could be the banks, Wall Street, maybe the ratings agencies or big investors, probably all of them. Les got to be getting a lot of calls, said the stock is in free fall. I bet he's hoping that sacrificing Fastow would quiet things down. You think it will? I have no idea. The only thing I do know is that at this point, it's difficult to put a whole lot of trust in anything Enron says. Amishwiler looks at his watch. We'd better start making some calls before the editor starts screaming. He hangs up, then reads the press release beginning to end one more time. This could all be temporary. Maybe they're simply going through a rough patch and we'll pull out of this tail spin. But Amishwiler senses things will accelerate and Enron will begin to spin out of control. That things could get even darker. If that happens, Enron could be at the center of corporate malfeasance on a scale unlike anything Amishwiler has ever seen. American scandals sponsored by Sachi Art. I'm lucky. Not only is my wife beautiful, funny and smart, she also has great taste that matches mine, which has made decorating our home together a delight. But how do we go about finding the art for our home? When we agree on that, too, Sachi Art. They have artworks from thousands of emerging artists around the globe in all styles, so you're guaranteed to find art that fits your style, space and budget. Their view your room feature lets you visualize the art on your walls, and my advisor, Siting, was instrumental in finding our newest piece. Get 15% off your first order with promo code podcast. Go to and enter code podcast at checkout. Find art you love today. Okay, the kids are already asking what's for dinner, but breaking news, empty fridge. That's okay, I'll instacart. Let's add some organic asparagus and some farm fresh chicken. Easy. Wait, is the oldest vegetarian this week or was it gluten free? Gluten free pasta. Enjoy it either way, cart it, and finally some vegetarian gluten free olives from my well earned cocktail. When your family shopping list has more footnotes than groceries, the world is your cart. Visit or download the app and get free delivery on your first order. Offer valid for limited time, minimum order $10. Every subject to availability, additional terms apply. From Wondery, I'm Lindsey Graham and this is American Scan. Towards the end of 2001, it was clear that Enron was in trouble. The government, the media, the investors began to realize that there was just too much that didn't add up. Enlay insisted his company was misunderstood and had done nothing wrong, but evidence began to emerge that contradicted his claims. The question was what to do with this evidence. Andy Fastow was adept at concealing the true nature of his complex shadowy deals even from other experienced finance professionals. But with Fastow gone, the scrutiny on Enron kicked into a higher gear. Those outside the company demanded answers, desperate to find out just what the company had done wrong and how to respond. Enron's top executives and their associates were getting desperate as well. They raised to figure out what they did and did not have to admit in a struggle to save the company. This is episode 4, Death Spiral. Enron Treasurer Ben Gilson is spending another long night in the room next to new CFO Jeff McMahon's office. It's about 9.49 pm, but he pours himself a fresh cup of coffee, squinting in the harsh glare of the overhead fluorescence. Glyson calls this space the war room. It's filled with boxes of documents required to reconstruct the company's finances. Glyson must make a presentation to Enron's board in the coming days explaining Chuko, a FAST OUT created off the book's partnership. He's looking for something, anything, that can make it clear in black and white that Chuko is a legitimate SPE and not simply a creation to hide company losses and make Andy Fastow even richer. Glyson is not having any luck. After an hour of rummaging, he finds something, gives it a cursory glance, then finds a place to sit down. It is all here in black and white. Barkley's bank loaned Enron $11 million through Chuko. When a company like Enron sets up an SPE, the legal requirement is that at least 3% of the SPE's equity come from a third party. Someone has to be willing to risk that money. That 3% can't be borrowed. But these documents show all the money was borrowed. That means that Chuko, which has been operating since 97, has never been a legitimate special purpose entity. Glyson looks up as lawyer Christina Morden to enter the room. She sees the expression on Glyson's face and asks what's wrong. He tells her about the trouble with Chuko and she shrugs her shoulders, as if to say, well duh. Glyson shakes his head, looks down and mutters. Sharon Watkins sits at home that very night, fully aware that she is not the most popular person at Enron these days. She doesn't know how it got out, but it did. Watkins wrote a memo to Kenlay claiming the company was engaged in fraudulent accounting and that he had to do something about it. She didn't go to the Wall Street Journal or Fortune or the SEC. Those organizations came to their conclusions about Enron all on their own. Still, there are some at Enron who now look at Watkins as if she's an informant out to destroy a great company. In their eyes, Enron was doing just fine until she decided to climb up on her soapbox. One person who clearly feels this way is Jeff McMahon. She thought McMahon was a friend, but ever since he became CFO, he's been very difficult to reach. It was never like that before. She can sense that the new position is changing McMahon. Perhaps fast out in his supporters are right. McMahon is just as cutthroat as the rest. He was critical of LJM, but maybe that was just to get fast out in trouble so McMahon could push him out and take over. Watkins is at a kitchen table when the phone rings. She picks up. There's a horse voice she barely recognizes on the other end. Hey Sharon, it's Jeff. McMahon sounds terrible. Says he's sick, that he's been working around the clock and hasn't had time to return her calls. Watkins asks Point Blank if McMahon considers her a traitor. He's appalled at the suggestion. He says Watkins is still highly valued, but then he's not sure what she can do to help the current situation. Enron has to scramble. The stock is at $15 a share with no signs of recovering. McMahon is pleading with banks to get alone the company desperately needs. It's crazy, he says. Just crazy. McMahon promises he'll reach out again when things settle down, then hangs up. As grabs a notebook and pen, McMahon may not think Enron could use her help, but she knows it does. With both skilling and fast out gone, perhaps Enron can start fresh and redeem itself. She begins a new memo titled Disclosure Steps to Rebuild Investor Confidence. The idea is simple. Enron must correct the accounting mistakes. It must restate its earnings. And immediately. Within an hour the memo is complete. Enron's intends to hand it to Kenley personally at the first opportunity. The next evening, Ben glisten is in his bedroom when the phone on the nightstand rings. It's 10.30, unusual for someone to call this late, so it can't be good news on the other end of the line. He listens steals himself. Hello? Ben is Jeff McMahon. Hey Jeff. Everything all right? No. The silence just hangs there for several unbearable seconds. Be to sweat, drips down Klaissen's forehead. Ben can't take it anymore. What's wrong Jeff? You know what's wrong. You lied to me. Lied? About what? Ben, I trusted you. I thought you could help us. You told me about Chico, but you didn't tell me everything. Listen Jeff, okay. About that. LGM is ruining us. You know that. It could destroy the entire company. Everything connected to it is toxic. Now, a lot of people are lying about what they knew and what they didn't. And honestly, I can't sort out who's telling the truth and who's full of shit. But I do know this. You should have disclosed that you had a personal stake in LGM, Ben. You should have told me that. Klaissen races for an explanation. He should have said something. He could have said something, but he never did. He didn't think anyone would ever figure it out, and that it was probably best to let sleeping dogs lie. Look. Okay. Jeff. If I had invested directly in LGM, I promise I would have told you. But I invested in a company that purchased a subsidiary of LGM. You see? An LGM subsidiary. I didn't invest in LGM. I didn't invest in Enron. So technically, okay, Jeff? Technically, I did not lie to you. Klaissen wipes the sweat away. Ben, you're fired. This late at night and Sharon Watkins is in her kitchen again, listening to a voicemail that Jeff McMahon just left on her machine. He's read her memo. He says they all hear her loud and clear, but a massive restatement of earnings, even if it's not related to core businesses, will cause a major credibility issue with the investor community. And in case she's not aware, Enron is already dealing with major credibility issues. Shareholders tend to be forgiving, but not lenders. He says, a restatement results in some nasty stuff. What he's getting at here is that a new guy might be able to come in and fix it all. That's a possibility. But he's not so sure that the old guy can hang around and say, whoops, sorry for what I did, things will be better from now on. McMahon wants Watkins to think about that. Watkins just stands in her kitchen. She knows he's right. A restatement of financial reporting is a confession of guilt. Companies do it all the time and survive, but customarily, the top management does not. The executives admit they were wrong and then they perform the corporate equivalent of Harry Carey. Watkins hasn't realized until this very moment that should Enron pursue her recommended course of action, Ken Lay and Jeff McMahon will both have to resign. Jeff's skilling tried to escape, but he couldn't. He went to Florida. His wife said the beach would help him relax, but he was impossible to pick up a paper or turn on CNN without being reminded of the fact that Enron was imploding. Skilling thought he'd be less depressed after he left the company. And for a time, he was. He thought that he was doing the right thing when he quit, not just for himself, but for Enron. He really believed that the bad stock price was obviously a reflection on his leadership, so it should have rebounded once he resigned and Lay returned to the helm. But Enron's fortunes haven't improved. Things actually got worse. Now the SEC is all over the company, the idea that these people would criticize Enron over a few stumbles, with all the good the company has done for the average consumer is outrageous. Meanwhile, Enron is hemorrhaging more and more cash every day. There's a term for what's happening to Enron. Death spiral. Skilling assured that really is only one option, so he cuts his vacation short and charters a jet back to Houston. After a few days, he's ready to make the call. He takes a deep breath, picks up the phone, dials, and talks to Ken Lay. Ken, you gotta bring me back, he says. He tells Lay he's been thinking about it long and hard, and he can return as interim CEO or consultant. He, Lay, and company president Greg Wally will fly to New York immediately, and once there, Skilling knows he can convince Chase to offer Enron alone in the $3 to $4 billion range. It's time to fire up the engine, Skilling says. Lay doesn't dismiss the idea outright, but tell Skilling he has to go, and he'll consider it and get back to him. Skilling just stands there, feeling more alone than ever. He can't understand why Lay didn't jump at the offer. All Skilling wants is what's best for the company, and if that means returning, then he's willing to do it. Skilling frowns as he puts down the phone. If Lay and Wally are too blind to see that they need his help, then this truly is the beginning of the end for Enron. Lots of people don't know it, but autumn is an ideal time to plant. Shorter days and cooler nights create ideal conditions for the plants to get established. If you're looking to spruce up your home, proven winners color choice shrubs has an amazing selection of flowering shrubs and evergreens for planting in gardens and landscapes. With around 320 different proprietary varieties, including classics limelight hydrangea and little Henry sweet spire, all of their shrubs are trialed and tested for 8 to 10 years to ensure they outperform anything else on the market. Look for proven winners color choice shrubs in the distinctive white containers at your local garden center. Learn more and find a local retailer at proven winners color choice dot com slash wundry. That's proven winners color choice dot com slash wundry. Hi, this is famous Formula One driver Will Arnett. Join me in comedian Mika Hakenon on our new Formula One radio program, The Fast and Loosed Post Show live on amp every race Sunday. Download the amp app today and follow amp presents f1 to join the show. Kenlay can't remember the last time he smiled. Not that he's depressed about all this. People like Jeff's killing indulgent depression, but not Kenlay. He talked to Wally about skillings recent call, but the discussion was brief. Wally said there was no way skilling could come back. The optics would be disastrous. Such a move would raise questions and the one thing Enron definitely doesn't need right now is more scrutiny. Lay agrees, skilling is the past and lay must secure the future. All of this can be handled. The crisis will be managed and Enron will make a comeback. This is a war, plain and simple, and lay intends to fight it. He walks into the conference room, conscious to carry himself like a general, awaiting him are several executives from Enron and Enron's accounting firm Arthur Anderson. It's late, 9pm, and these chaotic days it was the first available time for this audit and compliance committee meeting. Stone faced, Lay takes a seat at the conference table. Chief accounting officer Rick Causy begins. It's all you know, the SEC is conducting a formal investigation of Enron. The investigation is ongoing and I don't really know much more than that. It will update you as soon as we can. The more serious issue now is that Arthur Anderson wants to restate our 97 through 2000 earnings. Turns out that well Enron made about $1.2 billion less in those years than initially declared. Can Lay jumps in? But I'm doing everything I can gentlemen. I made calls this past week to commerce secretary Evans, Treasury secretary O Neal, even Greenspan. I thought maybe they could offer a bailout but we can't expect any help from them, one by one they're turning their backs. I told them that if Enron fails, all of America's energy trading market is at risk. They don't seem to care. I don't think they understand. Another executive pipes up. What I don't understand is how our balance sheet could have been off by a billion dollars. Caused response. Neither Chico or LGM qualified as an SPE. So any debt they accumulated and pose a lot should have gone on Enron's balance sheet. That's something Anderson should have caught in 99 with LGM. What all this means is, well, when we restate our financials, we'll be about a billion dollars in the red. John M. Schweiler is in his office at the Wall Street Journal, writing an article on Enron's earnings restatement when he gets a call. He picks up the phone and hears the jovial voice of his friend Bernard Glatzer. He sounds giddy. Glatzer is a lawyer in his mid fifties who for more than a decade has been rooting for Enron's downfall. Glatzer believes that Enron has acted unethically from the very beginning, claiming Enron higher up stole the idea of a gas bank to finance energy deals from him way back in the eighties. He's been pursuing a lawsuit against them for over five years. M. Schweiler doubts anything will come of the suit, but Glatzer isn't a complete crack bot. His allegations are plausible, just difficult to prove. But M. Schweiler likes talking to Glatzer. Through his decades long fight with them, Glatzer knows how Enron works, and he knows the people. He's been very good at filling in gaps in M. Schweiler's knowledge of the company. Today on the phone, they discuss the restatement, and then the lawyer says something that takes M. Schweiler by surprise. Glatzer says that Enron could soon end up in bankruptcy court. M. Schweiler laughs, bankruptcy may be a ways off, Bernie, who says, I think Enron still has a few financial resources. The Glatzer doesn't budge, he goes on to say that the stock price is way down and won't ever go up again. L.J.M. is just another example of Enron's corruption, and then he hangs up. M. Schweiler thinks, maybe it's possible that Glatzer isn't crazy. He was on the phone just yesterday with an executive at Goldman Sachs. The man said Enron was in a death spiral. M. Schweiler has been hearing those two words more and more these days. The Red Alinge, president of the California Public Utilities Commission, gets up from her desk and opens the window to let some air in. It's a bright, crisp, San Francisco day, and for the first time in months, Lynch feels like justice is on the horizon. After a year of screaming into the wind, it seems like people are finally taking her seriously. Knock on the office door signals the arrival of the interviewer from the PBS program Frontline. Lynch smiles, sits at her desk, pushes him cluttered to the side, and folds her hands in front of her. It's ready to begin. The interviewer asks her to talk about the California Energy Crisis. Lynch is all too happy to get this story on the record. She's not saying that Enron caused the California Energy Crisis all by itself, of course not. But it did play California like a giant slot machine, rigged in Enron's favor. Enron reduced the supply at will, creating an artificial shortage which drove the price up. And when prices peaked, Enron found the power for California and sold it to them. Lynch has been trying to get Enron to answer for it ever since. The interviewer points out that Enron is in a very serious situation, and some are saying it might even go under. Would Lynch be happy if Enron collapsed? Lynch shakes her head. If that happens, thousands of people could lose their jobs. No, she says that's not what she's after. The interviewer asks, then what is she after? Lynch says she wants an investigation, a real investigation, not a self serving one Enron conducted. The Enron executives ran the trading department like a cartel, so Enron should be prosecuted like a cartel. If found guilty, those responsible should go to jail. Several miles from the San Francisco headquarters of the Public Utilities Commission, Wall Street Journal reporter Rebecca Smith sits in her office on the phone, listening as Enron's head of PR, Mark Palmer, screams in her ear. Until now, she, her colleague John M. Schreather and Palmer have all managed to maintain a decent relationship, even with the negative pieces the journal has printed about Enron recently. Palmer has been relatively gracious through it all, and the reporters are always mindful of being fair. They never blindside him, always asking if he'd like to go on the record with Enron's side of things. In the past, he would just say, no comment, but today is different. Today, he's on the warpath, accusing the journal of having it out for Enron, and he needs Smith and M. Schreather to stop. Palmer furiously claims the paper's coverage of LGM is biased, but maintaining her professional demeanor, Smith says calmly, we've been trying to get you guys to talk for two months. She has that she and M. Schreather believe they're reporting to be accurate and objective. She asked Palmer to tell them where they've aired, and they'll correct any mistakes. But Palmer cuts her off. He says she's been writing too many stories about Enron's potential liabilities. You're reporting about things that may happen in 20 months, he screams, and discounting what we're telling you right now. Smith responds that Enron's credit rating is falling just as fast as its stock price, and if Enron's credit hits junk status, its lenders could demand payment at any time, and as far as Smith can tell, Enron doesn't have the money to pay. Palmer fumes that the Wall Street Journal's coverage is completely unbalanced and hangs up. Smith looks at the phone, taking a bag at Palmer's vitriol. Such as doesn't sound like Mark. She thinks someone's told him to shut their investigations down. But Rebecca Smith and John M. Schweiler keep reporting. And days later, LaRetta Lynch quotes from one of their Wall Street Journal articles during a morning committee meeting at the California Public Utilities Commission. The headline reads Enron's CFO's partnership had millions in profit. It appears that Enron was corrupt from the beginning. Those millions in profit went into Andrew Fasdow's pocket. The way things seem to be going may not be long before Enron is finished. Lynch thinks all the way back to 1999 when Enron first joined the California electricity market, and energy prices suddenly seemed to spike for no reason. She hadn't heard of Tim Bellden back then, but she knows him now, and her face reddens an anger at the thought of Enron's crooked energy trading boss. She knew what was happening didn't make sense. Enron had an energy surplus, so her reported power shortage, something was wrong, possibly illegal. And though she didn't know who to blame then, she does now. Enron's getting a lot of bad press, but no one is zeroing in on what the company did to California. No one is demanding that Enron pay a price for that. And Lynch knows that even if it is accused, a company like Enron will play all its face cards. Money, big lawyers, and maybe even the president of the United States, George W. Bush, who affectionately refers to Enron's CEO as Ken Boy. So even if Enron has been caught in its own lies, it's a different question altogether if it'll actually face justice. We get support from Audible. We've all got busy schedules. 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Visit slash listening, or text listening to 500500, that's slash listening, or text listening to 500500 to try Audible free for 30 days. slash listening. Mark Watson isn't expecting much from this meeting. He drives his silver Mercedes 500 into Enron's executive lot, Parks, Hop Sound, then pauses. He takes a moment to stare up an amazement at the gleaming towers of Enron's headquarters. It's a Saturday, calm with very few people around, which is perfect for Watson, who's here to have a conversation that needs to happen quietly. He can't really believe it's come to this. How the mighty have fallen, he thinks. Watson is the chairman and chief executive of Dynogy Corporation, a Houston based energy company. On the ride up to the 33rd floor, Watson softly whistles to himself. Enron is on life support. Historically, the great Enron was much bigger and much more powerful than Dynogy. It didn't even consider Dynogy a competitor, and honestly Watson can't blame Enron's executives for looking down their nose at him. Dynogy did well, but didn't do Enron well. And today, that may very well change. Ken Lay needs Chuck Watson to do him a favor. He needs Watson to buy Enron. It's the only way the company can continue. The elevator doors open, and Ken Lay approaches from the kitchen area, a broad smile on his face. Watson is impressed. To look at Lay in his casual weekend where you'd never know the man was facing possible bankruptcy and the complete annihilation of his life's work. Lay shakes Watson's hand. Would you like some coffee? Just made it myself. Sure. Anything to eat? What are those? Sweet rolls? I'll take a few of those, too. Food and drink in hand, they walk over to an empty office and sit down. Watson takes the sip of coffee, sets the mug down, then gets out of business. Ken, if Dynogy agrees to this, it's going to be a merger of equals. No premium. Lay nearly spits out his coffee. Watson is suggesting that Dynogy buy Enron at market price. No added cash for shareholders. Watson watches Lay fix him with a stony, manned man glare. Ten years ago, that look may have instilled fear. But now it's just empty posturing. Chuck, you know that's not right. We're talking about Enron. Just a couple of months ago, we were trading at $90 a share. The only reason our share price has fallen so far, the only reason we've had recent problems is because of short sellers and the media. Well, which of those two groups did fast down belong to? Look, it's not that I don't sympathize with what you're going through, but you need to know one thing. You've got to hell of a train bearing down on you. If you want me to step in front of it for you, this is the only way it's going to happen. Lay sits in silence for a moment. Finally, resigned. He nods his head. There are a few other things. Yall are losing money by the day, so this thing needs to come together quick. But it won't take everything. Your international projects are dogs and I don't want them. We need to shut her everything you're doing outside of North America, except the trading office in London. Lay nods again. Well, if we do merge, I believe the new company should be called Enron Dinergy. Watson Scoffs. He has to admire Lay's goal. Not a chance, Ken. The Enron name has to go. It's just too solid. OK? OK? If not Enron Dinergy, then what about Dinergy Enron? Come on, Chuck. No. Well, then what's your idea? What do you propose we call this new company? Watson shakes his head. At this point, Lay is just embarrassing himself. Watson tries to be kind. Dinergy. The company will be called Dinergy, Ken. Lay's shoulder is slump. It's as if Watson has just reached over the table and slapped his face. And Watson isn't done. Ken, look. We've got to get rid of most of your management team. That's a given. Wally can stay, but that's it. I'll run the merge company, and you can stay on the board. We'll call you, I don't know. Chairman Emeritus or something. Ken Lay. Chairman Emeritus. Of Dinergy. Lay swallows, then slowly, hesitantly extends his hand. Watson takes it in his shake. Meetings over, but before he stands, Watson has one last question. Ken, do I have your word that there aren't any more shoes to drop? Chuck, you have my word. The banks, the lawyers, everyone. They've been all over the place. They haven't found anything. Watson nods, then smiles. It's November 19, 2001, and Jeff McMahon wonders if this is how it feels to attend your funeral. The Waldorf Astoria in New York is heated, of course, but McMahon shivering as if he's outside on the snowy sidewalk. McMahon is standing next to Greg Wally. They are midway through a two hour presentation, before an audience of 75 lenders and 200 bankers. The purpose of this presentation is to outline one by one, the challenges currently confronting Enron. McMahon and Wally have listed these problems in a document and handed copies to all the attendees. It's 65 pages long. McMahon and Wally stick to the script. They present themselves as the faces of the new Enron. The old Enron was purely earnings driven, McMahon says, with a deal shot mentality. The old Enron justifiably earned its dubious reputation as a black box. As a result, all creditor and investor confidence has been lost. The company has no access to capital. Its debt has outpaced its cash flow. Its lost too much money and relied on faulty and misleading off balance sheet entities. McMahon promises Enron has changed. The new Enron is dedicated to financial transparency and open communication. There is no possibility that the executives and employees retained following the merger with Dinergy will regress to the ways of old Enron. McMahon looks at the impassive faces of the bankers and lenders. He doesn't feel like anyone's buying this dog and pony show, but he soldiers on. He doesn't mention it here, but he knows that this torturous day is far from over. Enron is scheduled to file its third quarter report by nightfall, and with it will come more admissions of guilt. Chuck Watson will not be happy. The following week, Ken Le arrives at another Enron board meeting, feeling buoyant. Yes, the third quarter report landed with a thud last week. The company took a higher than expected loss of $664 million, and prospects looked dim for the next quarter. Two of its SPE's have more debt than assets. The debt collectors are demanding immediate payment of more than $1 billion, and Enron doesn't have that in its conference. Chuck Watson was furious when he saw the Q3 report and told Le that the only way he'd consider moving forward with the merger now was if Le stepped away from the company once and for all. But today, Le has a plan. He has decided that he's not going to step down, and he thinks that Watson will be okay with it. He believes that the light at the end of the tunnel is growing brighter and brighter by the minute. He is convinced what he built is too strong, too important, and simply too meaningful to America and the global energy business. Le is one of the most well known corporate leaders in the world, and Watson won't pass up an opportunity to acquire Enron simply because Le wants to remain as chairman. The board members nod in support. Le lean's back in his chair. He believes he's pulled it off. Enron was pushed to the brink, but because he held on, Dynagy will take over, handle the debt, and everyone will be able to move on as if 2001 never happened. He reminds himself that Dynagy was always like Enron's little brother. Sure it made money, but never on Enron scale. Watson was never on the cover of business magazines. Watson isn't close with the bushes. And sure Enron has its issues, but with this acquisition, Watson can catapult himself into a whole other league he should feel grateful. Le looks out the window at the surrounding skyscrapers. He's happy to be at the top of Enron Corporation. There's no place he'd rather be. It's morning on Wednesday, November 28th, when Chuck Watson calls Ken Lay. He was up until nearly midnight, talking with banking officials. They all told him that Enron's debt load is beyond anything they could have anticipated, and there will be no more loans, which means Enron can't borrow another dime from anyone in the world except Dynagy. But Dynagy is not in the lending business. When Watson asks Ken Lay if there are any more shoes to drop, Lay assured him there were none. Now the Q3 statement has led Watson to conclude that Lay is either stupid or a liar, and Watson doesn't think Lay's stupid. Plus, there are now rumors that Lay has changed his mind about stepping down, and Enron's ratings are in the toilet. Just this morning, S&P downgraded Enron two notches. Moody's took S&P's lead, and downgraded Enron as well. Fitch ratings followed suit. Everyone seems to agree. Enron is junk. So Watson keeps his conversation with Ken Lay short, simple, and to the point. Ken, I've decided to terminate the merger. I'm disappointed this didn't work out, and I wish you the best of luck. But if Lay has taken the news hard, he doesn't show it. I'm disappointed too, he replies. Emotionless. I'll move on to our other alternatives. Watson hangs up. He just shakes his head, incredulous. Enron is currently trading at 61 cents a share. It used to be $90, plus it's 10 billion in debt. Watson was its last hope, and he walked away. Lay referenced other alternatives, but the only alternative Watson can think is Chapter 11. And after bankruptcy, indictments will surely come down, and hearings will follow. Ken Lay is probably going to jail. Still Chuck Watson is too angry to feel bad for him, and he suspects the rest of America will feel the same way. From Wondering, this is Episode 4 of 5 of Enron for American Scandal. On the next episode, Enron declares bankruptcy, and Lay, skilling, and fast out are summoned by the federal government to face justice. If you'd like to learn more about Enron, we recommend the books Power Failure by Mimi Swartz with Sharon Walkins, the smartest guys in the room, the amazing rise in Scandalist fall of Enron by Bethany McClain and Peter L. Kyd. In conspiracy of fools, a true story by Kurt Ikemwalt, and 24 days, how two Wall Street Journal reporters uncovered the lies that destroyed faith in a corporate America by Rebecca Smith and John R. M. Schweller. This episode contains reenactments and dramatized details, and while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. American Scandalist hosted, edited, and executed produced by me Lindsey Graham for airship, sound designed by Derek Barons. This episode is written by Hannibal Diaz. Our senior editor is Karen Moe, executive producers, our Stephanie Jenz, Jenny Lauer Beckman, and her nonmopez for wandering. What if your family was the victim of a home invasion, or you woke up in the morgue, or you were seriously injured miles from help? What would you do? This is actually happening, asks our listeners this very question, while we bring you captivating real life stories of trauma and perseverance. This is actually happening, brings listeners extraordinary true stories from the people who lived them. You'll hear stories about conflict, turmoil, or threats that dramatically alter the course of someone's life. 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