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Encore: Enron | The Black Box | 2

Encore: Enron | The Black Box | 2

Tue, 13 Jul 2021 09:00

Enron manipulates California's electricity market, and the state is plunged into an energy crisis. But Enron itself is threatened by the schemes of a corrupt CFO, a rocky transition of power, and an alarming discovery by Sherron Watkins.

This episode originally aired on September 3, 2019.

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Enron Chief Financial Officer Andy Fastow is about to kill an alligator. That's what former Enron COO rich kinder used to call it. He said that Enron's problems were like alligators, and to fix them you had to get in the swamp, kick out all the alligators, then kill them one by one. The style likes to remind himself of this every time someone at Enron becomes a problem, and when that happens, it's time to go alligator hunting. Fastow gets out of his chair and paces, with each passing second he gets a little angrier. Then there's a knock at the door, today's alligator has arrived. It's open! Jeff McMahon enters. Enron corporate treasurer, glorified accountants more like it, and Fastow hates him. You wanted to see me Andy? Yeah, how'd you meet with Jeff Goh? Am I meeting with Jeff Skilling? Did you slip your mind? You don't remember speaking to Jeff behind my back? Andy do we really have to do this? You have a problem? Talk right now. Fine. The current situation with LJM is completely untenable. Is it? Yeah. Your Enron CFO, but separately, you run LJM, an investment fund that does all its business with Enron. Yeah, so? So this is a conflict of interest. I've got bankers at Merrill and First Union calling me. You've launched LJM 2 now, and you want them to provide debt financing, and you're threatening to pull Enron's business all together if they won't do it. And also, Enron employees are telling me that when they negotiate with LJM, it's strongly implied that if they fight for themselves too hard, they'll be punished with negative performance reviews over at Enron. Andy, this is completely out of control. Fast out clenches, and unclenches his fist, you can feel the heat in his face, knowing he's turning red. He wonders what would happen if he just hit McMahon right here in the office. He could probably get away with it. But there's no need for such extreme measures yet. Jeff, I don't know if we can continue working together. And what are you talking about? LJM is legal. LJM is good for Enron, and as an employee of Enron, that should be good enough for you. I need to look out for my shareholders. Look out for them then. That's not my problem. You think I don't know what this is about? You know LJM is a great idea. You're just mad you didn't think of it first. And instead of coming up with something innovative on your own, you're just trying to tear down what I've built. It's lazy, and it's unethical. You're calling me unethical. You're a little trick with a Nigerian barge? Come on. I know everything that happens in this building, and everything you say to skilling gets back to me. Everything. And then you think about that next time you want to run crying to him like a little bitch. Get out. McMahon just stares back at him, trembling with a rage he can't express. Fast out grins. He knows skilling will soon have McMahon transferred, and he'll no longer be able to stick his nose and fast out his business. Look at him. Broken man with nothing left to say, just looking down at the cart. Fast outwatches him trudged back toward the elevators. If McMahon didn't understand before, who really runs things at Enron, he does now. 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? Well 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, Satin, was instrumental in finding our newest piece. Get 15% off your first order with promo code podcast. Just go to and enter code podcast at checkout. Find art you love today. Initially, one hour until your favorite show premieres, time to get some snacks delivered through Instacart. Okay, let's get some popcorn, seltzer, chocolate covered almonds, and wait, did they release the whole season? Better cart some ice cream for the two part finale. When your day should be ending, but a new season is starting, the world is your cart. Visit or download the app and get free delivery on your first order. For valid for a limited time, minimum order $10 additional terms apply. From Wondery, I'm Lindsey Graham, and this is American Scan. As the 20th century drew to a close, Enron was arguably the number one company in America. To EO Kenley, COO Jeff Skilling, and CFO Andy Fastow, steered Enron into new businesses and greater profits than ever before. But it was all an illusion. Those at the top of Enron manipulated quarterly statements and employed any loophole they could find in order to deceive shareholders and stock analysts. And throughout the 1990s, these schemes succeeded brilliantly. But in 2000, cracks began to appear in the company's carefully constructed facade. Enron's leaders rushed to capitalize on energy deregulation in California. They propped up company balance sheets by increasingly fraudulent means. And in the process, they made some mistakes. Mistakes that would cost them in imperceptible ways until it was too late. This is Episode 2, The Black Box. In May of 2000, Tim Belden, head of Enron's Western Electricity Trading Desk, is having a ball. It's been a year since he first figured out how he could trick the California energy market into overpaying for electricity and do it legally. But Belden isn't some kind of criminal low life. He is a master's in public policy and spent five years as a researcher at Lawrence Berkeley National Laboratory. Most importantly, he has what Enron executives like to call intellectual purity, meaning he answers to no God but the free market and will exploit institutional inefficiencies for cash. Belden leans against his desk tossing a nerf football in the air. He looks at his troops of about ten or so traders. All of them intellectually pure, just like him. It's time to take stock of the latest strategies to gain the California energy market and make millions in the process. There's the classic, Submit a Schedule to Reflect a Man that doesn't exist to drive up costs. They call that one Fat Boy. Then there's the old, File Transmission Schedules then get paid to relieve the system of congestion. That little maneuver goes by the name Death Star. Belden asks if there are any new ideas. One trader suggests Enron could sell power it doesn't actually have for use as reserves. Enron will probably never be asked to supply the power anyway or could buy it back later at a lower price. Belden loves it. They'll call this latest scheme Get Shorty, coming up with these fun code names as his favorite part. But one of the traders says he's concerned about something. He knows that what they're doing is legal, just maximizing the loopholes in California energy law. But even so, isn't this all ethically questionable? Belden laughs. Who let this buzz kill in the building? He explains that Enron isn't in the business of doing what's best for the state of California. It's in the business of doing what's best for Enron. If you build a house with no doors and fill it with valuables, don't be surprised if it gets robbed. Belden asks for more ideas and several traders start talking at once. It's music to Belden's ears and he doesn't feel an ounce of guilt. His team puts the hours into studying all this complex and convoluted policy they've done their homework and now they will reap the rewards. Rebecca Mark sits in the boardroom at Enron in Houston, staring at a bunch of middle aged suits with frowns on their faces. She knows what they want. They want her to throw in the towel. She admits she was wrong and walk away. She drums her fingers on the table, organizing her thoughts. She's never given up before and she's not about to start today. The most important thing is to stay calm. If she gets rattled, she's done. She knows that and so does Jeff's killing. And that's why scaling is doing his very best to rattle her. Jeff's killing looks at each of the board members in turn and digs in. Rebecca said we should get into the water business. Said she could run it. We'd make billions. I told you all I didn't buy it, but you sided with her anyway. I accept that. Even freed up some Enron cash to get the new business on its feet. Well we all know what happened next. Azarix, her brilliant plan to conquer the water industry, drowned. Rebecca Mark can't contain herself. Jeff, that's not fair. You know I. You started with $232 million in operating profit. Now you're down to less than 100. Azarix stock is trading at $3.50 a share. We've made some missteps, but we're correcting them. Restructuring, moving into internet. Azarix is something completely new and we're building something unprecedented. They're going to be some bumps along the way. Bumps. Your outfit is 2 billion in debt. One more bump like that and Enron is over. Why won't let it happen? Gentlemen, it is time to shut this thing down. Let me figure out how we're going to save this company. This company that Rebecca Mark, through her negligence and stupidity, is doing her very best to destroy. It takes a moment for Mark to process what Jeff just said. She knew skilling was going to hold a gun to her head today, but she didn't know he'd pull the trigger. Mark looks at the other board members. They avoid eye contact, even Ken Lay. In the past, she could always count on him. Now for the first time she sees a look of genuine anger on his face. After directed at her, she's committed the one unparticipable sin, lost money for the company. Mark swallows hard, then responds in the strongest voice she can muster. I don't agree with Jeff's analysis. I believe that Azarix will pay off in the long run, and if he give me the opportunity, I'll show you. Skillings says nothing in reply. He doesn't have to. It's Lay, who an inquiet voice responds. Rebecca, it's over. With those three words, Rebecca Mark is told that after 14 years of service, she's finished at Enron. She collects her papers and stands. Well, I'm late for another meeting. I regret what happened with Azarix, I don't know, but I want you all to know that it would have worked. Just needed time. Rebecca Mark always knew Jeff's skilling wanted Enron all to himself, and now he's got it. He will never out of the way, he will no doubt be named CEO within a year or two. Well good for him, she thinks. Hope it works out. As she exits the boardroom, Rebecca Mark holds her head high. She played well, but she lost. Still, there's no shame in that. In October of 2000, Richard Sanders, head of litigation for Enron, North America, trips over a remote control car, bends down to peel away a twix wrapper stuck to a shoe. Like he's head he ends at the bedroom of his nine year old son, but no, he's in Enron's Western Energy Trading Office with several of his attorneys. It's time for him and his colleagues to have a chat with Tim Belden. All ten TV screens around the office are tuned to the same news report. No one can quite figure out how the fifth largest economy on Earth wound up with a power shortage. California is in the grips of a full blown energy crisis with rolling blackouts, plunging homes, schools, and hospitals into darkness. Sanders looks around, stunned. The traders are laughing. The most well educated and well compensated young men in America and they're wreaking havoc with the state's government for their own amusement. While they're not doing purely for laughs, they're also making an obscene amount of money for Enron. The head honchos in Houston clearly aren't complaining, but they have sent Sanders to talk to Belden. They just want to make sure that he's not doing anything that can't be explained down the road if necessary. Sanders approaches Belden, casually leaning back in his chair, feet on his desk, immersed in the graph scrolling on his computer screen. Upon seeing Sanders, Belden smiles wide and cheerfully shakes hands with them and the other lawyers. Sanders asks if they all might speak privately in the nearest conference room, and once seated Sanders doesn't waste time. He needs to know exactly what Belden is doing. He cautions him that he is not Belden's lawyer, so if he says anything incriminating, Sanders could use it against him to protect Enron's interests. But if that worries Belden at all, he doesn't show it in the slightest. He bounds over to a whiteboard and starts drawing. There's the Rikkishae project, which exports power from California, then imports it back at higher prices. Of course it ought not to be mixed up with Death Star, Fat Boy, or Get Shorty. These are all little games made to exploit California energy law into Enron's Advantage he explains. But don't worry, he adds. These strategies are so complex that they'll fly over the heads of Lehman. Unfortunately for Enron, all California energy regulators appear to be Lehman. He finishes by placing the cap back on his dry erase marker. He will now take questions. Sanders begins to speak and stops. He is utterly almost cartoonishly dumbfounded. The only response he can manage is a simple question. Is it too late to change the nicknames to something more innocent? Like puppy dog or mama's cooking? Belden giggles. But to Sanders, it's clear that thanks to Tim Belden, Enron is definitely going to get sued. It's raining in Houston when Sanders returns to his office. The weather fits his mood. His team looks just as concerned as he feels. California's energy crisis is about to become a major PR crisis for Enron if Sanders can't get out ahead of this thing. And along with Belden, they've got Andy fast out to worry about. LJM and all the rest of fast out special purpose entities were created to minimize the appearance of losses, but they're on the very margins of what the law will tolerate. It's not time to panic yet, but everyone must be on alert. If Enron lands on the front pages at the wrong time, the company's reputation will be on the line as never before. Lots of people don't know it, but autumn is an ideal time to plant. 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Learn more and find a local retailer at proven winners color choice dot com slash wonder re ready to hold some asphalt join me formula one champion will our net and comedian mika hykenen on our new radio program the fast and loose F one post show on amp live every Sunday after the grand prix will talk with drivers teams and everything in between and dissect what happened on the track and off it. the AMP app and follow it presents F1 or ask Alexa to play F1 on AMP. It's early 2001 and Tim Bellden is annoyed. He's over in the office snack area and there's no sign of the chips he likes. He specifically told the new girl to restock the chips. He'll have to talk to her, maybe even let her go. He's still deciding about that when the phone at his desk rings, probably unimportant but he rushes back anyway. When he sees a 281 area code, he knows it's his boss in Houston. This could be bad. He might have pushed Death Star one too many times, his head is spinning. He picks up the phone with some reluctance as if it's a snake. On the other end of the line, the Aneron Executive talks and Tim Bellden listens. When he hangs up the phone, he just stands there and shock. It appears that some California legislators are looking into their energy crisis and are beginning to point the finger at Aneron. California citizens are a bit more enraged over the blackouts than the executives anticipated but Tim Bellden doesn't need to worry about any of that because he's getting promoted. Now Bellden won't just run Aneron's Western Energy Trading. He'll be the new managing director of all energy trading nationwide. His hustling on the California grid has netted Aneron $254 million and that's just for the month of January. Bellden is so filled with joy he's almost teary eyed. Then he sits down, throws on his headphones, cranks up the volume and gets back to work. Back in Houston, Ken Lay looks out at the sea of Aneron employees gathered to hear him speak. There's hundreds of them on the trading floor and he appreciates each and everyone. Aneron is a truly magnificent company and he takes a brief moment to reflect on all he's accomplished. He realizes that the day will come when he'll miss moments like this even though he hates public speaking. Lay steps up to the microphone and begins. First of all, Lay says they should know that the administrators and California are way off base blaming Aneron for its problems. There have been a lot of finger pointing in the press lately and Lay finds it all very unfair. People at Aneron have too much integrity to try and quote, game a whole states energy system. Then he tells those gathered that Lay can explain what's really going on here. See, California didn't deregulate properly. The handled deregulation piecemeal. They didn't commit. California's refusal to embrace a truly free market has led to its present embarrassment. Skilling warn them, Lay himself warn them, deregulate fully or not at all. If you don't, you shouldn't be surprised when you run into problems. And that's the end of it. Aneron has done nothing wrong and no one need be concerned about statements from California's attorney general calling for Lay to be jailed. He chuckles a bit. Remembering a great joke that's skilling made the other day. You know what the difference is between the state of California and the Titanic? At least the lights were on when the Titanic went down. As Lay leaves the podium, he thinks about the future. Late last year, he made a decision. In 2001, he would step down and skilling would replace him as CEO of Aneron. As of today, the transition is due to take place in about three weeks. Aneron has had an incredible 16 year run. Under skilling, Lay is confident that the next 16 and beyond will be even better. In March 2001, in the Aneron office lobby, Jeff skilling hits the button and waits for the elevator to arrive. He stares at the arrows. One goes up, one goes down. Life is a lot like that, it occurs to him. Only in life, you don't always know which button you've pushed. Out of the corner of his eye, skilling spots an approaching Aneron employee. The guy is probably an accountant or something. One look at skilling's face and he backs off. This is not take the elevator with the boss day. I'll grab the next one. The accountant says, f**king right you will. Skilling things. He enters the elevator alone and begins to ascend. Skilling things back to 24 years ago. He was 23 years old, trying to get into Harvard Business School. His grades weren't quite good enough though and the dean is on the fence. They meet at the Houston High at for a final interview. The white hair dean peered at the young NBA candidate and asked a simple question. Skilling, are you smart? Skilling looks him straight in the eyes with no hesitation. I'm f**king smart, he replies. But we're calling that now. Skilling's fist clenches. Well if you're so f**king smart he thinks, when the f**king you figured this out. The elevator doors open and skilling marches down the hall with a scowl. He sees the people at their desks and their offices looking busy on the phone or typing away but they're useless. Every last one of them. None of these people can tell him why Aneron's stock price is falling. It was at 80 at the top of the quarter. Today it's at 55. Aneron's stock price does not drop. But now all of a sudden with skilling at the helm, it's plummeting and the media is beginning to take note. Skilling secretary says he's right on time. She has the reporter for fortune on the line. Skilling winces. He forgot he agreed to this. He doesn't like reporters especially since the Wall Street Journal published that hit piece a week or two ago. Volatility in the natural gas and electricity markets will hurt Aneron's investors down the road, it claimed. Aneron should be wary of Aneron's mark to market accounting strategy. The company isn't financially transparent enough. Wining. Totally uncalled for a skilling thanks. He should sue. Skilling slams the office door behind him, sit at his desk and takes the call. The reporter identifies herself as Bethany McClain with Fortune magazine. There's something in her tone skilling dislikes already. She sounds like a New York nodal. Twenty something, taking shots at someone who actually matters. One by one she asks her questions. How exactly does Aneron make its money, Mr. Skilling? Your financial documents are unusually difficult to comprehend Mr. Skilling. Some call Aneron a black box as in it's impossible to understand from the outside. What's happening inside Mr. Skilling? Skilling looks out the window. He wants to just go home. No I have to go to a meeting he says. She starts talking again but Skilling cuts off. No you really don't get it. Anyone who's successful, people want to take them down based on ignorance. And he slams the phone down, interview over. Skilling takes a deep breath. Actually it felt good to hang up on her. You smiles for the first time all day. He is still Jeff fucking smart skilling and he is still in control. Such as smile fades for the first time in a long time Aneron might be in trouble. It feels like the doctor grimly examining your x ray then calmly asking have a seat. It feels like an end. Bethany McClain 31 is in a conference room at Fortune in New York reviewing her questions. She moves down the type page and lightly taps each bullet point with her pen. The men from Aneron will be here soon. She waits for them alongside Fortune editors Jonas Sarah and Jimmim Poco. The room they sit in is dark and windowless. It's usually just a place to review photos. But it was the only space available with deadlines nearing. It is what it is. But it sends the wrong message McClain thinks. This is not an inquisition. She's not trying to bring Aneron down. She genuinely wants them only to help clear up a few things. Things that once explained she knows will help Wall Street in the business community breathe easier. She would have explained that to skilling had he given her the chance. But instead he hung up on her. And within hours of that, a panicked Enron PR person called to apologize. Mr. Skilling regresses earlier behavior the man said it had been a tough day. Skilling is sending executives from Houston to New York immediately to meet with McClain personally and clear up any concerns about Enron she may have. The Enron representatives arrive as promised. They file into the dark conference room at 10 a.m. on the dot. They're all smiles and handshakes head of corporate communication Mark Palmer, head of investor relations Mark Canig and the famed financial prodigy himself Enron CFO Andy Fastow. Fastow leans back in the chair and lifts his hands outward in an I'm an open book gesture as he begins. Let me just start by saying that Enron is diverse dynamic provides customers with optionality. The way to understand Enron is the think of Toyota McClain just down Toyota with two question marks. What is this guy talking about? She also can't help but notice that Fastow just went out of his way to ignore her presence. He directed his opening entirely to her two older male editors. Interesting. She responds. If I may Mr. Fastow, I'd like to begin by asking you the same question I pose to Mr. Skilling. How exactly does Enron make its money? McClain wonders if she's the only one who catches the momentary look of loading. Fastow's face. With a tight smile, Fastow looks back at her male editors and says we're a logistics company with a number of interlocking businesses that span the globe. The full nature of which are simply beyond the scope of what I might explain in a single meeting here. But you can ask the analysts 13 out of 18 rate Enron stock a buy. I think that right there speaks for itself. Fastow now takes a sip of water, then continues. Much like Toyota. We just negotiate our suppliers, arrive at costs and well, you're smart. You can see what I'm getting at. McClain feels like Alice at the Tea Party. She looks at the Enron execs that flank Fastow. They nod infatically. She looks at her editors in Poco and Nasserah who look bewildered. So good, it's not just her. Fastow is not making any sense at all. So she tries another question. Maybe you could offer some details in just basic layman's terms as to how Enron so reliably generates profits on a quarterly basis. Fastow raises a quizzical eyebrow, then answers. Well, unfortunately, we do need to keep certain specifics confidential for competitive reasons. But what I'm getting at here is that in terms of Enron success, we're exactly like Toyota. Detroit used to own every aspect of automobile manufacturing. Then Toyota came along and said, well, hey, we just want to build the best cars, you know? So Toyota outsourced the various components that make up a car, transmissions, radios, everything else. They went to whatever manufacturer sold the best stuff at the best price. And well, we're just like that. At Enron, we find the best. What is with this guy and Toyota McClain thinks? Toyota and Enron are not remotely the same. A high school economic student would be able to tell you that. McClain drowns. Fastow opens his mouth to speak again, but fortune editor Jim Impoco has run out of patients. Mr. Fastow, I'm sorry. You've got to drop the Toyota analogy. It doesn't make sense. And it tells me you don't understand your own company. I'm having a hard time figuring out what you're trying to say about Enron. The tense moment follows. Then fastow bursts out laughing. Laughter that McClain would describe as nervous. She decides that playtime is over. I read about the related party transactions involving LJM. What can you tell me about LJM, Mr. Fastow? The smile is wiped off his face. The other execs shift in their seats. The editors lean forward in unison. For a moment, the room is so silent you can hear the vacuum running faintly down the hall. Fastow picks a piece of lint off his sleeve and tosses it on the floor. Jaltight, he responds. All I can tell you is that are senior executives run that fund. Anything further is confidential. I see. Well, I think that about does it right? Yes, gentlemen. We have a few other appointments who attend here in the city. I trust that if there are any further questions, you won't hesitate to reach out to my secretary. Fastow and the others from Enron stand and straighten their suit jackets. One opens the door and they begin to file out. McClain and the editors say goodbye. Then Fastow stops in the doorway and for the first time looks directly at McClain and says, look, I don't really care what you say about the company. Just don't make me look bad. Then he's gone. McClain looks at her editors. No one needs to say it out loud. The situation at Enron is clearly worse than they could have imagined. They're going to run McClain's story immediately. Weeks later, back in Houston, Andy Fastow angrily shows paperwork from his desk into his office shredder. Truth be told, he doesn't even know what he's shredding, but it seems smart to shred it all. Fortune magazine really screwed things up. He tried to be nice, tried to explain, and they repaid his kindness with an article by Bethany McClain called, is Enron overpriced. Now everyone's up his ass. They're pointing the finger at him. When they brought him in, they made it clear that Enron had to display constant, quarterly growth. We need you to make that happen, Andy, they said. He understood and he worked hard, worked his way up, came up with ideas they couldn't, covered them when they couldn't cover themselves. Andy Fastow put Enron first. He was a good employee. No one's going to make him feel ashamed of that. No one, especially not the three men currently standing in his office doorway. There's chief accounting officer Rick Causy. Fastow's right hand at the company, Michael Copper, and lawyer, Jordan Mints. It's Mints that leads the charge. He tells Fastow that the stock prices at $50 and reporters are snooping around. The other day, Frontline essentially accused the company of pillaging California and laughing all the way to the bank while the state suffered. The men are here to confirm that Fastow has given up all personal stake in LGM. Fastow explodes, skilling told him two weeks ago so of course he did, watched the problem. Copper his right hand is apologetic. The accountants want it in writing. They need Fastow to sign a letter from Arthur Anderson declaring that he's given up all interest in LGM. If he just signs the letter, they'll get out of his office and never bother him about it again. Fastow has some choice for letter words for the being counters at Arthur Anderson and he shares them at the top of his voice. Then he tells Copper to give him a goddamn pen so he can sign. When it's done, Fastow sits. He looks at his three colleagues and says, look, I'm sorry. It's just that I created LGM and it means a lot to me. This is all just pretty emotional. I think you can understand. The three men assure him they get it and everything's fine and quietly they leave his office. Working at Enron was a lot more fun in the 90s, Fastow thinks. But the 90s are over and now it seems that a new era has begun. Any Fastow gets back to shredding. It's time to prepare for war. 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, our listeners. This is a 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. Each episode is an exploration of the human spirit and how survivors manage to overcome hardship and move on with their lives, even thriving afterward. The new season of this is actually happening. It's available ad free only with Wondry Plus. And if this new season isn't enough, you can listen to more than 120 exclusive episodes available only to Wondry Plus subscribers. Join Wondry Plus on Apple podcasts or on the Wondry app. Sharon Watkins returns to Enron's offices following her lunch break. There's a noticeable lack of spring in her step. It's not that things are going poorly, exactly. She just feels like her strengths could be better utilized elsewhere. She was recently transferred to Enron Broadband and tasked with implementing cost controls. It feels like she's running a daycare. The employees of Broadband are mostly a bunch of spoiled brats. When she tries to do her job, they yell at her. It's not her fault that they lose more and more money every month because their deals don't work out. Maybe it wasn't so smart to partner up with Blockbuster Video. Then Jim Fallon took over. Watkins has known him for years and never liked him. She tried to make suggestions informing him how Broadband might be saved. His response was to suggest she looked to transfer to a different department in the company. Watkins is all too happy to do that, but where? This is the question she's mulling over by the elevators when she feels a tap on her shoulder. Watkins turns around and sees a man she hasn't spoken to in a very long time. Sandy fasts out. He's in charm mode. It wasn't so long ago that he was berating her for joking about Enron's accounting practices, but everything changed when she transferred from his division and made VP. After that fast out viewed her more as an equal. Now he says it's nice to see her and asks what she's up to these days. Watkins relates the whole sorry tale of her adventures in Broadband. Andy listens respectfully and shakes his head at the stupidity of Fallon. Then fasts out's eyes light up. Since she's looking for a new place to land, why not join his team? It'll be just like old times. That night Watkins calls her old friend Jeff McMahon. McMahon is easy to talk to with a gift Watkins lacks for seeing all the angles. She was distressed to hear rumors that he'd come out on the losing side of a power struggle with fast out, though it seems like things wound up okay for him. His current title is CEO of Enron Industrial Markets. Watkins tells McMahon about fasts out's offer. It is enticing. Watkins would evaluate potential deals and bring the strongest ones to his attention. And fast out has told her that if she finds a good deal on her own, she can put her name on it, ensuring that she'll get all the credit should the deal prove lucrative. McMahon listens patiently and says it's entirely her decision, but he wouldn't recommend working with fasts out. Watkins asks if he's just saying that because he has a personal problem with fasts out, McMahon assures her he doesn't. He just thinks it's a bad idea. Watkins thanks him for the advice and she says she'll continue to mull it over. On March 22nd, 2001, Jeff's skilling looks at the conference table, the chairs, the faces surrounding him. He wonders if the decor in here was always so dreary. Everything appears to be a different shade of gray. He could have sworn it used to look warmer and hear more inviting. Perhaps it did in the better days. The days when the stock price soared and inched every day towards a hundred bucks a share, not stuck at sixty. At least that's an improvement from last week when it was at fifty five. The skilling won't admit defeat yet. He sips his diet coke and starts bobbing his head like a fighter approaching the ring, getting himself pumped up. He nods at his assistant to get the conference call rolling. Most of the board members surround him at the conference table. Once who couldn't appear in person have dialed in, including Ken Le, who now serves as Enron's chairman. There are also a number stock analysts and shareholders on the line. With a broad smile, scaling looks down at the polycom speakerphone in front of him and gets to it. Well, we did it. We beat our first quarter earnings estimates by two cents a share, an outstanding quarter, another outstanding quarter. We're very optimistic about each of our businesses and confident that our record growth is sustainable for for many years to come. Any questions? Yeah, we're sure to grub them here with High Fields Capital. That's great about your earnings and all Jeff, but the investors I represent Reed, the Wall Street Journal, and they read fortune. So we want to see a balance sheet for your company and we're tired of waiting for it. Scaling feels like a bucket of ice water was just poured over his head. We do not have the balance sheet completed. We will have that done shortly when we file the quarterly report. But until we put all of that together, we just cannot give that to you. Scaling thinks that should satisfy him. But he shocked when grubbing dares to speak again. I'm trying to understand why mine would be an unreasonable request. I'm not saying we can't tell you what the balances are. We clearly have all of those positions on a daily basis. But at this point, we will wait to disclose those until all the right accounting is put together. Yeah, you're the only financial institution that cannot produce a balance sheet or cash flow statement with earnings. Scaling sees that the board members look nervous. This is bad. He's losing the room. He tugs at his collar, tries to affect an affable tone and says, well, you know, thank you very much. We appreciate it. You appreciate it. Asshole. Scaling hears the gasps and sees the drop jaws. But he smirks. Yeah, so what? That prick took a swing at him, so scaling swung back. It's called balls. They're lucky the CEO has a pair. A young associate scurries over with a note, only it is written one word, apologize. Scaling takes the note way it's a cutaway and shoves it under some papers. The sensation of being doused in ice water returns. Call ends. Scaling watches the ex hitting board members and realizes he hates them all. He hates this job. He hates this company. Most of all, he's beginning to hate himself. Candle sits in the office of the chairman. He comes and goes as he pleases these days, not like when he was CEO and practically lived in this building. Leia looks out his window at the setting sun and reassures himself that he made the right decision. He does not think of himself as a man capable of making mistakes, not when it comes to the important things. It's been a few days since he heard that Jeff Scaling called a hedge fund manager an asshole on a conference call. Such a lapse in judgment would be unforgivable in the lesser man, but lay trust skilling. CEO is a high stress job. Leia can't expect everyone to handle the pressure as well as he did. And this morning, Scaling call, and asked if he could meet today, Leia of course said yes. He's certain his CEO just needs a little friendly counsel, a bit of advice. Maybe he even wants to personally apologize. Which is good because Leia is in a forgiving mood. He's ready to share his wisdom. Yes, Enron is in a bit of a storm right now, but he's certain Scaling will do what needs to be done to turn things around. Their meeting was supposed to begin at five, but it's 503. It's not like Scaling to be late. Then, at 507, the CEO of Enron stumbles in, shirt untucked, unshaven face, hair, a skew, her bags under his red eyes. He throws himself into the chair opposite Leia's desk and just sits there. They feel something he hasn't felt since he was a small child. Fear. This can't be the great Jeff Scaling, he thinks. This can't be the man that I've entrusted with my company, my legacy. What Leia is looking at is a drowning man. Scaling's voice quivers, as it all spills out of him. Everyone warned him not to go to California, but he wasn't going to hide. He was going to stand up for the company. People in California want to get mad about their traffic lights not working. They should talk to their elected officials. Enron didn't create their problems, but once in San Francisco, he couldn't believe what awaited him. Hundreds of protesters, some of them wearing masks of his face. Jeff Scaling stopped the killing that chanted. Fear's he would be assassinated, prompted San Francisco police to install metal detectors at the doors at the Commonwealth Club where he was scheduled to speak. He was just there to defend Enron to show the people he did nothing wrong, and he was midway through a PowerPoint presentation when there was a commotion. Before he could react, something clipped the side of his head. He became aware of security, dragging a woman toward the exits. He touched his ear and pulled away. White chocolate. The woman had heaved a pie at his face. Scaling pauses, staring off into the distance. I want to resign. He says he's taking the declining stock price personally. He hasn't been spending enough time with his kids. He feels sick all the time. He can't sleep. Lay feels many things at once. Disappointment, disgust, confusion, anger, but also concern. He asks Scaling if there's any other reason that Scaling doesn't want to be CEO anymore. Scaling shakes his head. There's nothing else going on. And he stands, runs his hand through damp hair, and offers lay a limp handshake. He turns and without another word leaves the office. Lay wonders what the hell just happened and what the hell are they going to do next. Lay took it well, Scaling thinks, but it doesn't really matter though. He feels like he's being pulled apart. The company he'd just abandoned is in a noose and it's tightening. It all worked fine as long as Wall Street didn't look too closely at the numbers. They haven't found anything yet, but they will. Then they'll understand that when it comes to Enron, there are facts, and then there is fiction. When the investors find out that for over a decade, they mistook one for the other. It's going to get ugly. But Scaling was able to cash in a few hundred million dollars worth of Enron stock before he tendered his resignation. You may not have much, but at least he has that. He is still rich. Sharon Watkins is in her new office at Fast Ours floor, staring down at the accounting documents in front of her. She feels like throwing up. She's just met Annie Fassow's raptors, that off book entities created to protect Enron against losses from underperforming assets. Watkins knows that what she's looking at can't be explained, and it can't be justified. She has just uncovered the truth about Fast Ours, and it's this. Annie Fassow is a criminal, and he will get caught. And when he does, he will fall hard, and in the process, take Enron down with him. From Wondery, this is episode two of five of Enron for American Scandal. On the next episode, Sharon Watkins attempts to blow the whistle, and Ken Lay comes under fire, as Enron goes from being the most celebrated company in America to the most hated. If you'd like to learn more about Enron, we recommend the books Power Failure by Mimi Swartz with Sharon Watkins, the smartest guys in the room, the amazing rise in Scandalist fall of Enron by Bethany McLean and Peter Elkide, and Conspiracy of Fools, a true story by Kurt Eichenmore. This episode contains reenactments and dramatized details, and while in most cases we can't know exactly what was in, all our dramatizations are based on historical research. American Scandal has hosted, edited, and second produced by me, Lindsey Grant for Airship, Sound Design by Derek Barrett's. This episode is written by Hannibal Diaz. Our senior editor is Karen Lowe. Executive producers are Stephanie Jenns, Jenny Lauer Beckman, and her nonlokest for Wondering. Hi grownups! Bedtime isn't always easy, and winding down after a busy day can feel almost impossible. But we're here to help. Introducing Story's podcast Sleep Series, all of your favorite stories, from classic fairy tales to modern myths, all read in a calm and soothing voice, over dreamy soundscapes and gentle lullabies. Snuggle in and turn down the lights, and let us read the bedtime story so you can relax and unwind with your kids, with Story's podcast Sleep Series. Listen exclusively on Wondering Plus Kids and Apple Podcasts, or on Wondering Plus in the Wondering app. Story's podcast Sleep Series, soothing stories to help you sleep, available exclusively on Wondering Plus Kids and Apple Podcasts, or on Wondering Plus in the Wondering app. Sweet dreams!