Conspiracy of Fools: A True Story

1052 Pages·2005·2.53 MB·English

by  Kurt Eichenwald

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