Mugshots: Enron - Wall Street Scammers | Forensic Files

You have the crime of the century here that seems to have tentacles reaching off in every direction. Panic struck
Wall Street when corporate scandals caused the two largest bankruptcies in history. This wasn't done because people
were trying to make the world a better place. It was done so a bunch of guys downtown could live in $15,000 million
mansions. Savings accounts and retirement plans were destroyed. Some other companies fold because of products
not selling. This company collapsed because of greed, corporate greed. I'd like to see all of their money taken
away from them. I'd like to see them live like common folks. What America's top executives did with other people's
money. Next on [Music] Mugshots. Heat. Heat. [Music] [Music] Today we're at a Rison Hotel by the old
Astrodome and we are selling surplus merchandise from the Enron estate. You get a bit 275 275. Give me
27500 6500. Give me 7,000. Houston, Texas, autumn 2002. Over 20,000 people bid on the remnants of the company now
referred to as the crooked E. This once dominant energy company reduced to a bankruptcy auction. This will be part of
the recovery for our creditors. We've estimated anywhere from 60 70 maybe 80 billion dollar in claims. Mark Palmer is
the managing director of corporate communications for Enron. He never thought he'd see a day like this. And
when I joined Enron, it was about talking about, you know, what Enron was doing to a lot of different
constituents. Now, what we're doing a lot is explaining bankruptcy. When Enron declared bankruptcy in December 2001,
4,000 employees lost their jobs that day, retirement accounts were wiped out, and public pension funds across the
country suffered a $ 1.5 billion loss. Christopher Byron has been covering Wall Street for over 30 years. Enron became
this giant news story that seemed to surprise most of the media as much as the general public. None of us were
following it. And then suddenly there it was at the heart of this enormous scandal. As CNBC's The Brain, David
Faber is known for breaking big business stories. Fraud by its very nature is hard to detect. That's why so many
corporations, good people at corporations, don't really see it until they really dig down. Not only did the
fraud go undetected for years, but before the scandal, Enron was even celebrated by the Financial Times as one
of the most respected companies in the world, and top executives live the high [Music]
life. At its peak, Enron was a popular place to work. Forbes magazine named it most innovative seven years in a row,
and the company employed over 20,000 people. Ken Lei was chairman and chief executive officer of Enron. He started
the company as the first nationwide natural gas pipeline system in 1985. There seems to be quite a bit of
interest in this meeting. I would say Kenlay was pretty much the father figure of Enron, someone you
could trust, your grandfather. The company made its money moving natural gas between refineries, utilities, and
consumers. Enron to me is the is one of the great mysteries of modern American business. The last time I looked I it
was a natural gas company that was the dullest company in the world and I never paid attention to it. And then suddenly
it was brokering my electricity and then suddenly it was brokering a lot of other
stuff. Wherever you look, Enron was in the middle of it somewhere. Jeffrey Skielling joined the company in 1989 and
within 5 years Enron was not just delivering natural gas, it was also trading electricity. While many
companies develop a trading arm around their core assets, Enron went a step further. They extended themselves beyond
energy and began trading other products such as lumber, steel, plastics, and metals. They began trading everything.
They traded weather. Not quite sure how you trade weather, but you can do it. You can trade anything ultimately if you
can make a market. And the more markets they traded in, the more money they made. By the end of 2000, they reported
total revenues of a hundred billion dollars on paper, making them the seventh largest company in the United
States and the most visible corporate player in Houston. The social scene in Houston is really driven by the charity
benefits. The bigger you are in the corporate community, uh, the bigger the donation you can make and therefore the
bigger you are in the social community. Enron supported hundreds of charities including the United Way, the Multiple
Sclerosis Society, and the YMCA. Ken Lay and his wife Linda set the standard. Their name was on virtually
every major event in the city. Whether it was a $20,000 table here or even a $50,000 donation at say the Holocaust
Museum or a $5,000 check for the SPCA or something like that, they really gave across the board. High on the list of
donation recipients were politicians. Lei really stepped outside the organization and spent a lot of time
dealing with politicians, traveling around the world, talking to foreign leaders, pushing deregulation,
um you know, getting in tight with the politicians so they could uh favor Enron in their in their legislation. The
company donated millions of dollars to both parties. And Texas Senator Phil Graham's wife even sat on Enron's board
of directors. And when Houston's baseball team needed a new stadium, they knew they could count on their city's
generous benefactor to help with the $250 million project. Enron was by far the number one corporate citizen in
Harris County, probably the number one corporate citizen in all of Texas. and Ken played an integral part of the
stadium being built. So we announced the new ballpark would be named Enron Field.
Everybody loved the name. I mean because Enron was a huge player in on international as well as national level
in terms of business. That was Enron giving something to the city of Houston. The season opener when Kinlay threw out
the ball. Former President George Bush 41 was there. Then Governor George W. Bush was there. Oh, it was a very
exciting time. I mean, we felt like it was a renewal of the city with the promise of things to come. Enron donated
over $und00 million to the ballpark. Enron Field was state-of-the-art. As Enron's high-profile status grew, so did
the personal bank accounts of its top executives. Most of the shopping that these women
would do would be at places like Neiman Marcus or Saks Fifth Avenue, Tootsies, which is a little more trendier than
than some of the other stores in town. Other local businesses also benefited from the success of Enron. I've heard
tons and tons of stories about Enron's association with those those types of uh establishments. Enron executives with
$10,000 bankrolls walking into uh a club and basically throwing the money around.
And the top executives lifestyles match their bank accounts. Okay, we are headed towards River Oaks.
the home of many Enron senior executives. The homes are very, very expensive. It's
a nice area to live. Of course, I could not afford to live there. For the year 2000, Ken Lei received a total
compensation of $141 million. Okay, we are headed towards one of the homes of Ken and
Linda. Uh up here on the right is the Huntington. It's a very tall exclusive high-rise tower.
[Music] They own a complete floor in the Huntington high-rise. It's valued at about $7.5 million. They had a number of
servants there and they still are there. They're protecting their homestead. They're staying there. But they also had
houses in Galveastston. A lot of rental properties here in Houston and a number of houses in Aspen where they like to
spend the summer. We are pulling up to Jeff Skielling's estate. It's very It's a nice looking
home. The appraisal district says it's, you know, 5 or 6 million, but market value, I'm sure, is way more than that.
Jeff Skielling's $8,000 ft home has 15 rooms and three fireplaces. He cashed out $67 million in Enron stock before
the company collapsed. Unlike Lei, this multi-millionaire stayed away from the society parties and instead spent his
money on exotic adventures. Jeff is really not a social player. He did things like thousandm uh motorbike tours
across Mexico or African safaris or scavenger hunts in the outback of Australia. He's a real outdoorsman, a
real sports guy. So, you didn't really see him too much on the social scene. Okay, this is Southampton Place, the
home of Andy Fasau. One of the partnerships that he set up, actually one of the partnerships that he's in the
most trouble for, uh was called Southampton Place. Chief financial officer Andy Fastau lives here, but
nearby his multi-million dollar mansion was still under construction when the scandal broke. Before he was let go from
the company under a cloud of suspicion, he reported making $45 million from his investments in the limited partnerships
that eventually brought down the company. Fastell um is more a family man. He and his wife Lee were very
involved in contemporary art, contemporary arts museum. the Jewish Community Center. They did not get out
and and do the glitzy thing that you might have expected. As the company grew, the lavish lifestyles of the
executives filtered down to the employees, making Enron one of the more desirable places to work in Houston.
There would be certain things set up like uh events with the VPs and you'd go off and play golf with them or you'd go
bowling with them. Uh they'd set up happy hour and we had a 70s themed party that was classic. U probably one
of the biggest shindigs we had is we had this 70s theme party and uh yeah you had
executives this John Travolta regalia this white suit and the disco affair and then and the music was all7s and we just
had a blast. I mean as as you know people say yeah various items of luxury would would definitely trickle down to
us. So we we enjoyed some of that. Even the uh assistants were shown appreciation. uh they would treat us to
um a spa for the day just to relieve the tension and or a shopping day for us to
go out. In 2000, Enron stock reached $90 a share and a Star Wars myth was developing around the company. Enron's
competitors referred to them as the dark side, lay the emperor, skilling Darth Vader, and Enron headquarters itself was
referred to as the Death Star. they were uh the empire and they were known for being ruthless in uh obtaining that
leadership position and they were stepping into new markets and were determined to dominate each and every
one of them. This is our vision. We want to move from being the world's leading energy company to being generally
recognized as the world's leading company. Jeff Skielling made this announcement at an internal companywide
employee meeting. He had just taken over the helm as CEO in February 2001, and no
one could have suspected that he would mysteriously resign in 6 months. The House of Cards collapses. Next on
Mugshots. In February 2001, Ken Lay and Jeff Skielling were Wall Street celebrities. Skiilling had been working
behind the scenes for 10 years. As CEO, he would be the public face of the business, but his personality would make
him an unusual frontman. He's known for an incident where he gave an employee in the parking garage the
middle finger. He's been asked about that corporate mission of becoming the world's leading company. He was asked,
"How will you know when that happens? How how are you measuring that? Is it revenue? Is it assets? How are you
measuring that?" And he said, "Well, it's like pornography. You'll know it when you see it."
By all accounts, Jeffrey Skielling was abrasive and egotistical. Two months after he took over the helm, he stunned
employees on a conference call with analysts from various brokerage firms. Skilling was doing Q&A with different
analysts. And uh one analyst sort of questioned him about the balance sheet or or made a statement about, you know,
why doesn't Enron show us a balance sheet right now? And Skilling said, "Well, thank you very much. We
appreciate that, asshole." And that word when he said it just sort of echoed across the floor and everybody froze and
couldn't believe what we were hearing. He's just that arrogant. In the first half of 2001, Enron's stock price was
slipping, but the entire country was suffering through a sagging economy. So the downturn was not raising any red
flags. Then in August, Jeff Skielling resigned as CEO. If you heard the speeches that Jeff Skielling gave and
where he's going to take this company and all his plans and then all of a sudden he resigns, that's, you know, to
me it was like something was wrong. Something was seriously wrong. Immediately, Ken Lelay reclaimed the
role of CEO and calmed everyone's fears. Boy, I didn't expect that, but thank you. Thank you very
much. Ken Lelay was coming in here. He was the savior. He was God. And uh he was going to get us back on track. There
was just cheers. Everybody's clapping. They're excited. And that excitement, it was was unique because you hadn't felt
that in the company for some time. The day after this dramatic public event, a private alarm was sounded. Enron vice
president Sharon Watkins sent Lei a seven-page letter outlining her concerns that some of the company's accounting
practices were suspect. She writes, "Has Enron become a risky place to work? The
accounting treatment looks questionable. It sure looks to the layman on the street that we are hiding losses."
Watkins presented a list of areas she thought Lelay should examine. The reality was Enron was a mess inside and
they they created all these new markets and they never really had control over the big picture. They never had all
those systems tied together uh which they were telling investors they did. Two months later, Enron could no longer
hide its accounting slide of hand. The company was forced to disclose over a billion dollars in losses connected with
a number of partnerships run by CFO Andy Fasau. Enron's troubles were now public.
Everybody was wondering how such a dynamic, energetic, uh, worldclass company uh, could have a write off on
this scale. It would later be revealed that some of these partnerships were designed to hide Enron's debt and line
Fast House and other executives pockets. They did all sorts of different things to keep people from understanding. Money
was going everywhere. There were so many partnerships people still can't quite keep track of it all. That was basically
the carving of the tombstone. Trading operations had stopped. I never heard of that in my life. I was like, how do you
recover from this? 3 days later, the company was making changes to its 401k plan. And so, as Enron's stock was
crashing, employees could not sell their shares. What they didn't know at the time was Ken Lei was cashing in
his. Today, the government is focusing on $70 million in stock that Lei sold back to the company as the stock price
fell. Within days, he was reassuring the worried staff. It's okay to be mad. It's
okay to be frustrated. His performance of publicly stating the company was stable while privately selling shares is
one action prosecutors will later point to when trying to prove securities fraud. But the company is doing well.
That was a meeting when some employee someone asked if he was smoking crack. I would like to know if you are on
crack. If so, that would explain a lot. If not, you may want to start because it's going to be a long time before we
trust you again. I was dumbfounded that he was actually reading that question and his response
was amazing. He reassured people and he he's he was facing the music. At this meeting, Ken Lelay pledged his support
for Andy Fastau. But the next day, Fastau was placed on a leave of absence. as it just kept getting worse and worse
and worse and you were looking for any kind of foundation whatsoever just to, you know, grab your breath and then
start moving on from there. But the floor just kept falling out from under you each and every time. Finally, on
Sunday, December 2nd, Enron filed for bankruptcy. When we went to work the next day, I went around my business like
I it was no big deal. All right, they went bankrupt. Okay, they're in chapter 11. Doesn't mean that you're going to
lose your job. I went around did my work. Everybody did their work. Little whispers were going around that
something was going on. And we were told about 10:00 there's going to be a meeting at 11:00. Then sure enough, at
about 11:00 a.m. that morning, the uh the HR representative came out, gathered 40 or so people around and and told us
we all had half an hour to get out of the building. And then we were shoved in this room, but there was no not enough
seating room. We were sitting on the floor. And being from Texas, I said that we
were treated like we were a herd of cattle in a pen just shoved in the doors closed on us and to tell us the news.
And you looked over the person that sat right next to you for the last year or 2
years and they've got a tear in their eye and they're starting to pack their box. Pack your things in 10 minutes and
go home. Bye. See you. And that's that's the undignified thing that senior management did to the employees that it
served the company that had built the company. It was a tactic tactic I'll never forget. Never
forget. And that's how we found out. And that was our brave new world. Coming up, employees and investors lose
their life savings and Congress investigates the crime. I do. [Music] Enron, once heralded by Fortune
magazine, declared bankruptcy, leaving thousands of Enron employees jobless and broke just 3 weeks before Christmas.
Some other companies fold because of products not selling or um something happened. But this was done, this
company collapsed because of greed, corporate greed. Within days, Congress launched an investigation and held
dozens of hearings. This is a onion which has got a lot of uh layers. Each one uh has a deeper stench than the one
before. I lost all of my retirement. I lost all my money in my 401k, $75,000. My son was scheduled to
graduate. He graduated from high school on May 26. I had all his college money ready for him to go to college of his
choice that he was accepted. and we couldn't do that. Congress heard from former employees who were angry about
the way they were treated by Enron. They lost their retirement money since most of their 401k accounts were tied up in
now worthless company stock and many were even denied severance while top executives received over $100 million in
retention bonuses. One of the employees who testified was Debbie Prada. My name is Deborah Prada and I'm a former Enron
employee that it's not so much losing your job. We lost everything. We lost our savings. We lost our retirement. Had
so much anger that was channeling. I It was I had so much in here that something
had to be done. Debbie Prada helped organize Enron employees hurt by the collapse. She toured the country to help
other workers. I worked with a gentleman. He worked there for many years and he sent me an email telling me
that it broke my heart. He says, he says, "I was not smart enough to get out when I had the chance to get my" and he
said, "I lost everything." He says, "I'll be working till I have a white beard building pipelines."
Parata never thought she'd go public with her finances. My layoff and loss of 401k came at a time when my oldest
daughter was preparing for her wedding in September 2002. As such, financial commitments were
made, increasing my frustration and anxiety. As a mother, this is something I always dreamt of doing for my
daughter. Today, that burden has fallen in her shelter. Everyday working people have
suffered the most. There's no question about that. They're the ones who their 401ks are now worthless. Their uh SEP
plans, their IAS, their pension plans in their companies ruined. Ruined. Ruined.
I did all the right things. I invested. I contributed the maximum. I planned accordingly for my child. I listened to
my financial advisor and it was all taken away from me in the blink of an eye. Everything. They really made fools
of us here. We were working hard and they were putting money in their pocket. For opening remarks, we will. Among all
the employee testimony, the most damaging came from Enron Vice President Sharon Watkins. When the memo she had
sent Ken Lay surfaced, she was called to testify. I believe that Enron had a brief window to salvage itself this past
fall and we missed that opportunity because of Mr. Lay's failure to recognize or accept that the company had
manipulated its financial statements. That's when Sharon Watkins name becomes permanently attached to the term
whistleblower. She blew her whistle within the soundproof walls of Kinlay's office and we didn't hear about uh the
memo until months later uh after we'd been laid off after the stock was at 10 cents uh and after there was an
investigation that uncovered it. You know, when she blew her whistle, none of us heard it. Congress also called on
Enron's three chief executives to account for their business practices. None of them offered an explanation.
Therefore, I must respectfully decline to answer on fifth amendment grounds all the questions of this committee and
subcommittee. Ken Lelay, I you know, I thought that he would talk. I really did or say
something and not even a real apology to his employees. So, we sat there and we watched it and he couldn't even he knew
the majority of us were in the were there. He couldn't even look at us. He walked out completely. Ken Lei resigned
shortly after the bankruptcy. I respectfully declined to answer the question based on the protection
afforded me under the Constitution of the United States. According to investigators, CFO Andy Fastau and
others at Enron were engaged in a clever fraud, a kind of a con game. They would
set up phony companies and claim on their books that they were making giant profits. Enron was run by a number of
people at the very top who were just benefiting and enriching themselves through offbalance sheet partnerships,
using the company's capital to ultimately benefit themselves, taking all sorts of risks and then hiding those
risks. Enron's so complicated that it's very hard for a lot of people to explain, let alone understand. Of the
top three executives, Fastau's hands appear to be the dirtiest. But the most controversial figure at the hearings was
Jeffrey Skielling. Is that true? I am not an accountant. I didn't ask you that. Those of us up here understand
this very clearly. Okay. What? Well, just a second. Can everyone use it own stock to generate a gain or avoid a
loss? And you're saying in getting your masters and where did you go to school? Harvard Business School. Okay. In
Harvard Business School, you did not know this. Is that correct? There's no word to describe it. No word to describe
it. How he can sit there and say he didn't know anything. a man with his intelligence, his education, he did not
know what was going on. He must think that the uh we were we're stupid. Meanwhile, the Enron scandal
appeared to claim at least one life. A high-ranking executive, Cliff Baxter, shot himself and was found dead in his
car, still in his garage. It was very uh a shock. We were shocked that he did it,
but we were not surprised that there was suicide. A Securities and Exchange Commission investigation into the Enron
bankruptcy had also triggered a series of accusations of highlevel fraud in dozens of companies. And while
stockholders were counting their losses, the outrageous lifestyles of corrupt CEOs were revealed. Former Global
Crossing chairman Gary Winnick, under investigation for selling more than $700 million in stock as his company
collapsed, lives in this 50 room $94 million estate in Los Angeles. Off the Nantucket Coast, Tao
CEO Dennis Kuzlowski, charged with stealing $170 million from his company, rambles around his 7,000 ft mansion on a
$6 million lot of oceanfront property. Then in June, while the country was trying to understand why so much
corporate fraud was suddenly being exposed, the second largest telecommunications company collapsed.
When we come back, the Worldcom scandal and the Mississippi gambler whose downfall shook stock markets all over
the [Music] world. In June 2002, 17,000 WorldCom employees lost their jobs after their
company announced it was hiding billions of dollars of debt. Once again, the stock market was
watching one of its premier businesses collapse in a major fraud. The fraud at Worldcom was uh was simple stuff
was, you know, a scratch pad and a guy going like this compared to Picasso at Enron. Far from the big city skylines of
Houston or Wall Street, WorldCom, the second largest telecommunications company in the country, was
headquartered in Clinton, Mississippi, just outside the capital of Jackson. [Music]
World Con came about as a result of competition in the telecommunications industry and a guy named Bernie Evers
who was from Canada, a gym teacher from Canada saw an opportunity to start a company with a number of different
friends and they got some backing to provide long-d distanceance services and they started it down south. Bernie Ebers
owned a small chain of motel, including This Day's Inn in Hattisburg, Mississippi. He started a discount
long-distance company called LDDS, after drafting the plan on a napkin in the hotel diner in
1983. 12 years later, he renamed it WorldCom. I'm a very blessed person. Uh the Lord's been incredibly good to me. I
have never looked at my job as being one of being able to know every minute detail of what goes on. My job is to
manage blue chip players. I remember you used to talk to Bernie. You'd call him up and he'd answer his own phone and,
you know, talk about whatever you wanted to talk about. I don't know how that guy
was ever trusted with $20. He was a uh he was a bouncer in a bar. He was a milk truck driver. I think at one point in
his career he was a gym teacher. I certainly uh probably could have done a better job uh communicating with the
media, but uh I don't I have had great friends on Wall Street, too. Everything about the 6'4 businessman was big,
including his 15acre ranch near WorldCom headquarters. In the early 90s, Ebers teamed up with Scott Sullivan, a
financial whiz kid from New York. Sullivan was named chief financial officer of WorldCom when he was 33. The
company began to grow. WorldCom was a company that started to buy other companies. It used what was a pretty
strong stock price to do that. So, more often than not, it wouldn't borrow money. It would actually just use its
own stock to buy this company and then buy that company and another company. And pretty quickly, it got fairly large.
During the first four years Sullivan was CFO, he and Evers had acquired a remarkable 75 companies. WorldCom's
growth strategy in part was based on their being able to acquire companies and they needed to do deals to keep the
engine going. Let's keep pumping our stock price. Let's keep talking about how great things are and let's keep
acquiring companies. The more it went up, the more people wanted to buy it. And of course, the more people wanted to
buy it, the more it went up. This remote southern company was getting Wall Street's attention. Then in 1997,
Sullivan had a random conversation on an airplane that led to the biggest merger
in US history at the time. It acquired MCI, a corporation three times its size, turning WorldCom into a $60 billion
company. I remember looking at that at that time, say, well, I haven't paid much attention to this company. I wonder
what's in it. Let's turn upside down, shake it, and see what falls out. The thing is, nothing fell out. There was
nothing there. You know what it was? It was the nearest thing to a legitimate Ponzi scheme that they've ever run down
there. It was definitely something that involved the selling of new paper in order to pay off the debts of old paper.
While some journalists were sounding an alarm, WorldCom star was on the rise. Scott Sullivan, the architect of the
deal, lived in this small condo off the Ross Barnett Reservoir near WorldCom headquarters. After the MCI merger, he
was receiving a six-f figureure salary with multi-million dollar bonuses and began building a $15 million mansion in
Boca Raton and Wall Street touted WorldCom stock as it rose to a peak of $64 a share. Nobody wanted to be told
there was no reason for it to go up. It's it's like in the cartoons when the coyote runs off the cliff, he's fine
till he looks down. Um, and that's what was happening here. Everybody was focused on the fact
that it was going up. up. And of course, the higher it went up, the higher up the
side of the building you were and the greater the incentive not to look down. Then in 1999, the bottom started falling
out of the telecommunications industry. It is around this time, according to prosecutors, that Scott Sullivan began
pushing the limits of creative accounting. to make WorldCom appear like a profitable company in a declining
industry. He is suspected of disguising up to $9 billion in expenses as capital investments. What does that mean? That
means they can keep telling the world, "Hey, we do a better job than AT&T. We do a better job than Sprint. Look, look
at our operating costs. They're much lower. Look at our margins. They're much higher." Hence, we should have a better
stock price. Investors agree stock price stays high. They can keep using that stock price to do deal after deal after
deal. You keep the machine going. While secretly cooking the books, WorldCom made one last stab at propping up
profits by merging with Sprint. But anti- monopoly voices in both the US and Europe prevented the acquisition.
Without admitting to any wrongdoing in the company, Bernie Ebers suggests that this was when WorldCom started to
suffer. That was the start. If the uh Sprint merger had been approved, our stock could not have been less than $178
today. But uh you know that that may have been the start of it. Uh that certainly was a setback. The company
continued to artificially inflate the value of their stock. And one of its first victims was Bernie Ebers himself,
who wound up buying his own stock um uh at at at at price multiples that eventually um uh caused him to have to
borrow what $300 million from the company so that he didn't have to turn around, start selling the stock and in
in the first stages of its collapse. Bernie Ebers had bought his own stock at such an inflated rate that WorldCom had
to loan him money to pay for it. And when an SEC investigation drew attention to that loan, the scandal forced Bernie
Ebers to resign. The next day, he downplayed his responsibility in the deal. In November
of 2000, I had a margin call. I sold some stock. Stock went down $4 a share. The board came to me and said, "Please
don't sell anymore." And I have done nothing in that arrangement other than do what my board asked me to do. The
public likes to talk about that a lot. It's a kind of a jazzy subject to talk about. And there's never been a loan
like that before in the history of corporate America and there probably hasn't. And certainly it looking back on
it having 2020 hindsight, we probably shouldn't have done it. But I did what I was asked to do. So I am have a
perfectly clear conscience about that and I am absolutely sure the company will be paid back. The good lord has
given me assets that are have a much greater value than that. Ebers is slated to receive $1.5 million a year for life
from Worldcom. And while it is unclear whether he knew of the fraudulent accounting that had yet to come to
public light, he did know that the stock was slipping. And even a day after he resigned, he continued plugging WorldCom
stock. I can tell you if I had spare money, I'd be buying today. You can really make some real money now. Then
less than 2 months after its founder and CEO resigned, an internal investigation
forced WorldCom to announce almost $9 billion in phony bookkeeping. WorldCom has engaged in what people close to the
company describe as a massive fraud. It seems sure to make it very, very difficult for WorldCom to raise any new
money and could very likely result in WorldCom being forced to file for bankruptcy. The next day, WorldCom
trading was halted. In August, WorldCom CFO Scott Sullivan was arrested. It was the Justice Department's first catch.
It's of paramount importance that that the government take strong action to restore faith in our capital
markets. The executives face the music. Next on Mugsh shot. The wave of financial scandals has
left the public demanding that the government take action. In the summer of 2002, Congress passed the Sarbain Oxley
Act. This new law, among other things, gives the SEC more authority to bring criminal charges against executives for
securities fraud. What was needed was vigorous continuing enforcement of the laws that were already there. And had
that been done, we never would have needed to pass one of these hasty sort of bills. We never would have had the
bubble that we got. Like who wants to be the guy who stands up at the party and says, "I think we're too rich." Nobody
wants to do that. Now, the government wants to be seen as fighting white collar crime as aggressively as it goes
after street crime. The government wants to make sure that uh since it has long vigorously
prosecuted crime in the streets, it now has to just as vigorously prosecute fraud in the suites. In November 2002,
WorldCom settled a civil suit with the SEC, but Scott Sullivan has been indicted on fraud and conspiracy
charges. And as the government tries to build a case against Bernie Ebers, the company is reconsidering his
multi-million dollar exit package. It's very hard to know who knew what and who didn't.
The first step is always following the money. In the Enron case, for example, that trail leads to Andy Fastau. That's
crucial. That's what tells you who is really orchestrating this. When you follow the money and then when you put
this all together and it comes together like a beautiful mosaic and you see that one way or another that money ends
up in Mr. Fastau's bank account. The government's case against Andy Fastau appears to be the strongest, but they
are also investigating other executives from the company. I believe strongly without a sheer doubt in my mind that
Skilling knew what was going on. That's why he bailed ship. The icing on the cake and skilling relates to the
handshake agreement that apparently took place between Mr. Skilling and Mr. Fastau
whereby Mr. Skielling promised Mr. passed out that he and his limited partnerships would not lose money on any
of their dealings with Inron. There is no guarantee that a legal limited partnership will not lose money. So if
Skilling made this promise to Fastau, it would mean Skiilling was in on the scam.
However, the government can approach Ken Lay from a different angle. The difference between Ken's public
statements and private actions suggests he was misleading investors in a fraudulent manner. Mr.
Lei is telling certain prospective buyers that things are great, company is solid, future business prospects are
wonderful, but at the same time he's selling his stock. He doesn't tell them that. And at the same time, he's telling
various government officials such as Mr. Greenspan and Commerce Secretary Evans and Treasury Secretary O'Neal or appears
to be telling him that the ship is going down. We're going to sink. We need help.
That is clear-cut fraud. Securities laws require full disclosure. The strongest case against Ken Lei is proving he was
not honest with investors about the condition of the company. They took their money out. So why couldn't we have
taken our money out knowing they knew something was wrong? Because too many executives pulled out between December
and August. Uh they knew they knew something was really wrong. You have the crime of the century here. It really is
something that's going to take a high-speed supercomput to chart because it seems to have tentacles reaching off
in every direction. Coming up, former employees and shareholders fight back. After years of unprecedented
growth, Wall Street watched as its high-flying stocks crashed in a wave of corporate scandals. The Houston Astros
had to spend $2.6 million to buy back their stadiums naming rights from Enron. And everyone is scrambling to distance
themselves from once celebrated executives. Cornin protected Enron. Today, the executives of these companies
face an uncertain future. Enron CFO Andy Fastau and WorldCom CFO Scott Sullivan have been arrested and are both out on
bail. David Duncan of the accounting firm Arthur Anderson was found guilty of obstruction of justice for shredding
documents in connection with the Enron case. Well, here's what I say. Make them give the money back. Shortly after Enron
declared bankruptcy, Kenlay's wife, Linda, went on national television and wept that she and her husband were broke
while flashing a $15,000 Cardier watch. They're not broke. They're not broke. They don't know what broke is. They
don't have a clue. In May, Linda Lei opened what she describes as an upscale secondhand furniture store where she is
selling off pieces of their estate. The items range from $50 waste baskets to $500 17th century church stone angels to
a $4,300 four poster rice bed. They had five, six, seven homes. They had jewelry
they can sell. They have cars. They have their home that they're currently live on. The $7 million home that they have
now that they could sell. What did we have? The majority of us would you have $150, $300,000 home, $400,000 home and
you have a mortgage on it. They made money selling a stock to naive buyers when they knew that the company had
problems and the buyers didn't. So, a lot of people think that that that money should be returned either to
shareholders or to employees that lost everything. I know if I affected somebody like that where I took my
actions cause someone to lose all their money, I would try to make them whole. And I you just wish they would have that
same genuous about them to try to make to make the situation right. For some people, giving back the money isn't
enough. I understand that they do wonderful things with with charities and they donate a substantial amount of
money to charities, but that doesn't give them the reason to uh have uh that get out of jail free card. But in all
likelihood, they're going to be stripped of their assets based on forfeiture proceedings
and they're going to be in prison wearing a orange jumpsuit. 44,000 once. Are you out, sir? 44,000
twice. 44,000. Third and last call. Are we all done on the Enron E final call? Congratulations. Today, Enron and
WorldCom still operate as shadows of the companies they once were. This wasn't done because people were
trying to make the world a better place so that we could make cheaper phone calls. It was done so a bunch of guys
downtown could live in $15,000 million mansions. That's all. And that's all it ever was about is who's got the money
and how do I get it? And as executive after executive makes headlines with blatant fraud, America struggles to
restore confidence in its financial markets. Wall Street runs on faith and a reason to believe in the future. Heat.
[Music] Heat. Heat. Heat. Heat. Heat. [Music]

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Brief Summary

The episode details the Enron scandal, highlighting corporate greed and its devastating impact on employees and investors.

Key points

The Crime of the Century. Corporate greed led to the collapse of Enron, destroying lives and savings.
Bankruptcy Auction. Enron's assets were auctioned off as over 20,000 people bid on remnants of the company.
The Dark Side of Enron. Enron's competitors labeled it as the dark side, with top executives living lavishly.
Congress Investigates Enron. Congress launched investigations into Enron's collapse, revealing layers of corporate deceit.
Employees Lose Everything. Former employees testified about losing their life savings and retirement due to Enron's collapse.
The Burden of Financial Loss. Parata shares her emotional struggle after losing her job and savings during her daughter's wedding preparations.

Episode highlights

Episode quotes

Enron became this giant news story that seemed to surprise most of the media.

2:30WatchJul 28, 2014

Tension

75/ 100High tension

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