Enron

“Bank of America's energy trading desk was all ex Enron people.”

“It was that Jeff Skilling insisted that in order to join Enron and start this new division, Ken Lay and the board had to agree to use mark-to-market accounting.”

“I think as soon as the business became the derivatives trading as an end, rather than as like a means of hedging, or as a means of cash flow stabilization and price predictability, I think that's sort of where basically everything after that was bad.”

“John Arnold went on to start the firm Centaurus, which is one of the highest-performing hedge funds ever.”

“The SEC allowed them to go out to 20 years that they could collapse into today revenue.”

“So, May, 2006, a jury finally convicts Skilling of 19 out of 28 counts of wire fraud and securities fraud, and Lay gets convicted on six counts of securities fraud.”

“Enron became Anderson's biggest client in the world. They were making fifty million dollars a year from Enron, half of which was audit and tax fees and half of which was consulting fees.”

“The Bush family was very close. So close, in fact, that when W was inaugurated president, George H.W. And Barbara Bush traveled from Houston to Washington for the inauguration with Lay on the Enron corporate jet.”

“Dyna G's gonna Acquire Enron for eight billion dollars, an all stock deal, no cash, but Enron of course needs more cash to survive until the deal can close and Dynergy can complete its due diligence. So Dynergy lends one and a half billion dollars to Enron in …”

“She sold about eighty-three million dollars of stock. She actually got out early enough, and she was sort of cast out by the male executives at the top in a way where she was actually never accused of any wrongdoing and never really a part of the prosecution o…”

“On September 12th, Enron's commercial paper doesn't turn over. Nobody's there to buy it.”

“Citigroup alone had five billion in claims.”

“McMahon learns that not only did Fastow not know how much debt Enron as an organization had, he also didn't know how much cash they had, and he also didn't know the maturity schedule of the debt, so he didn't know And thus, nobody in finance knew the company t…”

“Well, in September, The whole suite of settlements with a whole variety of banks, JP Morgan, Citigroup, various others, come in for a total of 7.2 billion dollars coming into this rotting carcass of Enron, which results in a distribution of six dollars and 79 …”

“This would be the last logo that the legendary Paul Rand designed before he died.”

“They become a key player in the total disaster that is the California blackouts.”

“Well, it was this experiment where Enron filed an imaginary transmission schedule in order to get paid to alleviate congestion that didn't really exist.”

“So when skilling gets elevated to number two and fast out to CFO the company, they start articulating as the company strategy that the finance department is going to go from being this shared resource cost center to a profit generating division of the company.”

“In November of 99, they launched something called Enron Online, and what this is, is it allows all of Enron's counterparties to trade with them electronically. So they stand up and exchange, like an exchange you can access through a web browser, much like FTX,…”

“But the way he repaid them was he took cash loans from Enron. So Enron loaned him cash. What a merry-go-round. And Ken backed his collateral for that cash that he ended up then repaying the loans to Enron with, Was the Enron stock that he originally had taken …”

“Yeah, he got the largest cash bonus that Enron ever gave to anybody who wasn't a senior executive of, I think, eight million dollars.”

“Moody's, they've been complicit the whole time and just shows you just how much of a racket this thing is. No one has been actually underwriting this company to decide if they're credit worthy or not.”

“For Ken Lay, I don't think he ever said anything in a public or pseudo-public context that was confrontational or pissed anybody off.”

“If you set this up, as long as at least three percent, three, one, two, three percent of the capital in that entity comes from outside investors, you can still have The company itself own 97% of the economics of that entity, and you can remove it from your con…”

“The Raptors, I believe, were hedges, intended to be hedges on some of Enron's investments, but the actual mechanism and the underlying collateral that they used for the hedge was Enron's stock itself. So they became this, like, massively toxic, like, they didn…”

“The chair of the audit committee of Enron's board during all the years that all this was going on was the dean of Stanford Business School, who was an accounting professor.”

“He ends up not winning, but he does get a special award from CFO magazine for CFO excellence in the category of capital structure management.”

“He managed to convince Lay that He should get twenty million dollars in cash if he was not made CEO of Enron by the end of 2000.”

“They actually went and asked the banks, hey, can we get new debt lines with you, and every single one said no, and so they pulled the credit lines, which the banks have no option. It's already negotiated and signed.”

“All told, I think Lay sells about three hundred million dollars worth of Enron stock via these transactions. Skilling sells about two hundred million, and Fastow and a bunch of the other executives sell a whole bunch too.”

“Now, if this were not September 12th, 2001, that would have been game over for Enron, like right there. That would have been the end. But everybody's a little distracted.”

“So he comes back to Lay and the board and says, our actual obligations are thirty four billion dollars, which the debt on the balance sheet was 12.8 billion dollars.”

“And Fastow actually makes sixty million dollars from the LJM partnerships, from fees, carry, and selling partnership interests. So he actually makes more from the LJMs Than I think he does in total comp at Enron ever.”

“And as a result of that, the SEC in 2002, middle of 2002 revokes Anderson's CPA license. So literally bars them from. Oh, I didn't realize that. Okay. They had already started to lose tons of clients because, shocker, Anderson was also the auditor of WorldCom,…”

“Oh, the service never launched. But of course, with Enron's Mark to Market, they booked over a hundred million dollars in revenue on day one for it, and then they offloaded the project to a special purpose entity.”

“But it is worth pointing out that Enron, when they did adopt this, became the very first non-financial company to use this method.”

“There are documents that surface that have a variety of signatures on them, but not skillings. He very intentionally was like I'm not actually gonna sign off on this, but it's kind of good for Enron that it happens, so I'm gonna let it keep happening.”

“So that creates a huge amount of future value for Enron, the company, their shareholders, and so they literally recognized revenue even bigger than the Blockbuster deal after the lack of Blockbuster deal.”

“So Arthur Anderson Legal on October 12th sends an email to the Houston office. God, this email. Literally directing them in writing in an email to start destroying any and all non-finalized documents that are related to Enron, either digital or physical, quote…”

“As a part of the Dyna-G term sheet, upon completion of the deal, Ken Lay just got sixty million dollars in cash as, like, a bonus.”

“Who ends up buying the pipelines but Berkshire Hathaway Energy.”

“He actually had, LJM III was in the works to be a billion dollar fund, and if that came together, he was just gonna peace out and go do that.”

“Enron left behind a trillion dollars of claims to 30,000 creditors.”

“They are shredding one ton of paper every single day. That's the maximum capacity. This goes on for weeks. Dozens of tons of paper that they shred of documents related to Enron.”

“So if you had bought Enron equity in those days between the collapsing of the Dinergy merger And the bankruptcy, if you had bought for 61 cents, you would have had over a ten-x return if you were willing to hang on for seven years.”

“This time, Lei does fire them, and fortunately for Young and Ron and for Lei, but unfortunately for the rest of the world, this happens early enough in the quarter that the trading floor is able to dig out enough of these losses that they don't have to report …”

“It was even named Fortune Magazine's most innovative company six years in a row.”

“There were a million and a half shareholders.”

“The Enron stock starts falling from the all-time high in the fall of the previous year, just above 90 dollars a share, falls down into the forties. So, like, pretty bad. It's lost, like, over half its value.”

“Fastow went five years without having to disclose how much compensation he was getting from the LJM partnerships.”

“So they go on tilt, and they rack up, within the next few months, almost a billion dollars. One B, that's a B, a billion dollars, this is in the late eighties, of trading losses, which that would be enough to bring down the whole firm.”

“On October 16th, Ben, like you were saying, Enron reports earnings. They announced six hundred and thirty eight million dollars of losses for like the first time on their income statement. And they say they have to do a restatement of shareholder equity and re…”

“They pioneer this market that would come to be known, and is, I think, and assumes still a very, very large part of the energy market today. Called energy derivatives. Skilling and Enron invent it and pioneer it.”

“The thing that occurs to me is this is something that can only occur to this height in a bull market, where there's so much capital saturating so many opportunities that people are willing to go way out on the risk curve looking for returns. Where there's so m…”

“It was the seventh biggest company in America by market cap.”

“It's not that bad of an article from Enron's perspective. Like, the biggest question it raises is not one of fraud. It's exactly what you said, Ben. It's like, Enron is a black box. Nobody can figure out what's going on here. But there's no accusations of frau…”

“On December second, indeed, just a few days later, Enron files for chapter 11 bankruptcy. At the time, the largest bankruptcy in U.S. History.”

“On their earnings calls, they are releasing a profit and loss statement, and then, like, a little, a few weeks later, coming out with a balance sheet and a cash flow statement.”

“He ends up leaving Enron well before the fall, and he sells his stock to finance the divorce for a quarter billion dollars. He makes two hundred and fifty million dollars.”

“And they would have a five year run from 1996 to 2001, during which revenues grew 7.5 X during those five years. They went from 13.3 billion in 1996 To over a hundred billion in the year 2000, and every year during that period from 96 through 2001, the company…”

“He's the only one who doesn't end up pleading the fifth. Like, he defends himself to the end.”

“It was an energy pipeline, and today, Kinder Morgan is a forty billion dollar company, and Kinder Is a billionaire. He's worth like eight billion dollars.”

“He was able to get thirteen billion out to creditors, which is about 36 cents on the dollar. Much better than the 17 cents that Stephen Cooper, that his plan called for.”

“GE bought the wind business from Enron, and I believe even today is sort of the cornerstone of their wind energy business.”

“Lehman is the largest. It's the only one in the, like, high hundreds of billions, whereas Enron had sixty-three billion in assets before filing.”

“If there's very high revenue growth, very high reported earnings and profit on the income statement, and there is low return on invested capital and poor free cash flow dynamics, probably your radar screen should be going off.”

“He calls them up to do the final negotiations of the terms of his offer. He calls them up from the hospital where he is with his wife while his wife is in labor with their, I think, second child.”

“The biggest difference really is that somehow Enron managed to do it all as a public company in plain daylight the entire time and with much bigger dollar amounts.”