Enron, every mention

Enron · Acquired Nov 29, 2022 · 100 mentions

• ▶ 1:11:34 Ben Gilbert These deals, you know, Enron's flying around doing deals.
• ▶ 1:12:00 David Rosenthal So what does Enron do?
• ▶ 1:13:06 David Rosenthal But Enron Books,
• ▶ 1:14:34 David Rosenthal Enron is financing the energy development of India, Brazil, of Argentina, like, you know, blah, blah, blah, and the politicians love this.
• ▶ 1:14:57 David Rosenthal Now, you only need to come up with three percent outside capital, but Enron starts doing so many deals that are so big, and they're offloading so many assets, it actually becomes kind of a problem finding enough suckers to pony up even…
• ▶ 1:15:18 Ben Gilbert And by the way, we should say, how does Enron have the capital?
• ▶ 1:15:38 Ben Gilbert Well, first of all, a lot of times they're doing co-development deals, so they're, like, getting a government to pony up a bunch of cash, and Enron ponies up a bunch of their, sort of, like, development resources and people, which, by the…
• ▶ 1:16:47 David Rosenthal On the back end, there's actually no cash because Enron is the buyer and the seller.
• ▶ 1:17:22 David Rosenthal So like we're saying that dynamic gets to the point where it's so big, they can't find enough suckers to even do three percent of the equity and capital in these crappy deals that again, Enron's on both sides of, even though the special…
• ▶ 1:17:53 David Rosenthal A captive fund, part of the Enron family, but was separate, was independent, that could put up this three percent of the equity needed for every deal.
• ▶ 1:18:11 David Rosenthal Fastow sets up this fund and is the general partner in it, and we only use it for, you know, stuff that helps Enron.
• ▶ 1:18:17 David Rosenthal And like, yes, he's the CFO of Enron.
• ▶ 1:18:19 David Rosenthal He'll also be the general partner of this fund, you know, that's going to do deals with Enron, but it's only deals that are going to be good for Enron.
• ▶ 1:18:53 Ben Gilbert I don't know if it's two and 20 or whatever it is, but there's management fees, there's carry, like, he is the general partner of a private equity fund that is only getting good deals because you know that he's gonna screw Enron to get
• ▶ 1:19:18 David Rosenthal This is going to be great for Enron.
• ▶ 1:19:56 David Rosenthal He's the CFO of Enron.
• ▶ 1:19:58 David Rosenthal Everybody who works on the fund is an Enron employee.
• ▶ 1:20:01 David Rosenthal Enron is paying the salaries of everybody.
• ▶ 1:20:04 David Rosenthal The office is Enron.
• ▶ 1:20:11 Ben Gilbert He's pulling someone off their day job every time they need to negotiate a deal between his fund and Enron and saying, okay, you wear the Enron hat on this time and negotiate against me and I'll wear the private equity hat.
• ▶ 1:20:47 David Rosenthal So there's no question who is benefiting from what is going on here, and it's not Enron.
• ▶ 1:21:30 Ben Gilbert He very intentionally was like, uh, 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.
• ▶ 1:21:52 Ben Gilbert Not to mention all the people investing capital are these big banks, and so it further entrenches major financial institutions Merrill Lynch, JP Morgan, all these big people that Enron wants to continue to have incentivized for their…
• ▶ 1:22:12 David Rosenthal Everybody in Enron is so hyped up about this that in 1999, Fastow starts a campaign within Enron with Lay and Skilling and the PR people in Enron to get himself nominated for the CFO of the year in the CFO magazine annual rankings of CFO.
• ▶ 1:22:54 David Rosenthal Two, Enron also benefits because it's now just turbocharging this whole flywheel and getting the bad stuff off the balance sheets and booking revenues associated with these deals.
• ▶ 1:23:05 David Rosenthal Enron also makes Fastow the head of Corp Dev.
• ▶ 1:23:15 David Rosenthal He is the head of corporate development, who would be the person charged with negotiating the Enron side of the table against the outside investors, the LJM.
• ▶ 1:23:38 Ben Gilbert They say, oh, there exists an entity that's managed by a member of the management team that does deals with Fenron.
• ▶ 1:24:06 Ben Gilbert And it all ties back to this one sentence where they're just saying a member of the management team has a related entity that does transactions with Enron.
• ▶ 1:24:39 David Rosenthal People are starting to ask around about what's going on at Enron, and people assume when this disclosure comes out that it's Skilling who's running these funds, and they're like,
• ▶ 1:24:55 David Rosenthal Enron PR, and they're like, yo, what's up here?
• ▶ 1:24:58 David Rosenthal And like, and then Enron PR is like, oh, no, no, no, it's not scaling.
• ▶ 1:25:36 David Rosenthal You can either stay at Enron, be the CFO, and head a corp dev, or you can go run these funds.
• ▶ 1:25:50 David Rosenthal He comes back to skilling, and he's like, I'm loyal to Enron.
• ▶ 1:26:20 David Rosenthal And here's this giant cookie jar of all these deals that Enron's doing and there's no lid on it.
• ▶ 1:26:47 David Rosenthal They had done one of these offloading projects with Enron.
• ▶ 1:26:51 Ben Gilbert This is with Enron Energy Services.
• ▶ 1:27:16 David Rosenthal So this particular entity was called the JEDI entity that CalPERS and the Ontario Teachers Fund had invested in, and Enron and Fastow wanted to do an even bigger deal with them, and CalPERS said, okay, we're interested in a bigger deal,…
• ▶ 1:27:57 David Rosenthal But Fastow and Copper both work at Enron.
• ▶ 1:28:19 David Rosenthal So Copper's domestic partner, a guy named Bill Dodson, he's not legally married to Copper, and he's not part of Enron.
• ▶ 1:32:29 Ben Gilbert It's probably worth flashing back to, like, the 1997 time frame to start talking about what was happening outside the office of the CFO at Enron, because they're going nuts.
• ▶ 1:34:46 Ben Gilbert Enron the tech company.
• ▶ 1:34:47 David Rosenthal Enron the tech company.
• ▶ 1:35:26 Ben Gilbert The Enron traders, who are these pure capitalists, they're these pure sort of like, if there's a dollar on the table, it is my ethical responsibility to go take it, no matter what the impacts are, because I have an intellectual purity to...
• ▶ 1:37:18 Ben Gilbert Well, it was this experiment where Enron
• ▶ 1:37:41 Ben Gilbert Or Fat Boy was a scheme where Enron would submit a schedule to the marketplace reflecting demand that wasn't actually there, and then watching what sort of happened when
• ▶ 1:37:59 Ben Gilbert Get Shorty, selling power that Enron didn't actually have for use as reserves, with the expectation that Enron would never actually be called upon to supply the power, or it could just buy it later at a lower price.
• ▶ 1:38:11 Ben Gilbert Or the worst of them all, Ricochet, where Enron would work with someone who's generating power in California, a utility,
• ▶ 1:38:21 Ben Gilbert No, they, this was where they would export it out of the state, and they had control over the transmission line so they could do that, and then when California realized, oh crap, we need energy, then they would have a contract in place…
• ▶ 1:39:28 David Rosenthal And, and Ron and other trading companies were totally manipulating the market.
• ▶ 1:39:36 Ben Gilbert That's sort of one corner of Enron.
• ▶ 1:39:39 Ben Gilbert Another corner of Enron is this thing, Enron Energy Services, which this, I believe, is the division that LuPi ran.
• ▶ 1:39:39 Ben Gilbert Another corner of Enron is this thing, Enron Energy Services, which this, I believe, is the division that LuPi ran.
• ▶ 1:39:47 Ben Gilbert But in 97, this was the current hotness for what to get investors excited about as the future of Enron, because they sort of had done the, you know, we're a pure marketplace, then we're a financial derivatives, then they got mark-to-market…
• ▶ 1:40:06 Ben Gilbert Well, Enron Energy Services is this thing that Skilling really wants to sell this story about how it's taking off.
• ▶ 1:40:11 Ben Gilbert And so, let me just read this passage from the smartest guys in the room, because I think this probably articulates the insidiousness of the Enron culture better than anything else.
• ▶ 1:40:23 Ben Gilbert They tour the sixth floor of the EES war room.
• ▶ 1:40:38 Ben Gilbert Giant plasma screens displayed electronic maps, which could show sights of EES's many contracts and prospects.
• ▶ 1:40:48 Ben Gilbert It was impressive, recalls John Olson, who at the time covered the company for Merrill Lynch.
• ▶ 1:41:02 Ben Gilbert Though EES was just then gearing up, Skilling and Pai had staged it all to convince the visitors that things were really hopping.
• ▶ 1:41:09 Ben Gilbert On the day the analysts arrived, the room was filled with Enron employees.
• ▶ 1:41:16 Ben Gilbert They were secretaries, EES staff from other locations, non-EES employees who had been drafted for the occasion, coached on the importance of appearing busy.
• ▶ 1:42:00 Ben Gilbert Enron the internet company, suddenly, magically.
• ▶ 1:42:24 Ben Gilbert Before the Blockbuster Netflix thing, and before Blockbuster even considered streaming, they offered a video-on-demand product that was provided by Enron's Fiber.
• ▶ 1:42:36 Ben Gilbert Somehow Enron was doing the servers and digital delivery.
• ▶ 1:43:06 David Rosenthal 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.
• ▶ 1:43:23 Ben Gilbert I don't know if it was Enron or Blockbuster, but they basically said, this deal sucks.
• ▶ 1:43:49 Ben Gilbert 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.
• ▶ 1:44:47 Ben Gilbert And so, there's, like, lots of excitement around what Enron's doing in trading bandwidth, around being an internet company, but they actually do launch an internet product.
• ▶ 1:45:13 Ben Gilbert 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.
• ▶ 1:45:23 Ben Gilbert So they stand up and exchange, like an exchange you can access through a web browser, much like FTX, but Enron itself is the counterparty to every trade.
• ▶ 1:48:08 David Rosenthal And I think it's cases like this, like Enron, like FTX.
• ▶ 1:48:21 David Rosenthal And, like, the Enron case is the same thing.
• ▶ 1:49:22 Ben Gilbert He should get twenty million dollars in cash if he was not made CEO of Enron by the end of 2000.
• ▶ 1:49:39 Ben Gilbert It's like, oh, if you fire me, you have to pay me twenty million dollars unless you want to make me CEO of the company.
• ▶ 1:50:47 Ben Gilbert Is sort of like, how does Enron make money?
• ▶ 1:51:30 David Rosenthal At Fortune, the same publication that names Enron the most innovative and best managed company in America.
• ▶ 1:51:42 David Rosenthal An article entitled, Is Enron Overpriced?
• ▶ 1:51:50 David Rosenthal It's not that bad of an article from Enron's perspective.
• ▶ 1:51:57 David Rosenthal It's like, Enron is a black box.
• ▶ 1:52:08 David Rosenthal Big article, like, kind of questioning what's going on at Enron.
• ▶ 1:52:19 Ben Gilbert So why is Enron trading at such a high multiple?
• ▶ 1:52:36 Ben Gilbert Just in that January, January of oh one, they've rebranded from the world's leading energy company to the world's leading company.
• ▶ 1:52:43 Ben Gilbert It's literally the subhead, the tagline for the company.
• ▶ 1:52:47 David Rosenthal Oh, can we talk about the, um, company slogan that they used in their commercials, which was ask why?
• ▶ 1:52:53 David Rosenthal That's literally the company slogan.
• ▶ 1:52:59 Ben Gilbert There was discussion of whether they should be the world's coolest company, but literally the only reason they didn't do that is because it didn't translate well.
• ▶ 1:53:06 Ben Gilbert So they just went with the world's leading company.
• ▶ 1:53:52 Ben Gilbert Well, Goldman Sachs is only trading at this point at 17 times earnings, so why is Enron trading at 55 times earnings?
• ▶ 1:53:59 Ben Gilbert Then you start digging in and you're like, well, when I can see Goldman Sachs' earnings, I can sort of tie it out to the rest of the financial statements and see earnings eventually showing up as cash, but this is a company that's trading…
• ▶ 1:54:29 Ben Gilbert And sometimes their return on invested capital is actually less than their cost of capital.
• ▶ 1:54:42 Ben Gilbert And the first part, the high multiple, is Enron over price question.
• ▶ 1:55:45 David Rosenthal In Enron's case, and in the case of a lot of frauds, they're reporting high revenue growth and high profits on the income statement, but also burning cash.
• ▶ 1:55:57 Ben Gilbert Short sellers, journalists, and eventually, finally, finally, some analysts manage to shake loose of the, my job is to say Enron is awesome thing, and they start to ask hard questions on earnings calls.
• ▶ 1:56:11 Ben Gilbert Because for the longest time, it has been that you were rewarded for saying Enron's great, because the stock would go up, and then you would look like a genius.
• ▶ 1:56:20 Ben Gilbert And anytime anybody said Enron wasn't great,
• ▶ 1:56:30 Ben Gilbert We do lots of business with them because Enron did lots of business with everybody.
• ▶ 1:56:43 David Rosenthal Where one Richard Grubman of Highfields Capital was actually a hedge fund and had a short position on Enron.
• ▶ 1:56:53 David Rosenthal I think this is Skilling's first earnings call as actual CEO number one of the company.
• ▶ 1:57:38 David Rosenthal Why, and Ron, unlike 99% of other companies out there, when they report earnings, why do they only report an income statement, and they don't report their balance sheet or cash flow statement, and those things only get reported, Ben, like…