Enron, every mention

Enron · Acquired Nov 29, 2022 · 100 mentions

• ▶ 1:59:36 David Rosenthal 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.
• ▶ 1:59:46 David Rosenthal It's lost, like, over half its value.
• ▶ 2:01:16 David Rosenthal Nobody inside or outside the company could predict.
• ▶ 2:01:19 David Rosenthal Within a couple months, by August of 2001, Skilling had just taken over at the beginning of the year as CEO of the company.
• ▶ 2:02:46 David Rosenthal Well, he was embezzling for himself, but in terms of, like, damage to the company and, like, perpetuating this house of cards, Skilling was the architect of the house of cards.
• ▶ 2:03:05 David Rosenthal And he starts selling stock as he's leaving, and then after he leaves, he sells a lot of Enron stock.
• ▶ 2:03:28 Ben Gilbert All of your wealth is tied up in Enron stock.
• ▶ 2:03:43 Ben Gilbert So instead of selling his Enron stock, he starts taking margin loans against his Enron stock and using that to invest in other things.
• ▶ 2:03:50 Ben Gilbert Now, Enron stock starts collapsing.
• ▶ 2:03:56 Ben Gilbert Then needing to sell Enron stock in order to service the debt that he used to invest in these other projects.
• ▶ 2:04:24 Ben Gilbert He was taking one of the Enron corporate jets around, sometimes to vacation with his family, sometimes to pick his daughter up from France, but often to DC to hobnob.
• ▶ 2:04:47 David Rosenthal Ken had most of his net worth in Enron stock, and then he started doing margin loans against that stock with banks, and then we'd get the margin calls and he would have to repay them.
• ▶ 2:05:00 David Rosenthal But the way he repaid them was he took cash loans from Enron.
• ▶ 2:05:05 David Rosenthal So Enron loaned him cash.
• ▶ 2:05:10 David Rosenthal And Ken backed his collateral for that cash that he ended up then repaying the loans to Enron with,
• ▶ 2:05:18 David Rosenthal Was the Enron stock that he originally had taken the margin loans against.
• ▶ 2:05:22 David Rosenthal So he got the cash out of Enron, used it to repay the loans that he had gotten the money from the banks, right?
• ▶ 2:05:29 David Rosenthal And then the repayment mechanism of all this is Ken's equity goes back to the company.
• ▶ 2:05:38 David Rosenthal Nowhere does it show up to any publicly available information that Ken Lay is selling his Enron shares.
• ▶ 2:05:46 David Rosenthal There's anti-dilution happening at the company.
• ▶ 2:05:47 David Rosenthal The company's repurchasing shares.
• ▶ 2:06:19 David Rosenthal All told, I think Lay sells about three hundred million dollars worth of Enron stock via these transactions.
• ▶ 2:06:43 Ben Gilbert Than I think he does in total comp at Enron ever.
• ▶ 2:07:38 Ben Gilbert A big one was, and this is a thing that got way reformed after Enron, all communication from the company to employees, to investors, and between the board and executives to set their compensation is about the stock price.
• ▶ 2:07:59 Ben Gilbert The company's not giving guidance on just, hey, here's what we think revenue's gonna be, and they're not telling employees what you should tell employees, which is,
• ▶ 2:08:13 Ben Gilbert What Enron is telling everyone is, I think the stock will go up.
• ▶ 2:08:32 David Rosenthal Of should employees invest, invest in Enron stock in their four Oh one case.
• ▶ 2:08:38 David Rosenthal And this is the same time that lay is doing the structure transactions we were talking about to offload his Enron stock selling his shares.
• ▶ 2:08:45 David Rosenthal And he says, I think you should put all of your four Oh one K in Enron stock.
• ▶ 2:09:45 David Rosenthal And he asked Fastow to say like, okay, what's the current debt obligations of Enron?
• ▶ 2:10:30 David Rosenthal Like, it's become clear, like, this is, like, a major liquidity existential crisis for the company.
• ▶ 2:10:36 Ben Gilbert And the company has no cash flow.
• ▶ 2:11:41 David Rosenthal Terrible, obviously awful, but in a crazy way, this was a reprieve for Enron.
• ▶ 2:11:47 David Rosenthal Like, it took everybody's eye off the ball of the investor community and the press of how bad things were getting at Enron.
• ▶ 2:12:06 David Rosenthal The morning of September 12th, the next day when the financial markets reopen Enron's commercial paper, their overnight loans don't turn over.
• ▶ 2:12:16 David Rosenthal There's no buyers for the overnight Enron commercial paper, which quick primer, we won't get into too many details here.
• ▶ 2:13:29 David Rosenthal On September 12th, Enron's commercial paper doesn't turn over.
• ▶ 2:13:34 David Rosenthal Now, if this were not September 12th, 2001, that would have been game over for Enron, like right there.
• ▶ 2:14:06 David Rosenthal The Wall Street Journal starts running stories about LJM,
• ▶ 2:14:09 Ben Gilbert And speculating on how much they think Fastow might have pulled out of these entities and earned for himself at the expense of the company, Arthur Anderson starts getting real nervous about their role in enabling all of this, and then…
• ▶ 2:14:53 David Rosenthal 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, in accordance with the firm's document retention policy.
• ▶ 2:16:01 David Rosenthal Dozens of tons of paper that they shred of documents related to Enron.
• ▶ 2:16:13 Ben Gilbert And I think, you might know more than I do here, but I think Arthur Anderson went under not because they were found guilty of anything, but because when this all started playing out and they went in the news as being Enron's auditors,
• ▶ 2:16:35 Ben Gilbert Enron needed to do a handful of restatements that were just straight up Arthur Anderson's fault.
• ▶ 2:16:55 David Rosenthal Certainly no criminal actions for its direct role within Enron, I don't believe, but they do face criminal action from the Department of Justice and the SEC over destroying of documents.
• ▶ 2:17:21 David Rosenthal They had already started to lose tons of clients because, shocker, Anderson was also the auditor of WorldCom, which would be an even bigger bankruptcy that would happen shortly after Enron.
• ▶ 2:17:51 David Rosenthal On October 16th, Ben, like you were saying, Enron reports earnings.
• ▶ 2:17:55 David Rosenthal They announced six hundred and thirty eight million dollars of losses for like the first time on their income statement.
• ▶ 2:18:30 Ben Gilbert They're, like, referred to in multiple ways, but they're off-balance sheet vehicles that Enron's basically using to hide large debt loads they're carrying and huge losses.
• ▶ 2:18:53 David Rosenthal Is that like the biggest, most grandest example of Enron's just like
• ▶ 2:19:00 David Rosenthal 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.
• ▶ 2:19:23 Ben Gilbert It kind of feels like even if Enron hadn't started falling apart,
• ▶ 2:19:42 David Rosenthal So October 22nd, the SEC announces that they are launching an inquiry into Enron's accounting.
• ▶ 2:20:09 David Rosenthal 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
• ▶ 2:20:25 David Rosenthal And thus, nobody in finance knew the company to know when they had to repay the debt.
• ▶ 2:21:04 David Rosenthal When they do, they figure out the company is basically already insolvent, so they need emergency financing.
• ▶ 2:21:35 David Rosenthal Enron drew down the credit lines.
• ▶ 2:21:37 Ben Gilbert Yes, so Enron draws down those credit lines, and then they issue a press release that they've done this in order to A, assure shareholders that, you know, they're in great financial footing, because now they have all this cash, and B, show…
• ▶ 2:21:50 Ben Gilbert And that they stand behind Enron.
• ▶ 2:21:56 David Rosenthal So after they do that, the credit agencies immediately downgrade Enron's credit rating.
• ▶ 2:22:11 Ben Gilbert No one has been actually underwriting this company to decide if they're credit worthy or not.
• ▶ 2:22:16 David Rosenthal So at this point, it's obvious, even to the most fervent believers or head in the sand people at the company, you can make your argument of which category each of the executives and the board stood in with that, but it's obvious and runs…
• ▶ 2:22:44 David Rosenthal You know, what would happen in, uh, in 2008 in the financial crisis, the Bush administration does not give Enron a bailout, so there's no dice there.
• ▶ 2:22:53 David Rosenthal Once that becomes clear, he does the only next thing that is even any remote possible chance of saving the company, which is he reaches out to the CEO of Enron's largest competitor, Dinergy, and tries to broker a deal.
• ▶ 2:23:37 David Rosenthal In, um, Conspiracy of Fools, I don't know if this is in Smartest Guys in the Room, there's quotes from Enron people talking about Dyna G as the Burger King to, uh, Enron's McDonald's.
• ▶ 2:23:53 David Rosenthal They strike a super fast, you know, 11th hour deal to save Enron, prevent it from filing from bankruptcy.
• ▶ 2:24:03 David Rosenthal 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.
• ▶ 2:24:17 David Rosenthal So Dynergy lends one and a half billion dollars to Enron in cash to help Enron through the liquidity crisis.
• ▶ 2:24:26 David Rosenthal And the loan is secured by Enron's core original pipeline assets.
• ▶ 2:24:44 Ben Gilbert And so JP Morgan mandates that, but they also mandate that all future Enron investment banking business will be handled by JP Morgan over the next 18 months.
• ▶ 2:26:07 David Rosenthal We're gonna have to reconsolidate all of those assets and liabilities back onto Enron's balance sheet.
• ▶ 2:26:20 David Rosenthal So there's a further sort of, you know, equivalent of run on the bank with Enron.
• ▶ 2:26:38 Ben Gilbert In the context that the Enron executives were using it in this period, it was a completely unfair analogy.
• ▶ 2:27:01 David Rosenthal And specifically, I think where all that money goes and the run on the bank nature of this is, remember, Enron's an active trader in the markets.
• ▶ 2:27:52 David Rosenthal At 10:20 a.m., 10 minutes before the news comes out, Ken Lay's wife sells 500,000 shares of Enron stock that the Kenan, uh, whatever her name is, that the Lay Family Foundation held.
• ▶ 2:28:11 David Rosenthal Once the news comes out, everybody knows Enron is bankrupt.
• ▶ 2:29:02 Ben Gilbert Put that into the company.
• ▶ 2:29:10 David Rosenthal Okay, so it's clear Enron is gonna file for bankruptcy in the coming days.
• ▶ 2:29:16 David Rosenthal On December second, indeed, just a few days later, Enron files for chapter 11 bankruptcy.
• ▶ 2:29:37 Ben Gilbert Isn't that crazy that, like, this was the largest at the time, 20 years ago, but now you've got Lehman, Washington Mutual, WorldCom, GM, like, much bigger bankruptcies than Enron since.
• ▶ 2:29:50 Ben Gilbert It's the only one in the, like, high hundreds of billions, whereas Enron had sixty-three billion in assets before filing.
• ▶ 2:29:58 David Rosenthal So, Enron is over, literally, given the, uh,
• ▶ 2:32:29 David Rosenthal So I think what you're referring to with the cents on the dollar is dollars to the creditors, to Enron's debt holders.
• ▶ 2:32:49 David Rosenthal So, one thing, though, that you did just jog my memory on that we missed in the notes, I swear it wasn't intentional, but we will, uh, we don't want to bury it too far in the footnotes like Enron here.
• ▶ 2:33:26 David Rosenthal I'm sure very, very few of you know this, but 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.
• ▶ 2:33:48 Ben Gilbert Little aside here, do you know what John Ray did before coming into Enron?
• ▶ 2:34:43 David Rosenthal One of the Enron senior executives, who we haven't talked about on this episode, Cliff Baxter, sadly commits suicide.
• ▶ 2:34:51 Ben Gilbert He actually had left Enron a good bit before this, sometime in the last year, but felt so sort of depressed and responsible, and I think his note was about not being able to spend time with any of the people that were a part of his…
• ▶ 2:35:57 David Rosenthal Oh yeah, also, she also worked at the company.
• ▶ 2:35:59 David Rosenthal She was an assistant treasurer at Enron too.
• ▶ 2:37:09 David Rosenthal 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.
• ▶ 2:37:55 David Rosenthal Six plus months after the Enron bankruptcy.
• ▶ 2:38:45 Ben Gilbert It is like, what did Enron do wrong?
• ▶ 2:45:12 Ben Gilbert It sounds like the list of values Enron had in the lobby.
• ▶ 2:45:22 Ben Gilbert The ironic thing about the God's work quote is, uh, Jeff Skilling said about two years before Enron's collapse that he felt Enron was doing God's work.
• ▶ 2:48:01 David Rosenthal Zero involvement with any of Enron or any of Enron's predecessor companies.
• ▶ 2:48:27 David Rosenthal Well, when the deal falls apart and Enron burns through the cash, Dynagy seizes the pipelines.
• ▶ 2:49:23 David Rosenthal Things were still going on with the carcass of Enron.
• ▶ 2:49:29 David Rosenthal Let me tell you what happens in September of 2008 of all times, September of 2008, the post bankruptcy shell corporation of Enron finally finishes.
• ▶ 2:50:05 David Rosenthal Well, the biggest opportunity to recover dollars for shareholders, they determined over the years, was to sue the banks that participated in all the shenanigans with Enron.