Inside Enron's House of Cards


A True Story

By Kurt Eichenwald

Broadway -- 742pp -- $26

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Editor's Review

Four Stars
Star Rating

The Good The liveliest?and probably the best?Enron account so far.

The Bad The author's sources aren't always clear, and reconstructed dialogue raises questions of accuracy.

The Bottom Line An eye-opener that puts the reader in the center of the action.

Even if you've read innumerable accounts of the Enron scandal, you'll find the meltdown depicted in Kurt Eichenwald's Conspiracy of Fools to be an eye-opener. His you-are-there narrative and fastidious attention to detail bring this byzantine saga to life as never before. Where else will you find yourself in ex-CEO Jeffrey Skilling's bedroom as he struggles with the news of his best friend's suicide -- or in then-Chairman Ken Lay's office as he prays over the phone with a bankruptcy lawyer who has just asked Lay to give up his job?

Eichenwald, a New York Times investigative reporter, can only hope that Enron ennui hasn't set in since the energy trader's collapse in 2001. Certainly, the basics of the story are well known, and they're replayed in these 742 pages: the convoluted, off-the-books entities concocted by crooked Chief Financial Officer Andrew Fastow, the seemingly willful blindness of the brilliant Skilling and confrontation-avoiding Lay, the multitude of bad, cash-guzzling international power projects masterminded by Skilling's nemesis, Rebecca Mark. The entire house of cards is propped up by the weak-kneed accountants at Arthur Andersen, not to mention a plethora of greedy lawyers and investment bankers and a clueless board of directors.

With a tale so laden with specifics that it's sometimes hard to follow the chronology, Eichenwald stitches together the many strands of Enron's undoing, from Houston to Washington and beyond. Appearances by the likes of George W. Bush, former Tyco International (TYC ) CEO L. Dennis Kozlowski, and ex-California Governor Gray Davis underscore the political, economic, and regulatory missteps that encourage Enron's deceptions. Through it all, Eichenwald somehow manages to give us fresh reasons for outrage. Consider Fastow's unbelievable chutzpah in demanding a secret, multimillion-dollar severance deal from Lay even as Fastow is being forced out. Or the realization by Enron's leaders during its final death spiral that none of the finance executives can track Enron's cash or know which debts are due when.

Like any exposé that purports to relay confidential conversations in boardrooms, bedrooms, and barrooms, Eichenwald's approach raises questions about the accuracy of his reconstructed dialogue. It's never clear who the sources are for any particular conversation, and Eichenwald warns readers not to assume that any individual participant in a conversation is even among the sources. But given the author's apparent heavy reliance on documents, fleshed out with more than a thousand hours of interviews, he has likely come as close to reality as any outsider can get. It's abundantly clear why he's considered one of the best investigative reporters in the business.

What's also clear is the difficult task facing federal prosecutors as they bring Skilling and Lay to trial next year on charges of fraud and conspiracy. Skilling is shown pushing colleagues to minimize accounting losses, but he's never directly quoted ordering illegal behavior. When lawyers for the company learn of potential wrongdoing by energy traders in California, they don't tell Skilling for months. But the way he responds when he finds out is disturbing: There's no talk of further investigation or retribution for wrongdoers. Skilling just wants to be sure he can safely tell outsiders that "we're as pure as the driven snow."

To many, Skilling's resignation as CEO in 2001 appeared to come out of the blue -- and to be an obvious attempt to escape the blame for Enron's crimes. But long before, as Eichenwald makes clear, he suffered from periods of depression, bouts of drinking, and abrupt career moves. Lay, like Skilling, consistently ignores warnings of serious problems. In 1987, for instance, he fails to prevent a trading scandal that nearly consumes the company, despite glaring red flags, including forged documents that are called to his attention. Still, he often seems clueless about the company's true financial state and continues to bet his own fortune on Enron stock.

In a story where there are few untarnished players, some good guys stand out. Andersen accountant Carl Bass repeatedly battles colleagues to try to stop some outrageous accounting manipulations. Company risk analyst Vince Kaminski passionately points out to top executives the stupidity of Fastow's schemes to hide losses. And Kaminski orders an analysis of the possibility that the company may face a liquidity crisis long before it happens.

The Cassandra moment arrives when a midlevel analyst named Kevin Kindall determines that Fastow's off-books entities are filled with "trigger events" that could set off a downward spiral in Enron's stock price and lead to a lowering of its debt rating to junk status, an outcome Enron couldn't survive. Of course, Kindall's warning is ignored, and he quits the company. But thanks to Eichenwald, Kindall and other unsung heroes might finally get the attention they deserve.

By Wendy Zellner

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