The Enron Case

Robert Bryce was online to discuss the prosecution of former Enron officials. Enron’s former chairman and chief executive, Kenneth Lay, was charged with securities fraud, wire fraud, and false and misleading statements in an indictment unsealed this morning.

Bryce is author of Pipe Dreams: Greed, Ego, and the Death of Enron. His new book is Cronies: Oil, the Bushes, and the Rise of Texas — America’s Superstate. Bryce spent twelve years as a reporter for the Austin Chronicle and was most recently a senior writer at Interactive Week.

A transcript follows.

Editor’s Note: moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.


Los Angeles: On how many days during the 2000 election and its primaries did George W Bush fly on the Enron corporate jet?

Follow up: How many people with direct connections to Enron have worked in the Bush administration?

Follow up: If revealing the names of the people who wrote the Bush energy policy would violate the privacy of the administration, couldn’t they at least tell us how many of those people have been indicted since that time?

Robert Bryce: By my count, the Bush campaign used Enron’s jets at least a dozen times during the campaign. However, the critical use came during the Florida Recount. According to the campaign’s IRS filings, Enron’s jets were used 4 different times during the period that covers the recount. That period was crucial because time was of the essence.

Your second question is a bit harder to answer. A partial list of people with direct Enron ties to the Bush administration includes:

Tom White, former secretary of the Army, was at Enron Energy Services, a company that was little more than a sham from the get go.

Ed Gillespie, current head of the Republican National Committee, was an Enron lobbyist.

Marc Racicot, former head of the RNC, was an Enron lobbyist.

Robert Zoellick, current US Trade Representative, worked for Enron as an adviser.

James Baker III, former secretary of state — and the man who was crucial to Bush’s win in Florida — was an Enron lobbyist.

Third question: The number of people indicted is about a dozen. I don’t have recent figures.


Austin, Texas: Hi Robert,

Did Lay, et al believe that their connections with Bush (first in Austin, then in DC) gave them carte blanche to run amok? I get the impression that they thought they could get away with anything – they did for awhile.

See you down at Barton Springs.

Robert Bryce: I don’t know if it was their ties to the Bushes that let the Enronistas think they could get away with it. I think it was the overall culture of arrogance that was bred inside the Enron building. and yes, it’s about time for a swim.


Washington, D.C.: I’m glad that they finally got him. Why wasn’t it enough to indict him after Sharron Watkins said that he knew about what was going on? Are prosecutors just trying to cement their case against Lay with testimony from other Enron execs?

Robert Bryce: The Watkins memo was important, but it was only part of the puzzle. I haven’t seen the indictment, but based on the charges against Lay, it appears the prosecutors are trying to prove that Lay knew that Enron was in bad shape when he was selling stock. My guess is that Andy Fastow is playing a key role in showing that Lay knew the company was failing. Of course, had he bothered to look at the cash flow statement he would have known that. Alas, Lay is a PhD economist who can’t read a cash flow statement.


Washington, D.C.: The Bush family seems peripherally (at best) involved in a number of scandalous intrigues including the Savings & Loan debacle and the Enron disgrace. They are also closely linked to the Saudi Royal family. Still, they somehow manage to escape relatively unscathed from every scandal. George W. Bush gave huge advantages to energy companies and other major polluters during his stint as the governor of Texas and his education initiatives in that state were abominable. Why is it that we publicly castigate people like Martha Stewart and fail to hold certain influential citizens accountable. Does money really translate to a free ride on the judiciary train?

Robert Bryce: In my new book, Cronies, I have a long chapter on the S&L scandal and George H.W. Bush’s role in it. He and his crony, James Baker, conspired to minimize the size and cost of the S&L crisis throughout 1988.

Only after Bush beat Dukakis did they admit that the cost of the S&L bailout was going to be over $100 billion.

By the way, GHW Bush’s office in Houston is in a building that was built by a failed S&L. The bailout of that S&L, Commonwealth Savings, cost taxpayers a cool $1 billion.

As for the Bushes getting a free ride, it looks to me like the free ride may be coming to an abrupt halt.


Bowie, Md.: Is this case going to be comprehensible to twelve random citizens selected as jurors?

Robert Bryce: That’s a good question. If you look at the indictment, the prosecutors are clearly going after the things that they believe will be easily understood. They didn’t indict Lay, or Fastow, or Skilling for the complex accounting maneuvers, they got them for the simpler things: wire fraud, mail fraud, etc. Those things have a paper trail and clear statues. They didn’t get Al Capone for being a murdering thief. They got him for tax evasion.


Chicago: How significant is it that Ken Lay used his own money to purchase Enron stock? Is that a persuasive defense argument?

Robert Bryce: Well, Lay is certainly going to use it. And while Lay DID buy stock, he was also selling a whole lot of stock in the company. A cynic might argue that Lay was buying stock in order to provide himself cover if the company failed. Good thing I’m not a cynic.


Laurel, Md.: The discrepancy between Enron’s alleged profits and its real-life cash flow implies that there must be some assets in the form of “accounts receivable.”

Considering what energy prices have done since 2001, is there a bunch of money now coming in that wasn’t apparent then?

Robert Bryce: No, there’s no money coming in from those old trades. Today, Enron’s only substantive cash flow comes from the gas pipelines that reach from California to Florida. In fact, Enron has recently made a deal to sell those assets for about $2 billion. The great irony here is that Jeff Skilling hated the pipeline business and did all he could to get out of it. Now, that’s the only business Enron has left that’s worth anything.


re: Bush administration officials: One more to add to your list …

Alberto Gonzales, current White House counsel and former partner at the Vinson & Elkins law firm. V&E was one of Enron’s primary law firms and signed off on some of the controversial partnership structures. Gonzales still has strong ties with V&E.

Robert Bryce: I don’t know what his ties are to V&E right now. But it’s clear that V&E — long one of the most powerful law firms in Texas — is having serious problems. V&E was a key backer of LBJ. They also represented George and Herman Brown, the founders of Brown & Root, for decades. V&E also represented Halliburton until 2002 or so. Now, Halliburton is represented by — drum roll, please — Baker Botts. It’s a small world, no?


Burke, Va.: Any thoughts on whether a plea bargain was offered – think he’d take one now?

Robert Bryce: No way. The feds didn’t offer. And they won’t.


Washington, D.C.: What are the internal politics of the case? Is the local US Attorney in Houston a friend or foe of the Bushes and how do Republicans in the Lone Star state line up for and against Enron?

Robert Bryce: I think the politics are pretty straightforward: the DOJ has been under pressure to bring as many indictments as possible in the Enron case. And now, by indicting Lay, they can say “Look, we are even going after the President’s friends.”

As for the TX GOP, I think they — like nearly everybody else — is staying far away from anything having to do with Enron.


Rockville, Md.: It was reported that the indictment against Jeffrey Skilling included a deal known as Project Grayhawk. The project was designed to take advantage a planned increase in Enron stock from a January 2000 conference for stock analysts that featured Sun Microsystems Inc. Chief Executive Scott McNealy to give Enron “dot-com luster.”

In January 2000, a conference for stock analysts was held that featured Sun Microsystems Inc. chief executive Scott McNealy to give Enron “dot-com luster.” Allegedly, this was a part of a deal known as Project Grayhawk. Also, Enron and Sun issued a joint press release outlining plans to build a high-speed broadband telecom network and trade network capacity, or bandwidth, as it trades electricity or gas. Enron’s stock rose from $53.50 to $71.63 one day after announcing a partnership with Sun Microsystems to develop its broadband services

Do you anything more about McNealy’s involvement in the Enron scandal?

Robert Bryce: I don’t know anything more about McNealy’s role. The entire Enron Broadband play was designed to pump up Enron’s stock price. I’m told that Sun’s part was mainly orchestrated by Enron to give the deal credibility. Enron promised to buy a huge amount of servers from Sun, so McNealy did a little face time and left. Enron did buy a bunch of servers, but they never did any real bandwidth trading — the business they said was going to be the New New Thing.


Hampton, Va.: Is Mr. Lay still multimillionaire?

Robert Bryce: Yes. He’s not as rich as he once was, but he and his wife still own multiple properties in Houston including an entire floor of the Huntingdon, a posh, high-rise condo in the River Oaks neighborhood.

By the way, you can check Ken and Linda Lay’s property holdings by looking at the Harris County Appraisal District’s web site. I used it a lot when working on Pipe Dreams.


Washington, D.C.: What has Lay been up to lately? Is he a pariah in Houston’s social and political circles?

Robert Bryce: Let’s just say he’s not getting many invites to speak to the Rotary Club.


Place de la Bastille: I find it hard to believe that Mr. Lay is trying to pass himself off as a hapless stooge at the mercy of greedy underlings.

If Ken Lay is found guilty, what kind of sentencing is he likely to get?

Also, what kind of personal wealth do the Lay’s still have at their disposal? I understand there is a massive civil suit against him and the other officers of Enron, but have not heard about it for a long time.

Robert Bryce: I don’t know how much jail time Lay could get. There are 11 counts, so it could be a good long while. As I recall, Lay told the NY Times recently that he still has several million in cash. That buys a lot of good lawyers.


Hardin, Mont.: Why did Lay delegate so much authority to those he did not know or should not have trusted? Harold Geneen micro managed all of ITT and built a giant.

Robert Bryce: Lay delegated because he loved being a gladhander, giving speeches, rubbing elbows with the big shots. For all of his grand reputation, he was a terrible businessman. Virtually every deal that Enron did after Rich Kinder left the company in late 1996, was a bust. Ken Lay’s biggest mistake was in letting Kinder leave.


Alexandria, Va.: What was Enron’s involvement in the VP Cheney’s energy task force?

Robert Bryce: This is where the Lay indictment gets interesting. Ken Lay had a private meeting with Dick Cheney in April of 2001, during which he told Cheney not to impose any price caps on California’s electric markets. Cheney parroted that stance the very next day in an interview with the LA Times. In all, Enron had about a dozen different contacts with Cheney’s task force. And the result of all those meetings were several provisions in the task force report that were very favorable to Enron. Quite a coincidence.


Bowie, Md.: In the aftermath of the Enron collapse, we heard a lot about how much employees had lost when the stock fell from $90/share to zero. But those are just paper losses measured against the stock’s high point.

Any idea how much employees lost if measured against ACTUAL PURCHASE PRICES made in real money (even if in the form of payroll deduction)?

Robert Bryce: sorry, no. That said, paper losses still hurt.


Crofton, Md.: I find it interesting that the same day Kenny-Boy Lay is led away in handcuffs, the Bush Administration trots out Tom Ridge to talk about possible terrorist attacks. When the headline for most papers should be about the indictment of a corrupt individual with ties to Bush, Karl Rove decides to send Ridge out to scare Americans with absolutely no new information whatsoever!; (If there a real and immediate threat, the threat level would have been raised to orange). The politics of fear practiced by this Administration now has dictated that the picture of Lay in handcuffs will now be below the fold on the front page of most papers tomorrow, and Tom Ridge’s empty scare-the-voters conference will be the lead story.

Robert Bryce: Perhaps. I haven’t seen the headlines in the past few hours. But it’s also true that the DOJ has made a lot of hay with this indictment. It’s been all over the news for the past week. They’re getting a lot of bang out of indicting Lay, and I’d argue that it’s actually a net positive for Bush. It ain’t Osama, but it’s pretty good.


Rockville, Md.: This comment is a follow up to your McNealy answer. There is a lot more to the story. I suggest you checkout when you get a chance.

Robert Bryce: OK. Thanks.


Santa Barbara, Calif.: When the currently-convicted and hopefully-to-be-convicted Enron executives are freed from jail, will they still be multimillionaires? Do most white-collar criminals who do jail time get to keep most of their ill-gotten gains?

Robert Bryce: From what I’ve seen, the DOJ has moved to freeze the assets of many of the Enron execs who’ve been indicted. But based on what I can tell about Andy Fastow’s situation, he’ll still have a few million left over when he gets out of the hoosegow.


Belle View, Va.: Good afternoon, Robert.

Has there been any indication from Bush if he will repeat his “assertion” (lie) that he couldn’t recall if he had even ever met “KennyBoy” before 1994?

“Kenny who?”

Many thanks,

Eager for the next impeachment in Virginia

Robert Bryce: No, I think GW Bush now remembers who Ken Lay is.


Laurel, Md.: During the Skilling years, Enron lost a great deal of cash on water projects, broadband, and the plants in India and Argentina. They must have had something coming in. What were they making money on?

Robert Bryce: Well, they were churning a lot of cash, that’s for sure. But they weren’t making any. In the writing of Pipe Dreams, I found that out of the 19 quarters that Jeff Skilling was either president or CEO of Enron, the company was cash flow positive from operations just 4 quarters. and each of those 4 times was in the Q4 of the year when Fastow was sauteeing the books.

In short, Enron was constantly adding more leverage — either on the books in loans — or off the books with these partnerships. Finally, all that debt caught up with them.


Centreville, Va.: Hello,

You wrote in one response: “As for the Bushes getting a free ride, it looks to me like the free ride may be coming to an abrupt halt.” What does that mean? Do you really think any Bush is vulnerable to a criminal indictment?

Robert Bryce: No, I don’t think Bush will be indicted relative to Enron. I only mean that the media in general is being more critical. There are dozens of books out criticizing the Bushes. Look at F911.


New York: Any updates on how Skilling is holding up after his “incident” in April? Skilling Told to Stop Drinking, Get Treatment, Obey Curfew (May 8, 2004)

Robert Bryce: No. Sorry. All i know is what I read in the Washington Post. ;->


Washington, D.C.: Have you seen any signs that people within the Bush Administration did anything to mitigate the charges that Enron management is facing today?

Why does the Bush Administration apparently feel no obligation to step in where they legally can and defend their friends?

Robert Bryce: No. i haven’t seen anything on that.


Marblehead, Mass.: W just pardoned a couple of guys for fraud. Is he laying the groundwork to pardon Lay? How can the electorate possibly ignore the corruption all around this administration such that this becomes a positive for W?

Robert Bryce: I haven’t heard of any pardons. Is Bush planning to pardon Lay? Ooh. Wow. That’d make Bill Clinton’s pardon of Marc Rich looking benign.

That said, Gerald Ford pardoned Nixon.


Olney, Md.: How can he say he is innocent?

Robert Bryce: Well, he has two excuses: I’m stupid, or, I’m a crook. Or, maybe there’s a third, I’m a stupid crook. None of them are very appetizing.


Washington, D.C.: After the collapse of Arthur Anderson, there hasn’t been much press regarding Enron’s other advisors (accountants and lawyers). You mentioned V&E before. Have they been sued over this or are there any grand jury investigations? Any word if there are civil or criminal actions current or future against any of Enron’s former accountants and lawyers?

Robert Bryce: I’m not certain regarding the litigation surrounding V&E. I believe the firm is a defendant in one or more civil suits. In all, there are over 100 Enron-related lawsuits now pending in state and federal court. total claims exceed $400 billion.


Riverdale: How close was Lay to becoming Treasury secretary?

Could he have had Commerce or Energy for the taking?

Robert Bryce: Those were the claims during the GHW Bush administration. I don’t know how close he got. He did want a high profile cabinet job, tho.


Berkeley, Calif.: A talking head last night had an interesting hypothesis: women are more likely to be whistleblowers because they are not part of the “old boys network”. In your estimation, will the indictment of Lay erode the old boys network and/or have any impact on the corporate culture in the U.S.?

Robert Bryce: Perhaps women are more suited to being whistleblowers. However, in Pipe Dreams, I make it clear that I don’t view Sherron Watkins as a hero. In fact, she sold some of her Enron stock after she gave her memo to Ken Lay.

I don’t think the Lay indictment will mean much with regard to the crony network.

The larger impact of the Enron meltdown is being felt across corporate America in the form of more regulations: Sarbanes Oxley, stricter accounting standards, etc. Those costs are being passed on to investors.

Osama gave us the terrorism tax.

Ken Lay gave us the Enron tax.


Olney, Md.: Hi again,

I like I’m a stupid crook. Do you think that Cheney will be subpoenaed?

Robert Bryce: One can hope.


Nashville, Tenn.: Is Andrew Fastow cooperating fully with the prosecution? Does he have any leverage, or was it all used to get the light sentence for his wife?

Robert Bryce: Fastow was able to cut a deal with the feds so that he and Lea wouldn’t be in the slammer at the same time. I don’t know how much he’s cooperating. But he can sure make Lay look bad if he wants to. Remember, it was Lay who took Fastow’s crooked off balance sheet deals to the Enron board and asked them to approve the deals.


Washington, D.C.: Did Democrats get money from Enron? Did Democratic Sen. Lieberman block legislation to get harder accounting rules? Or was it to separate accounting from counseling that he blocked? My other question was it the democratic congress in the 1980’s that passed legislation that caused the S&L crisis?

Robert Bryce: Yes, Democrats got money from Enron but it was a fraction of what the GOP got. YEs, Lieberman blocked meaningful accounting reform. But he got key assists from powerful Republicans like Phil Gramm. As for the S&L thing, there was bipartisan corruption, no question about it. But the meltdown was kept quiet by the Reagan Administration — remember James A. Baker III was Treasury Secretary — until GHW Bush won the race in 1988.

OK, I’m pooped. Thanks everyone.


Contact Robert

For information on speaking engagements or other interviews.