This NY Sunday Times article provides the first excerpt from Kurt Eichenwald‘s new book about the collapse of Enron Corp. — Conspiracy of Fools — that was the subject of this earlier post.
The entire excerpt is well worth reading, but the following part of the excerpt is particularly interesting. It involves an Enron management crisis meeting in late October 2001 as public revelations of Enron’s off-balance sheet partnerships began making Enron’s bank creditors extremely nervous. At the outset of the meeting, Greg Whalley, Enron’s chief operating officer, fired Andrew Fastow as Enron’s chief financial officer and replaced him with Jeff McMahon, who Fastow had canned as Enron’s treasurer a year and a half earlier after McMahon had objected to then Enron CEO Jeff Skilling about Fastow’s conflict of interest in managing the partnerships:

The men made their way to a tiny conference room upstairs, crowding around an oblong table. Fifteen minutes later, Whalley blew into the room.

“O.K., let’s get going,” he said. “Let’s start with the organization first.”
Whalley shot a look at Fastow, pointing at him.
“Andy,” he said rapidly. “As we discussed, you’re no longer C.F.O., effective right now.”
Fastow’s face fell. “Wait …”
Ignoring Fastow, Whalley swept his arm across the table, pointing at [former Enron treasuerer Jeff] McMahon.
“Jeff, you’re now C.F.O.”

What was that? McMahon wasn’t sure he heard Whalley correctly.

“Excuse me?” McMahon said. “I’m C.F.O.?”
“Yes, you’re C.F.O.”

McMahon glanced across the table. Fastow was shaking his head, looking shocked. The moment was surreal.

“Wait a minute!” Fastow sputtered. “That was not my understanding of the deal!”
Whalley held up a hand. “Andy,” he said, “I don’t know the legal stuff. You get with Ken and work it out.”

That was it. Whalley turned away from Fastow.

Read the entire excerpt.

This earlier post told the story of the Snohomish County Public Utility District, which is riding an unparalleled wave of popularity among its customers despite hiking electricity rates 50 percent in the past four years and disconnecting a record number of customers for failure to pay bills.
The reason for this rather incongruous situation? The utility has been leading the public charge against the popular business whipping boy of the moment, Enron Corp.
Well, the utility’s anti-Enron public relations campaign appears to be working. Yesterday, the Federal Energy Regulatory Commission issued an order that determined that Enron was engaging in illegal activity at the time it entered into contracts with West Coast utilities during the West Coast power crisis of 2000-2001. Accordingly, FERC has ordered a hearing to determine whether Enron should be allowed to collect profits it would have received had those contracts been fulfilled. The hearing is expected to occur in May, and that hearing will be followed by FERC’s final decision later this year.
The decision is a landmark for West Coast utilities that continue to fight their Enron contracts because it is the first time that FERC has acknowledged that the contracts were signed under fraudulent pretenses. The utilities and cities involved terminated their contracts with Enron or watched as Enron terminate its contracts with them when the company slid into bankruptcy in late 2001.
When Enron went bankrupt, the Enron bankruptcy estate sued the utilities and cities for the money it would have made had the contracts been fulfilled. Enron is seeking a cool $300 million from a couple of Nevada utilities, and $122 million from the Snohomish County PUD, which signed a nine-year contract with Enron in January 2001 for power that was four times as expensive as it had been just months earlier. To come up with the $122 million, Snohomish contended that it would have to collect about $400 per customer.
As noted in the previous post, Snohomish searched through thousands of pages of Enron documents and paid for hundreds of hours of taped conversation transcripts involving Enron traders. The material turned out to be Watergatesque — the Enron traders joked about stealing money from California grandmothers and about the possibility of going to jail for their actions. With this explosive evidence, Snohomish sought a finding from FERC that it did not have to pay any damages to Enron under the terminated Enron contract. The FERC ruling on Friday means that Snohomish is inching closer to that goal.
Despite the FERC ruling and the tape recordings, the Enron Task Force has not taken much of an interest in pursuing former Enron traders on criminal charges. In October 2002, former Enron trader Tim Belden pleaded guilty to wire fraud for participating in trading schemes to game the California market, and two other former Enron traders — Jeffrey Richter and John Forney — later pleaded guilty to similar charges. However, those are the only former Enron traders who have been charged with crimes to date and, during a deposition in an Enron-related civil case last month, former Enron Online trading desk executive Louise Kitchen disclosed that the Justice Department had never even interviewed her.
Meanwhile, despite all of these legal machinations, the customers of the Snohomish PUD continue to pay much higher utility bills than utility customers in most other parts of the country. Perhaps the excess amount should be called the “flog Enron premium?”

The Chronicle’s Mary Flood, who continues to do a bang up job of keeping up with the unfolding events relating to the various aspects of the Enron scandal, has a couple of Enron-related news items today.
First, she reports that the next Enron-related criminal trial — the one known as “the Enron Broadband case” — has been pushed back to at least April 18 as a result of U.S. District Judge Vanessa Gilmore‘s involvement in this case. Here are the previous posts on the Broadband case.
Although the intensity of the media attention given to Enron makes it seem as if there have been a plethora of criminal trials related to the case, the Broadband case is only the second criminal case involving former Enron executives that will go to trial. Interestingly, the first case — the trial of the Nigerian Barge case — resulted in convictions of four Merrill Lynch executives and one Enron mid-level executive. However, of the two Enron defendants in that case, the Enron accountant who was closest to the alleged sham transaction in that case — Sheila Kahanek — was the only defendant who the jury acquitted in the case.
The Broadband case is interesting in that it involves a division of Enron that was one of the company’s more auspicious business failures, but one that undeniably had great potential. The five remaining former Enron executives in the case will argue that Enron’s other financial problems undermined the broadband division’s business potential, and that none of their public statements regarding the division’s business opportunity were false or intentionally misleading. Although the Enron Task Force’s public stance on the case has been typically bullish, the two former Enron executives who have copped pleas in the case to date — Ken Rice and Kevin Hannon — pleaded guilty to only one count of securities fraud in their plea bargains. The nature of those pleas does not exactly reflect that the government thinks it has a lock cinch winner in this prosecution.
Meanwhile, Ms. Flood reports in this article that the Chronicle has requested that U.S. District Judge Ewing Werlein unseal a couple of pleadings that three of the convicted Nigerian Barge defendants filed in connection with their upcoming sentencing hearings. There appears to be no basis for the pleadings to be sealed permanently, so Judge Werlein will likely grant the Chronicle’s request. Probably the only reason that the pleadings have not been unsealed to date is that the Judge probably just has not gotten around yet to ruling on the defendants’ motion to seal the pleadings.
Finally, in what could be one of the more entertaining interviews of the year, former Enron chairman and CEO Ken Lay will be interviewed on this Sunday’s 60 Minutes show in connection with the release of the new Enron book, Conspiracy of Fools by New York Times reporter Kurt Eichenwald. According to Mr. Lay’s publicist, Mr. Lay rather enjoyed the book.

This Weekend Advisor column in the Wall Street Journal ($) advises us that the market for books on the Enron scandal has not been all that great. The best book on the subject to date — Bethany McLean and Peter Elkind’s Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio 2003) — has sold only 75,000 hardback copies, which is not a great showing considering the $1.4 million advance paid to the authors. Heck, that number indicates that only a small portion of the lawyers involved in the Enron case have bought the book.
At any rate, publishers — who never want to give up on an opportunity to hammer the Capitalist Roaders — have concluded that the lackluster sales in regard to Enron books is because of reader fatigue. That is, the Enron story has been around for so long that casual readers have become bored by it all and have moved on to other matters. That’s probably correct, although many of the previous media accounts of Enron have followed such a familiar script and lacked any real insight that even avid business scandal readers have become bored by it all.
Thus, Random House’s Broadway Books is going to try a new tactic in regard to the newest book on the Enron saga. On March 14, Broadway is releasing the long-awaited (at least by folks involved in the case) book on the Enron scandal by NY Times reporter Kurt Eichenwald, who has covered the Enron scandal from Day One. In so doing, the publisher hopes to break through the fog of Enron books by marketing Conspiracy of Fools to the John Grisham-novel crowd as a “true-crime thriller” rather than a business book. The name “Enron” appears no where on the book jacket and, although the book is nonfiction, the publishers hired well-known mystery novel editor Stacy Creamer to edit the book.
So, while publishers and other mainstream media types attempt to tell the Enron story in fashionable manner, the truly compelling human stories continue to be largely ignored — the sad case of Jamie Olis, the federal government blithely depriving thousands of innocent people their jobs by pursuing a dubious prosecution that put Arthur Andersen out of business, the “Justice” Department sledgehammering businesspeople into pleading guilty to questionable criminal charges out of fear of receiving of what amounts to a life sentence if they risk asserting their Constitutional right to a trial, or how the traditional form of corporate governance contributed to Enron’s collapse. Analysis of these more interesting, but admittedly harder, issues has been largely left to the world of blogs.
Nevertheless, Broadway is certainly bullish on the new book’s prospects. It has ordered 127,500 copies of the book and engineered a pre-release publicity campaign, which includes a desk drop of 1,000 copies to prominent CFOs and CEOs. Broadway’s release of 10,000 early copies of the book is the largest prerelease print of any Random House book since The Da Vinci Code.
By the way, Mr. Eichenwald’s last true-crime book — The Informant — is currently being made into a movie in which Matt Damon will play the mole who uncovers a price-fixing scheme at Archer-Daniels-Midland.
H’mm, Matt Damon as Andy Fastow? What do you think?