Selects: How Enron Fooled the World

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18:26Josh Clark:Now that was bloody riveting. It feels good when the story ends with savings. It feels good to Geico. Hey, everybody. Here's a fact for you. In the United States, there is a break-in every 26 seconds, and that means that somewhere right now, an intruder is getting closer. And the problem with most security systems is that they only alert you after the break-in has started, and that's too late.

18:48Chuck Bryant:Well, that's what makes SimpliSafe different. They use alerts. SimpliSafe's U.S.-based live agents, They identify threats on your property and help deter them before they actually break in. So the intruder never gets into your house. The crime is stopped before it even starts.

19:03Josh Clark:That's right. And another great thing about SimpliSafe is they have no long-term contracts. They give you peace of mind and great value with their monitoring deterrence plans because they just start at about a dollar a day.

19:14Chuck Bryant:Yeah. SimpliSafe sent us a setup years back, and I still use mine every day.

19:18Josh Clark:Yeah. And apparently, setup, you can, like, do it by yourself in under 30 minutes. So it's a really good value, and it doesn't take long.

19:23Chuck Bryant:So if you want to experience the SimpliSafe peace of mind, you can take advantage of the SimpliSafe discount offered to Stuff You Should Know listeners. Right now, you can get 50 % off your new system by visiting simplisafe.com slash stuff. That's half off at simplisafe.com slash stuff. There's no safe like SimpliSafe.

19:56Chuck Bryant:Okay, so after, about six years after that big deregulation from FERC that said you can buy gas and sell it wherever in the country, that opened up a huge market. There was another watershed deregulation that reversed an act that went back to 1935. The Public Utilities Holding Company Act, PUCA. Love that one. that said if you are generating and selling electricity, you are a local utility and we are going to regulate you like you are providing the lifeblood of America. Because electrical utilities provide the lifeblood of America and have since long before 1935. And in 1990, they managed to get that reversed.

20:44Chuck Bryant:And now all of a sudden, anybody could buy an electric utility. And Enron definitely jumped on that.

20:51Josh Clark:Yeah, for sure. Their lobby was strong, to put it mildly. They hired lobbyists to lobby different states. And those states, as no surprise, ended up getting millions of dollars flowing back toward Enron. I think they hired lobbyists for at least 37 states. They also helped overturn a law in 1988 that said the military has to buy power from local utilities. And they said, no, let's open that back up. And pretty soon Enron got a$25 million contract for supplying electricity to Fort Hamilton in Brooklyn. And these are just – I mean,$25 million ends up being peanuts in the grand scheme. But these are just examples as they sort of ramped up to their schemes of how they deregulated or lobbied to get things deregulated such that it was allowed to happen.

21:45Right.

21:46Chuck Bryant:And one of the things, one of the schemes that got the attention of the entire country in 2000, 2001, was an electrical scheme in California. California had undergone its own electrical deregulation, power deregulation. But it had adopted this weird patchwork compromise law or set of laws that just had loopholes you could drive a truck through. And that just really created all sorts of legal gray areas. And so rather than just kind of like here or there biting around the edges, seeing what they could do, instead the energy traders at Enron started figuring out how to move energy out of the state, wait for the state to be like, hey, we need some energy, and move it back at incredibly inflated prices.

22:39Chuck Bryant:They would purposefully take electrical utilities that they owned offline to generate more demand, a spike in demand, and so they could raise prices again. And they actually basically crippled California. I think I saw that California had a couple dozen blackouts in six months. after that deregulation, after Enron started coming in and messing with stuff, whereas the six months before deregulation, they had had one blackout. So if you watch the documentary and you read some other sources about it, this was an entirely fabricated scarcity of electricity. There was plenty of it. Enron just figured out that they could kind of pull this lever and that lever and charge way more by creating this fake scarcity.

23:28Chuck Bryant:Yeah.

23:29Josh Clark:And by pulling a lever, literally sometimes they called up a power company, a power plant, and said, pull the lever to the off position. And they have them on tape. They play this in the documentary. Well, they called one in Las Vegas and said, hey, man, can you take this thing offline for a few hours and just make something up? Because a rolling blackout meant big money. All of a sudden, California, again, was buying their own energy back at a higher rate. And Governor Gray Davis at the time, and this is, you know, I'm not like giving some full-throated endorsement to any effectiveness of Gray Davis as a governor because I really don't know.

24:10Josh Clark:But he definitely was sort of left holding a bag and scratching his head like, what's going on here? Like, we've got plenty of energy. And it just – all through the documentary, people are saying like, this just isn't adding up. in California, and some of those tapes that they play of these traders, like there was that natural wildfire that broke out that jeopardized one of the pipelines, and these guys are on tape on the phone with each other saying, burn, baby, burn, because that's good for business if it knocks something offline. And it's laughing at old grandmas sweating in the summer heat because they can't get air conditioning.

24:52Josh Clark:Meaning like the most vile, reprehensible kind of stuff in the name of making the almighty dollar that you could imagine.

25:00Chuck Bryant:What's also interesting is they don't really go into detail about it. But it appears to have also been a coup to get rid of Gray Davis and replace him with Arnold Schwarzenegger. Because Ken Lay held a meeting at the Peninsula Hotel in Los Angeles. And he invited Arnold Schwarzenegger. This was long before Arnold Schwarzenegger was known to have had like real political aspirations. He wasn't governor yet, wasn't running for governor over a problem that Enron created. It was like that level of in addition to also just making billions and billions of dollars by strangling the state. They also managed to replace the executive of the state as well to somebody who was much more friendly to them.

25:42Josh Clark:Yeah, and get rid of and of course, they didn't like knock him off or anything. But in California, you can never recall. It seems to come up every 12 years or so where Californians aren't happy with the governor. And so if a recall vote passes, you can have just an election out of nowhere and replace that governor. While this is going on, you know, Ken Lay stands on a stage and says we're making money in spite of California, not because of California. So just lying through their teeth on stage to their shareholders. And, you know, all these little schemes had little nicknames. The one where they got energy out of California just to make them buy it back was called Ricochet.

26:26Josh Clark:There was one called Death Star. And they're on tape, like, joking about, like, hey, let's have a nice friendly name for this one, like Death Star. So they're playing games with people's livelihood, essentially. And lives.

26:39Chuck Bryant:You can make a case as well. Yeah, for sure. So three of those traders pled guilty. Jeffrey Richter, John Forney, and Timothy Belden were three of those traders who manipulated California's energy market, costing the state between$40 and$45 billion in retrospect of unnecessary electrical prices and costs.

27:03Josh Clark:All right. So Enron is doing great. They're making a lot of money. And we should point out, this is just, you know, Ricochet was just one little scheme. They had all sorts of schemes along the way to, well, we'll get to those. Between 96, though, and 2001, like as far as the stock market world was concerned, Enron was a darling. Fortune named them, I think, six years straight America's most innovative company every single year in a row. but what was going on behind the scenes is these ideas and these investments and schemes that they had some of them made money but a lot of them didn't make any money at all and they just became really really good at hiding that fact yes

27:50Chuck Bryant:that was the whole thing they were very innovative they were ahead of their time in a lot of ways they got into building broadband high speed internet access in like 2000 or 2001 something like that. And this was, I looked it up. It wasn't until 2007 that half of all U.S. Internet users had broadband. So this was way ahead of its time. And then also, they also got into the video on demand market. They tried to partner with Blockbuster. And this was, these things were basically like the progenitor of Zoom and Netflix. But these guys were trying this in 2000, 2001. So it's visionary. The problem is they were ahead of their time.

28:33Chuck Bryant:The infrastructure wasn't there. I think the customer base even wasn't there. So their stuff that they were doing wasn't making money, which is not bad in and of itself. What was bad was when they were covering it up. And the schemes that they used to cover it up are so involved and complex, but also so fascinating that they would have the audacity to do this because there's no fudging it. There's no like, oh, this is kind of questionable. This was just fleecing all of their investors, all of their employees, fleecing the entire world. There was a handful of executives at Enron who were fleecing the entire world to the tune of tens and tens and tens of billions of dollars every year in revenue that apparently didn't actually exist.

29:23Josh Clark:Yeah, it's pretty clear that at a certain point they lost their way and that they weren't as concerned about being a company that made money. And the only thing that mattered as a corporation was that they kept their stock price high because that's where all the money was. They had, as long as they could keep that stock price high and keep shareholders, especially their employees, encouraging their employees to get paid in company stock. Like, use every penny of your paycheck that you can to buy this company's stock. Because Enron's stock was soaring. It was doing really, really well. And all the while, you know, it was called pump and dump.

30:02Josh Clark:They would drive up the value of their stock and then the upper echelon. And you see this time and time again in the corporate world. The CEOs and the CFOs and the upper management are the ones who then sell off their stock and walk away with, you know, some of them hundreds of millions of dollars. and some of the schemes that you talked about was they found ways to move debt around. We mentioned Fastile was one of their hires and he was hired in I think his late 20s, early 30s and quickly rose up the ranks to CFO and he started a company called LSM which stood for Leah, Jeffrey and Matthew which are named after his wife and kids sort of ironically.

30:46Josh Clark:It was like such a sweet tribute to them And the only purpose of this company was to have all kinds of sort of little sub-companies that would absorb the debt and where they could move debt around from Enron to make it invisible to the shareholders. Right. So they could prove on a balance sheet that you had this money coming in and the way of people investing in the company. But then you're hiding the losses, and so everyone thinks you're doing great.

31:13Chuck Bryant:So the way that I saw it explained, Investopedia actually has a couple of really good articles about this that are just wonky enough to understand it, but also not so wonky that you're just like, I have no idea what I'm reading. And the way they put it was basically, if Enron had, like a good example is they built a power station in India. That was a huge loss. It was just a generally bad idea. And they sunk billions and millions of dollars into this power station without realizing any money whatsoever. However, I think they abandoned it before it even came online. They would take this and sell it to one of these special purpose vehicles or special purpose entities, which was a tangentially related company that the company Enron was not on the hook to pay off its debts for.

32:00Chuck Bryant:Right. And they would take that and then that special purpose vehicle would go out and try to sell it, sell that terrible, toxic asset. and they would use Enron stock as the collateral, right? And because Enron stock was just through the roof, everybody was saying, sure, we'll give you a loan. Sure, we'll give you some money for that terrible idea of a power plant that you abandoned because you're backing it up with Enron stock. And as long as the time that that stock came due was far enough away, and as long as Enron stock kept going up, this house of cards could be held together. But that's not at all how it worked.

32:41Chuck Bryant:The upshot of it is that they could take toxic assets, move them off of their books to these special purpose entities, and then they would take the money that these special purpose entities would go borrow against that toxic asset, and they would count that on their books as revenue. So they were hiding debt, boosting their revenues to just ridiculous heights for stuff that just should not have been counted as revenue.

33:09Josh Clark:Yeah, and just to be clear, they didn't invent the special purpose entity, and an SPE is not some evil creation in and of itself. It's an entity that a lot of corporations and businesses use where it's just sort of like has a very narrow purpose in that they create this thing when they might use it to purchase an asset or remove an asset. So the company as a whole may not be on the hook if anything goes wrong. It sort of mitigates risk. So it's not some evil purpose in and of itself, but they were manipulating these such and starting all of these things under Fastow's guidance with his LSM sort of subcorporation and eventually LSM2, I think, that they were making – I think they hit$90 in August of 2000.

34:00Josh Clark:market cap of the whole company at$70 billion, which made it the seventh largest publicly traded company in the world at that point.

34:10Chuck Bryant:Yeah. So that's a market cap of$70 billion. Remember in 1985, its first year, it posted losses of$14 million. Within 15 years, they posted revenue of$100 billion. Revenues. $1 billion in 15, yeah, in sales, in 15 years. That's what happened to that company when they brought Jeffrey Skilling on board. Jeffrey Skilling brought Andrew Fastow on board, and people just started going nuts, making money any way they could.

34:41Josh Clark:Yeah, the other thing we should mention, too, is another sort of slick trick, is that Skilling's idea, and they got approval. And I wasn't clear how or where this approval comes from. but to use something called mark-to-market accounting, which is basically when you can rate the financial health of your company based on, not theorized, but just on future earnings basically and not necessarily what they're worth that day. So anticipated future value instead of its purchase costs. Did you get how they were approved? Because it seemed like they were all like super psyched that they got approval for mark-to-market accounting.

35:25Chuck Bryant:Yeah, that would have been the SEC, the Securities Exchange Commission, who would have given that approval. And just like a special purpose entity, mark-to-market accounting is totally legitimate. It's recognized as a generally accepted accounting principle. But there's a lot of room for temptation to just basically say, this deal with Blockbuster, we haven't made a penny off of it. But we can cite the future earnings from it now, now that we book this deal. And I think it'll probably be worth a billion dollars. Just a total guess. And you're not supposed to do it like that. You're supposed to do it much more realistically and legitimately.

36:10Chuck Bryant:but they had enough leeway that they were able to take mark-to-market accounting and use it to their benefit in that way. And in doing that, they pumped up their revenues through the roof. Like the deal would just be inked. They wouldn't have seen a penny from it, and they would add it to their balance sheets as revenue. Yeah, it would become part of the ledger before like a real penny was made. Exactly, and sometimes the pennies weren't made. And if the pennies weren't made, don't forget, those debts would be moved to a special purpose entity So they wouldn't have these toxic assets on their books, even though they very much owned and were indebted for these toxic assets still.

36:49Josh Clark:Yeah. I mean, like I said, these were brilliant people. And like they had all their bases covered except for the fact that we all know that a house of cards will eventually fall. it's that hubris thing that just blinds people into thinking that it will always like when that kind of money is rolling in I think it blinds certain people so much that they don't understand A, who it's hurting at the time or they don't care or they think it's always going to be rolling in like this or they think hey I'm going to get mine now because there were people in Enron I mean we'll talk about Whistleblower that eventually sort of came out and journalists who were poking around.

37:33Josh Clark:But there were people that started looking at this company, the darling of Wall Street, and saying, something's not right here. Like, something's not adding up. Like, you can't even explain how your cash flows through your business in a way that makes any kind of coherent sense. And any time they were confronted with this, Skilling and his cronies would, they would get very haughty about it and just be like, well, what do you mean we can't explain that? Like, sure we can. It's really easy. You just can't understand it. Yeah, you just can't understand it.

38:04Chuck Bryant:Right. Oh, it makes your blood boil. Let's take a break, and then we'll come back and talk about the downfall. How about that? Yeah, the downfall. The downfall.

38:24Josh Clark:Hey, everybody. Here's a fact for you. In the United States, there is a break-in every 26 seconds, and that means that somewhere right now, an intruder is getting closer. And the problem with most security systems is that they only alert you after the break-in has started, and that's too late.

38:39Chuck Bryant:Well, that's what makes SimpliSafe different. They use alerts. SimpliSafe's U.S.-based live agents, they identify threats on your property and help deter them before they actually break in. So the intruder never gets into your house. The crime is stopped before it even starts.

38:54Josh Clark:That's right. And another great thing about SimpliSafe is they have no long-term contracts. They give you peace of mind and great value with their monitoring deterrence plans because they just start at about a dollar a day.

39:05Chuck Bryant:Yeah. SimpliSafe sent us a setup years back, and I still use mine every day.

39:08Josh Clark:Yeah, and apparently set up, you can do it by yourself in under 30 minutes. So it's a really good value and it doesn't take long.

39:14Chuck Bryant:So if you want to experience the SimpliSafe peace of mind, you can take advantage of the SimpliSafe discount offered to Stuff You Should Know listeners. Right now, you can get 50 % off your new system by visiting simplisafe.com slash stuff. That's half off at simplisafe.com slash stuff. There's no safe like SimpliSafe.

39:38Josh Clark:work can be a little weird one minute you're in a meeting that could have been an email the next you're trying to decode corporate jargon that somehow means nothing and don't even get us started on the quick sync that turns into a 45 minute deep dive yeah well the truth is figuring

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41:23Chuck Bryant:Okay, Chuck. So one question that people might be asking is, how were these guys allowed to use this accounting and get away with it? Why were people even investing in buying shares of this company when it was just so fraudulent and just ridiculously fraudulent, too, not even subtly fraudulent? And the answer is the company was such a Wall Street darling that financial analysts would not understand what they were hearing on these earnings reports but would still give it a stamp of like buy. The other thing that really, really helped was the banks, Wall Street banks were very much complicit in this as well.

42:04Chuck Bryant:And then the thing that helped the most was Arthur Anderson, the venerable 80-plus-year-old accounting firm. The oldest one in the country. Yeah, that was a third-party accountant to Enron. It was so cozy that they actually hired all of Enron's internal auditing staff, made them Arthur Anderson staff, and then opened a 150-person office for Enron in Enron's headquarters. An Arthur Anderson office in Enron's headquarters made up of former Enron auditors. That's who was watching the show. And so Arthur Anderson had such a good reputation that because they were signing off on this, because the Wall Street analysts were saying, yeah, it's a buy, people were just like, I'm buying, I'm buying.

42:53Chuck Bryant:And it kept the stock prices going up and up and up because nobody was paying attention enough. Yeah, there was one person in the doc that said, that kind of crystallized it, which was like, I'm paraphrasing, but he was talking about the fact that when this kind of stuff pops up in corporations, like, it's not like this, the end runs are everywhere.

43:15Josh Clark:There is all kinds of malfeasance for sure in the corporate world, but he basically said somewhere along the way it doesn't get this big because a legal team says you can't do this or your accountants say you can't do this or the banks say we can't get involved in this. And Enron seemed to be one of those sort of unicorns where every person along the way just zipped their mouth shut even though the numbers weren't adding up and was complicit in this.

43:45Chuck Bryant:Right. There was a trader that was interviewed in the documentary who said, like, it was ironic that Enron's slogan was ask why. Like, why does something happen like that? Why can't we do it that way? And that this trader said, I didn't ask myself why because I didn't want to know. I suspected things were weird or awry, and I just didn't want to know because it was my job. I was making tons of money. And I think you could probably get that excuse out of just about anybody who is complicit in this large or small. all. But Arthur Anderson, that was the one that really, really helped things along.

44:18Chuck Bryant:And as we'll see, they didn't manage to survive the scandal.

44:21Josh Clark:Yeah, there were, oh man, there was that one part of the documentary where they were talking about Fastow's, you know, shell companies. And he was in a meeting that was secretly taped and they're basically like, well, wait a minute, it looks like you're on the buying and selling sides of these transactions. And he was like, Yeah, basically. But I've always got LMJ's interest at heart. And the whole time, he's skimming money, and they believe that Skilling and Lay knew that, like, hey, I'm sure that Fastow is skimming money off the top for himself. Right. Who cares? Because this guy is taking care of business for us.

44:58Josh Clark:Exactly.

44:58Chuck Bryant:And I think he skimmed about$35 million for himself. He stole from Emron. And they looked the other way because the stuff he was doing was so unethical, so illegal that he basically earned it as far as they were concerned to have his hand in the cookie jar like that. So I think you kind of mentioned there were some people who were like, wait, what's going on here? One of the first people was Bethany McClain, the journalist who ended up writing The Smartest Guys in the Room. She's awesome. She is awesome. She started out writing a story for Fortune magazine back in March of 2001 titled, Is Enron Overpriced?

45:37Chuck Bryant:And she was one of the first people to publicly say, how is Enron making its money? But she wasn't the first to hit on this. There's another guy named Jim Chanos of Kynecos Securities, I think, maybe. And I think he's in the documentary. But he started shorting Enron in 2000 because he noticed very simply their cost of capital, so the cost of doing business, was more than their return on investment, which automatically means that they were not a profitable company, which totally was contradicted by all of their earnings reports and filings. And he saw this and he said, this is not right, and I'm going to start making money off of the future downfall of this company and made hundreds and hundreds of millions of dollars shorting Enron stock starting in 2000.

46:31Josh Clark:Yeah. The whistleblower, too, was an executive of Maine named Sharon Watkins. And she pops up a lot in the documentary, obviously, is key to the story. She didn't whistleblow while this was all going on. It was sort of after the ship started sinking. But we'll talk a little bit about how that all happened and where she ended up. But what happened in August of 2021, Skilling had replaced Lay as CEO in February of that year. And on August 14th, 2021, Skilling, out of nowhere, and he had just taken the reins a handful of months before, Skilling quits out of nowhere. He resigns. He cited personal reasons.

47:14Josh Clark:And what was going on was the, you know, the Titanic sprung a leak. And as they described in the documentary, he was one of the first rats to try and get off the sinking ship. Yeah.

47:28Chuck Bryant:And it's like if you are a CEO of a huge company, you don't just leave like that. That is an enormous red flag. There's like a whole process and procedure for finding your replacement, grooming them, introducing them to the rest of the world. You don't just leave like that. And that was such a red flag that that whistleblower, what's her name, Sharon Watkins? Yeah. She wrote an anonymous letter to Lay basically saying, hey, there's a lot of fishy stuff going on around here. And now that Skilling suddenly departed, like everyone's going to start having questions and this whole house of cards is going to fall.

48:09Chuck Bryant:And Leigh apparently didn't do much about it. And she came to Leigh later on and said, I'm the person who wrote that anonymous letter and I'm really concerned about this. And ended up trying to keep it in the company. Because I think I get the impression that she thought it was something, especially now that Skilling was gone, that could be resolved internally. I think she really underestimated the extensiveness of the corruption and, yeah, at the company and thought it was a few people when really it was a large cadre of people who all were complicit in this. And I get the impression that's why she didn't really blow the whistle publicly at that point.

48:52Chuck Bryant:But apparently Ken Lay, once he found out that it was Sharon Watkins, consulted legal counsel to figure out how to fire her legally.

49:01Josh Clark:Yeah. The same day that Skilling resigned on August 14th, the broadband division that we talked about earlier reported$137 million loss. Analysts, and we should point out too, as far as the analysts go, they were always installing friendly analysts and only working with friendly analysts. Right. But they finally got the clue. They dropped their ratings for the stock. The end came very, very swiftly for Enron. On October 12th, Arthur Anderson's – I mean, you still remember all the shredding jokes on late-night TV that ran for months and months. Arthur Anderson's legal counsel said, everybody shred everything.

49:41Josh Clark:Destroy every file that you have on Enron. And in one day, they shredded literally one ton of paper.

49:48Chuck Bryant:Yeah, and that was just one day. They apparently shredded around the clock from October 22nd to November 8th. And that was just one ton one day. They shredded literal tons of documents. Just shred, shred, shred. If you were an executive at Anderson, you were probably working a late night shift shredding alongside everybody else. It was like that. And it was apparently at a time where you could legally do that and not be, you know, indicted for it. But that was not a good look when it came out. that Arthur Anderson was, the auditors of this company were shredding tons of documents. And the SEC got wind of this, and they said that they're going to start investigating, finally, the special purpose entities that Fastow had set up.

50:34Chuck Bryant:And so Enron fired Fastow that same day. And I think that was in November or late October of 2001. 2001. And right after that, on November 8th, Enron said, hey, everybody, do you remember all of our, all that money we said we made going back to 1997? We're going to need to restate our earnings. One of the first things they did was they reported a$618 million loss for Q3 of 2001. Q1, they posted a$406 million profit. Q2, a$404 million profit. Q3, a$618 million loss. So they finally came clean. They finally said, this accounting is off, and this is how radically it's off.

51:28Josh Clark:Yeah. I mean, that is, if a company is restating their earnings for that period of time at all, mistakes can happen, but that's a real bad sign. They almost got a lifeline in, I guess, late October of that year when they tried to merge with a company called Dyna-G Incorporated. And that deal fell apart on November 28th. They backed out of the deal, Dyna-G did. And then, what is this, four days later, on December 2nd, Enron filed for the largest Chapter 11 bankruptcy in U.S. history.

52:08Chuck Bryant:Up to that time,$65.5 billion company filed for bankruptcy. That just did not happen. If you had that kind of money, you could have a fire sale and sell off stuff for way less than you paid for it, but you could still survive. And that just goes to show you just how fraudulent this company was. They couldn't have a fire sale and make up that kind of debt that they owed. I think it was$72 billion, I think, in debt that they finally were found to have owed. And at the time, it was the biggest. In 2008, we saw what big really was. Lehman Brothers, for example, had$639 billion in assets when it filed for bankruptcy and went under.

52:52Chuck Bryant:But at the time, Enron was like eye-popping as far as bankruptcies went for corporations.

52:58Josh Clark:Can you imagine the wave of relief that swept through Dyna-G Incorporated? Yeah. And then Ron declared bankruptcy a few days later after they backed out?

53:11Chuck Bryant:Yeah, that one just offhand conversation at the vending machine over a packet of Chex Mix, like, save Dyna-G forever, you know? This seems like a bad deal to me, Crunch Crunch. Right. And Dyna-G, by the way, went on to become Apple. Right.

53:29Josh Clark:So, the fallout from this, there are a lot of victims. 20 ,000 employees lost their job. And how long did they have to get out? What did it say in the documentary? Like a day. I think they had the day. I think it was less than that. I feel like it was hours or something. Basically, pack your S and get out of here, everybody.

53:50Chuck Bryant:Yeah.

53:51Josh Clark:And literally, this huge, tall building has thousands of people just leaving all day with bankers' boxes with the contents of their desk in it, like the ultimate movie trope. Every employee that had been told for years and years, hey, you've got to invest everything you can in that 401k, because Enron is, I mean, look at the stock. We're going places, and that money will be safe there. They obviously lost almost everything. There was the rank-and-file employees. There was one in the documentary that said he had about close to$350 ,000 in stock that he ended up dumping for$1 ,200. They froze the stock accounts of the rank and file while upper management was actively still cashing out.

54:40Chuck Bryant:Yeah, that was a really scummy move. They, I'm sure, purposefully changed 401k providers in the midst of all this. And when you do that, there's a minimum 30-day freeze as you transfer assets over. So these poor employees couldn't sell their shares. Like you said, wow, the executives were making tens and tens of millions of dollars worth of option trades. Yeah. I mean, it's just mind-boggling. That to me is probably the worst part of the whole thing.

55:10Josh Clark:Well, and tie with that, their severance package averaged about$4 ,500 for the average employees, while management bonuses totaled more than$55 million. And that's just bonuses. That's not cashing out stocks.

55:25Chuck Bryant:Right.

55:26Josh Clark:And Livia, who helped us put this together, great job on this article. Yeah, agreed. pointed out something like other fallout, like you'd never even think about, which was Enron was a very big investor and donor in local nonprofits in Houston. And all of a sudden, all that money is cut off. And like the Red Cross chapter had to cut its budget from$12 million to$9 million in one year, largely because the money dried up from Enron. So the fallout was far and wide. And that's not even mentioning, like we're talking about the employees who had stock in the company and like, Every other human being that had just stock in Enron that had nothing to do with it lost all their money.

56:07Chuck Bryant:Yeah. I mean, the stock price was at$0.90 at one point, and it dropped down to, I think,$0.40-something cents in like a year, basically. So, yeah, the employees in particular and the retirees who had already left and whose pension funds were just totally evaporated, meaning you're going to have to go get a job as a Walmart greeter now because you can't afford anything. Um, they are definitely the greatest victims of all this. I saw, um, Ken Lay's lawyer afterward portray Ken Lay as the greatest victim of all of it. Because he apparently lost a few hundred million dollars. Um, and he, um, I did, he didn't say it himself, but he definitely tried to say like, I lost so much money.

56:52Chuck Bryant:There's no way I could have known what was going on. And that fell on deaf ears. And that same defense was used by Jeffrey Skilling too. I didn't know what was going on. And so what they tried to do was pin the whole thing on Andrew Fastow, who had been fired, who had skimmed 30-something million dollars himself. So he had proven, demonstrated he was a criminal. They made it – they tried to play like he was a rogue CFO that had done all of this under the very nose of Jeffrey Skilling and Ken Lay and that they hadn't known. And the public, Congress, the courts, juries, everybody said, you have to be kidding us.

57:30Josh Clark:Yeah, and they were right. In the end, Fastow pleaded guilty to two counts of wire fraud and securities fraud in return for being a witness against Skilling and Lay, I think, had a 10-year sentence for what was going to be a much larger sentence. ended up serving five years and then got out in 2011 and started getting paid as a speaker to corporations about business ethics. To his credit, I guess, 20 years on, he came out officially and apologized for everything. Seems to really have turned the corner and learned a lesson, although he never knows what is going on in someone's heart from the outside.

58:15Josh Clark:Arthur Anderson completely went away. The oldest accounting firm in the country. Never recovered. Completely folded and went out of business. The Sarbanes-Oxley Act was enacted basically because of Enron in 2002. Yeah, yeah. And I remember years ago when we were working in our early days at How Stuff Works, there was a lot of Sarbanes-Oxley talk. Do you remember that stuff?

58:43Chuck Bryant:Yeah, because they came up with the Frank Dodd Act to basically undo or combat against future stuff from the 2008 financial crisis. This was the same thing six years prior. Like Enron had such a huge effect that they passed a law that basically point for point outlawed all the stuff that Enron had done. They did the same thing with the Dodd-Frank Act, or they tried to.

59:09Josh Clark:And of course, you know, certain people will say Sarbanes-Oxley has no real teeth anymore because they're not even funding the oversight that they promised. Other people, you know, the diehard free marketers will say that's actually too restrictive. We're not able to be competitive anymore because you've got all these rules now to make sure we're not defrauding people of billions of dollars. Right, yeah.

59:32Chuck Bryant:You're making it hard to exploit people. Come on. So there was actual convictions. Like this is crazy. And one of the heartening things, Chuck, is if you watch like these congressional hearings on this, people from both sides of the aisle are grilling these guys. Oh, yeah. No one was apologizing to them for their, you know, their colleague from the other side of the aisle asking, you know, mean questions. Everyone was mad at these guys. The whole world hated Jeffrey Skilling and Ken Lay and Andrew Fastow.

1:00:05Josh Clark:He was so smug up there, man, answering those questions. Oh, dude. In the face of all that, he was still so smug about it.

1:00:11Chuck Bryant:I looked up whether he ever apologized, and I could not find it. I don't think Jeffrey Skilling ever apologized. I think he went throughout his entire time in prison basically saying, like, he was a victim, that this was unfair. But he was imprisoned. He was an executive that was in prison. That just does not happen lately. he was convicted of 19 counts fraud, conspiracy, insider trading he got 24 years in prison and ended up serving 12 which is, I mean, yeah that sucks, but it's still 12 years is nothing to sneeze at no, for sure, that's a long time to do in the clink and then Ken Lay, he was convicted on 10 counts, but he wasn't able to be sentenced because he died of a heart attack 6 weeks after being convicted and I think his conviction was vacated.

1:01:00Yeah.

1:01:01Josh Clark:Skilling now is out and works at an oil and gas analytics startup. It seems that other people, I think we, yeah, I mentioned that Fastow was on the speaker circuit. The whistleblower, Ms. Watkins, was named Times Person of the Year in 2002 and I believe is also now a paid speaker and executive in residence at Texas State University. And then there was a matter of, because I was like, Livia didn't get to it, but I was like, well, surely there was some sort of making it right for these people who lost all this money, right? And there were lawsuits that came out and settlements that came out. Different people ended up paying different things.

1:01:51Josh Clark:I think it was a$7.2 billion settlement from Enron. I believe the banks were on the hook. I can't tell if the banks were on the hook for some of that or if it was a separate thing.

1:02:04Chuck Bryant:I don't know. I saw that they squeezed a total of$20 billion out of Enron before they let it go. Okay. I don't know, but I did see the banks were definitely on the hook just for being complicit. I don't know if that was in addition, though, either.

1:02:19Josh Clark:Yeah, I think, yeah, it says right here that the bulk of the settlements, Almost$7 billion of it came from JPMorgan Chase, Citigroup, the Canadian Imperial Bank of Commerce. Oh, yeah. Lehman Brothers chipped in. Bank of America chipped in. The Big Five auditing firm, Arthur Anderson, of course, we talked about. They chipped in, I think. Well, I don't see how they could have chipped in if they went out of business.

1:02:44Chuck Bryant:I guess they chipped in before they went out of business. All right. So, you know, if you hear this story, especially if you're used to us in our podcast, you might be like, well, guys, you didn't really get to the other side of the story. There is no other side of the story. This is one of those rare stories that is basically black and white. It was just there's no redemption. There's no explaining it away. There's no apologizing for it. But it was just as wrong as it appears. So that's why we didn't include the other side of the story in this one.

1:03:22Josh Clark:Yeah, I don't think there's anyone out there who's going to bat for Enron.

1:03:26Chuck Bryant:There's somebody. There's somebody, and they will leave it on our Apple reviews.

1:03:31Josh Clark:Right, they totally will.

1:03:32Chuck Bryant:Enron didn't get a fair shake from these guys. Totally. Neither did Hitler or Satan. You got anything else?

1:03:40Josh Clark:I got nothing else.

1:03:42Chuck Bryant:Well, I don't have anything else either. If you want to know more about Enron, go watch The Smartest Guys in the Room. Definitely will leave you wanting more. And there's plenty to read about, including some great contemporary articles all over the Internet. And since I said contemporary instead of contemporaneous, it's time for listener mail.

1:04:03Josh Clark:This is a little wordy, but we don't often do shout-outs and tributes. But this is a really special one, so we're doing it.

1:04:09Chuck Bryant:Nice.

1:04:10Josh Clark:Hey, guys. This is from Gavin, recent college graduate. and history enthusiast. And Gavin says, I've been listening since I was 15, over seven years now. My mom was the one who introduced me to the show and we've both been listeners ever since. I'm pretty sure she listens to every episode that you guys put out. My mom was also the person who imparted a thirst for knowledge and learning in me as a child. I've had great many teachers in my life and I'm very thankful for them, but my mom has always been my greatest encouragement and my role model as a student and as a person. Over the past four years in college and directly after I got really busy, moved 12 hours from home, and it meant I stopped listening to podcasts, including you guys.

1:04:49Josh Clark:I know. More importantly, I also lost touch with my mom. I didn't completely ghost her or anything, but I still did not reach out to her nearly as much as I wanted to or needed to. But often when I eventually would, she would ask me if I listened to stuff you should know recently, and she'd have an episode to recommend because I think you'd really enjoy this one. Luckily, I now have a job where I'm having more flexible hours. And over that time, I picked Stuff You Should Know back up, re-energized my love for knowledge, and learned that my mom had given me years ago. All this to say, you guys mean a lot to me and my mother.

1:05:23Josh Clark:And I thank you for that. You've helped me stay connected to her in a way that I would not have been able to do otherwise. I'd just like to take this chance to thank my mom. I know you're listening, Mom. I know we'll talk about this episode later. And thank you for encouraging me and understanding that I love you. even when I'm not great at communicating it. Man. Boy, this one's really pulling at the heartstrings.

1:05:45Chuck Bryant:Yeah.

1:05:46Josh Clark:Every time I pick up a book or listen to a podcast or write a paper, I think of you, Mom, and I know that I always will. I love you, and this is the only way I know how to tell you properly. Man. Gavin, you can pick up the phone and say this stuff, my friend. He says, back to you guys. You got a great show. I hope we have many more years of remaining learning and growing together. and that lovely, lovely sentiment is from Gavin in Fayetteville, Tennessee.

1:06:14Chuck Bryant:That was amazing, Gavin. Hats up, Chuck. I totally get why you chose that shout-out to be the one to break the rule. Yeah, it should have been along Mother's Day, around Mother's Day. Well, we can replay it around Mother's Day for a select. How about that?

1:06:29Josh Clark:Instead, it's the Enron episode.

1:06:31Chuck Bryant:Right. If you want to be like Gavin and just be a super great person, but not request a shout-out, Just be a super great person. We want to hear from you. Also, while I'm thinking of it, go check out our social feeds. They used to suck. Now they're great. Also, if you want to get in touch with us, like I said, you can hit us up via email at stuffpodcasts at iheartradio.com.

1:06:57Josh Clark:Stuff You Should Know is a production of iHeartRadio. For more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows.

1:07:10Josh Clark:Geico presents a 30-second podcast between your podcast. Today's story is shared by one of our listeners. It's called Betrayed by Bill. It was in that moment I caught who was staring back at me in betrayal, or more like what, my insurance bill. With trembling hands, I grabbed my phone and switched to Geico, saving about$900 in the process and never to be betrayed again. Now that was bloody riveting. It feels good when the story ends with savings. It feels good to Geico. You know, you could be adored by everyone and still completely ignored by your cat. Trust me, I know. But if you feed your cat Sheba, you can go from being ignored to truly adored in 12 days guaranteed or your money back.

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1:08:45Josh Clark:Google is a trademark of Google LLC.

1:08:48Chuck Bryant:Sequences shortened and simulated.

1:08:49Josh Clark:This is an iHeart Podcast. Guaranteed human.