Doomed to Fail - Ep 199: Missed the "Mark" to Market Accounting - Enron

Episode Date: May 21, 2025

Sources - Movie - https://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_RoomBook - https://en.wikipedia.org/wiki/The_Smartest_Guys_in_the_Room_(book) For this episode, Taylor got to read the book behind her favorite documentary of all time - 2005's "The Smartest Guys in the Room" - That's right, liars and grifters, we're stuffing money in offshore accounts and shredding the paperwork - we're talking Enron!!! From the meteoric rise of "The World's Leading Company" (whatever that means!) to stock prices tumbling and eventually jail time, this is such an interesting and multi-layered story!  Join our Founders Club on Patreon to get ad-free episodes for life! patreon.com/DoomedtoFailPodWe would love to hear from you! Please follow along! Instagram: https://www.instagram.com/doomedtofailpod/  Facebook: https://www.facebook.com/doomedtofailpod  Youtube:  https://www.youtube.com/@doomedtofailpod TikTok: https://www.tiktok.com/@doomed.to.fail.pod Email: [e-mail] 

It's a matter of the people of the state of California versus Orenthal James Simpson, case number B.A.019. And so, my fellow Americans, ask not what your country can do for you. Ask what you can do for your country. And we are back, Taylor. How are your organs doing? They're good, I think. I was really impressed with my liver whenever I get my blood done. So, I was on that, I'm pretty good.

We're happy for your liver, your lungs, your heart, the whole thing. My lungs are good. I do remember when I quit smoking, I did cough up, gross stuff. And I was like, you have to be doing this. I know, I know. I very rarely have like heavy, well, at this point, not anymore. But like when I had like heavy smoking days or weeks or probably not having a whole week, but like the after effect was noticeable.

Yeah, gross. It was a real thing. It's too bad. It's awesome. It makes you cool. It does make you cool. What are you supposed to do? What are you going to do?

Hi, everyone. I'm Taylor. Um, if I make a date. 80. I'm going to start looking again. Welcome to Dune to Fail. We are a podcast. We bring you history greatest disasters, epic failures twice a week. And I'm joined by Fars.

The next generation is going to be coughing up like sugar dust from all the vape that they're taking in right now. Honestly. Well, I want to tell you, I'm glad that we took a break between our episodes because my children are watching this new show on Netflix. That is great. And I wanted to recommend it to you, even though it's for children.

It is called who was show and it is like drunk history for kids it's narrated by h john benjamin the guy who does um like bobs brickers and archer and it's great like each episode has like two um historical characters together the first one is gondy and benjamin franklin and they're just like like young teens playing these characters and that they're really funny and it's like really good and you learn a lot so it does look very cute it's super cute they've already watched it several times I did Amelia Earhart, Marie Antoinette we've done. They did Marie Curie, Harry Houdini.

I see Ben Franklin. Billy Sees and Bruce Lee. It's so cute. Nice. Yeah. They are definitely your children. Yeah, I know. They've been watching it over and over again.

It's so cute. But yeah, I recommend it. It is fun. I've been enjoying it. Sweet. Well, good for them. They're enjoying themselves. Did you hear about this whole Mexican ship running into the Brooklyn Bridge?

I literally just saw a thing of that. I don't totally know what that means how people were killed. They probably, it wasn't anybody on the bridge, I would assume. Oh, there are people on the bridge. Oh, it's, you can walk over the Brooklyn Bridge. I know, but like, would a ship hitting it kill you? I mean, I think a few, I think if you're walking around the second story, because I was definitely on it one time when there was a car crash right below me,

and I had to call 911. Oh, wow. Okay. But I do, I don't know, I just saw a video of it. I love it down there. I used to see, we let's see the Brooklyn Bridge for my apartment. And we got married underneath it. So, yeah.

That's fun. Well, not the story, but. Pepper is okay. Yeah, exactly. Okay. Cool. That's wild. Let me find my stuff.

Okay. I wanted to do some classes. big stories and so I wanted to tell the story that is behind my favorite documentary of all time do you have a favorite documentary first I think I have a few favorite documentaries anything that is animal related on Netflix with David Attenborough is definitely up there my pet octopus was pretty good

I'm a huge documentary guy so actually it's a good I was literally just diving into like Auschwitz documentaries that are very fascinating but like yeah so I'm all over the map so actually so this my favorite documentary is not about animals is about people but I did write because it it was from 2005 and it was nominated for the Academy Award and I wrote it lost to March of the goddamn Penguins which is documentary no I know I'm just oh oh because it's Academy Award I would have voted you would prefer March of the Penguins have you seen March of the Penguins it is like a thrilling drama.

I'm a little bit like they should move. So angry right now. If their life is so fucking hard. It may feel so fucking bad for you, Penguin, move. God, it's not my problem.

You live in this shitty neighborhood. It's very interesting where your empathy comes through. It is like, it is deep, it is a deep reservoir empathy that is hyper-microtargeted. There's a reason penguins aren't in charge of the world because they can't even figure out

to move over their shitty neighborhood. Well, again, agree to disagree. This would be the agreed to disagree week for us. I like Happy Feet, the cartoon. Anyway, my favorite documentary is the smartest guys in the room. I also read the book of this week. Oh, my God. That is, that, I should have said that because that is a fantastic.

So good. I watched it so many times. Crazy. Yeah. So good. Yeah. I absolutely love it. So we're going to talk about Ken Lay, Jeff Skilling, Andy Fastow, and the fall of Enron.

and yeah i know i also read the book and i've been meaning to read this book so i'm very excited that i read the book as well um smartest guys in the room by um bethany mclean who's a fortune um a journalist from fortune magazine and peter elkin um so it's great watch the movie i think i bought it on amazon prime years ago and i've watched it several times since then but it's worth however much money they're charging for it it's usually free is if you have any of the streaming services except netflix but like if you do like hulu or pea peacock or like it's or or if you just go on YouTube and look for it it's probably on there for free which is like a shame because they deserve to make a lot of money every time now oh it's so good

so well done um i think the first time i watched it i was like it was one of those movies where like all of a sudden i was sitting in front of the tv i was like how to get here you know but i was like i want to know more about this this is so interesting so i kind of might agree with you that that could have been a better one to win than march of the penguins I disagree with your penguin philosophy of life, but I agree with the outcome of your penguin philosophy of life. We got there. There you go.

So a little bit of background before we talk about what Enron was and what happened. We've talked before about how I worked at a hedge fund during the 2008 financial crisis and how I have my MBA, so I should know more about all of this. But accounting was definitely the hardest class for me in MBA school. And I think it is for a lot of people as well. I think that's either because it's true that accounting is very complicated and can be like made into different things and you can see things differently depending on the kind of accounting you're doing, things like that. And also a lot of people haven't even tried accounting and they have the aversion to it. So they're like, oh, no, let's the accountants do it.

You know, like that is part of the right. I personally think that it is a tool or a weapon, depending on who's using it and what you're trying to do. It can tell whatever story you wanted to tell, and the recipient can hear whatever story they want to hear. That's exactly right. That's exactly right. So the example they do, they gave in the smartest guys in the room book is like, so you have a, you have a chicken. and the accountant's job is to make it into a duck. So the accountant says, like, okay, well, what does a duck need?

It needs to have, like, flippers and a duck bill. So they just, like, put flippers and a duck bill on the chicken, and they say, it's a duck. And you say, well, it's clearly a chicken wearing a duck costume. And they say, no, no, no, no, the definition of a duck is the duck bill on the flippers, so it's a duck. Yeah. You know? Yeah. So, so anyway, so there's a lot of accounting things that were used for,

bad in this. And then a little bit just like what you do at a hedge fund and what you do when you're like an analyst of the stock market. So I when I was at the hedge fund, I was a research assistant for anywhere from like two to four dudes. And sometimes it was a woman people. And they were the analysts at the hedge fund and each of them had a specialization. So someone specialized in like energy, someone in health care, someone in like technology or something different. And they knew a ton about that market and like who are the players in it. Every company that is publicly traded, they release a quarterly and yearly reports. They're called a 10K and a 10Q.

And the 10Q is like dozens of pages of like where all of their stuff is. Their balance sheet, their projections, the thing is going to happen. So when I worked, I would print out 10Qs all the time for people. So they put together a packet for me on this company. So the packet would be like, I'm going to print these couple reports from the company themselves. And I'd get, and I would email all the banks, emailing them, because they were still there. Lehman, Bear Stearns, Merrill Lynch,

and say, can you give me your stuff on this company? Then I put all together, print it, and give it to my boss, and they would read it, and then make decisions. Great. Can you tell me what they did? That's what they did. Where does the money come from? So here's, okay.

Sorry, this is more about you and your hedge fund experience than about Enron. I know what Enron did. I'm asking my... No, no, I know. So I think so where the money comes from then is so then they say we have all of these funny i know all the financial information i know about this company i know what they are projecting to happen in the future i know what mistakes they've corrected

from their past have all this information then they go to meetings with people at those banks like at mary lynch there's a guy who's the health care guy he knows more than the health care of the hedge fund he knows so much he's going to give advice and he's going to say you should buy this stock so if you take that advice from that person, you pay that person for their advice. So these banks, even like the small, they're like, not just Merrill, but like other big, like smaller companies, they'd be like advisement firms. They would want us to get their research in front of our analysts because of our analysts use their research to make a decision to buy on something, then we owed them a

percentage or like a fee. So you're the one with the MBA. So you tell me if this is an accurate perception or recounting what you're saying. it's basically you are trying to find the right fortune teller and then pay them for their fortune. Yes. And you're hoping that the fortune teller

has done a lot of research, that they have like stolen your wallet and looked through it and they know your last name and they don't like they're not just like out of nowhere. But yes. Yeah, that's it. They would do that. And then the job of the hedge fund

is to continue to grow. So people like very rich people put their money into a hedge fund because they are taking bets, making and doing things that aren't just like putting your money into the vanguard whatever you know it's just so it's like you're supposed to have more information to make really good decisions with your money if you have enough money to put into a hedge fund which means you already started with like a million dollars at the very least got it okay the year and the fee that

you pay is for all of those fortune tellers to talk to better fortune tellers to talk to better fortune tellers to understand what's going to happen next great yeah sounds doesn't sound risky at all So, I mean, so then they would, oh, there's also, so not just the company, so they would do that. And then also companies will have an earnings call where the CEO will get on a call with investors. They'll ask some questions and they'll talk about, you know, what it is. And then investors can vote on things, things like that. Like if you have like a Robin Hood account and you have like four stocks or if you have stocks somewhere, you might sometimes get invited to an investor call to like do a vote. Usually you don't if you're just like a regular person with a couple shares.

but if you or someone who has like a 10% holding and something, you're definitely going to go to those calls and you're definitely going to attend those meetings. There are other organizations that are like government controlled that their job is to put like a credit rating on things. Like there's also like individual

credit rating companies that say like is this suck safe to buy anyway, things like that. So there should be a lot of checks and balances before you make like big decisions, especially if you have your money in like a hedge fund or you given it to someone to invest for you right that's the idea anyways that's the idea so which i will say like now with the you know increased usage of etfs

and that being like an investment vehicle like it's a much safer and better play the whole concept of putting all your money in the stock to me today sounds insane totally it's high risk but it's high reward if it works exactly exactly yeah yeah um so in this story everyone is going to blame everyone else. The CEO has signed off on this. The accountant signed off. The CFO said yes. The business kept going. And there's a lot of people being like, well, how can things go bad if I have so many nice things? You know, like there's no way things are bad. Things look really good. That's what a lot of people thought. It's like the store of the U.S. economy. I mean, it's a story. Yes. In today in 2025, there is an Enron. They had a,

there was an Enron crypto coin that like, would up and down in like one day. I couldn't figure out who owned it. It was like on Wikipedia in a weird section, so I don't want to harp on that, but that existed. And then Enron also came back as a company, but the CEO was the guy who's the same guy who owns birds aren't real. So I think he just got the name Enron back. Anyway, it's gone, but whatever.

So Enron is a huge energy company that ends up spectacularly failing in 2002. But it started in the 80s and 90s. and we'll talk about it in, yeah, start there. So what did Enron do exactly? This is like, I asked chat GPT, I was like, tell me like I'm four. Like, I just can't. Like, it's very, it's complicated. Also, like, a lot of times they didn't know what they were doing.

Well, it also, it's hard. Not in the beginning, though. In the beginning, it was a very simple binary thing. But later. Yeah, later on, yeah. So it's an energy company. Energy is changing in the 80s and 90s. natural gas is actually starting to be a thing.

Natural gas used to just be something that was burned off when you were drilling for oil. There was no way to move it, great distances. And then in the 80s and 90s, there started to be. And so because they were able to move it like a commodity, it becomes something that you can trade, you know. What they really wanted to do, what Ken Lay, who was our CEO and founder of Enron,

who I'll talk about more, he wanted to deregulate the market on natural gas and energy to be able to set the price. prices, and he had all these grand ideas of, like, putting energy across, like, the entire world with, like, big power plants, natural gas pipelines. And he and Enron would help control that market. And a lot of their big bets were in that line for that thing. So it started it off with just natural gas trading as well. So, like, you have gas to sell someone who wants to buy it. And Rodden would be the middleman. So you would be like, I have all this natural gas. You know, someone else wants to buy it. And Ron will say, I will figure out how. how to get the gas to this person, and you pay me a fee to be able to do that. Well, didn't they own the pipeline network? Later, they will. But first, they were just, they were just the traders.

Later, they're going to build. And when they build the infrastructure, that's also part of the problem, because they should maintain infrastructure. Right, right. You know, that makes everything harder. They also, later, they'll do stuff with electricity, broadband internet, the weather, and create their own internet portal for trading energy that no one had ever done before. We'll talk about that later.

So the problem, of course, is in the accounting. Do you remember the type of accounting that Enron used? Mark to market accounting. Mark to market accounting. Correct. Which means, I'll talk about it more later, I think, as well. You put your earnings, all potential, etc., etc., as revenue right now. So if I signed a $100 million deal with you for the next 10 years, today I get $100 million.

I don't get it, but I get it right that I got it. So yes, so mark to market, you are booking. your, all your potential earnings as revenue right now. So that creates a whole bunch of problems because you don't know how much money you're actually going to realize. Usually when you book a $10 million, $100 million contract for 10 years, you're going to divide that money up between the years and your projections. And then you're going to have to report on what you actually got later as well. Financial firms can use market to market accounting, and a lot of them do because it forces them in those cases to rebalance their sheet every time, like very, very often because the market keeps

changing, which totally makes sense. You know, because if like my 300, if my $100 million dollar deal is my $100 million $1 stocks and then the stock go up to $1.50, then I get to rebalance, you know? Yep. So also, like, you have to keep making deals because you're not going to get the revenue from your deal that you booked today for the next 10 years. You have to keep booking deals in order to make your balance sheet grow. So there's that.

And so that's a problem as well. So it kind of becomes like, you know, a scheme where you just, like, continue to do that and you don't actually count for what actually you're bringing in. They also would put revenue as recurring, which is, like, different, but also something that I don't know what I would do as they did this. So not only would they say, I'm making $100 million today, it's like, I'm making $100 million every year. And you're like, that's blatantly not true.

So how did it happen? Who did it? Key players. First off, the founder, CEO, and chairman of Enron was Ken Lay. He was like a former farmer, a poor guy wanting to like make it in business, you know. He got his piece in economics. It's super, super smart. Everyone in this story is smart.

Like no one's dumb. They know what they're doing, you know. It's worse because it's so intentional. Exactly. Exactly. So he loved the idea of deregulation. One of the markets at the prices for things. He lobbied in D.C., especially during the 70s, during the energy.

crisis um the bushes loved him especially um hw bush um like really like they were like really good friends there's like clips in the movie from like a christmas card that he like sent him like a video christmas card from president bush um they like spent a lot of time together um he was doing a lot politically he thought he was going to be treasury secretary that was really one of henley's goals um but he ended up working in business instead um also um he spent a lot of his time also running various nonprofits and things like that that his family did like the lay family foundation did a lot of like a lot of stuff um a lot of this is in houston um he was so he was a CEO he didn't really like do the business stuff he wanted to be more of like a figurehead guy so he would like go to all the

meetings and like you know get take people out for like the fancy dinners um his family used the private jets so much that sometimes like enron executives couldn't get to meetings because like ken lays kids would be using the private jet so i remember my my going off the memory here was that i walked away from hearing the whole story of like he was kind of like a he wasn't intentional in the fraud aspect he was just willfully blind because he was like everything's working everybody loves me everybody's giving me awards like why is this bad like everything's good like i think i don't know when i'm going to say it but like king charles and you still Prince Charles had dinner at Ken Lay's house.

Seriously? Yeah, because they were trying to build like a big energy plan in England. So like he's, yeah, he's loving that aspect of it. Absolutely. And if you see him, he's like, he's like, he's supposed to look an old man. It's like balding, you know, like. Yeah, he seems like a pleasant old, like he doesn't seem like an evil mastermind. The one you're going to get to.

Yeah. Why the evil one? Um, they describe him as a little Elmer Fudd looking, which I think is true. Yes, I can see that. I think that's a Texas thing properly too, but yes. so he um like also like when they were used like the the jet thing was just like a little bit of an inkling where like they shouldn't be doing that they also used his sister's travel agency to like book all the fights so she got a percentage of things too so it was a little stuff that's like kind of gross but like so they they ended up have like the board made them do like an open bid for new travel agencies and his sister's travel agency won anyway even though her rates were higher like stuff like that's gross yeah like you know that's happening um he in 1980 So he was doing really well. He had an 1980 at a $300,000 house, which is in two days' money, it's a billion dollars.

It's not, but I don't know, but probably a lot more. It's close. It's close. He was married. He ended up marrying his secretary, and he eventually his wives would, like, have Christmas together. Like, everyone got along eventually because there was, like, a lot of money involved. He, like, didn't want to, like you just said, he didn't want to hear the bad news and didn't

want to tell anybody bad news. So he would kind of like run away from those conversations and like wasn't, you wouldn't tell him anything because he didn't want to hear it anyway. He wanted to like enjoy like the lifestyle that was happening. He ended up starting Enron and being at Enron because he helped negotiate a merger between a company from Omaha called Inner North and then Houston Natural Gas. So he merged them together. He got three million dollars out of the deal and that new company would become Enron. So they moved everybody who wanted two people who were pissed from Omaha to Houston and then they had their business base in. in Houston, which is like a huge energy place

anyway. I'm a lot of them there. He, in the, it's mid-1980s, there's some deregulation happening. People are starting to do more energy contracts. There's like a lot of opportunity here. So he has his new company. Originally, they hire a marketing firm to name it, and they name it Enteron, and they printed a bunch of business cards. But I guess Enteron is also another word for the digestive

track, and people started thinking, sort of making fun of them, so they had to change it to Enron. That's a little sad, but. That's how we got here. So it was expensive and stupid, but they had to do that. Enron will come from that company. It's actually in a lot of debt when they first started because it's like a merger of two kind of not doing well companies.

But eventually, Enron will have 20,000 employees. The year 2000, which is a year before his bankruptcy, it reported $101 billion in revenue. And it's safe to say that most people that work there just did their jobs and like didn't know that there was stuff going on. Do you, do you, you might get this later, do you know what that, would you say a hundred and, 101 billion? I'll tell you, they do, they do like kind of flip their earnings and you're like, oh no, it's not, it's not revenue. It's loss pretty much. Is that really what it was? Like they had no, like nothing. Yeah. We did that, I think I have it at the very end. But yeah, I think they had like

some amount of money that they had posted revenue for 2000 and then they had to flip it. And they actually was a loss. It was like a very close number. Yeah. So a lot of people, I think, worked there and didn't know. And like, it ruined their lives. You know, like, I, when I worked at NYU in the business school, this woman, I cannot remember her name. So I was trying to find her on LinkedIn. I couldn't find her. But I was like, oh, we should do before this. And she was like one of the vice deans at the business school. And she was like, oh, I worked at Enron. You know, like not only did, you know, whatever she did there. She probably did like a fine job. You know, plenty of people just like did their jobs and didn't understand this massive fraud was happening. A lot of them did and took advantage of the situation. But of 20,000 people, like, not all. of them knew. So I'm sure you remember the pictures of like the people leaving and crying and holding the boxes full of their stuff, you know? Yeah, I think like some of these people were like line workers. Like they were like, they were like, they're like, I just get my car and go to this place and say I'm going to do my job and I come home. Like, yeah. They weren't making high level decisions. Yeah. So Kenny, so Kenny Boy, Kenny Boy is the nickname that Ken's wife gave him and

that also George Rich Carlton. So Kenny Boy does he get people to work with him. He's going to find a few people who are instrumental in the rise and fall. But in the beginnings, like I said, it's bleak. There's a huge loss. They're moving the offices. They have to turn it around. And one of the people that he picks right away is Jeff Skilling. I think that Andy Fastow is the actual criminal. But Jeff Skilling is someone who thinks he's smarter than everybody else. And so the rules don't apply to him. I would say Andy Fastow was the he was

the brute who took care of the things that Jeff Skilling told them to do But Skilling would like Yes Yeah I agree I think I don't know you were close We're close we'll talk more about them in detail

So Jeff Skilling was the president's CEO And later the CEO for a little bit of Enron He was hired by Lay to make money Like that's just like he was like a money making guy He came from Pittsburgh. He went to Southern Methodist University to get away from the industrial east. While in high school, he worked really, really hard, and he made a good amount of money, and he lost it all in the stock market while he was, like, 15. So he liked doing these big high-risk things, like, always. He loved

doing that. When he went to college, he did the same thing. He got a job, made a bunch of money, and lost it all in the stock market. He applied to Harvard for his MBA, and this is the famous story that the interview wasn't going really well. And the interviewer was like, Jeff, are you smart? and he goes, I'm fucking smart. Remember that? You know, so he went to Harvard, obviously, but when he was hired at Enron, he hadn't worked in energy

and he hadn't run a company before. He was considered just like a really smart guy who was like a revolutionary. So they were just excited. What was he hired as again? The president and COO. Got it. Yeah.

So a few things about Jeff, he insisted on mark-to-market accounting. He wouldn't join them if they didn't do it. So a little bit more about it again is like you book earnings when they call. come when they come in. It's like a little more about it. That means that like it's immediately, you immediately claim the present value of all expected future profits as current income. So you could book earnings upprint for deals that might last 10 to 20 years.

Or that might not happen at all. Exactly. Exactly. So you counted it as current, even if there's no cash received yet. And so because of that, like I said, so it was an income tomorrow income today situation where like you can't you have to keep making new deals because you already booked all that revenue like you you can't spread it over a certain amount of time it's worth pointing out that like the nature of corporations at this point was the stock prices always had to be rising yeah and if you do mark to market accounting and you book 10 years worth of I guess revenue bookings I don't know what you'd even call it in this case all fake money anyways if you book it now then you have to get the

like two more of those deals to show increase in growth again you're talking about like a hundred million dollar deals there's only so many of those in the right to obtain yes so you have to like you create them but they're not good deals and then they don't happen yeah yeah so that's that like I said financial firms can use it because they need to rebalance every quarter but but but the but I don't know was the first non-financial firm to use it, and they had to get permission from the SEC in 1992 to be able to do it. They had to, like, asked to be able to do it. So there's a document in the documentary, smart skies in the room, there's a sketch where they show like a little video that they made

with like skilling and one of the accountants where he's like, I have a new idea. It's called HFV, hypothetical future value. And they were like joking about it because like it was like he was pretending to use an accounting system that was like even more corrupt than when he was using and everybody was laughing about it. And sometimes when we start building big things like infrastructure, the problem is going to be like, I, or they're going to like make it even worse. So like they say, okay, I booked this $100 million deal to build this power plant in India.

It is, it didn't work. It didn't happen. We started to do it. So I'm going to sell the pieces. I have a little bit of infrastructure. I have some like this, this and this. I'm going to sell it. I'm going to sell that all for $10 million.

That should be like that should be a, like, that should be a $90 million law. but instead they counted that $10 million as more revenue. You know, and you're like, but you never got a hundred million dollars. Like you never, and you spent all this money anyway. So like it just like didn't, I just wasn't going to make any sense. And this is something that like the bad deal situation, I feel like I've seen that at places where I've been like, like I've worked at places where the sales team got paid after the deal closed and it didn't matter if it went through or not, you know, like the deal closed,

but they failed in onboarding and they never used it but the salesperson still got paid and made to change that because it was like they're signing bad deals and the onboarding team is getting screwed and because they're not meeting their goals when their goals were impossible there's a hundred different examples of this mentality the short-term gain for the long-term credibility and reputational loss in the industry and yeah it's disgusting but yeah so other things about Jeff. The culture that he brought was really savage. He did a thing where you had to rate your peers every six months on a one to five rating scale, one being the best, and then he would fire 15% of the company every six months. And the VPs would spend like weeks in a room

together having to grade every single person in their department. And then they had a couple in a unanimous grade and then do the firing. And that's just like besides the fact that that is weird different morale. It also is really expensive. It costs so much more money to hire someone than it does just to continue to work with someone. You know? Yeah. This is this also is like the Microsoft model

that the guy after Bill Gates I forgot his name, but he put into effect. And it's like, it goes back to like my mentality towards like the business schools of America of like fostering the worst

aspects of humanity to to work towards capitalist ends. And it's like, you don't have to. Like, there's a different way to do things. And it's one that makes people not feel horrible every day. A thousand percent. And, like, they said, you know, one thing they said was, like, MBAs would come in from Harvard all green and happy.

And in six months, they'd be assholes. Yeah, that's not shocking whatsoever. I forgot to write this on, but Skilling also worked at McKinsey before this. So, like, that's also a culture of, like, we're the smartest people. here, you know, and they like consult, but they're consulting is like, you know, a 19 year old gives you some advice. Yeah, yeah. You're supposed to give them $7 million. So yeah, there's that. He also had like nine midlife crises. When he started working on Edron, he was like kind of chubby, regular like middle age guy. Eventually he started to work out. He, I wrote obviously not

something weird like Jeff Bezos, but still a lot of working out. Like, you know, like they do. you. And he also would have an affair with someone at work and get a divorce. At one time he does try to save his marriage. He works for half pay half time, but then, but he doesn't get to save his marriage. But he does marry another Enron employee later. He also wanted to do like very manly trips. And there are some women in this story, but like it's obviously still a very male dominated world. And like when I worked at places, I knew people who would go on business trips and hire escorts. And you knew that they did that. And you just didn't say anything about it. It feels like a New York story. Yeah, maybe. But it like makes, obviously makes like women uncomfortable being in those places, you know. That's what I'm getting. Like the whole, the, the business school mentality of like, it doesn't have to be that way. Yes.

It can be healthy. It can be normal. People could feel good about themselves. Like, it doesn't have to be gross. Yeah. I will say. No. I have told multiple people I won't hire an MBA because of that.

But now that I know you have an MBA from, I will, like, I'll take that. Thank you. I appreciate that. But I mean, it's different. It's different. Mine's different. If I went to Harvard and MBA, like, I've, I get it. Like, some, I get, some stereotypes are real. I get it. I think we've talked about this before. Um, so they would do things like go on motorbike trips, you know, and, like, do, like, adventure daring things. And, um, later, uh, skilling would be when he was starting to get depressed when things were going poorly. He would, he would, he would, sit in Houston bars and chain smoke and drink white wine and one bartender I know one bartender later called was who was interviewed was like oh I didn't know he was you know a multimillionaire I just thought he was quiet Jeff and I'm like that's stupid you're a dumb bartender that's a dumb name but but fine um and people ask skilling what Enron does he says it's a cool company which is like which is which is a key example of they didn't do anything yeah exactly you didn't like it's cool promise and like

if you went there you'd be like this is cool you know do you i didn't read the book so i don't know this i don't know what the documentary said do you think that he always knew it was bullshit i think he thought that it was going to be okay somehow the markets would feel him in the vibe check would happen and yeah yeah yeah i think i think he thought that that's that's what i think he thought like you know we can keep doing this it's going it's going let's keep going um so there are some other people as nron transitions from being a typical energy company to an energy trading business which is what's going to come um the documentary starts with cliff baxter he was the heart um the head of mn a and

he dies by suicide he's like the only i guess maybe other people did as well who are like other employees but like he's one of the most most famous ones and he um shot himself in his car in like the middle of the night he just had like a hard he was kind of manic depressive like knew that this year was about hit the fan um and uh guess where he was born germany amni eval no way yeah hometown boy love it yeah so is cliff baxter there's rich kinder um he was trying to help get things back together sort of in the middle of this he wanted to be CEO but then um Skilling's going to be named CEO in the mid-90s and Rich Kinder will leave.

He's the person that they say could have saved them because he was someone who could have turned it around and knew that their accounting was bad and he could have changed it. But Lay was like, no, we're still going in our direction. And so they let him go. And then Rich Kinder started Kinder Morgan, which is a huge investment firm.

And he's just like one of the richest people in the world. Good for him. Congratulations. There's Amanda Martin. she's a lawyer she's part of skillings inner circle um one fun thing that she did is she saw that she was being paid $75,000 less than the men doing her job plus they were getting bonuses she wasn't getting and she brought it up and the next day they gave her like a $350,000 check and changed it jeez i know so good for her um she ended up uh like there's a couple like personal

affairs and stuff she had an affair with another high up named ken rice doesn't like super matter but she's in the documentary. So she's like talking about it like past tense. She doesn't seem to be in jail or anything. In the beginning, it's like nobody can touch us. We're working constantly. We're super excited. You know, we're on top of everything.

We're printing money. Like everyone's just like super stoked. And then they hire Andy Fastow, who I think is like the biggest actual like did criminal things, like touch criminal buttons, you know? 100%. So he was the chief financial officer. He was married to a woman named Lee. She's from a really rich Houston family called the Wine Garden family.

So he's just like, they kind of keep up their thing of philanthropy. They're like they wanted to be like the richest people in Houston. People didn't really like him. It's kind of a jerk. Kind of like they didn't like love hanging around him. He would like yell at people if they didn't do what he wanted and things like that. And his idea is to move the money around. So if you like move the money to companies, it's not your debt anymore.

You know, things like that. So he would create a bunch of special purpose entities. He called them things like LJM1, LGM2. There's a Raptor vehicles that he worked on. And basically, he would send the debt to other companies so he wouldn't have to report on it. So he would say, like, oh, I'm working at LGM three hours a week. It's like a subsidiary of Enron. But he was spending most of his time there trying to figure out how to get profits into there and to like split it off.

It's an entire different company. And he did this in a bunch of different ways. he ended up you know he got so much money from this he ended up like paying himself like tens of millions of dollars like during all of this like movement money thing um and he so that like manipulated the earnings which made people want to buy it more which way the stock price go up well it also rebalanced the the balance sheet because exactly so then and then you then the debt goes to that guy i don't have this debt yeah yeah exactly um later when the best Danny McLean interviews him for an article in Fortune magazine.

So interviews Enron people. Everyone will leave, and Andy Fesda will come back in their room and say, I don't care what you said by Enron. Just don't say anything bad about me. What a piece of shit. Just fucked up. It's not all his fault, but like a lot of those trade up fraud is its fault. So those are the main people.

The actual business, again, like they're, they're an energy business. One of the first big scandals that they had, which was like years before the rest of it, was a scandal at Valhalla and Enron Oil. So Valhalla is a suburb of New York, and there was like a tiny office in Valhalla, New York, and their job was to trade energy. And if they were trading it in like a new way, it wasn't traded like a commodity before.

So like you don't have to actually ever have the oil. You can trade it without ever having it. So like if I say, I'm going to buy 100 barrels of oil from you at this set price, then I can sell those 100 barrels at that price as someone else. Then you can buy them at all those different things. You don't actually ever have to touch oil. It becomes a financial services company and not an oil company.

Yeah. And they were the people that were actually making the money. So on like a call with the board, skilling will say, you know, keep making us millions. Like you keep making money. You keep doing it. But a lot of the ways they were doing it is by betting like way outside of any zone that should be comfortable. They were supposed to stay at a certain percentage and not going to go crazy and make these really big, big trades, but they were, and there was no oversight. So for a long time, they won, and they were just like give themselves money, and they didn't care.

Like, Ken Lay knew that they had, they would, like, you know, give each other, you know, $100,000 bonuses all the time. But they're making, you know, $100 million. So who cares, yeah. You know, so they let that happen. They moved some of the money to a bank account in the Cayman Islands that was not on the books, which is, you know. not good if you have to do that like that's bad and again like lay would say that he didn't know they were doing this but they were betting way over the percentages they're supposed to bet and it was all uphill until it wasn't and so they were hiding what wasn't working in these other accounts

in the Cayman Islands and continuing to do what they were doing with the idea that the market's always going to go back up like we're just got to keep gambling we're going you know got to keep doing it eventually they will get caught some of them are going to go to jail for it And all in all, I'd run oil lost $140 million. So it was like a lot of ups and a lot of downs, one big down. Yeah, big, big downs. So after that, it seems like in retrospect, you'd be like, oh, maybe these guys need to work on their shit a little bit more before we invested in them.

But that was like not what was happening. Enron kept growing. There's a guy that ran Enron energy services named Lou Pye. He built the trading desk. And his job. I love this guy. I know. His job was to sell energy services to industrial end users.

basically just sell energy but he was never really in the office everyone was excited about it and he they did have the ability to actually deliver gas places because they weren't energy company but also um most of it was just like betting they worked with a auditing firm called bankers trust um which is like still like a financial services firm that exists and bankers trust was like this isn't what we think it is and they left in the middle of the night and they deleted all of their files to do with Enron and they like never talked to them again and loop high like came into skilling's office and was like they're gone like they just left because they were like this is too weird they knew it was shady yeah so we had a big office that he was never at um and then you know the start of them he loved going to exotic

dance places dude this guy lived the life he like did he marry a stripper he like walked with like 50 million dollars married to a stripper he ended up leaving his life for his girlfriend yep for his girlfriend he cashed out um eventually they he got the exact answer pregnant and then divorced his wife and then married her and then all this is kind of happening he's not really even at work during the day you know and he's like a legend he's never in his office like where is he what does he do and finally skilling was like you can't you have you have to leave it's like you're you're never here or whatever and he was like cool he catched out with loop high made $250 million selling his shares and he became the largest landowner of Colorado this guy won he won he won brilliant And so whatever, whatever, Lou said, Skilling was like, well, we're doing great, Scyling would believe I tell the investors stock would go up. Like, that was it. It's one of the stock to go up.

So a couple other things that they tried to do to, like, actually make money, like when they continue to make money. There was a huge international arm of Enron run by Rebecca Mark. Skilling and Rebecca did not get along. They, like, really didn't like each other. She would travel 300 days a year all around the world. And she had kids. She was, like, barely see her children.

and she would buy power plants and build power plants like all over the world and try to like make deals so she'd be like we're going to build a power plant in Germany supply you with this much energy of this much money like fix that price and then we can like be your energy supplier for example it never really was successful for a bunch of reasons like the infrastructure is a huge one like you have to build things you have to hire maintenance people you have to hire in some of these places like trying to build a power plant in the middle of the jungle you have to hire like armed guards you know like it's not safe to be in those places um also there's governments involved and the governments want to regulate their energy like the especially in the developing countries um and also the people can't afford to pay those prices once they have it up anyway you know so a lot of it a lot of it didn't work there was that that um deal that told you about in the uk with john wing who was someone else who worked with mark and that's when charles had dinner at lay's house to work on that which it didn't work out but that's interesting um it's all

also California. They had a huge deal in California for energy, and California had deregulated their energy. So Enron would bet on the weather. Like, they would be like, okay, we know they're going to need more air conditioning because it's hot. So we're going to, you know, raise the price because of demand. And then they would also do things like talk to energy people in California and start rolling blackouts to change the demand. And it was like not illegal, but no one had ever done it and then when they did it they were like oh you shouldn't do that and they're like okay now that you say I shouldn't do it I won't do it

you know but they did it anyway so the governor Jerry Brown was like how are they able to do this and then like eventually they were they were able to like I don't know I don't really understand how it worked out in California but skilling did make a speech where he made a terrible joke when he said what's the difference between the Titanic in California

the lights were on the Titanic went under yeah terrible like people died you know you can't turn an AC off in the summer just to, like, raise the price of energy so that you make more money. If I recall correctly, what this had to do with was the fact that you can never store surplus energy. Yes. So states would route energy. And Enron served as the central focal point on where they should route energy to.

So they were making bets on we can increase the price per unit in California based on the weather or the time of day, whatever it was. Let's route energy out of California. So they can't have it. They can't have it, so it'll increase demand, and then we'll have limited supply, and then, yeah. Yeah, yeah, thank you. That's helpful. Yeah, so they did that, which is terrible. They also, okay, this, I think is freaking crazy.

So they had a deal. One thing that Skilling wanted to do next was to sell broadband internet and to, like, sell internet like you sell like your phone lines, which is like essentially what we have now, but they didn't have that then, you know? So they had a deal with Backbuster. They almost invented Netflix. Okay. I know. I remember this when you were saying. You said something earlier, and it reminded me of the Blockbuster story because they almost had locked this in.

Like, it was like, the technology wasn't there yet. Like, that's like the, it's like the last mile problem. Like, you can get it all the way to the town, but getting it to everyone's individual house. Like, that's hard. And, like, Blockbuster didn't have the technology. They didn't have it yet. But they made a deal with Blockbuster to, like, make content. And they were going to sell movies for $5 a piece.

Or you could rent the movies, $5 a piece, like on your TV. But it was like, science fiction could be and running and chilling now exactly it's kind of crazy i just i can't believe they almost imagine that because they didn't but they like booked that deal and then it totally fell through obviously um but when skilling announced it he in an investor call in 1998 it was like brand fucking new everybody's like that sounds amazing because netflix started with the mail like they couldn't do this you know um the stocks soared 34% in in two days after they made that call because they were so excited about it but like nothing ever happened to it but

still wild um oh they also tried to do corporate electricity to sell electricity to like big corporations so they had to deal with like the USC schools and some like big sports teams to do their energy and like stadiums for a certain amount of time but that didn't um but that was hard to maintain because they had to pay for like the maintenance men and the electricians and they had like have a customer service wing to be like you know the lights aren't working in chase stadium what do you know and they couldn't and that was like hard to do Um, this kind of reminds me a little bit about the whole tariff situation, a little bit because, because the U.S. made such a huge switch from manufacturing to services. And then if you're confused and you're like, well, I'm a services company, but I'll just do the manual part two as an afterthought.

It's like, well, you're going to fail at both because. Yeah, you don't know how to do that. Your DNA is flipped. Yeah. totally um so they oh there's also nron online which was like the they built a website to trade energy this was their big this is their biggest yeah which i think is i mean well i feel like it was glossed over in the film i feel like i learned more about it in the book but like it was obviously a conflict of interest because like they are an energy company but you could only trade energy

companies on their own platform yep it's interesting so i feel like skilling this is like his smart part is he's like there's so much opportunity here what can we do with it you know and a lot of it's stuff that like is true now that there are like private places to trade things and and Netflix and Hulu and all those things but then it wasn't but he's like the close opportunity so that wasn't public there wasn't a public thing I don't think I don't think as a consumer you could just logged in to do no but like but like companies could which is like the first step right right yeah um so also during all time fasto has all of his little companies all over the place so all the stuff is going on

and then meanwhile the big guys are selling their stock all the time like henle is making huge sales and like breaking in billions of dollars um all the time and he says it's like to diversify his portfolio and whatever but like you know it's suspicious the high of um in round stock it'll be at 90 dollars and 75 cents will be the highest it ever gets um by october 2021 is going to be 26 cents per share. So these people who are catching out early are making a ton of money. There's a video also in the documentary that I'm sure you've seen where they're at like a staff meeting and they ask the head of HR if they should invest their entire 401ks in all of Enron. And she's like, yes, absolutely. And like smiling and laughing. Yeah, not good. It's gross. Also for the broadband stuff, like

they were like, oh, it's going to happen. You know, don't worry. So at one point they had investors come to Enron to talk about the broadband. I also reminded me one time my boss went to an investor meeting at McDonald's and she was like, they gave us McDonald's. I was like, girl, what did she was going to happen? She was like, I don't know if that thing was nice there. It's so fun. I would love to go to a meeting and it's like.

I don't. I thought that was funny. But they had investors come to Enron and they told everyone just to like go to the floor where the broadband team is going to work and set up your station and just work here during the day. So, like, one woman, like, later testified that they had her, like, bring her pictures of her kids in a plant. And she just, like, spent all day on the phone with her family members just pretending to work. And then so the people went in and they're like, oh, my God, there's like a thousand people on this floor.

This is so exciting. This broadband thing is going so great. And then when they left, everybody went back to their other offices because they weren't actually working on it. It's like a really good analogy for their accounting practice. Yeah, exactly. They also have this, like, silly thing where their, their tagline was the world's leading energy company. and then they were like, we have a new tagline. Do you remember what it is?

Oh, man, I can't. It's going from the world's leading energy company to the world's leading company. Business, business, business, charts, charts, charts. So ludicrous. So, but obviously, like, things are falling apart. They're losing a lot of international deals.

The broadband doesn't work. Jeff moves to CEO. and you're probably like, why isn't anyone doing anything? Like, who is supposed to be checking, like what they're doing? So at this point, Jeff, who knows what's going on? Put together a group called the Risk Assessment and Control Group, the RAC. But people, and so he did a couple of things that are like, okay, you can't fly a corporate jet around the world every day for a billion dollars.

Like, you have to do something a little bit less flashy. So a little bit of that But it doesn't really matter Like all that cost client doesn't really matter He would also like be like Oh yeah we'll we'll bring down like this Like besides his like the half Every half year firing 15% of the people

He would also move people around so much That sometimes every night They would have a crew in there moving people's desks around Because he'd be like Okay well this department isn't working So let's move their staff to another department And then just like the accounting be like Oh this department just grew you know

You're like kind of but also you just like move with people who are doing what they're doing to a different apartment and they're like people would be like what do you do here and they'd be like I don't know I just can move here it's like a stupid person pretending that they're smart and everybody clapping and saying that was so smart it's yeah it's a little bit of both yeah um they also obviously have an accountant they have an accounting firm called arthur anderson so this is the it's like a firm based in chicago a bit around forever made by a band name arthur anderson like a hundred years ago and their people worked not just for Enron, but they

worked in Enron. They were like Arthur Anderson people, but their offices were at Enron. Like they spent all their time there. They got their lunch from them. Like they were just, they were there. And there are the people who should have seen

everything, but they let it slide and it's like a bunch of people making decisions. Some people would be like, oh, I thought Jeff, we said we could do this. I thought we could do this. It's that complicated making the chicken into a duck thing. Like, their job is to find those loopholes. So in 2001, Arthur Anderson is one of the world's largest companies. It is one of the big five accounting firms. There's Deloitte, Ernst & Young, KPMG,

Price WarcraftCoopers, and Arthur Anderson. Arthur Anderson, they are going to be gone by the end of 2002. They're not going to survive the Enron scandal. They are the people who do the shredding. That's like the famous shredding of stuff. So before they were subpoenaed, when you can see the stock was falling everything was happening they again took that loophole like you can't shred documents after you've been subpoenaed we're going to be subpoenaed at 6 in the morning get every fucking shredder in Houston to the office

that's what they did which tells so at first you know it's funny when you started the whole Arthur Anderson thing I was like there's a normalization of things that can happen and it's like the frog in the pot boiling you know where you don't know until it's too

late that it is too late but then they also did the shredding which means they saw what was they must have put the pieces together before the indictment obviously obviously but like yeah we have a friend whose job is to um she works technically for the u.s postal service but her job is to take shredded documents to put them back together like a puzzle i would say i'm glad somebody does that drum i'm glad i don't have to do that draw um so okay when does stuff start to happen like everyone it's kind of weird but they still earnings are still going up you know like their stock price is still going up like when does it start to get weird people start to figure it out um on april 17th 2001 there's an earnings call um with skilling he's the CEO and a um analyst from

Merrill Lynch asks him why he can't see the balance sheets because every other publicly traded company has a balance sheet's in the recorded report like where are yours and he's like I can get them for you just like whatever don't have them and then skilling calls him an asshole yeah I remember this one um I'm like the live public call people are like oh my god don't do that but he never really took it back and he was like you know he's an asshole which like everybody like it's weird to think like why that became such a big deal and the more I learn about this that world the more I learn that like complete and utter transparency is a prerequisite for like the market working even if you don't like the outcomes and the fact that a CEO would call somebody an asshole

for asking the most obvious thing it's it's it's it's like it'll be like if tim cook were to go online one day and be like cell phones suck like we shouldn't use them anymore and we should all just like use carrier pigeons like you know what we got to really dig into apple like this is like one of those things where we now we have to look into this it's so blatant and obvious yeah something's right right either the mental faculty is falling or something yeah and that and that was really big part of it so people were still writing articles about how much how well they were doing and the bessony mclean who's our author of our book is um writes an article of fortune magazine called how does Enron, how exactly does Enron make money? And she didn't like make any accusations. So just like, what exactly is going on? You know? And then people start to kind of look into it.

The person who probably first crossed the line was Andy Fastow because he was moving his money, like literally moving money in and out of companies to hide it and like hide the debt. And it is now like the 2000s, beginning of 2011, the dot-com bubble bursts. The market is no longer a bull market. Like, things are not going well for a lot of people. They also blame 9-11 for some of the things. Like, people's distrust in the market, but you're like, that's not any sense. Skilling leaves in August of 2001.

And he just says, like, for personal reasons, but he's just kind of burnt out. Also kind of doesn't care. He, like, doesn't want to do it anymore. He just, like, wants to leave. So he leaves in August. And then a woman named Sharon Watkins, she's the first whistleblower. She sends an internal memo to Ken. Lay being like, she said in the memo, she says, quote, the company could implode in a wave of accounting

scandals. She's like, what is this? And like, and talks to him about it. Ken, I will say he didn't get the memo and like didn't talk to her about it, but like she's, she testifies in front of Congress that that's what happened. On October 16th, 2001, Enron announced its first quarterly loss in over four years. And like, that's crazy. To continue to be growing and growing and growing and growing, like, that's suspicious, if nothing else, like the way that they were growing so, so, so much. So they were kind of admitting that some of their balance sheets, you know, were not what they expected to be.

It made the, it made the equity go down $1.2 billion. And so the stock dropped even further. And then the SEC was like, well, this is weird, you know, that things were like going so well for so long, know they're not, what is going on, and they launched another investigation, which is when this turned to do the shredding. On October 22nd to 24, 2001, they revised their financial statements. Okay, so this is the thing from before.

They revised their financial statements from 1997 to 2000, acknowledging accounting errors that had kept the debt off the balance sheet. So they erased 613 million of past earnings and added $620 million in the money. debt so insane yeah you know what's funny is i when i said earlier about radical transparency i wholeheartedly believe in that and i think that if you have a mess up on your books from the previous year or previous two years you should absolutely as soon as you know disclosed to everybody that that happened yeah but in this situation if you have like what is it 10 years just go with it at that point like totally be like I'm sure like I'm sure there are so many times when like skilling and faster like made other people feel stupid you know because another part of it is like accounting is really confusing people either it is or people like think that it is so they don't even try and all those things so they just be like I don't know maybe this guy gets it you know what I mean like did you ever watch better off Ted have I ever talked about that it's two seasons it got canceled during the first raider strike a long time

ago, but it's real cute. It's about a company called Veridian Dynamics, and it's like, you know, just like this. They just like, you don't really know what they do. They have, like, scientists who kind of do, like, hilariously evil stuff. Like, they make, like, fake meat. And like, I don't know, it's, it's cute. But there's a whole episode about a project called Jabberwaki, but no one remembers who's supposed to do it and no one knows what it is. So they do a presentation about it, and they're like, it's faster than a cheetah. It's going to change everything, blah, blah, blah. And then they give it to like the R&D department. It's just like a folder with nothing in it and they're like let's send this the japan team sent to japan and a guy in japan is like

do you guys get it and they're like yeah don't you get it and he's like i thought that'd be more than one page and he's like but i get it they're like yeah yeah we all get it you know like yeah you just go with it you just go with it you don't want to be the guy who's like also you go with it because like this business is paying for your mortgage it's paying for your kids college it's made some of you all millionaires like why would you ever try to mess that up yeah absolutely such a good question um so that's happening October 24th 2001 the SEC announced a formal investigation and then this is when you know these stock totally tanks they fire a fast out on October 24th finally and in early November it you know people didn't want to give them any money obviously

like they couldn't actually get any real loans and like real money you kind of try to fix it um basically they were like you guys failed that being a company that like takes care of their books um and the stock kept you to fall by november 9th and ran tried to merge with a place called dinagy which was like really weird because dinagy was like a small group that was across the street from them they like would get me fun of by enron guys being bullies to them all the time and then they were like why don't you buy us and they the that deal was eight to ten dollars per share but it got worse in the end of November

the credit agencies downgraded it to a junk status so it was a junk bond like they didn't recommend anybody buy it and they didn't have any money to get out of it. Dina G decided to say no and the stock went under a dollar so also like

all those people who they told to invest in a trial 401k into Enron stock have no money anymore. Yeah. And they never were recouped on their money like a lot of those people just lost everything um and that's like you know 20,000 people and and like I think like this was like the turning point in American history around like you stay with one company you believe them you do

your thing with them so like a lot of these people were there for like 15 years totally you know so yeah yeah um on December 2nd 2001 Enron filed for chapter 11 bankruptcy um and it was the largest were the largest corporate failures in history um you know like I said it went from 90 dollars to 26 cents a share shareholders lost an estimated 74 billion dollars in value as it totally collapsed so people got in trouble obviously and it ended up being the US Department of Justice formed an Enron task force and they interviewed and charged almost two dozen Enron executives and associates with where they were convicted of crimes from fraud a conspiracy to insider trading.

Ken Lay was convicted in May 2006 on six counts of conspiracy and fraud related to deceiving the public and on four counts of bank fraud. He was going to be in prison for decades, but he died of a heart attack before he was put into prison. Lucky him. Yeah, he didn't have to go. Jeffrey Skilling was convicted in 2006 on multiple counts of securities fraud, conspiracy, insider trading, and making false statements. He was sentenced to 24 years in prison,

which was reduced to 14 years after appeal and then dropped further. He also forfeited $42 million that went to compensate some of the victims. He served 12 years and was released in 2019. Andy Fastow pled guilty in 2004 of two counts of conspiracy, securities fraud, and wires fraud. He had admitted to contacting the schemes to hide the debt and inflate prophets while enriching himself, which is like criminal, criminal shit. Because he testified against others, because he's a jerk, he was sentenced to 10 years, but ended up with five because of the cooperation, and he was released in 2011. Other executives went to prison, Richard Cozy, served five and a half years, Ben Gilson, five, Michael Cooper, three. Mark Koenig had a best

of relation, served 18 months. Lou Pye was not. charged with any wrongdoing and he just got away this this what my other notes say here got 270 million dollars so lupai wins i'm proud of all this um and then arthur anderson um was indicted for obstruction of justice and a jury found them guilty of destroying audit documents um and that was actually overturned by the supreme court in 2005 but it didn't matter no one would want them to be their accountant anymore um they lost most of his clients and business and um it ceased business in 2002. It had been around for 89 years.

No, that's a, that's, the whole, the whole story is super, super interesting. And is a great example of moral hazard around simply buying into the ethos that is in, in the culture around someone. It reminds me, you reminded me a lot in this conversation. I was looking at up right now. So if anybody's interested in like corporate failure stuff or like how this all ends up happening, several things remind me of the story of General Electric, GE, around how GE went from being like a maker of things to a financial services company in large part because of their pension fund. And you also touched on 9-11, which is really interesting because four days before 9-11, Jack Welch, the. Probably the first celebrity CEO in the world.

He was a CEO of GE. He'd stepped down and Jeffrey Emmelt took over as CEO of GE. And then 9-11 happened. And I don't know if people know this, but GE makes made a ton of money off creating and selling jet engines. And then nobody was ordering jets because nobody was flying. And the fleet was already huge. And so anyways, long story short,

Freakonomics episode 452 is called Jeff Emel knows he let you down and it's them interviewing him about the sell-off of GE and the decline and it is such a similar story where I mean they didn't go under obviously but like it's a great story about how you get

distracted you get diversified you think you're really big and you try to be really big but you don't skill the right ways and like it's it's this story minus the transparent an obvious fraud of Andy Fastel moving debt around. So anyways, that's out there.

It's a super interesting story. That's interesting. I'll listen to it. Also, forgot to mention, there are some new laws since this happened. There's one called Enron's Law, which is the Sarbanes-Oxley Act of 2002, which means that someone, there is now a public company accounting oversight board that, audits the auditors because you got to be doing a good job you can't self-regulate if you are the auditor and then just there's also stronger auditor rules and then also increase penalties for shredding documents and deleting files and destroying computers and all of those

kind of fun things that people were doing yeah one thing that also came from um that i forgot what the name of it was master of lies i think with um robert de nero playing Madoff, Jack Madoff. Bernie Madoff. Bernie Madoff, yeah, sorry. They also kind of referenced the fact that the regulators are never as smart as a perpetrators

because if they were as smart as a perpetrators, it would become the perpetrators because the money is so enticing on the other side. That fucking sucks, but that's totally true. So, yeah, it's a weird, it's a weird conundrum. Yeah. Anywho But yeah, please watch smartest guys in the room

It is so good Yeah, I might actually It has like such amazing Like every chapter in the movie Like every new scene They bring up like a really fun song Of the time also You know they play like their red hot

Chili Peppers California Yeah It's so good That's when the brownouts were happening Yeah It's just wonderful You'll watch it and be like Everything's a conspiracy

It's crazy And then you'll watch it again It's just great And they brought up The recall election they got Arnold elected and yeah it's a it's a whole web that they weave um I love that one that's very fun awesome thanks for Shane Taylor you're welcome uh thanks are spending so much time with me I feel like we did we talked for a long time today two long ones yeah but there were good ones I think

I think so too hopefully you the audience will agree that they're good ones and if they were good ones go ahead and subscribe us subscribe your family members your loved ones your children if they have iPhones and also write to us at Doom to Philpott.gumel.com. Find us on the socials that Taylor manages exceptionally well at Doomfell Pod. Tick-Tac, Insta, Facebook. That's it. Yeah. Also, but I lost it. I was going to tell you. Oh, guess what episode number this is? 200.

It's 199. No way. Yeah, that's not fun. Well, we're almost there. So we almost made it. Next episode is me. I have another big one that I'm excited about doing that I need to get I need to get to you should see me I was listening to this book at 2.75 speed this morning at chess club other parents are like what are you doing I was like I have to learn about Enron after I finish learning by Enron thank you happy chest today I'm going to take away Mary like it was so fun there's something so interesting about like when humans do things as a clanglomerate and I don't know for some reason because like we can't escape our failings of being. shading and corrupt. It's so fascinating when like it happens in a very grand way because it's always explosive.

It's never like a flame going out. It's like a explosion going off. And so anyways, yeah, thanks for sharing. It'll be a fun one next week too. For both of us, I think. Yeah. Cool. Well, thank you.

Have a good evening. Do we have an email? Oh, no. Emails if you want to. I'll answer. We will answer and read it. if you want or you don't so okay awesome oh that'd be fun yeah listen to our mail write to us we'll read it or if you tell us not to we'll paraphrase it oh wait i do have something i texted you i'm so sorry everyone

my cousin texted me she's a teacher in ohio and she went to the um was it called kings landing yeah uh king king island king island which you talked about in oh my god episode forever ago i don't know which episode that was because i'll know look it up because we're we um you did one about roller coaster accidents and um it is episode 90 no i'm sorry episode 69 was uh click in a buckle up roller coaster accidents and you mention in kings island there was a time in the 70s where at a high school party right if i remember a dude was drunk and he tried to climb out of this little Eiffel tower he was trying to climb it or whatever and he fell um and just made pictures of the Eiffel tower because it still exists and her her students dropped eggs off of it this weekend

fun fact he didn't fall he got impaled by the elevator the lift that went up and caught his body as he was trying to cross between separate beams it's a gruesome story go listen to that one it's a good one so yeah listen to that one thank you um for sending it in that's real fun and it's so funny that like you were like they should have taken that down they should definitely should have taken that down it's like hose it off and then we're back there so you know it is um cool sweet well thanks so we're going and cut it up there.