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COPYRIGHT 2003 All rights reserved. Reproduced by permission of The Condé Nast Publications Inc.
In the recent era of corporate scandals, Enron remains the archetype. Toward the end of 2001, in little more than a month, the Houston energy trader went from being the seventh-ranked company on the Fortune 500 to a bankrupt shell. In response, the federal government launched what may be its most intensive white-collar criminal investigation. Among the principal targets were the leaders of Enron, including the former chairman, Kenneth L. Lay, and the former chief executive, Jeffrey K. Skilling. Ten thousand of their subordinates lost their jobs, along with an estimated $1.2 billion in retirement savings, yet in the last year of Enron's existence Lay cashed in about a hundred million dollars in company stock, and Skilling sold sixty-seven million dollars in Enron shares. At least, it seemed at the time, the criminal-justice system might seek its own accounting from Lay and Skilling. The criminal investigation of the company has achieved some notable successes, including guilty pleas from two senior executives--one of whom has already gone to prison. Prosecutors are far from wrapping up their inquiries. Today, though, almost two years after the fall of Enron, it appears increasingly likely that Lay and Skilling will never face criminal charges.
Through Enron's spectacular rise and fall, Lay and Skilling, the company's Mr. Outside and Mr. Inside, served as symbols of the company. The balding and genial Lay, who is now sixty-one years old, acted as the company's public face. He cultivated politicians, especially the Bush family; he was one of the largest individual financial contributors to George W. Bush's political career, largesse that earned him the nickname Kenny Boy from the President. Skilling, now forty-nine years old, was the cerebral architect of Enron's business strategy. A former management consultant with McKinsey, Skilling transformed Enron from a sleepy pipeline operation to a futuristic trading enterprise--a company that could, in theory, someday own nothing except the ability to broker most of the world's energy transactions. Both men fostered a highly macho culture at Enron, a place where off-road car rallies served as corporate retreats and where arrogance slipped easily into hubris.
Since the fall of Enron, the company's leaders--"Ken Lay and the boys," as Howard Dean puts it in his stump speech--have become symbols of corporate greed and malfeasance. But criminal cases are not built on symbolism. And, as the facts of the case have become clearer, so have the reasons that Lay and Skilling have eluded prosecution: the complexity of the corporate enterprise they built; the overlapping and sometimes competing investigations of the company; and the reluctance of witnesses to come forward. Mostly, though, the Enron investigation has been a demonstration of the limits of criminal law.
On September 10th, prosecutors from the Justice Department's Enron task force appeared in federal court in Houston with their biggest trophy to date: Ben F. Glisan, Jr., the former corporate treasurer of Enron. Glisan was in his mid-thirties when he got the job. Now, at thirty-seven, he stood before Judge Kenneth M. Hoyt to plead guilty to conspiracy to commit wire and securities fraud. The Judge asked Andrew Weissmann, the deputy head of the task force, to outline the nature of Glisan's crime, and Weissmann read a statement that had been negotiated with Glisan's lawyers.
The case concerned the issue at the heart of Enron's collapse--the company's use of off-the-books partnerships, which are known as "special purpose entities." Like many companies, Enron felt compelled to show ever more impressive results to Wall Street analysts, and its executives turned to accounting tricks to make the company look more successful than it really was. Enron's gimmick was to remove troubled investments from its balance sheet and place them under the auspices of nominally independent partnerships, which were in fact run by a handful of Enron insiders--in particular, Andrew Fastow, the chief financial officer. Those insiders could make big profits: Glisan, for example, invested $5,826 in one special-purpose entity, and received $1,040,744 in return. The most notable of the partnerships were known under...
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