24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America

PART ONE

Red Sky Warning

1

Our CEO Is Resigning.

SOME DAYS, THE NEWSPAPER GODS REFUSE TO SMILE. THE KEYBOARD won’t cough up coherent sentences. A crucial source doesn’t call back. The wall clock, warning of approaching deadlines, seems to be running a time zone too fast. Within minutes of getting that call on the morning of August 14, 2001, Jonathan Friedland, The Wall Street Journal’s Los Angeles bureau chief, suspected it was going to be one of those days.

The caller was Mark Palmer, the public relations chief for Enron Corp., the Houston-based energy giant that the Journal covered out of its Los Angeles office. Normally, Palmer’s call would have gone to the paper’s national energy reporter, Rebecca Smith, or her de facto backup on the beat, John Emshwiller. But Smith was on vacation and Emshwiller was out of town on a story.

The PR man got right to the point. Jeff Skilling, our CEO, is resigning, Palmer said. Ken Lay is going to step up and assume the president and CEO duties.

You’re kidding me, Friedland replied. He couldn’t believe what he was hearing.

No, said Palmer. There’ll be a press release in about an hour. There would also be a conference call with Lay and Skilling for the press and stock analysts at about 12:30 P.M. Los Angeles time.

Why’s Skilling quitting? asked Friedland, still trying to absorb the news. He knew that Skilling had been Enron’s golden boy for more than a decade and had just gotten the chief executive’s job a few months earlier. It was unthinkable that he would quit so abruptly.

Purely personal reasons, said Palmer. The board didn’t ask him to resign, nor did Ken Lay. It’s got nothing to do with Enron or its future. He’ll elaborate on the call. With that, Palmer said a hurried good-bye.

Friedland sat back in his chair in his cluttered corner office, his face furrowed in concentration. After more than twenty years as a journalist, the last ten with the Journal, he’d handled many big, unexpected announcements from companies, but this was Enron, one of America’s premier companies, talked about in the same breath as General Electric and Microsoft and IBM. In a decade and a half, it had transformed itself from a sleepy natural gas pipeline company to a trading colossus with products ranging from gas and electricity to space on the information superhighway and insurance against inclement weather. In 2000, Enron’s revenues had topped $100 billion, earning it seventh place on Fortune magazine’s widely followed list of five hundred largest companies. Revenues for 2001 were on course to hit nearly $200 billion, an astonishing growth rate for a company of that size.

Enron’s management team—headed by its chairman, Kenneth Lay, who had been chief executive for fifteen years before Skilling took the helm—was one of the best. Skilling was only in his late forties. Everybody expected him to be running Enron for years. Instead, he’d barely gotten the seat warm.

And what was this about purely personal reasons? Enron’s explanation sounded implausible. In Friedland’s experience, almost nothing was more important to a corporate chief than staying at the top once he’d gotten there. Maybe Skilling has some fatal disease he doesn’t want to talk about, Friedland thought. Or, the bureau chief wondered with a pang of professional worry, is something going on inside of Enron that we should know about and don’t?

Even as Friedland mulled over the mystery, he knew he wasn’t the person to solve it. Silently he cursed the rotten timing of the announcement. Why did Smith have to be on vacation this week? Ironically, his energy reporter had been trying to schedule time off for most of the summer, but work had been too hectic. Working out of the Los Angeles bureau, the forty-six-year-old Smith had been covering Enron and about twenty other large energy companies for two years. She had moved to Los Angeles to take the Journal job, but she was eager to move back to the San Francisco area, where she’d lived for fourteen years. The Bay Area was her home; she had worked for the Oakland Tribune, San Jose Mercury News, and San Francisco Chronicle before joining the Journal in September 1999. She had another reason for wanting to move back north. She was divorced, and when she took the Journal job, she promised her ex-husband and her children, at the time ages eight and eleven, that they would treat the L.A. assignment as a tour of duty. At the earliest time possible, she’d get herself and the children back to the Bay Area.

Friedland called Smith on her cell phone and gave her a quick rundown of what had happened. Can you think of any reason why Skilling would quit? he asked.

As it happened, the call caught Smith on moving day, in an empty upstairs bedroom of her Bay Area home. She had been up since before daylight—mopping floors and vacuuming empty rooms. Her first thought when Friedland called was an exasperated, Can’t I ever get away from work! As she talked with Friedland, she suddenly had the sinking realization that she might be expected to write a story on the Skilling departure while sitting on the hardwood floor with her company-issued laptop literally in her lap. She winced as she imagined the worst-case scenario: By the time she finished, every piece of furniture and heavy box would be in the wrong room, the strong backs would be gone, and a carefully orchestrated move—that allowed nine days for packing everything, getting it all north, and unpacking more than two hundred boxes—would be in shambles. Skilling couldn’t have chosen a lousier moment to resign.

Normally, Emshwiller would have been ready to pitch in. Although his beat was white-collar crime, he had been tapped to help Smith in late 2000, as the California electricity crisis spiraled into a story too big for one reporter to manage. Smith’s duties also included covering utilities and energy-trading companies, which was how Houston-based Enron fell into the lap of a Los Angeles–based reporter. Emshwiller was asked to take on the assignment partly because he had covered energy when the electric industry was choking on a string of nuclear power plant construction disasters in the aftermath of the 1979 Three Mile Island accident.

Smith and Emshwiller worked together almost daily during the prior six months as California’s electricity market, deregulated in March 1998, melted down. The crisis began in May 2000, when electricity prices suddenly spiked during a hot spell. Supplies became oddly stretched. Everyone thought it was an anomaly and would soon disappear. But that didn’t happen. In fact, during the next thirteen months, there were more than a hundred electrical emergencies, though only a handful resulted in rolling blackouts.

On that particular Tuesday Emshwiller was in San Diego, going through the files of an attorney who had been looking for evidence of manipulation of the California market by Enron and other big energy companies. Given the often firehouse nature of the California crisis, flaring up at the least expected times, Friedland hadn’t wanted both his energy reporters out simultaneously. But Emshwiller reminded him that things had been quiet lately on the California front, as the threat of massive summer blackouts had failed to materialize. I’m sure nothing will happen, Emshwiller assured his boss. Now, Friedland faced the reality of having to cover the Skilling story with his main energy reporter four hundred miles to the north sorting through boxes of belongings and her backup one hundred miles to the south sorting through boxes of documents. Friedland mentally scanned the roster of the seventeen-person bureau. Everyone who was in that day was busy with stories of their own, on beats that ranged from the aerospace industry to the entertainment business. Smith would be out for the rest of the week, and Emshwiller wasn’t due back until the next day. That left only one person to cover Skilling’s resignation.

Don’t worry. I’ll handle the story, Friedland told Smith, who felt grateful and relieved. Next to the two reporters, Friedland knew more about Enron and the energy business than anyone else at the bureau.

While on the phone with Friedland, Smith searched her memory for any hint that Skilling was unhappy—or that others were unhappy with him. Nothing came to mind. There’d been frustration with certain Enron projects, like its $600 million investment in the Dabhol power plant project in India, but she’d never heard anyone intimate that Skilling was being blamed for it. Quite the contrary, he’d pushed out a rival for the Enron throne, Rebecca Mark, based partly on her backing of hard-to-manage, costly ventures such as Dabhol.

In Smith’s last conversation with Skilling, a couple of months earlier, he’d been upbeat, as usual. Enron, he said, was firing on all cylinders and exceeding expectations on all fronts. As a reporter, she viewed Skilling as bright and talented, but she had never much warmed to his demeanor. He reminded her of Silicon Valley executives she’d known years before while covering the semiconductor industry for the San Jose Mercury News. Having been groomed for success, sent through the finest schools, and mentored early in their careers, they nonetheless portrayed themselves as self-made. Moreover, Skilling was possessed of an arrogance that came from having been a star at America’s most famous business school—Harvard—and its most famous business consulting firm—McKinsey & Co.—before riding a rocket to the top of what was becoming the nation’s hottest energy company.

But Skilling was not one to rest on his laurels. Driven and restless, he seemed at times to work without sleep, sometimes convening staff meetings at 3:00 A.M. He gave long speeches, sometimes an hour or more, filled with facts and numbers and grand visions for the company at the center of a global marketplace—and he almost never spoke from a prepared text. Just him and his PowerPoint deck.

His personality and ambitions were large, but at five feet nine he was less than physically imposing. After years of weighing as much as 187 pounds, he lost 50 pounds on doctor’s orders in 1996. He became an avid exerciser, taking up long-distance bicycle riding and sports like rafting. Laser surgery later allowed him to shed his glasses. He also used medication to thicken his thinning hair.

Skilling had a remarkable ability to dominate through his intellect and his self-confidence. His favorite put-down for those who disagreed with him was You just don’t get it. Others at Enron picked up the phrase, adding to the company’s know-it-all reputation.

During a long interview with Smith in his spacious fiftieth-floor office at Enron’s 1400 Smith Street headquarters in downtown Houston, Skilling had paced the room, describing Enron’s grand future, sometimes snatching the reporter’s pen to sketch a quick graph or chart. It seemed a little over the top, but Smith didn’t mind; Skilling was entertaining and energetic, and those were welcome qualities in an industry that saw virtue in being bland and drab. Brash as Skilling could seem, Smith saw that characteristic as reflecting the first-generation drive crucial to getting companies established against vested interests that didn’t appreciate competition from upstarts like Enron. It was Skilling, while still a senior partner at McKinsey, who convinced Ken Lay that Enron needed to set up a system of buying gas from producers and selling gas to customers. Once he joined the company, Skilling’s vision—to embrace risk and innovate through a loose management structure—became the centerpiece of Enron’s philosophy. Skilling even moved to knock down actual walls within Enron headquarters so people could see and talk with one another more easily. It was an approach that made Enron the darling of management gurus and other company watchers, who saw it as a prime example of free market creativity.

Skilling relished the iconoclast role, perhaps even came to revel in it. As far as Smith could tell, becoming chief executive had done nothing to soften him. Early in his tenure, he had stunned listeners during a conference call with a few hundred investment professionals when he called one company critic an asshole. It was a startling departure from boardroom decorum, even for the indecorous 1990s, but then Enron prided itself on pushing the boundaries. As Sandi McCubbin, a former California lobbyist for the company, once told Smith: The saying around Enron was, ‘If you are not on the edge, you are taking up too much room.’ It was a business ethic that promoted competition among co-workers and intense jockeying for position. Even the performance review process was ruthless, with only an elite cadre—about 5 percent of the company workforce—receiving the highest rating and as many as 15 percent getting the lowest rating, a signal for a possible early exit from Enron.

However abrasive, Skilling was a good interview—smart, nimble, and—best of all—extremely accessible. That meant he was the sort of CEO a reporter wanted to keep, not lose. He wasn’t someone a reporter wanted to see resign. Smith turned over the event in her mind. The resignation seems so out of character, she thought.

It was a lot easier to like Lay than Skilling. Most people liked Ken Lay. Where Skilling seemed impetuous and curt, Lay was smooth, almost courtly. Lay had soft features and a round face topped by thinning white hair; he could have played the part of the favorite uncle in a TV sitcom. In all his contacts with Smith, he was unfailingly polite in a genteel southern sort of way. At a company that seemed to have been outfitted by the Gap, the fifty-nine-year-old chairman still favored business suits and shirts with monograms and French cuffs. Though awash in wealth and power, Lay retained a noticeable dusting of his origins as a poor Missouri farm boy and son of a Baptist preacher. Even when he ran Enron, Lay would sometimes fetch Cokes for colleagues on the corporate jet. When he spoke, he still had a bit of the Show Me state accent, and he sprinkled his conversation with quaint expressions. Rather than call a man a drunk, for instance, Lay would say that he’d been imbibing.

Either from cunning or self-confidence, he was able to admit he didn’t know everything. And he didn’t humiliate others for their ignorance. When a New York Times reporter once pressed him on a complex point about Enron, Lay responded—affably, of course—You’re getting way over my head. Smith could never imagine Skilling uttering that line.

Smith was pretty certain that Lay hadn’t shoved out Skilling because he missed the chief executive’s job. She knew that Lay had never liked the day-to-day grind of running Enron and in recent years had left that task largely to subordinates, chiefly to Skilling. Lay was much more interested in trying to shape big ideas such as federal energy policy. He also loved hobnobbing with powerful politicians, most notably George W. Bush, who could count Lay as the single largest individual contributor to his campaigns. The two knew each other well enough that President Bush referred to Lay as Kenny boy, the same term of endearment used by Lay’s wife and onetime secretary, Linda. Indeed, when Skilling took over the chief executive post at Enron in February 2001, many observers thought it only a matter of time before Lay took a cabinet post or an ambassadorship in the Bush administration.

Enron’s stock price had fallen some 50 percent in the past year, from above $80 a share to about $40. Some of that drop seemed due to the broader fall-off of stock prices, some to the fact that Enron had risen so much in the prior twelve months. Besides, if falling stock prices had been a criteria for replacing a CEO, half the major companies in America would have been looking for new bosses. Enron had problems in various business sectors—including an expensive foray into high-speed telecommunications, known as broadband, that Skilling had championed. Indeed, during the Internet euphoria of the late 1990s, the stock market had treated Enron almost as if it were another red-hot high-tech company. When Enron announced a deal with Sun Microsystems in 2000, Enron’s stock shot up more than $13 a share in one day. The later bursting of the Internet stock bubble damaged the stock price and raised questions about some of the company’s extremely aggressive growth projections. But Smith didn’t know anyone who thought the company had the kinds of headaches that would cost the top guy his job.

This makes no sense, Smith told Friedland as they continued to discuss the resignation. He just spent ten years clawing his way to the top. Why would he quit now? Personal reasons? I don’t buy it.

Well, I don’t, either, but who would know for sure? he asked.

That was a tough question to answer. Obviously, it was unlikely that anyone inside the company would talk.

Who are the better analysts? Friedland asked.

Smith offered to provide him with names and numbers of Wall Street stock analysts who might have some insights, very much aware that it was about an hour till deadline.

Friedland sent a note to the New York editors notifying them that he would be writing the Skilling story. The bureau chief then turned his attention to reporting. Enron had just sent out the phone number and access code for listening in on the conference call. Friedland punched the numbers into his phone pad and joined hundreds of others around the country waiting for Lay and Skilling to join the call.

As you have probably read, Enron announced earlier today that Jeff Skilling is resigning from the company for personal reasons, Lay said in his pleasant drawl. I, and the board, regret Jeff’s decisions, but we certainly respect his reasons. In reassuming the chief executive post, Lay said, I can honestly say that I have never felt better about the company.

Skilling came in next. This is a purely personal decision. I can’t stress enough that this has nothing to do with Enron. He sounded earnest, even upbeat, as senior executives often do when talking in public. I am doing it solely for personal and family reasons and I’d just as soon keep those private.

Throughout the call, both men emphasized repeatedly that Skilling’s decision had nothing to do with Enron. I feel a little bad that anything that I do is somehow construed as something related to the company, Skilling said. The company is in great shape.

Lay jumped in: There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues…. I think I can honestly say that the company is probably in the strongest and best shape that it has probably ever been in.

In a separate telephone interview later that day with Friedland, Lay and Skilling repeated their mantra. What about the drop in Enron’s stock price? Friedland asked. Any connection to Skilling’s resignation?

Absolutely nothing to do with it, Lay said emphatically.

While Friedland still didn’t buy Enron’s explanation for Skilling’s resignation, he didn’t have the goods to refute it in print. So he wrote what he could, noting that the company’s stock price had fallen sharply over the past few months but also including Lay’s statement that the decline was irrelevant to Skilling’s exit. The editors in New York placed the story on page A3, the Journal’s main page for breaking daily business news. Friedland knew it was an adequate piece, given the constraints. He also knew that anything better, if there was anything, would have to wait for another day.

2

Who’s Andy Fastow?

THE NEXT MORNING, WITH SMITH STILL UNLOADING BOXES IN THE BAY Area, Emshwiller arrived back at the Journal’s Los Angeles bureau. Friedland immediately called Emshwiller into his office, a fifteenth-floor corner office with great views north to the Hollywood Hills and west to the shimmering Pacific, beyond Beverly Hills. Emshwiller plopped onto the rose-colored love seat that shared a corner of the office with an armchair and end tables. Over his shoulder were photos of New Guinea tribesmen and Burmese villagers, stops on Friedland’s postings as a foreign correspondent. On the wall, two clocks hung next to each other, one showing California time, one New York time. Atop a bookcase stood a whiskey decanter in the form of a pink-jacketed Elvis.

We need a second-day story on Skilling’s departure, Friedland said, slouching his compact frame back in his swivel chair and chewing determinedly on nicotine-laced gum that he still used regularly to keep away the cigarette cravings.

Emshwiller nodded as he leaned back into the couch, chewing away on his own cigarette substitute, a piece of sugarless bubble gum. He realized that somebody needed to chase the Skilling story, but he wasn’t wild about getting the assignment. He didn’t expect to have any more luck than Friedland had in getting beyond the personal reasons cited by Enron. Emshwiller’s contacts with the company had pretty much been confined to occasional conversations with the company’s public relations department in connection with the California electricity mess. He didn’t expect anyone there to volunteer that top corporate officials might not be telling the whole truth. The reporter also didn’t need to look up at either of Friedland’s two clocks to know that Journal copy deadlines would begin hitting in the middle of the afternoon, the bane of being on the West Coast for an East Coast newspaper that was perpetually three hours ahead. You know I might not be able to get much today, he warned Friedland.

Do what you can, the bureau chief replied, turning his attention to a ringing phone. Try talking to Skilling again. Maybe he’ll have something more to say today.

Fat chance, Emshwiller thought as he left the bureau chief’s office. While the reporter didn’t have much hope of getting a story, he understood why Friedland had made the assignment. Enron was big and important and, perhaps most to the point, had been a subject of keen interest for other publications, including The New York Times—the paper universally viewed within the Journal’s news operation as the main competition. Over the previous several months, the Times had done a series of stories on Enron’s ties to the Bush administration and the company’s controversial role in the California electricity crisis.

As the nation’s biggest energy trader, Enron had become Public Enemy No. 1 for California political leaders. The Times had assigned one of its top investigative reporters, Jeff Gerth, to the story. While it hadn’t been looking at Enron’s management per se, the Skilling resignation could shift that paper’s focus. Emshwiller knew that Friedland had no desire to get an angry early morning phone call from a New York editor asking why the Journal had been beaten by the Times on something related to Skilling’s resignation. If Skilling had other reasons for quitting, the Journal needed to discover them—or at least be able to show that its reporters had made every effort.

As Emshwiller walked the length of the newsroom back to his office, he could feel the tension beginning to grip him. Though he’d been writing newspaper stories for more than a quarter century, the prospect of a deadline only hours away still managed to start the tightening of a small internal vise. He walked past his colleagues’ cubicles. As usual, the office was quiet, broken only by the conversation of phone interviews and the muted clacking of computer keyboards. Journal news bureaus around the world had often been compared to insurance offices, and the Los Angeles bureau did nothing to challenge that description. The news staffers were scattered across a space that could easily have housed double that number—a monument to late 1980s expansion plans that hadn’t materialized.

Having once been L.A. bureau chief, the fifty-one-year-old Emshwiller had his own office, tucked into the back end of the newsroom and crammed with a desk, three chairs, three filing cabinets, a bookshelf that groaned with books, and tall stacks of files rising precariously from the floor. Aside from family pictures, the only photograph showed a dead fish wrapped in a copy of The Wall Street Journal. Bill Blundell, a near legendary writer at the Journal, had bequeathed it to him as a humble reminder of the shelf life of most newspaper stories.

A Los Angeles native, Emshwiller was a Journal lifer who had gone to work for the paper just after he graduated from the University of California at Berkeley in 1972. He’d worked in San Francisco, Detroit, and New York before going home to Los Angeles in 1985. A Detroit colleague once likened Emshwiller to Cassius, the Roman senator in Julius Caesar, because of his lean and hungry look.

Emshwiller mulled his options for the assignment. It didn’t take long. He didn’t have Skilling’s home phone number and knew only one person at Enron—Mark Palmer, Enron’s media chief. So he called Palmer and left a message. Emshwiller had last talked with Enron’s chief spokesman in late May in connection with an interview he’d done with California attorney general Bill Lockyer. Like other top state officials, Lockyer firmly believed that big power traders, especially Enron, were using the deregulation mess to illegally rip billions of dollars out of the pockets of Californians.

Enron became the target of Californians’ wrath not because it was a major owner of power plants—it wasn’t—but because it was the brashest of all the energy traders and the most outspoken advocate of electricity deregulation. As the biggest trader, Enron was thought by officials such as Lockyer to be using its market position to manipulate prices, no matter how many times the company denied those charges.

While the state authorities didn’t buy Enron’s claims of innocence, they didn’t, as of August 2001, have hard evidence to prove their suspicions. Particularly galling, Enron was plainly refusing to answer many of their inquiries, and the California Public Utilities Commission twice had to go to the California Supreme Court to enforce its subpoenas for access to Enron documents. Lockyer’s office had similarly tough court battles to get company records. When authorities did obtain court orders, Enron then poured forth such a volume of paper (including the pizza boxes from the meals of company employees copying the documents) that it was hard not to conclude that the energy trader was trying to sabotage the process. One state prosecutor had told Smith that it looked like it would take us forever to hack our way through. Even as the documents began streaming in, prosecutors contended that the most damning evidence likely was locked away in files protected by attorney-client privilege.

As Emshwiller interviewed Lockyer, he could tell that the lack of progress in the investigations grated on the attorney general. At one point, the reporter asked Lockyer if he thought there would be criminal prosecutions. I don’t doubt there will be civil lawsuits prosecuted by the state, the attorney general replied. There was an uncomfortable pause, as if Lockyer realized he hadn’t really answered the question. There is nothing I would rather do than nail a high executive, he said. Another pause.

You know what I really would like to do, he told Emshwiller.

What? asked the reporter.

I’m not really sure I should say this. Well, why not? I’d love to personally escort Lay to an eight-by-ten cell that he could share with a tattooed dude who says, ‘Hi, my name is Spike, honey.’

When Emshwiller called Palmer on that May day for comment, the vice president for public relations was nonplussed.

He said what? Emshwiller repeated the quote.

What do you say to that, Palmer mused. Finally, he said, That remark is so counterproductive, it doesn’t merit a response.

Skilling disagreed. About three weeks after Lockyer’s quote appeared in the Journal, the Enron president fired back. In a speech at an industry conference in Las Vegas, Skilling asked: What’s the difference between California and the Titanic? He had his own answer at the ready: The Titanic went down with its lights on. Given that Californians were suffering through soaring electric prices and power outages and looking at a potentially catastrophic summer, Skilling’s remark certainly did nothing to dispel his reputation for insensitivity.

During the thick of the crisis, in late 2000 and early 2001, there’d been so much rancor between state officials and Enron executives that Lay stopped coming to California, fearing he’d be slapped with a subpoena to testify before one or another angry legislative committee. Skilling, though, accepted an invitation to speak before the Commonwealth Club in downtown San Francisco in June 2001. There, a conservatively dressed woman decked him on the side of the head with a blueberry pie. Publicly, at least, he took it good-naturedly. Tell her she’s got a good arm, he told reporters affably. But one Enron insider said that Skilling and his three children privately were shaken by the incident.

As part of the follow-up story on August 15 to Skilling’s resignation, Emshwiller put out a round of calls to Wall Street analysts, though with few expectations. Friedland’s efforts a day earlier hadn’t netted much.

Emshwiller reached only one analyst. Skilling says that he is tired of doing his job. He apparently isn’t ill, the analyst said. Nothing jumps out at you.

Like other top Enron executives, Skilling had made enormous amounts of money from the success of Enron, this analyst noted. In the 1990s, the surging stock market had brought astonishing wealth to the top levels of corporate America. Salaries and bonuses, even when measured in the millions of dollars annually, were dwarfed by the value of company stock that senior executives were given the opportunity to buy and then sell. This was particularly true at Enron, whose stock price during the 1990s rose three times faster than the S&P 500 Index, a major measure of the broader market, and twice as fast as other major energy companies. Lay realized over $192.7 million in Enron stock sales after 1986 and Skilling over $107 million during his tenure at the firm, according to Thomson Financial, a leading stock market information firm. And they still had unexercised options on millions of additional shares.

The analyst whom Emshwiller called noted that several Enron executives had recently left the company after cashing out stock options that ran into the tens and even hundreds of millions of dollars. He recalled Skilling coming to New York in July, about a month earlier, to talk with a group of analysts. Someone asked him about the resignations of those Enron executives. Skilling noted that many senior executives had gotten very rich from exercising their Enron stock options; after years of a frenetic work pace, some simply wanted to relax and enjoy the wealth. The analyst asked Skilling if he ever felt a similar desire.

Those other people weren’t chief executive, replied the Enron chief executive.

Palmer returned Emshwiller’s phone call. Despite an occupational distrust of public relations people, Emshwiller had come to like Palmer in their occasional dealings. Though he was a company man and displayed some of the typical Enron swagger, he was also personable and smart and even had a pretty decent sense of humor.

Now, not having any better ideas, Emshwiller figured he’d try the direct approach. I’m doing a follow-up story and need to talk to Skilling. Nobody believes that he really left for just personal reasons, said Emshwiller in a claim not yet burdened by any evidence.

Palmer knew enough about handling reporters not to simply toe the company line.

I had my own doubts when I first heard about it, he replied in a confidential tone. But after checking with others at the company, he said that he came to believe that Skilling had experienced some sort of epiphany. He wants to spend more time with his three kids. He is divorced and they are teenagers. If he doesn’t spend time with them now, he worries that they will be grown up and be gone, said Palmer. Plus, he’d heard that there might be a particular family problem that had to be addressed quickly, though he couldn’t say for sure.

An illness? Emshwiller asked.

Don’t know, said Palmer. Besides, he added, Skilling had always seemed ambivalent about being Enron’s top executive. Skilling liked thinking up big ideas and building businesses more than attending to the nitty-gritty of running a giant corporation. He wanted to prove that his business model was the right business model, and he’d already done that at Enron, Palmer said.

It would still help a lot to talk directly to Skilling, Emshwiller said.

I’ll pass along the request, Palmer said.

As they hung up, Emshwiller hoped that Skilling would stay true to top Enron executive type: in the past, company brass was unusually accommodating in granting interview requests. Such accessibility had become an Enron hallmark, one more tangible sign of a supreme self-confidence. After putting in his Skilling interview request, Emshwiller turned his computer’s Internet browser to a Web site called 10Kwizard. com. This was one of the many nifty little services offering instant access to financial filings that publicly held companies made with the U.S. Securities and Exchange Commission (SEC). These filings, which under the law big companies such as Enron had to make at least quarterly, were usually long, dull, and complex. But they could also be an invaluable source of information about a company’s finances and operations. When he called up the recent Enron filings, Emshwiller noticed that the company had, coincidentally, filed its latest quarterly report a day earlier.

Emshwiller didn’t have the time or inclination to closely read the thirty-seven single-spaced pages of numbers and legalese. So he fell back on some of the shortcuts he’d been taught as a young Journal reporter. He checked the litigation and other contingencies section on the theory that you can often find some very interesting things by seeing who is suing the company and vice versa. There was a description of a still pending 1995 lawsuit concerning a marketing program and a lawsuit related to a fatal 1996 explosion at an Enron facility in Puerto Rico. All the other litigation also looked old.

Emshwiller next found the section for related-party transactions, or what he thought of as the corporate dirty-laundry list. This was where a company had to report any outside business deals involving directors or top officers.

As the reporter read Enron’s related-party section, he felt a kick of adrenaline. He’d never seen a disclosure quite like this before. An unnamed senior officer had run and partly owned some partnerships that appeared to be doing vast amounts of business with Enron. For the life of him, Emshwiller couldn’t make out exactly what the deals were, cloaked as they were in a bewildering string of words that talked about share settled costless collar arrangements, combined notional value, and the contingent nature of existing restricted forward contracts. A few things seemed clear, though. The transactions involved hundreds of millions of dollars. And the unnamed senior officer had, for unstated reasons, severed ties to the partnerships as of July 31, two weeks earlier.

Could Skilling be that senior officer? This might be a scoop, he thought. The timing certainly seemed more than coincidental. Perhaps these partnerships had something to do with why he’d quit as chief executive. He quickly called Palmer back and left another message, asking to speak with him as soon as possible.

As he hung up, he thought of another person to call about Skilling. Bernard Glatzer had first phoned Emshwiller in early June after reading the quote about Lay and Spike. Glatzer had his own reasons for being unhappy with the giant energy company.

By the time the fifty-three-year-old Glatzer contacted Emshwiller, he was more than five years into a lonely crusade to prove that Enron had stolen energy-financing ideas from him that had produced hundreds of millions of dollars of profits, he contended, for the company. He was a lawyer and New Yorker who had gone to Houston in the mid-1970s with the aim of breaking into the energy business. In the late 1980s, Glatzer saw an opportunity in the turmoil caused by the federal government’s decision—shaped by the unceasing lobbying of men such as Ken Lay—to deregulate the natural gas business. While free-floating gas prices spurred exploration, they also produced a great deal of risk for gas producers because they were making long-term investment decisions based on profits from short-term prices. Anyone who could act as a middleman to reduce some of the price risks of the new system stood to make a bundle of money. Glatzer claimed that he’d come up with some inventive ways to finance natural gas purchases, thus providing stability to producers, by selling securities. He said he presented these ideas, on a confidential basis, to Bear Stearns in hopes that the big Wall Street brokerage firm would back him. Instead, he said, Bear Stearns stole his plan and turned it over to a bigger and more important potential client, Enron. Glatzer alleged that Enron used his ideas in the early 1990s to create a new, and hugely profitable, business, which became known as the gas bank—a success that sent Skilling on a hand-over-hand scramble up the corporate ladder. Glatzer had made his allegations against Bear Stearns and Enron in suits that had been filed in Texas but were later moved to New York federal and state courts. Skilling was not named as a defendant in those actions.

Emshwiller didn’t see much prospect for a story. The accusations were complex, a decade old, and vehemently denied by the accused. Plus, one federal judge had already dismissed Glatzer’s claims. Still, Emshwiller kept talking with Glatzer. For one thing, David Boies’s law firm was representing Glatzer. Boies’s clients had ranged from Al Gore in the Florida presidential recount battle to Uncle Sam in the Microsoft antitrust case. Glatzer had told him that the Boies firm was working on a contingent fee basis, which meant it didn’t get paid unless Glatzer won some money—a show of faith that gave Glatzer’s claims more credibility.

Besides, Emshwiller had developed a soft spot for Glatzer. The lawyer laughed a lot and loved to tell tales, ranging from his days at Yale with a certain fun-loving George W. Bush to his drinking parties in New York with his cousin the Lubavitcher rabbi and other Orthodox Jews. The reporter never checked out these stories, but they were entertaining. On the downside, Emshwiller quickly discovered that a call from Bernie routinely lasted at least a half hour and sometimes a good piece more. Whenever Emshwiller said that he really had to hang up, Glatzer effortlessly fired back with just one more quick thing, which invariably consumed at least five more minutes, only to be followed by another not-so-quick thing.

So did you finally drive Jeff Skilling out of Enron? Emshwiller said half-jokingly when Glatzer answered the phone at his Bronx, New York, apartment.

What are you talking about? Skilling got fired?

No, he resigned. Haven’t you read the papers?

I haven’t been out to pick them up yet, said Glatzer. So he really quit? He sounded truly shocked but recovered quickly. I wouldn’t be surprised if my case had something to do with it, he added. The reporter swallowed his impulse to disagree.

Emshwiller asked about the related-party transactions. Had you heard about this before? Are they talking about Skilling?

Glatzer said that he had just been reading the Enron quarterly filing and had also seen the section about the partnerships. I hadn’t heard of them before. But I bet it’s Skilling. Of course, Emshwiller thought, Glatzer might have had the same response if he’d been asked about the Kennedy assassination.

A short time later, Palmer called back. Emshwiller popped his partnership question.

No, that’s not Skilling, Palmer replied without missing a beat. That’s referring to Andy Fastow.

Who’s Andy Fastow? Emshwiller asked with the innocence of the ignorant.

Our chief financial officer, Palmer replied evenly. The partnerships had been around for years and been routinely reported in Enron’s public filings the entire time, he added. They’d been set up to help Enron hedge against market risks from the fluctuating values of some of its investments, he added.

So why was Fastow quitting the arrangement now?

He wasn’t needed in that role anymore, Palmer said. Fastow ran the partnerships only to give comfort to outside investors who didn’t fully understand Enron’s complex finances, he explained. But now those investors are familiar enough with Enron that Andy doesn’t need to keep doing it.

Emshwiller couldn’t help feeling a stab of disappointment as he hung up. While the partnerships certainly sounded strange and perhaps newsworthy, they wouldn’t help him write a Skilling story this day. So far, Emshwiller had no story.

A short time later his phone rang again. A soft voice said, Hi, it’s Jeff Skilling.

3

You Won’t Believe What Skilling Just Told Me.

THE REPORTER MUMBLED A HELLO AND THANKS FOR CALLING WHILE wishing that he’d spent more time getting together a list of questions. I was hoping I could talk with you a little more about your reasons for leaving, Emshwiller said.

It’s pretty mundane, Skilling said. There are a lot of people like me who have worked extremely hard for a very long time waiting to reach the point of living a real life. I have achieved a lot. We built a great company and changed an industry. As a result, I have freedom that the average person doesn’t have.

Why quit after six months? Emshwiller asked.

Ken and I talked about it at the time I was named CEO. It was always in my mind, said Skilling. But he felt he needed to stay at Enron long enough to help it get through the California crisis, which now seemed to be easing. The decision had been building a long time, he continued. The final straw, he said, came on a recent visit to the United Kingdom to attend the funerals of three Enron workers killed in a power plant accident. It made me realize how tenuous life is. I realized that I needed to get on with life.

That struck the reporter as an odd remark. The interview quickly turned even stranger.

The stock price has been very disappointing to me, Skilling said, and kept talking in what seemed like stream of consciousness, addressed as much to himself as to the reporter. It’s the kind of ultimate scorecard. The stock is at less than half what it was six months ago. I put a lot of pressure on myself. I felt I must not be communicating well enough. Day in and day out, that is the world you are living in. There are a lot of other things in life important to me. This was not a job to me. This was my life. I feel that in spite of the stock price we have made tremendous progress in the past six months. The California thing has sorted itself out. We’ve made progress on India and the broadband business. That was hard. We’ve cut our costs significantly in that business. I feel good about that. The company is in great shape. Had the stock price not done what it did… Skilling paused for a few seconds. Otherwise it would have been fine. I don’t think I would have felt the pressure to leave if the stock price had stayed up.

What was that, Mr. Skilling? Emshwiller interjected, not quite sure he had heard what he’d just heard.

Our employees are big shareholders, Skilling continued. "In the