24DAYS How Two Wall Street Journal Reporters Uncovered the Lies That Destroyed Faith in Corporate America Rebecca Smith and John R. Emshwiller To Kevin and Susan, my beloved children, and to people who tell the truth, no matter what. —ras To Molly, Rebecca and Deborah, now and forever. —jre Contents Acknowledgments vii Prologue to the Paperback Edition ix PART ONE Red Sky Warning 1 “Our CEO Is Resigning.” 3 2 “Who’s Andy Fastow?” 12 3 “You Won’t Believe What Skilling Just Told Me.” 22 4 “I Have Found That Mr. Lay Doesn’t Take Kindly to Criticism.” 31 5 “It Isn’t a Conflict of Interest.” 42 6 “You’re Just Scratching the Surface.” 47 7 “You Are About to Topple a $20B House of Cards.” 57 8 “I Want to Be CFO of the Year.” 67 9 “It’s Okay to Have a Conflict.” 76 10 “Make the Journal Go Away.” 83 11 “He Would Have Done Nothing to Harm Enron.” 89 12 “Amend My Last Statement.” 94 iv Contents PART TWO The 24 Days 13 “I’m Not Sure It Had a Name.” 104 14 “You Missed Something That Could Be Really Big.” 119 15 “Looks Like the SEC Read Your Stories.” 134 16 “There Is an Appearance That You Are Hiding Something.” 142 17 “I Must Have Heard the Term Death Spiral a Dozen Times Today.” 156 18 “Oh, I Expect to Be in the Office All Weekend.” 172 19 “Those Liars!” 183 PART THREE The Party’s Over 20 “Does Ken Lay Know About This Meeting?” 193 21 “Don’t Approach Their People Again.” 210 22 “At Least We’re Going to Be Part of the Biggest Bankruptcy Ever!” 220 23 “Laydoff.com” 228 PART FOUR Aftershocks and Revelations 24 “There Will Be Something Else Fun and Exciting on the Other Side.” 241 25 “Enron Has a Problem You May Want to Write About.” 258 26 “I Really Got Sucked into This One.” 271 27 “We Notified Enron’s Audit Committee of Possible Illegal Acts Within the Company.” 278 28 “Do You Guys Have a Shredder Here?” 286 29 “I Didn’t Look Closely. I Didn’t Want to Know Too Much.” 296 30 “You’ve Got to Be Kidding Me.” 306 31 “I Feel I Just Can’t Go On.” 313 Contents v 32 “There Was a Young Turk Arrogance.” 329 33 “Next Time Fastow Is Going to Run a Racket, I Want to Be Part of It.” 341 34 “Often He Was Just Goofy.” 345 PART FIVE The Perp Walk 35 “The Arrogance. The Lack of Accountability.” 353 36 “Enron’s CFO, Kopper, and Others Devised a Scheme to Defraud Enron and Its Shareholders.” 363 37 “If It Isn’t Criminal, It Ought to Be.” 373 Index 399 About the Authors Credits Cover Copyright About the Publisher Acknowledgments Many people contributed to this book. Thanks must begin at our favorite newspaper, the Wall Street Journal. Numerous colleagues did terrific work prying open the Enron puzzle box. All were generous with their time when we sought their assistance. We felt very fortunate to work with some of the best reporters and editors in the country on a story that turned into an unexpectedly long ride. Though many earned our gratitude, we’d like to give particular thanks to: Alexei Bar- rionuevo, Mitchel Benson, Karen Blumenthal, Marcus Brauchli, Ken Brown, Barney Calame, Jeanne Cummings, Chip Cummins, Bob Davis, Larry Greenberg, Bryan Gruley, Tom Hamburger, Thaddeus Herrick, Greg Hitt, Larry Ingrassia, Steve Liesman, Gary McWilliams, Mike Miller, Mitch Pacelle, Scot Paltrow, Martin Peers, Ellen Pollock, Susan Pulliam, Anita Raghavan, Robin Sidel, Jay Sapsford, Mike Schroeder, Ellen Schultz, Leslie Scism, Mike Siconolfi, Glenn Simpson, Randy Smith, Scott Thurm, Jonathan Weil, John Wilke, and Stephen Yoder. We’d also like to thank managing editor Paul Steiger and deputy man- aging editor Dan Hertzberg for their unwavering enthusiasm and grit in chasing the Enron story—wherever it led us—as well as their willing- ness to grant us leaves of absence to write this book. Among our current and former colleagues in the Journal’s Los Angeles bureau, particular thanks go to Ben Holden, Kathryn Kranhold, Andy Pasztor, Rhonda Rundle, Rick Wartzman, and, of course, to our boss, the Journal’s L.A. viii Acknowledgments bureau chief, Jonathan Friedland, who was the editor most involved in shaping the paper’s Enron coverage and who pushed us to tell the story “in long form” through this book. Getting beaten on a story is never fun. But, over the months of cov- ering the story, many of our competitors added greatly to our under- standing of Enron even as their work spurred us to dig harder. Some of the best work on Enron was done by Peter Behr and April Witt of the Washington Post, Peter Eavis of TheStreet.com, and Kurt Eichenwald and Floyd Norris of The New York Times, to name a few. Numerous individuals who worked at Enron, or were connected to it in important ways, shared with us their precious documents and invalu- able insights and experiences. Neither the stories we wrote for the news- paper nor this book would have been possible without their help. In a real sense, this book is devoted to the many Enron people who rendered honest and faithful service to the company, its shareholders, and society. Several of them took professional risks to get the unvarnished truth to the public. Some are named in this book, but several have asked us to preserve their anonymity. To each, we give heartfelt thanks and hopes for a satisfying post-Enron life. Many others helped us get this book into print. Our agent, Geri Thoma, was ever steady and cheerful. The people at HarperCollins— particularly Cathy Hemming, Steve Hanselman, Marion Maneker, Jeff Stone, and our principal editor there, Dave Conti—greatly helped focus this project and bring it to fruition. But on the editing front nobody de- serves more praise than Victoria Pope, an accomplished writer and edi- tor, whose clarity, patience, and good humor helped keep us moving forward. Last, but hardly least, we offer deepest thanks to our family members and friends, most especially Eugene Bryant, Christine Ervine, Michael Miller, Elena Schmid, Steven Smith, and Bradley Warren, whose read- ing of the manuscript, at various stages, or unflagging moral support and assistance on the home front provided a bulwark against the pressures of the past two years. Prologue to the Paperback Edition For Enron, October 16, 2001, began as a routine enough day, one of four each year when it released its quarterly earnings results. Though the announced numbers that day were hardly pretty—a huge write-off and a big loss—such was Enron’s reputation and its ability to sell its story that the company’s stock rose by the close of trading that day. But the stock’s next “up” day wouldn’t come for a seeming eternity and then only as a death rattle. For the two of us, Wall Street Journal reporters, October 16 started out less momentous than hectic and frustrating. For weeks, we had been try- ing to dig up information on two shadowy partnerships partly owned and run by Enron’s chief financial officer, Andrew Fastow. The partner- ships and Enron had done hundreds of millions of dollars’ worth of busi- ness together. We were trying to find out whether any underhanded activities had been part of the deal. On the morning of October 16, Rebecca Smith, the Journal’s national energy reporter, was juggling the competing demands of the beat she covered. Fortified by an early morning cup of strong coffee, she spent time on her home computer reading through Enron’s nine-page earn- ings announcement as well as the earnings release of another of her big companies, Duke Energy Corp. She knew she would also face editing questions that day on a September 11–related feature story about the threat of nuclear terrorism that she and John had helped prepare. By the x Prologue to the Paperback Edition end of that day, she had done a string of interviews, one that prevented her from listening, live, to Enron’s quarterly conference call with ana- lysts. She had to listen to a taped replay of it, a short time later, while writing the Duke story and working with John to write the Enron earn- ings story. To top off October 16, Enron’s longtime chairman and chief executive, Ken Lay, accused her of being “sneaky” during a telephone interview when she asked questions related to the Fastow partnerships, knowing full well he didn’t want to discuss it. The gibe was delivered in a patronizing way, as if Lay were trying to correct the misbehavior of a child. John, who usually covered white-collar crime, spent October 16 writ- ing up everything that we had been able to nail down about the Fastow partnerships. The material formed the heart of that night’s Enron earn- ings story, but John wasn’t wild about including the partnerships in that piece, hoping instead to get a front-page Journal story out of them. Rebecca, though, was keen to get the information in the paper, ahead of any competitors. As we put the finishing touches to our story that night, neither of us suspected that Enron would soon become a fixture on the front page of the Journal and almost every other newspaper in the land. In the days after October 16, we would write many more stories about Enron, some concerning questionable new partnership deals and the millions of dollars that Enron officials had reaped from them.