House of Cards

Last August, shortly after returning as chief executive officer of Enron Corp., Ken Lay sent an e-mail to employees asking them to "Lay It On The Line" and answer a few questions about the company. Within days, Lay received more than 4,000 responses from around the world, covering issues that ranged from Enron's share price to its employee evaluations to its image beyond the corporate walls.

The results were analyzed, and in early September, Lay responded by outlining a course of action that would, as he put it in an e-mail summary of the "Lay It On The Line" survey, "keep Enron one of the best places to work in the world."

At the heart of Lay's plan was information. In an effort to be more up-front about the company's operations, he wrote, top executives had already met with major shareholders to review "the strong prospects in each of our businesses." Stock market analysts, who for the first time in years were questioning Enron's complex balance sheet, would be educated on "how we make money."

This new spirit of openness would be extended to employees. Lay invited them to attend "brown bag" sessions to discuss issues that affected Enron's share price. In mid-October, Lay and Greg Whalley, president of Enron Wholesale Services, would begin meeting with groups of employees in events that would be videotaped and distributed companywide. In the meantime, employees were encouraged to log on to the company's internal Web site and join a question-and-answer forum with the CEO.

"We recognize that as Enron's ambassadors in the marketplace the more you know about our strategy, performance and challenges, the more you can help disseminate accurate information about our company," Lay wrote in the summary.

It's now known that what Wall Street didn't understand about Enron late last summer had already doomed the company. On October 17, the seventh-largest company in the United States stunned shareholders by reducing the value of assets on its books by $1.01 billion to correct the accounting treatment of off-balance-sheet partnerships managed by Chief Financial Officer Andrew Fastow. Less than two months later, Enron laid off 4,500 employees and filed for bankruptcy protection.

After a three-month investigation, a special committee of Enron's board of directors reported that management had purposely misled shareholders by hiding huge debt and poorly performing assets in Fastow's partnerships. Committee chairman William C. Powers, who was hired by the board to conduct the investigation, told a congressional panel that between July 2000 and October 2001, 70 percent of Enron's reported earnings were fabricated.

"What we found was appalling," Powers testified.

To date, three former Enron employees have stepped forward to corroborate the findings in the Powers committee report. Sherron Watkins, an accountant whose now-famous letter to Lay in August warned the CEO that the company was about to "implode in a wave of accounting scandals," testified before a congressional committee earlier this year, opposite former CEO and President Jeff Skilling. Watkins went easy on Lay and suggested he was clueless about the import of the transactions. But she had little trouble convincing lawmakers that Skilling was lying when he said he knew nothing of Enron's dire financial condition when he resigned "for personal reasons" August 14.

Margaret Ceconi, a deal originator with Enron Energy Services, told Lay in an August 29 e-mail that the division had hidden more than $500 million in losses on long-term energy contracts. Ceconi tipped off the U.S. Securities and Exchange Commission for the first time last July, then followed up with a detailed complaint in October. She has not yet been called to testify, nor has she been questioned by investigators. Ben Glisan, Enron's former treasurer, reportedly is cooperating with the Department of Justice after being implicated by the Powers committee.

The congressional inquiries have, so far, focused on the actions of Lay, Fastow and Skilling; the company's auditor, Arthur Andersen LLP, which was indicted March 14 on federal charges of obstructing justice; and its general counsel, Vinson & Elkins, whose internal investigation of Enron's accounting practices has been derided as a whitewash. The unrestrained outrage of lawmakers has been fueled by the presence of a ready pool of victims--Enron retirees and former employees whose retirement plans were laden with now-worthless Enron stock.

The breathtaking losses--Enron's 401(k) plan was worth $850 million at one point--and the apparent fraud by top management have inspired more than a half dozen shareholder lawsuits, including a class action by the Severed Enron Employees Coalition, a group of about 600 people whose former positions ranged from secretaries to division vice presidents.

One of the coalition's founders, Diana Peters, an information technology specialist, planned to take advantage of Enron's early-retirement program in three years so she could care for her husband, who is suffering from a brain tumor. Unlike many, Peters had the presence of mind to move some of her 401(k) assets into mutual funds. What she didn't realize was that when Enron's share price fell to less than a dollar, leaving her 401(k) account with a negative balance, her mutual fund was tapped to make up for the shortfall. Left with no health benefits to cover her husband's treatment, Peters had to take the first job she was offered. She says it's a good one, but that's hardly consolation.

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Brian Wallstin

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