Conspiracy of Fools by Kurt Eichenwald

Author:Kurt Eichenwald [Eichenwald, Kurt]
Language: eng
Format: epub
ISBN: 978-0-7679-1180-1
Publisher: Crown Publishing Group
Published: 2005-03-25T16:00:00+00:00

CHAPTER 15

JORDAN MINTZ SAT AT his desk in shirtsleeves, his sports jacket hanging nearby on a coat rack. It was the morning of December 15, 2000, and he had just ended a call about Fishtail, a new LJM2 deal designed to create about $100 million in profits. The transaction struck Mintz as aggressive, and he was checking to make sure proper procedures were being followed. He opened the files to check the deal-approval sheet. It wasn’t there.

From his examination of the old files, Mintz already knew the approval sheets were a big problem. They were supposed to contain loads of information to allow reviewers to decide whether an LJM deal was good for the company. But often the details in them were skimpy at best.

Mintz wandered out of his office, over to Nicole Alvino, a lower-level staffer who had been given responsibility for managing the approval-sheet process. Standing by her cubicle wall, he asked her to come to his office for a moment. There, the two sat down on either side of his desk.

He threw out a series of questions. Who told her how to prepare the sheets? Why were they put together so late in the process? Was there some other way that the necessary data were communicated? Alvino didn’t have a lot of answers.

“I’ve been reviewing some of the old sheets,” Mintz said. “Some of them have lots of detail, some don’t.”

“Well,” Alvino replied, “people are always sensitive when they prepare these.”

“What do you mean?”

“About how much detail to put in, because of the awkwardness from the related-parties issue.”

Mintz sat back. So now the LJM deals, the ones that should have the most review, were getting the least.

“The way it’s been done,” Alvino continued, “is we include enough information to answer the checklist attached to the approval sheet. That’s been the general practice, to keep the information to the minimum necessary.”

The minimum necessary. Mintz remembered Fastow’s telling him how important it was that the public disclosure of the facts about LJM deals be as innocuous as possible. Everything was secretive. The worst approach imaginable.

Mintz wrote a memo about his conversation with Alvino and sent it around. But he knew it would barely register in Enron’s collective consciousness. He needed to do something more dramatic, to marshal all the evidence into a single document that would startle management out of its lethargy.

It would take almost three months to complete.

Andersen’s accounting team was flummoxed by Fishtail, the latest LJM2 deal. A J. P. Morgan Chase entity would be listed as an “investor,” even though it wasn’t putting up any cash; the only up-front money would come from LJM2. This one went past the edge of the envelope.

Needing help, the accountants turned to the Professional Standards Group. The questions landed on the desk of Carl Bass, who had joined the PSG months before.

Bass plunged into the documents, getting progressively more disturbed. With only LJM2 ponying up the money, nobody had enough skin in the game for Fishtail to be counted as a true off-balance-sheet entity.

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