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Authors: Kurt Eichenwald
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asked.
“We want to see the backup for these trades,” Woytek replied, holding up some trading records.
“What do you mean?”
“The telexes, the wire transfers. All of these trades had to create a paper trail. We want to see it.”
Borget tightened. “Okay, we’ll get it for you.”
The records never arrived. Instead, Borget phoned Houston to complain about the auditors’ disruptions. A few hours later, Mick Seidl, Enron’s president, called Woytek.
“You guys need to pack up and come home,” Seidl said.
“What? Why?”
“Borget is getting upset, the traders are getting upset. You need to pull out. We’re going to turn this over to Arthur Andersen instead.”
Woytek couldn’t believe it.
Borget’s got them hoodwinked again
. But he knew there was no fighting a direct order. “Fine,” he said. “We’ll come back”
The investigation in Valhalla was turned over to Carolyn Kee, who summoned a number of young Andersen auditors to help her dig through the paperwork. Still, Woytek and his team had rifled through enough records to know things in oil trading were bad. For one thing, Borget had sold a company car for seventy-eight hundred dollars and stolen the proceeds, depositing them in the Eastern Savings account.
And then there was M. Yass, a broker from another firm identified as part of the profit shifting. About $106,000 from the bank account had been converted into cash and supposedly paid to Yass, a man described by Borget as a Lebanese national working with Southwest Oil & Commodities. But the auditors were convinced that Yass was a ghost, a creation of the traders’ imagination, invented for the purpose of shifting money around. Even his name—Woytek figured it stood for “My Ass”—suggested that the traders were thumbing their noses at Houston.
The team had tried to track down Yass and Southwest Oil. Beard hired a private investigations firm called Intertect to check the backgrounds of Borget and Mastroeni, and to locate Yass, Southwest Oil, and the other companies that supposedly helped in the profit-shifting scheme.
The report arrived at Enron in the second week of February. Southwest Oil, Isla Petroleum, and Petropol Energy did not exist. The telex numbers for them provided by Borget and Mastroeni were bogus. Worst of all, the report said, Mastroeni, the unit’s top finance executive, had been personally sued by banks for using fraudulent documents to obtain loans.
Woytek took the devastating report up the line, hurrying over to the office of Keith Kern, Enron’s chief financial officer. He gave Kern a copy, laying out everything the private investigators had uncovered.
“Why did we hire these people?” Kern asked, “We don’t need to be doing this. Arthur Andersen is up there; they’re looking into everything.”
Kern tossed the report on his desk.
“I want you guys to drop it.”
At four o’clock on the afternoon of April 29, Enron’s audit committee gathered in the boardroom of the new Houston headquarters. For an hour the directors heard about the company’s internal-audit work for 1986. They could not have been more pleased; after months of tumult, it sounded as if Enron’s controls were finally falling into place.
“I think you would agree that this is a remarkable turnaround in a very short period of time,” Robert Jaedicke, the committee chairman, said during a presentation from accountants with Arthur Andersen.
“Absolutely, yes,” replied Jack Tompkins, an Andersen partner. “I would agree with that.”
Once all the happy talk was out of the way, the directors turned to the matter of Enron Oil. Andersen had submitted its final report a week earlier, loading it with caveats about their inability to determine whether crimes had been committed. The report was breathtaking in what it failed to reveal—nothing about Mastroeni’s past problems with fraud, or the nonexistent trading partners, or the forged documents. It
did
caution that the potential
“We want to see the backup for these trades,” Woytek replied, holding up some trading records.
“What do you mean?”
“The telexes, the wire transfers. All of these trades had to create a paper trail. We want to see it.”
Borget tightened. “Okay, we’ll get it for you.”
The records never arrived. Instead, Borget phoned Houston to complain about the auditors’ disruptions. A few hours later, Mick Seidl, Enron’s president, called Woytek.
“You guys need to pack up and come home,” Seidl said.
“What? Why?”
“Borget is getting upset, the traders are getting upset. You need to pull out. We’re going to turn this over to Arthur Andersen instead.”
Woytek couldn’t believe it.
Borget’s got them hoodwinked again
. But he knew there was no fighting a direct order. “Fine,” he said. “We’ll come back”
The investigation in Valhalla was turned over to Carolyn Kee, who summoned a number of young Andersen auditors to help her dig through the paperwork. Still, Woytek and his team had rifled through enough records to know things in oil trading were bad. For one thing, Borget had sold a company car for seventy-eight hundred dollars and stolen the proceeds, depositing them in the Eastern Savings account.
And then there was M. Yass, a broker from another firm identified as part of the profit shifting. About $106,000 from the bank account had been converted into cash and supposedly paid to Yass, a man described by Borget as a Lebanese national working with Southwest Oil & Commodities. But the auditors were convinced that Yass was a ghost, a creation of the traders’ imagination, invented for the purpose of shifting money around. Even his name—Woytek figured it stood for “My Ass”—suggested that the traders were thumbing their noses at Houston.
The team had tried to track down Yass and Southwest Oil. Beard hired a private investigations firm called Intertect to check the backgrounds of Borget and Mastroeni, and to locate Yass, Southwest Oil, and the other companies that supposedly helped in the profit-shifting scheme.
The report arrived at Enron in the second week of February. Southwest Oil, Isla Petroleum, and Petropol Energy did not exist. The telex numbers for them provided by Borget and Mastroeni were bogus. Worst of all, the report said, Mastroeni, the unit’s top finance executive, had been personally sued by banks for using fraudulent documents to obtain loans.
Woytek took the devastating report up the line, hurrying over to the office of Keith Kern, Enron’s chief financial officer. He gave Kern a copy, laying out everything the private investigators had uncovered.
“Why did we hire these people?” Kern asked, “We don’t need to be doing this. Arthur Andersen is up there; they’re looking into everything.”
Kern tossed the report on his desk.
“I want you guys to drop it.”
At four o’clock on the afternoon of April 29, Enron’s audit committee gathered in the boardroom of the new Houston headquarters. For an hour the directors heard about the company’s internal-audit work for 1986. They could not have been more pleased; after months of tumult, it sounded as if Enron’s controls were finally falling into place.
“I think you would agree that this is a remarkable turnaround in a very short period of time,” Robert Jaedicke, the committee chairman, said during a presentation from accountants with Arthur Andersen.
“Absolutely, yes,” replied Jack Tompkins, an Andersen partner. “I would agree with that.”
Once all the happy talk was out of the way, the directors turned to the matter of Enron Oil. Andersen had submitted its final report a week earlier, loading it with caveats about their inability to determine whether crimes had been committed. The report was breathtaking in what it failed to reveal—nothing about Mastroeni’s past problems with fraud, or the nonexistent trading partners, or the forged documents. It
did
caution that the potential
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