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Authors: Kurt Eichenwald
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dollars in potential trading losses?
With Enron still struggling under all the debt it had assumed in the merger, this could bring the company down. Immediately, the pilots were told that Lay’s flight plans were changing; he was heading to Valhalla.
Before getting on the plane, he contacted Mike Muckleroy, an experienced Enron oil trader in Houston who for months had been warning—just as the Andersen report had cautioned might be the case—that Borget had to be busting through his trading limits. But Lay hadn’t listened, chalking Muckleroy’s complaints up to jealousy. Now he needed Muckleroy to help save the company by cleaning up Borget’s mess.
By Saturday morning, Lay had arrived in Valhalla and summoned Borget to a nearby hotel conference room. Borget sauntered in, all smooth and self-confident.
“Okay, Ken,” he said. “I know we’ve got a problem here, but it’s manageable, and we’re going to solve it.”
“How did the problem happen, Lou?”
“Ken, I just saw it as a great opportunity for the company, a real chance to hit a super home run. I figured everybody in Houston would be nervous about it, but I didn’t think we could afford to pass up the opportunity.”
Borget pressed his charm offensive, but this time Lay wasn’t buying. Instead, he pumped Borget for information to help Enron minimize the disaster. Finally, when he figured he had heard everything Borget had to offer, Lay lowered the boom.
“Lou, you know you violated a lot of company policies in all of this,” he said. “And you’ve really exposed us to possibly horrendous downsides here.”
“Well, again, Ken, I’m very confident we can work all of this out without any harm to the company.”
Lay ignored him. “Lou, I have no choice but to terminate you.”
Borget sat back, speechless.
“What?”
he sputtered. “You can’t work your way out of this problem without me!”
“Yeah, Lou, we can.”
Borget pushed him to change his mind, but Lay was unbending. Finally Lay’s message sank in. Borget stood and made his way to the door, then stopped and turned.
“Well, if you decide you need my help, I’ll be at home. You can call me.”
With that, Borget strode away, leaving Enron forever.
———
The second scandal in the oil-trading division transformed Enron, destroying old internal alliances and reshaping the corporate leadership structure.
For three weeks, Mike Muckleroy led a group of traders in gradually shrinking the size of Enron’s oil-market position. They were in constant fear that competitors would realize the gravity of Enron’s situation and bid up the price of oil; after all, the company had to pay pretty much any price to save itself. But they pulled it off. By late October, Enron’s after-tax losses had shrunk to a manageable eighty-five million dollars.
In the months that followed, the Valhalla unit was shut down. Within a few years, Borget and Mastroeni were charged with fraud and tax crimes; Borget was also charged with aiding Enron in filing false income-tax returns through the profit shifting. Both men pleaded guilty; Borget was sentenced to a year in prison, and Mastroeni received a suspended sentence and probation.
Lay and Seidl knew someone had to pay the price for the debacle, and it certainly was not going to be Lay. While Seidl continued at Enron for a couple of years, his responsibilities gravitated to Rich Kinder, now working as chief of staff, sort of a roving Mr. Fixit. While Seidl was viewed internally as indecisive, Kinder was a barn-burning man of action who inspired fear in Enron’s executive ranks—just the sort of manager the company needed.
Lay acknowledged soon after the announcement of the trading losses that Enron would have to change its ways. In late October 1987, he called an all-employee meeting in Houston. He held himself up as a victim of Borget and Mastroeni, as someone who had no reason to suspect the problems in Valhalla. But, he said, he walked away from
With Enron still struggling under all the debt it had assumed in the merger, this could bring the company down. Immediately, the pilots were told that Lay’s flight plans were changing; he was heading to Valhalla.
Before getting on the plane, he contacted Mike Muckleroy, an experienced Enron oil trader in Houston who for months had been warning—just as the Andersen report had cautioned might be the case—that Borget had to be busting through his trading limits. But Lay hadn’t listened, chalking Muckleroy’s complaints up to jealousy. Now he needed Muckleroy to help save the company by cleaning up Borget’s mess.
By Saturday morning, Lay had arrived in Valhalla and summoned Borget to a nearby hotel conference room. Borget sauntered in, all smooth and self-confident.
“Okay, Ken,” he said. “I know we’ve got a problem here, but it’s manageable, and we’re going to solve it.”
“How did the problem happen, Lou?”
“Ken, I just saw it as a great opportunity for the company, a real chance to hit a super home run. I figured everybody in Houston would be nervous about it, but I didn’t think we could afford to pass up the opportunity.”
Borget pressed his charm offensive, but this time Lay wasn’t buying. Instead, he pumped Borget for information to help Enron minimize the disaster. Finally, when he figured he had heard everything Borget had to offer, Lay lowered the boom.
“Lou, you know you violated a lot of company policies in all of this,” he said. “And you’ve really exposed us to possibly horrendous downsides here.”
“Well, again, Ken, I’m very confident we can work all of this out without any harm to the company.”
Lay ignored him. “Lou, I have no choice but to terminate you.”
Borget sat back, speechless.
“What?”
he sputtered. “You can’t work your way out of this problem without me!”
“Yeah, Lou, we can.”
Borget pushed him to change his mind, but Lay was unbending. Finally Lay’s message sank in. Borget stood and made his way to the door, then stopped and turned.
“Well, if you decide you need my help, I’ll be at home. You can call me.”
With that, Borget strode away, leaving Enron forever.
———
The second scandal in the oil-trading division transformed Enron, destroying old internal alliances and reshaping the corporate leadership structure.
For three weeks, Mike Muckleroy led a group of traders in gradually shrinking the size of Enron’s oil-market position. They were in constant fear that competitors would realize the gravity of Enron’s situation and bid up the price of oil; after all, the company had to pay pretty much any price to save itself. But they pulled it off. By late October, Enron’s after-tax losses had shrunk to a manageable eighty-five million dollars.
In the months that followed, the Valhalla unit was shut down. Within a few years, Borget and Mastroeni were charged with fraud and tax crimes; Borget was also charged with aiding Enron in filing false income-tax returns through the profit shifting. Both men pleaded guilty; Borget was sentenced to a year in prison, and Mastroeni received a suspended sentence and probation.
Lay and Seidl knew someone had to pay the price for the debacle, and it certainly was not going to be Lay. While Seidl continued at Enron for a couple of years, his responsibilities gravitated to Rich Kinder, now working as chief of staff, sort of a roving Mr. Fixit. While Seidl was viewed internally as indecisive, Kinder was a barn-burning man of action who inspired fear in Enron’s executive ranks—just the sort of manager the company needed.
Lay acknowledged soon after the announcement of the trading losses that Enron would have to change its ways. In late October 1987, he called an all-employee meeting in Houston. He held himself up as a victim of Borget and Mastroeni, as someone who had no reason to suspect the problems in Valhalla. But, he said, he walked away from
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