0:00

In the 1990s and early 2000s,

0:02

Enron was like no corporation on

0:04

Earth. It was the ultimate

0:06

corporate success story. But the key

0:08

to Enron's success? Accounting

0:10

fraud. American Scandal

0:12

is a podcast from Wundery that

0:15

takes you deep in the most

0:17

infamous scandals in American history, from

0:19

presidential lies to environmental disasters and

0:21

corporate fraud. The story

0:23

of Enron is one of the largest business

0:25

scandals in history. When their

0:27

earnings started to defy market forces,

0:29

stock analysts and journalists became suspicious.

0:33

And when the company was revealed to be a

0:35

fraud, it shattered the lives

0:37

of thousands of employees, leaving wreckage

0:39

from California all the way to

0:41

Wall Street. At the

0:43

dark heart of the scam were Enron's corrupt

0:45

leaders and brokers. But

0:48

they had help from a vast network

0:50

of collaborators, including outside legal and accounting

0:52

companies that covered for them. At

0:55

the time, the scale of

0:57

illegal manipulation of the American

0:59

financial system was unprecedented. The

1:01

sheer breadth and complexity of

1:03

Enron's crimes stunned the

1:05

world. And in the aftermath, many

1:08

wondered how such massive fraud could

1:10

go undetected for so long. You're

1:13

about to hear a preview of American Scandal.

1:16

While you're listening, make sure to follow American

1:18

Scandal on the Wundery app or wherever you

1:20

get your podcasts. On

1:30

Tuesday, August 14, 2001, the restaurant on

1:32

Smith Street in Houston is jam packed with the

1:40

lunch crowd. Sharon Watkins looks

1:42

around. She recognizes most of

1:45

the faces of her coworkers at Enron, and

1:47

they seem oblivious. Watkins has

1:49

seen the numbers, and she knows what they mean.

1:52

The ship has hit the iceberg.

1:54

It's sinking, and there aren't enough

1:56

lifeboats. She

1:58

pushes her plate away, having lost her

2:00

appetite. Her friend Kathy looks concerned.

2:03

Sharon, what's up? You barely touch your

2:05

salad and Andy's expecting us back in

2:07

15. Can't keep the boss waiting. Watkins

2:10

trust Kathy Lynn, a former

2:12

Enron VP now at the

2:14

subsidiary LJM. And she's a friend.

2:17

So Watkins lowers her voice and means across

2:19

the table. Yeah, about Andy.

2:22

Since June, he's had me reviewing assets.

2:25

You know, boring stuff, but he's

2:27

trying to figure out how to get some cash flowing in

2:29

within the next couple of years. But

2:31

here's the problem. We have these

2:34

assets, Vichy, Hanover, New Power, all

2:36

hedged with this financial entity called

2:38

Raptor to shield losses, or

2:41

at least the appearance of losses. Oh,

2:43

no, Raptors, plural, we have several of

2:45

them. So yeah, I'm familiar

2:47

with the Raptors. Well, are

2:49

you familiar with the fact that they lose hundreds

2:51

of millions of dollars a year? Because

2:53

I wasn't until I looked into it. Enron

2:56

Energy Services sent two guys to my office.

2:58

They stood at a whiteboard and broke it

3:00

down. Turns out these Raptors

3:02

lose money every day. So to

3:05

keep them afloat, Enron is stuffing them

3:07

with hundreds of millions of Enron stock.

3:10

Oh, Sharon, it's a complex transaction.

3:12

Yes, but no, no, if those

3:14

Raptors go bankrupt, it could trigger

3:16

huge losses for the LJM division.

3:19

I looked at last year's statements. Guess what? Enron

3:22

actually lost a half billion dollars.

3:24

But because those losses are hidden in

3:26

the Raptors, no one knows. Not

3:29

the stock analysts, not the investors.

3:31

And Jesus, if this thing gets

3:33

out, Sharon, it's okay. All right.

3:36

First of all, the accountants Arthur Anderson, they

3:38

signed off. You've got to be kidding me.

3:40

Yeah. And even if the Raptors do go

3:42

bankrupt, and he doesn't care. He doesn't mean

3:44

anything to LJM. He structured the deal so

3:46

he can pull all of his money out

3:49

first. Sharon's head

3:51

is spinning. Kathy, it

3:53

matters to Enron. LJM and

3:55

the Raptors might not have anything at risk, but

3:57

Enron sure does. And whoever else

3:59

infest than these things Andy created. If

4:02

the Raptors go bankrupt, which they probably will,

4:05

all the money will be gone. But

4:07

Lynn just shrugs. Though Watkins

4:10

is seated firmly in her chair, she

4:12

feels like she's fallen. She just

4:14

told Lynn, her friend, that she's uncovered

4:16

the worst accounting fraud she's ever seen.

4:19

And Lynn just shrugged. As

4:22

Watkins looks around, everyone's on their phone,

4:24

talking at once, all the

4:26

people from Enron. And one by one, a two

4:29

of dreams form their faces. One

4:32

reaches for her own phone. She

4:34

recognizes the number and answers. Hello? Oh

4:38

my god, what? I wish there were

4:40

now, yeah. We're on our way. Lynn

4:43

hangs up and swallows hard. Watkins

4:45

leans forward. What is it? What happened? Jeff.

4:49

He just resigned. Watkins stares

4:51

back. Jeff Skilling, the

4:53

CEO of Enron, one of the

4:55

most famous corporate executives in history,

4:58

abruptly died with the company he helped build.

5:01

He must know what Watkins knows.

5:03

And at that moment, Watkins realizes

5:05

there can be no more rationalizations,

5:08

no more procrastination. Her company

5:10

is corrupt. Fast.

5:13

It's time for her to get in. For

5:17

more deep dive and daily business

5:19

content, listen on Wondery, the destination

5:21

for business podcasts. With shows like

5:23

How I Built This, Business Wars,

5:25

The Best One Yet, Business Movers,

5:27

and many more. Wondery

5:30

means business.