Powerful Figures Behind Firm’s Rise--and Crash

They engineered financial deals that pushed accounting rules to the limit. They saw markets to deregulate and harnessed the political muscle to take them over.

They dominated oil and gas trading markets and then branched out to deal in everything from pollution credits to bets on the weather.

Now, the best and brightest of Enron Corp.--a mostly young, well-paid crowd that moved through energy and political circles with confidence--are facing lawsuits, subpoenas and possibly criminal indictments as Congress, federal agencies and regulators investigate the biggest business collapse in U.S. history.

With Enron’s crash, the company’s top brass largely has retreated to plush Houston suburbs from Sugar Land to Bellaire to Humble and are letting their lawyers do the talking while the investigations run their course.

Here are some of the key players in the Enron saga, current and former executives who rode the rocket up and are expected to figure large in the lawsuits and investigations triggered by the collapse.

Kenneth L. Lay

Enron’s 59-year-old chairman and chief executive, who resigned under fire Wednesday, took a dinky natural gas pipeline firm and built it into a powerhouse that was a new kind of energy company.

Enron made its money not from pipelines and power plants, but by trading natural gas and electricity and, eventually, a host of more esoteric products such as water, financial havens from bad weather, pollution credits, advertising and broadband Internet time, all supplied by others.

The son of a poor Missouri country preacher, Lay sermonized on the benefits of bringing competition to a wide range of commodities. By bringing together millions of buyers and sellers, Enron could squeeze out the best prices and make a tidy profit. Supplies of electricity, for example, and other commodities would be allocated more efficiently and costs would be reduced.

Lay, who has a doctorate in economics from the University of Houston, saw the promise of natural gas deregulation in the 1980s and electricity deregulation in the 1990s. Enriched by success, he became a big political fund-raiser, an advisor to both Bush administrations and an architect of national energy policy.

In California, Lay tried to shape the state’s deregulation policy in the mid-1990s and then influence how the energy crisis was untangled. Politicians and regulators lumped Enron in with a gang of out-of-state energy companies accused of gouging California electricity users and driving its two biggest electricity utilities to the edge of ruin.

Lay’s temper could be short and his memory long. Financial analyst John Olson recently told a Houston audience that when he questioned the value of Enron’s assets last summer, Lay sent a note reading: “John Olson has been wrong about Enron for over 10 years and he is still wrong. But he is consistent.” Olson framed the letter.

Through Enron’s stunning downward spiral, two views of Lay emerge: He was an isolated statesman, insulated from financial trickery perpetrated by underlings. Or he was a hands-on manager who knew what was going on.

In Enron’s restatement of earnings in November, slashing nearly $600 million from the bottom line over nearly five years, Lay kept up his cheerleading in the face of mounting investor skepticism, saying the company would continue its efforts “to respond to investor requests for information about our operational and financial condition so they can evaluate, appreciate and appropriately value the strength of our core businesses.”

“Maybe he’s a bumbling figurehead,” an energy consultant said. “Or maybe he just played the good old boy and he’s the shrewdest guy on the planet.”

Jeffrey K. Skilling

Skilling, a competitive bicycle rider, was on the ride of his life as chief executive of Enron. But he stunned the energy industry Aug. 14 when he resigned after only six months on the job.

Skilling called it a “purely personal decision” that had “nothing to do” with Enron, but many in and out of the company wondered why Skilling, 48, would walk away from a job he had long coveted.

Lay brought Skilling to Enron in 1990 from the McKinsey & Co. consulting firm, where Skilling had handled the Enron account. Enron had hit a rough patch because of plummeting natural gas prices, and Skilling had a vision of Enron as a nimble trading company that didn’t need hard assets to make money.

The company grew quickly under Lay and Skilling and constantly pushed into new markets, including some that turned sour, such as a retail energy venture, its water business, telecommunications and a huge power project in India.

Skilling, named president and a company director in 1996, was the brash bad cop to Lay’s good cop and corporate visionary role.

In 1997, an unfounded rumor swept Wall Street that oil giant Royal Dutch/Shell Group would make a bid for Enron. Asked what he’d do if Shell bought his company, Skilling shot back, “I’d run Shell.”

At that time, Enron was about one-fifth Shell’s size.

During a conference call last year with analysts and investors, Skilling sparred with one analyst over murky financial disclosures. Then Skilling abruptly cut off the man, calling him a vulgar name that immediately buzzed through energy circles.

Skilling, with the help of Andrew S. Fastow and others, created off-balance-sheet financial deals that he insists were used to lower risk for Enron and its shareholders. Critics have alleged that the partnerships were used to hide losses and debt to boost earnings and Enron’s stock price.

Even at the end, on the day he resigned, Skilling continued to sell his version of Enron. Asked at a news conference whether any other shoes were about to drop, Skilling replied, “There’s nothing to disclose. The company’s in great shape.”

Now Skilling is “lying low,” said one resident of River Oaks, a Houston neighborhood dotted with socialites, where Skilling recently finished construction on an opulent home for himself and his fiancee.

Andrew S. Fastow

Enron’s 40-year-old former chief financial officer was never flashy, rarely giving interviews or making public appearances on behalf of the company during his 11 years at Enron.

Fastow, who joined Enron in 1990 from Continental Bank in Chicago, proved his worth in quiet ways, helping to raise the huge amounts of capital that Enron needed in its quest to dominate new businesses. And he helped engineer the murky off-the-books partnerships to boost the company’s financial performance and stock price. Such partnerships are the subject of several federal investigations.

Fastow managed two of the partnerships, LJM Cayman and LJM2 Co-Investment, named using the initials of his three children. Investor concern over potential conflicts between Fastow’s role as Enron executive and as partnership manager caused Fastow to resign his manager duties last summer.

On Oct. 16, Enron reported a surprise $638-million quarterly loss, partly related to the partnerships that also cost the company $1.2 billion in shareholder equity. On Oct. 24, a day after Lay expressed “the highest faith and confidence in Andy” during a conference call with investors and analysts, Fastow was ousted from the job.

Enron has said Fastow reaped at least $30 million in fees for managing the partnerships. A Fastow spokesman said the arrangements were created with the full knowledge and approval of Enron’s board of directors.

Jeffrey McMahon

McMahon, who took Fastow’s spot as chief financial officer, was mentioned in whistle-blower Sherron S. Watkins’ Aug. 22 memo to Lay as one of the top executives that Lay should quiz to see if her account of financial shenanigans was true.

McMahon, a former Andersen employee who joined Enron in 1994, was treasurer and executive vice president of finance in 2000 when he complained about the off-the-books deals that Fastow helped engineer. McMahon then moved to an Enron backwater as president of a small subsidiary that serves industrial customers.

When Fastow’s partnerships became the focus of investor ire, Lay tapped McMahon as chief financial officer to calm things down. It didn’t work. With Lay’s resignation, McMahon becomes a key officer at Enron and the last of the company’s three-person office of the chairman.

McMahon, 41, built a new home about two years ago, valued at $872,700, in the Houston enclave of Bellaire and is the father of two small children.

Lawrence Whalley

Whalley, Enron’s 40-year-old president and chief operating officer, also was one of those described by Watkins as having concerns about the off-balance-sheet partnerships.

Whalley gained some notoriety this month when it was revealed that he peppered a Bush administration official with pleas for help.

Whalley called Peter Fisher, Treasury undersecretary for domestic finance, six to eight times in October and November to persuade Fisher to ask bankers to lend money to Enron. Fisher said he never called any bankers about the matter.

Whalley, who has a bachelor’s degree from the U.S. Military Academy and a master’s in business administration from Stanford University, joined Enron in 1992 as an associate in the finance division and worked his way up through the risk management and natural gas trading operations. In 1996, Whalley began running the European commodity-trading divisions and later held top jobs at other Enron operations.

Whalley was promoted to president and chief operating officer in late August, two weeks after Skilling’s resignation. Whalley recently agreed to leave Enron for UBS Warburg to help run the energy trading business that UBS is buying from Enron in a noncash, profit-sharing deal.

Sherron Smith Watkins

Watkins, 42, was an Enron vice president who happened to work for then-Chief Financial Officer Fastow last summer.

What she learned in that assignment caused her to fire off an anonymous letter Aug. 15 to Lay, followed by a memo Aug. 22, warning of a possible corporate implosion if the details of suspect partnership deals ever became known.

Watkins’ memo and meeting with Lay on Aug. 22 sparked a limited investigation by outside counsel, but no action. Watkins’ warnings, released by congressional investigators last week, created an uproar surrounding the churchgoing mother of a 2-year-old girl.

Watkins began her first note to Lay with two prescient questions: “Has Enron become a risky place to work? For those of us who didn’t get rich over the last few years, can we afford to stay?”

Despite the uproar, Watkins continues to report daily to her job at Enron.

Wendy Lee Gramm

The 57-year-old wife of Sen. Phil Gramm (R-Texas) has been an Enron director since 1993 and is a member of its audit committee, giving her an up-close look at Enron’s accounting practices.

Some see conflicts for Gramm because she also is director of the Mercatus Center at George Mason University, which has received $50,000 in contributions from Lay and others at Enron.

Gramm headed the U.S. Commodity Futures Trading Commission before she joined Enron’s board. Shortly before leaving the CFTC and joining Enron’s board, Gramm helped end regulation on many of the kinds of energy contracts that Enron traded.

Legislation backed in late 2000 by her husband excluded electronic exchanges, such as Enron’s online trading forum, from regulation by the CFTC.

Richard A. Causey

The 42-year-old Enron executive vice president and chief accounting officer is mentioned in the Watkins letter to Lay. Watkins asked Lay to sit down with Causey “and take a good hard objective look at what is going to happen to Condor and Raptor [names of two off-balance-sheet transactions] in 2002 and 2003.”

Before he joined Enron, Causey was a senior manager in Andersen’s Houston office, where he handled the Enron account. He holds a bachelor’s degree in business and accounting from the University of Texas at Austin.

James V. Derrick Jr.

Derrick, 57, who joined Enron in 1991 and has been an executive vice president and general counsel since July 1999, also appears in the crucial Watkins letter.

Watkins urged Lay to have Derrick hire a law firm to investigate the Condor and Raptor projects but to avoid Vinson & Elkins, one of Enron’s law firms, because it already had approved some of the transactions. V&E; was hired and found no cause to investigate further.

Richard B. Buy

The 49-year-old Enron executive vice president and chief risk officer is in charge of “identifying, quantifying and controlling risks in both Enron’s trading activities and investment opportunities,” according to his corporate biography.

Buy is responsible for managing Enron’s investment portfolio “with the goal of tracking investment returns and controlling exposures to various risks.”

In Watkins’ memo, Buy was one of five high-ranking Enron executives identified as feeling discomfort with some of the controversial off-the-books partnerships.

Buy joined Enron in April 1994, after working in energy lending and trading at Bankers Trust. Buy’s background is in mechanical engineering and finance.

Mark E. Koenig

Koenig, the 46-year-old executive vice president of investor relations, is one of the five executives mentioned by Watkins as having reservations about the partnerships.

Koenig is a member of the Enron management committee. He joined Enron in 1985, the year it was formed, as director of Enron’s pension and profit-sharing investments.

Koenig is a certified financial analyst. He is active in Sunshine Kids, a Houston-based organization dedicated to children with cancer, according to his corporate biography.

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Times staff writers Lee Romney in Houston and Thomas S. Mulligan in New York and researcher Nona Yates in Los Angeles contributed to this report.

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Enron’s Players

Kenneth L. Lay, 59

Former chairman and CEO

Lay resigned Wednesday after holding the top two positions at Enron since 1986, except for a six-month period in 2001. He has been a leading political fund-raiser and advisor to both Bush administrations. Lay or Enron representatives met with Vice President Dick Cheney or his energy task force several times last year.

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Jeffrey K. Skilling, 48

Former president and CEO

Citing personal reasons, Skilling resigned in August after only six months as Enron’s chief executive and a long, lucrative career at the company. His abrupt departure caused many to question why he would walk away from a job he long coveted.

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Andrew S. Fastow, 40

Former chief financial officer

One day after Lay expressed “the highest confidence” in him to investors, Fastow was ousted from his job. He helped engineer and reportedly reaped millions in profit from off-balance-sheet partnerships that helped keep billions of dollars of debt off Enron’s books. Fastow was replaced by Jeffrey McMahon.

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Jeffrey McMahon, 41

Chief financial officer

As Enron’s treasurer, McMahon was “highly vexed” and complained to Skilling about the partnerships in which Fastow was involved, according to Watkins’ memo. McMahon was reassigned to an Enron subsidiary. As the off-the-books deals became the focus of investor ire and government investigations, Lay tapped McMahon to replace Fastow as CFO.

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Richard A. Causey, 42

Executive vice president and chief accounting officer

Before joining Enron, Causey was a senior manager in Andersen’s Houston office with primary responsibility for the Enron account. Causey reportedly downplayed many of the controversial Enron deals.

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Lawrence “Greg” Whalley, 40

President and chief operating officer

Whalley made six to eight phone calls to Peter Fisher, Treasury undersecretary for domestic finance, in October and early November asking for help. But Fisher declined to intervene. Whalley will soon leave Enron to help run the energy trading business that UBS Warburg is buying from the company.

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Wendy Lee Gramm, 57

Board member and member of the audit committee

Gramm, a strong supporter of deregulation, is the wife of Sen. Phil Gramm (R-Texas). Before joining Enron’s board, she headed the U.S. Commodity Futures Trading Commission, where she helped push through a ruling that benefited Enron and other energy-trading companies.

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Sherron Smith Watkins, 42

Her Aug. 22 memo to Lay has proved to be explosive and prescient. In it, Watkins warned that the company’s questionable financial practices could lead to Enron’s collapse and that the company’s success could come to be viewed as “an elaborate accounting hoax.” Watkins worked for Fastow.

Researched by NONA YATES/ Los Angeles Times