Enron's human toll

How employees of the energy trader got sucked into stock market euphoria -- and catastrophe.

Published January 23, 2002 8:30PM (EST)

Janice Farmer is afraid of her electric bill, so at night she sits in the dark. Retirement wasn't supposed to be like this; this wasn't what Enron, America's genius energy supplier, had promised.

Farmer once had $700,000 in her 401K -- her life savings, all in Enron stock, built up over 16 years with what had been the seventh largest company in the United States, a company touted by the press, the execs, the Wall Street analysts as the future of American business. The money's gone; what remains is sorrow and astonishment.

"I was proud to invest in Enron stock," Farmer told a Senate committee last December, one of seven now investigating the Enron collapse. "We were a loyal and hardworking group of employees. We lived, ate, slept and breathed Enron because we were owners of the company. I trusted the management of Enron with my life savings.

"Senators, I won't mince words here," Farmer told the chamber. "They betrayed that trust."

Tens of thousands of Enron employees and retirees together lost as much as $1.3 billion, and probably a lot more, in what appears to be a monumental case of cooked books, lying and corporate corruption. Some say they'll be forced to sell family land, or homes, or take their children out of good schools they can no longer afford. Some are so depressed they're now on medication. Some who put everything into Enron stock -- ignoring the basic principle of diversity in 401K investing -- damn themselves for being so easily seduced.

The hardest hit are the retirees, like Farmer, who worked in the natural gas "right-of-way" office managing pipeline systems. Or Charles Prestwood, who spent 33 years in the gas industry, the last 15 with Enron, working the pipelines themselves. His 13,500 shares were worth about $1.3 million at peak. When I spoke with him, Enron was trading at 67 cents, down spectacularly from a 52-week high of $83. In a few days, the stock would be delisted.

Prestwood lives on a three-acre farm in Conroe, Texas, 60 miles north of Houston; he has two horses and a feed barn. He survives on a pension from a previous employer -- about $521 a month after health insurance and income tax -- and a social security check of $1,294. "I'm not gonna be able to last long like that," he says. "I got some land that I wanted to give to my kids. That land was given to me by my mother. My mother died when I was born. I can go in the cemetery and look upon her tombstone, that's the day I was born, September the 15th, 1938. That land was the only thing other than the family Bible that she left me. My daddy and her, they had an agreement: If something happened to her and her baby lived, she wanted her portion of the property to go to the baby, and my daddy right there said, 'If something happens to you, I'll give the baby my part too.' And my daddy did, in November of 1938, he deeded that eight acres. I've got to sell that land now. That'll take care of a few more of them house notes.

"There ain't no such thing as a dream anymore," Prestwood says. "I hadn't planned much for the retirement. Wanted to go fishing, hunting. I was gonna travel a little."

Wayne Stevens, who is 61 years old, worked for 10 years for Portland General Electric, one of Enron's 3,500 subsidiaries. Until he retired in January of 2001, Stevens was a serviceman at the Trojan Nuclear Plant in Rainier, Ore. His job involved dismantling and decommissioning radioactive pipes and pumps, slow and careful labor. His wife, Katherine, still works for PGE, a 17-year employee. They had stock worth over $700,000. They sold or rolled over most of it at 33 cents a share, at the tail end of a nauseating spiral in October and November, the death-knell days that followed Enron's out-of-the-blue Oct. 16 announcement of a $638 million loss for the quarter.

The Stevenses held on. They believed in the company. They said, "What's a half-billion dollars to a $70 billion company?"

Even if they'd wanted to sell, though, they couldn't have, because of a somewhat hinky affair Enron employees are now referring to as "the lockout." From approximately Oct. 17 to Nov. 19, Enronites found themselves powerless to access their accounts: Enron said it was in the process of changing 401K managers, thus the asset freeze. But during that same period, the stock plummeted from about $32 to $9.06 and by Nov. 29 it had dropped to .36 cents -- it had lost 99 percent of its value as investors abandoned ship, and the freeze was looking less like procedural bureaucracy than a conspiracy to keep employees from jumping as well. Hundreds have joined a class-action lawsuit to look into the legality of the lockout, and the plaintiffs include dozens of PGE employees (as well as Farmer and Prestwood).

The experience at PGE does much to explain why the Enron debacle has been so disastrous for employee investors. PGE employees were on average 62 percent invested in Enron stock, according to one estimate. That's unhealthy: Portfolios should normally hold no more than 3 percent in any one company. "We were like most of the people here," says Wayne Stevens. "For years the media had been saying how great a company this was, one of the jewels of the energy business. You know ... we just believed them.

"Even now, I still think [Enron is] going to come back," says Stevens. "I don't know why I keep thinking that."

When Enron purchased PGE, a solid 100-year-old utility, in 1997, shares in PGE's 401K program were converted to Enron stock. Enron's savings plan had rules not uncommon to big corporations. Employees could contribute up to 15 percent of their earnings; Enron would match up to 10 percent, but only in Enron stock, not cash. Employees could opt to have their bonuses paid in stock options. The incentive behind the options: two for one on the dollar, meaning you got $2 of options for every $1 of bonus. Katherine Stevens took the options, while Wayne Stevens took cash -- people laughed at him for that. "I got probably $15,000 or $20,000. At least I got it, I have the cash."

So Enron's 401K plan made Enron stock its centerpiece: You ended up with a lot of Enron "whether you wanted it or not," says Steve Lacey, a PGE emergency dispatcher who was 100 percent invested in Enron. And you couldn't sell that matching stock until after age 50; even then you could only sell small bits of it at a time. "They had you locked into it," says Lacey.

The plan's limited portfolio choices, meanwhile, seemed very conservative against the fireworks of meteoric Enron. In mid-'99, Enron split at just above $40, and over the next six months it was a certified high-flier, hovering in the $60 to $70 range and up into the $80s throughout 2000. "And when it split, that's when the craze started," recalls Lacey. "And it was common, very common, for people to go 100 percent with Enron."

The craze was fueled in part by company hype, the mailings and e-mails, the glossy literature -- "A well-oiled machine, always something somewhere about the stock," says Lacey. "The P.R. job they did on us! 'Get your parents involved, get your friends! Now's the time to jump on.'"

The cheerleading on Wall Street helped. Recalls Charles Prestwood: "Back on Jan. 26 of 2001, the analysts were predicting that at the end of the year Enron stock would be worth between $122 and $126. They predicted that at the end of 2002, it would be worth $145. It was always strong buy, strong buy -- buy all you can! When you read them kind of things, when you seen three stock splits in eight years, that's like having your horse way out there in front, and you say, 'Man, ain't no way I'm gonna take him out!'"

Into this hysterical mix came human weakness: swollen expectations fueled by the hype, a kind of "affluenza" angst of people seeing others become millionaires hitching their lives to Enron. They didn't want to miss the ride up the mountain.

"We're conservative people," says Wayne Stevens, who says that like many other PGE employees, he's "embarrassed" by what's happened -- embarrassed by his investments. "When Enron bought PGE, the stock went through the roof, and like everybody else we got excited, but we were careful. A lot of friends around us were putting everything into Enron stock. They were making money hand over fist. We had most of our money in mutual funds. But then we moved it over to Enron stock too. We put everything in one basket. We know that you shouldn't do that. But once we did it, we never moved. We were pumping money into it the last couple of years, putting the max that the law would allow, buying stock on the side, out of our own pockets, all thinking of the future, that this money would keep us from having to sell our land. We wanted to save that for our kids.

"And every day you went to work, you couldn't hardly wait to get there. It was fun to go to work. Your team was winning every day. It was just euphoria. No one could see that there was any possibility we could lose. You lost sight of reality. You never dreamed they'd ever go bankrupt."

Steve Lacey remembers the euphoria that washed over PGE: He got sick of it. Lacey, 45, is not a "stock person," as he puts it; he doesn't watch companies or know much about how to value them; he doesn't have a portfolio he cares about. This was characteristic of a lot of the workers at PGE. "All I wanted," says Lacey, "was to put the maximum amount of money that I could legally put in, have them match it and retire as soon as I could. That was my whole goal. There was no real knowledge with it, as far as investing."

But suddenly there were people at PGE who tried to be day-traders because of their "success" with Enron. "Oh! It was scary. Scary," recalls Lacey. "Here are people who are watching a stock go up and up and up; they were just frenzied. I mean, I'd walk in and there'd be at least one computer screen with the stock market on, live reports, guys'd sit there and watch it all day long like it was their favorite soap opera. It was always there: 'How'd the stock do today?' 'Oh, it's up to 89.' 'OK, good.' And this spurred some guys who thought they were going to make a killing in the market. There'd be these groups standing around, guys like me who climb power poles for a living, talking about becoming millionaires day-trading. I know some people who got hurt real bad. People used credit cards to keep buying stocks, you know, the fever was that bad. I know guys who went out and bought large amounts of Enron after it collapsed. One fellow lost $370,000 in his 401K, and he turned around and spent $45,000 of his own money to buy Enron at 10 cents a share.

"And it wasn't just workers. It was managers, it was secretaries -- it was every walk of life in that building. It was like a sickness."

Lacey has worked for 21 years at PGE. That's not long for Portland General, a company that still hires through family and friends and neighbors, where people work 30 and 40 years, where second- and third-generation employees work side by side. "I know families that have four members working here," says Lacey. "I know a guy whose brother works here, his wife works here and his brother's son works here. There are lots of husband and wife teams. Families that have lost everything."

Like Charles Prestwood, the Stevenses had no grand plans for retirement. They would use the money for college for their grandchildren. They would use it to hold on to their land, 24 acres settled by Stevens' grandparents, who traveled from Michigan in 1901. "That's 101 years in the family," says Stevens. "I grew up on this land from the time I was 9 years old, and I have so many memories of it, every inch of this ground, I've got myself in this land. We wanted to leave it to our kids, so they'd leave it to their kids, and it would carry on in the family name.

"But it didn't work out," Stevens says.

Yet oddly none of these people are bitter; they don't lash out. The feeling one gets talking to Enron employees is of heartbreak, a kind of pale-faced head-shaking shock -- as if an old buddy or a parent had suddenly turned. "I'm just a hardworking country boy," says Charles Prestwood, who made $65,000 a year. "When I graduated from high school in May of 1957, I never missed a payday until I retired on October the 1st of 2000. Worked construction for a while, and welding, then I went to work for Houston Natural Gas Systems in March of 1967, started in maintenance, at $2.78 an hour, sweeping the sidewalks, emptying the trash cans, mopping the floors. I was there when Internorth and Houston Natural merged in 1985 and Enron was born. I was with 'em all the way, from the very beginning, 33 and a half years. We had a goal: We wanted to be the No. 1 gas supplier. My job on the pipeline was keeping the gas flowing to our customers. I worked all my life devoted to it. That's what's so hurting -- so hurting down deep in your heart: When you work a whole lifetime and help build something, you feel like you had a part in building Enron ... and then to see it tore down right in front of your eyes."

This story has been corrected.

By Christopher Ketcham

Christopher Ketcham is a freelance writer living near Moab, Utah. You can find more of his work at ChristopherKetcham.com.

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