How to be an Enron millionaire

According to former colleagues, two executives reaped million-dollar windfalls by investing $6,000 apiece in the company's partnership scam. A case study in corporate rot.


Jake Tapper
January 30, 2002 1:30AM (UTC)

When she heard that Kristina Mordaunt had been mixed up in Enron's infamous LJM partnership, Julia Murray broke down in tears.

Murray, an Enron in-house counsel, wasn't known within the firm for such emotional displays. Enron was a hard-charging company that attracted tough-as-nails Type A executives and lawyers. But Kristina Mordaunt, a fellow Enron attorney who had worked in the counsel's office before joining the company's financial division, was Murray's close friend. And the news about her was rather shocking: On Nov. 7, 2001, Mordaunt was fired and escorted from the Enron building in downtown Houston by company security. According to four current or former Enron executives, Mordaunt was fired after the company found that she had made a windfall profit off LJM, one of the controversial -- and possibly illegal -- partnerships set up by Enron's former chief financial officer, Andrew Fastow.

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According to these sources, there is a lesson in Kristina Mordaunt's downfall. The ignominious exit of employees like Mordaunt, who had enjoyed the trust and respect of fellow company attorneys and managers, shows how Enron's corporate culture rotted from within, under the twin pressures of financial ambition and personal greed.

A few weeks before Mordaunt was fired, Enron had announced that her former boss Fastow was on a "leave of absence." But few inside the company expected him back. On Oct. 31, Enron had reported that the Securities and Exchange Commission had upgraded its interest in the company's financial dealings from an inquiry to a formal investigation. Within Enron, the board of directors set up a special internal committee to investigate the company's convoluted finances as well. Soon, according to the four Enron sources, the committee stumbled upon stunning news: Working with Fastow, Mordaunt and Enron treasurer Ben Glisan had invested around $6,000 apiece in LJM, one of the limited partnerships Enron had established to hide its debt. Within a few weeks, they each made approximately $1 million from those investments. Enron later revealed that Fastow himself, the financial wizard behind the partnerships scheme, earned as much as $30 million from his role in managing the partnerships.

Due to Enron's complex -- some think purposely confusing -- financial arrangements, those numbers could not be confirmed with documentation, though they were reported to Salon by the four current or former Enron executives. A congressional investigator also informed Salon that his committee has been given the same information and is currently trying to verify the charge.

What is clear is that Mordaunt and Glisan were key members of the team Fastow worked with to set up these questionable partnerships, and they appear to have benefited dramatically. "Mordaunt, for all practical purposes, was Fastow's lawyer at Enron" since she was "the top lawyer in his division," at the time, said one former Enron executive. After working for Fastow, Mordaunt later became chief counsel for a separate Enron division called EBS -- which itself was involved in highly questionable accounting activities.

Mordaunt could not be reached for comment by Salon, but according to a former Enron employee, "She has told people that she doesn't think she did anything wrong."

Glisan declined to comment. "I've been advised not to talk to anybody," he told Salon. Glisan referred calls to his attorney, Hank Schuelke, with the Washington, D.C., law firm Janis Schuelke & Wechsler. Asked about the allegation against Glisan, Bill Shields, an attorney with the firm, said only, "We're not going to have any comment."

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So far, according to the congressional investigator, the world knows "just the tip of the iceberg" about what drove Enron, once the nation's seventh-largest company, into the biggest U.S. bankruptcy of all time, depriving investors and employees of at least $1 billion. Up to this point, most of the public's attention has been focused on Enron's political connections and the failure of Wall Street's so-called gatekeepers -- the analysts, banks, credit agencies and analysts -- to sound a warning bell. But the inside story of Enron's corporate culture -- as the company transformed itself from an energy trader whose business was rooted in the physical delivery of gas and electricity into a high-finance wheeler-dealer whose business was primarily manipulating numbers -- is just coming to light. This part of the story is about greed, betrayal and deception -- and its human costs, in broken friendships, ruined careers and worse.

The apparent suicide of former Enron vice chairman J. Clifford Baxter on Friday might be the most dramatic example so far of this human cost. But Enron's corporate ranks have been suffering many shocks since last fall -- and the revelation about Mordaunt and Glisan was one of them. Many executives were stunned to learn that these two trusted co-workers and friends had been raking in such extraordinary amounts of cash. Though Julia Murray declined to comment to Salon, her tearful reaction to the news about her friend Mordaunt last November indicate the deep emotional wounds inflicted by some of Enron's suddenly rich managers as they grabbed their cash and ran for the door.

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"Did I feel betrayed? Yeah, a lot," said an Enron executive and friend of both Mordaunt and Glisan who would speak with Salon only on the condition of anonymity. "I was extremely surprised."

After the news about Mordaunt and Glisan broke inside the company, colleagues rushed to see who else might have been involved in the scandal. After Mordaunt was escorted out of the Enron building, said one executive, "I called a number of people I know who work in the finance division and said, 'Please tell me that you didn't invest in LJM!"

LJM along with LJM2 and Chewco have become the most notorious of the shady accounting partnerships set up by Enron. Set up, it is now believed, specifically to hide Enron debt from public scrutiny, the partnerships proved to be the catalyst for Enron's fall.

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On Nov. 8, 2001, the same day the company announced that its financial statements from 1997 through the first half of 2001 "should not be relied upon," Enron filed an "8-K" form -- an interim document required for certain types of financial events -- with the Securities and Exchange Commission. In that form, Enron disclosed that some of the "limited partners" in the partnerships "were, at the time of the investment, non-executive officers or employees of Enron." Enron also announced that it was "terminating the employment" of Glisan and Mordaunt for participating in the LJM partnerships.

"At the time these individuals invested in the limited partnership, LJM1 had ceased entering into new transactions with Enron," Enron's 8-K stated. "However, some pre-existing investments involving LJM1 and Enron were still in effect, and Enron believes that these investments resulted in distributions or payments to LJM1 and to the limited partnership in which these individuals invested."

According to the congressional investigator, Mordaunt reaped her LJM windfall after she was approached by an Enron executive, who asked her if she wanted to make some money. Yes, she said. "Give me a check for $6,000," he told her, according to the congressional investigator. Later, the executive asked Mordaunt for her bank account number so he could deposit the proceeds from her investment. "How much is it?" she asked. He told her to check her bank account the next day. When she did, she discovered over $1 million had been deposited into her account. The congressional committee is currently investigating the matter.

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The Nov. 8 SEC filing also clarified Fastow's role in the company. He was no longer officially on a leave of absence. He "is no longer working for Enron," the filing stated.

At a November news conference, then-CEO Kenneth Lay reported that he knew about the partnerships but not about Mordaunt's and Glisan's role in them.

Asked last week about the allegations against Mordaunt and Glisan, Enron spokesman Mark Palmer said, "I have no idea." Palmer noted that a special committee had been appointed "to look into" such matters. "I know they're looking into everything surrounding those transactions," he said, referring to the partnerships.

Said another former Enron executive after hearing about Mordaunt's and Glisan's lucrative deals: "Hillary Clinton should have gone to their school of futures trading."

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To many of their former colleagues, Mordaunt's and Glisan's closeness to Fastow's suspicious transactions makes things look even worse. "To many of us, this looks and smells like a bribe," said one Enron former employee. "'I' -- Fastow -- 'will give you money, you shut up.' Or put another way, 'Here is the payoff for helping me set up the structures that helped me rake in more than $30 million.'" The two weren't merely "Enron executives," the former employee says, "they were the treasurer and one of the top lawyers in the company. And both of them worked on LJM-related deals. That is what makes it sickening."

The accusations highlight the personal betrayal many Enron executives feel. After Mordaunt and Glisan were fired last November, their former colleagues spent much time trying to figure out how it all could have happened.

Mordaunt, according to a current Enron executive, "was very tight with Andy [Fastow]. Andy was responsible for making her managing director, and she would have done anything for him." Nonetheless, as a lawyer, Mordaunt should have known better, the executive said. "Given his connection with LJM, which was dicey at best and at worst probably illegal, I personally would have stayed far away from it. But you never know how Andy spun it to her."

After working as Fastow's top lawyer, Mordaunt later served as chief counsel for EBS, an Enron subsidiary set up specifically to handle another complex partnership, code-named Braveheart. In Braveheart, Enron sold 10 years' worth of future revenue from a broadband interactive television deal it was setting up with Blockbuster. Although the deal itself never went past the testing stage, Enron booked $110 million worth of revenue for selling off those future, never-to-be-realized earnings.

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Glisan also played a key role in Fastow's division, a former Enron executive noted: "All the deals we did had to go through Glisan and get his approval because of the impact on funds flow." The former executive, like others affiliated with the firm, said that he once had a positive impression of Glisan and was surprised to learn that he had been an LJM investor.

To some current and former Enron executives, the transformation of respected managers like Mordaunt and Glisan represented a major shift in the company ethos. "In my opinion this all goes back to when Jeff Skilling took over and Enron ceased being an energy company and we became an earnings company," said one former executive, referring to Enron's metamorphosis into a company that focused more on highly complex financial-derivatives trading than on actual commodities.

In 1997, Skilling became the company's president and chief operating officer. Press accounts of Enron's rise traditionally gave him credit for Enron's increasing focus on complex financing schemes and risky leaps into such areas as bandwidth trading, an enterprise that ended up costing the company hundreds of millions of dollars.

Skilling was "all hype," the one-time executive says. "Everything he did was to hype the stock. And they had this need to create complex financial dealings to hide all the things going wrong.

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"Once we became an earnings-focused company, that was the beginning of the end." The former executive said he's still unsure whether recently resigned CEO Lay knew everything that was going on. "But that doesn't excuse him. Captain Joe Hazelwood didn't know that the guy was going to run the Valdez into the reef. But he was Captain Hazelwood. It was his ship."

The company's business practices changed under Skilling, this former executive said. And so did the attitudes of managers like Mordaunt and Glisan -- and Lay, for that matter. Keeping the stock price up, at all costs, became the order of the day, even if that meant telling employees all was fine, when in fact the company's situation was rapidly deteriorating.

"[Lay] lied to us starting in August," said the former executive. "He lied to us." In August, Lay went before the company and announced that Skilling was resigning for personal reasons. In an all-employees meeting, Lay told a touching tale about why Skilling felt the need to leave the company.

Skilling, Lay said, had recently visited the Teesside Power Station, Enron's gas-fired power plant in northeast England, where an Aug. 8 explosion and fire had killed three Enron employees. "It shook him up so much he realized how much he had sacrificed with his own family," one executive recalled Lay saying. "And he wanted to spend more time with his kids." Lay then told the company more lies, according to the executive: that Enron had just enjoyed the best quarter in its history; that it was going to be more friendly to Wall Street; it was going to simplify its accounting practices; there were no other people other than Fastow involved in the shady partnerships.

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"About two weeks later, the news came out about Ben Glisan and Kristina Mordaunt," recalled the executive. Soon afterward, the company was told that "we would have to restate our earnings for the past five years."

Then came the news that executives like Lay had been dumping their stock for years while simultaneously telling stockholders and employees that all was fine and the stock would soon bounce back. In hindsight, few Enron executives believe that Skilling's departure had anything to do with the Teesside Power Station tragedy.

"Lay got in front of the entire company and just lied," said the executive, who has lost his life savings. "I feel like a schmuck."


Jake Tapper

Jake Tapper is the senior White House correspondent for ABC News.

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