Enron author cites lack of morality in epic collapse.

(Editor's Note: Austin, TX author Robert Bryce wrote the highly acclaimed Pipe, Dreams, Greed, Ego and the Death of Enron. His most recent book is entitled Cronies. Oil, The Bushes, and the Rise of Texas. America's Superstate. In this article, he answered a number of questions from P&GJ

P&GJ: Has anything new emerged that has either reinforced or changed your thinking about how the personalities, manners, and morals of Enron's leadership contributed to the collapse?

Bryce: Everything that's happened since I finished writing Pipe Dreams has reinforced my belief that fish rot from the head. Enron's failure was largely caused by a lack of moral, ethical leadership on the part of Jeff Skilling, Ken Lay, Andy Fastow, Ken Rice and the other key players. By selling massive amounts of stock, by bullying their underlings, by their sexual misconduct (Skilling, Rice, Lou Pai and other top Enron officials were known to be having affairs), these characters set the cultural tone in the executive suite, and that was: anything goes. Deceptive accounting was just one part of that culture.

P&GJ: Do you believe Andy Fastow was so brilliant and deceitful that he was able to "pull the wool" over people like Lay and Skilling, or did they understand and go along for their own self-interest?

Bryce: Fastow did probably deceive Lay--at least a little bit. However, I don't believe for a second that Skilling and Lay didn't know much of what was going on. Remember: it was Lay who went to the Enron board and asked them to approve some of Fastow's off balance sheet skullduggery. It was Lay who chose Skilling to succeed Rich Kinder as CEO of Enron. (Kinder has proven his smarts at Kinder Morgan. He's now worth about $1.3 billion). Furthermore, once the trials begin, I think it will become clear that Skilling quit his job as CEO in August 2001 because he saw that many of Fastow's off-balance sheet deals were unraveling and that they were going to ruin the company.

P&GJ: In describing Enron's culture as one of cheating and deceit, was this style a culture for the whole company of 20,000 or was it an exception that came from a few at the top who had poor or no moral character?

Bryce: The overwhelming majority of people at Enron were moral, ethical people. They didn't make huge salaries and they sweated the details. It was the dealmakers and the executives who were the ones most corrupted. And that attitude was all about selfishness and greed.

P&GJ: Could Enron have succeeded with its innovations and new business style if the management was an honest, hardworking group that had not filled their own pockets with money?

Bryce: Doubtful, but maybe. The $1.2 billion worth of Enron stock sold by the 30 insiders in the three years before the bankruptcy was a huge drain on profits. But those costs came on top of a series of terrible business decisions--nearly all of them approved by Ken Lay. The Dabhol power plant fiasco in India (engineered by Rebecca Mark, who sold $82 million in stock and probably won't be indicted) cost Enron $1 billion or so. The trading business, despite all of the rock 'n' roll glamour that came with it, never made any real money--except for when the traders were gaming the California gas and power markets. I believe the trading business was as a whole--an enormous cash drain that was constantly sucking up money.

P&GJ: Ken Lay now talks about trying to help those who lost so heavily in the collapse? What can he actually do to help them?

Bryce: I've heard--and it might not be tree--that he and O.J. Simpson are going to team up on that effort. Seriously, unless Lay has an extra $50 100 million sitting around that he can put into that effort, there's not much he can do to help the people who got hurt.

P&GJ: In your view, how much did Lay and Skilling actually know about the pending disaster? How much did each benefit financially prior to the collapse?

Bryce: I think both knew more than they are telling. Why else would Skilling have quit in August 2001? Skilling loved the power and prestige that came with being Enron's CEO. I believe that he saw the collapse coming. He saw that the stock price triggers on the off-balance sheet deals were going to be a huge drain. He saw that the Dabhol project in India was going to hurt them. He got out when the getting was good.

As for Lay, I believe he had a chance to save Enron in October 2001 after the first reports came out showing that Fastow was making millions off of his insider deals with the company. But instead of going straight to the SEC and asking them to halt trading while he did an investigation, Lay dithered. He told Wall Street analysts that Fastow was doing "an outstanding job as CFO." Then a clay later, Fastow's put on leave. That was the stake through Enron's heart.

Lay's stock sales totaled more than $184 million in the three years before the bankruptcy. Skilling's stock sales totaled more than $70 million during that period. Of course, they also got salaries and bonuses in addition to the stock sale proceeds.

P&GJ: How strong was Enron's political clout?

Bryce: Way strong. In recent decades, no single company, and no single individual have had closer ties to a sitting president than Enron and Ken Lay. Until a few months ago, Enron was GW Bush's biggest career patron. Look at the record: U.S. Trade Representative Robert Zoellick was an Enron employee. Former Secretary of the Army Tom White was the head of Enron Energy Services. Former Secretary of State James A. Baker III was an Enron lobbyist. The current head of the Republican National Committee, Ed Gillespie, was an Enron lobbyist. So was his predecessor at the RNC, Mark Racicot. Another top Enron lobbyist was Ralph Reed, the former head of the Christian Coalition. It's doubtful that Reed knew much at all about energy deregulation, but Bush's political guru, Karl Rove, advised Enron to hire Reed, and so Reed got a job that paid him several hundred thousand dollars.

Lay was able to have White House sleepovers, White House lunches, and private meetings with Dick Cheney during the formation of the national energy policy plan. It's a remarkable record. In addition, Enron's lobbyists were very successful in Texas, in California, Pennsylvania and elsewhere in getting their agenda passed.

P&GJ: What were some of the most egregious examples of misconduct that you learned about?

Bryce: I still love the motorcycles. Ken Rice, who was the head of Enron Broadband Services, bought two high end motorcycles, Confederate Hellcats, each costing more than $25,000, and used them as office decoration. A couple of ficus trees would have been a whole lot cheaper. Rice now faces charges of conspiracy, securities fraud, wire fraud, insider trading and money laundering. His trial is scheduled to start on Oct. 4.

P&GJ: Do you think either Lay or Skilling or both will be sentenced to prison?

Bryce: I think that Skilling and Lay will both end up doing time in prison. Over the past few months, the federal prosecutors have had a pretty good record--look at Martha Stewart, Sam Waksal, or the Rigases. The reds won all of those cases. The reds took a long time to indict Skilling and Lay--and they had plenty of time to consider which charges they could make stick.