0:00 On August twenty-second, 2001, a seven-page memo landed on the desk of Enron chairman Kenneth Lay.0:07 Last week, we saw how Dennis Kozlowski's art tax dodge was a fraud of pure, simple greed.0:14 Enron was a fraud of pure, dizzying complexity.0:18 The memo was from a vice president named Sherron Watkins, and it contained a single, chilling warning.0:26 "I am incredibly nervous," she wrote, "that we will implode in a wave of accounting scandals." She was right.0:35 The fuse had been lit.0:37 To understand how, you have to rewind.0:40 You have to follow the money.0:42 Enron presented itself to Wall Street as a futuristic, asset-light energy trading company.0:50 CEO Jeffrey Skilling sold a story of endless innovation and consistent, miraculous growth.0:57 The problem was the balance sheet.0:59 In reality, Enron owned billions of dollars in underperforming assets...1:05 power plants, water utilities, broadband networks.1:09 All of it carried massive debt.1:12 And debt looks ugly to investors.1:14 So Chief Financial Officer Andrew Fastow came up with a solution.1:20 A brilliant, intricate, and deeply fraudulent solution.1:24 He created a shadow company.1:26 Then another.1:27 And another.1:28 Soon there were hundreds of them—Special Purpose Entities with names like Raptor, Chewco, and JEDI.1:36 Enron would "sell" its debt and its failing assets to these entities.1:42 Poof.1:42 The debt was gone from Enron's books.1:45 The company looked healthy, profitable, and lean.1:49 But here is what the official statements didn't mention.1:53 These shadow companies were not independent.1:57 They were propped up by Enron's own stock.2:00 And they were secretly run by Andrew Fastow himself, who paid himself over thirty million dollars in fees for his services.2:10 He wasn't just hiding the company's debt.2:14 He was personally profiting from the deception.2:17 And the auditors at Arthur Andersen, one of the most respected accounting firms in the world?2:25 They signed off on it.2:26 Every transaction.2:28 For a fee of one million dollars a week.2:31 The first public sign of trouble came just eight days before Sherron Watkins wrote her memo.2:39 On August fourteenth, CEO Jeffrey Skilling—the architect of the entire vision—abruptly resigned.2:46 He cited "personal reasons." The captain was abandoning a ship he KNEW was sinking.2:53 Wall Street, which had run on pure belief in Skilling's story, began to ask questions.3:00 The stock, which had peaked at ninety dollars a share, began to slide.3:05 And because Fastow's shadow companies were backed by that same stock, their foundations started to crack.3:14 The debt that had been so cleverly hidden didn't just reappear.3:19 It came rushing back all at once.3:21 The Wall Street Journal started digging.3:25 The SEC launched a formal investigation.3:28 Inside Arthur Andersen's Houston office, a partner sent an email ordering employees to destroy all Enron-related documents.3:38 They shredded paper by the ton.3:40 But you can't shred the truth.3:43 On December second, 2001, Enron filed for what was then the largest bankruptcy in American history.3:51 Twenty-thousand people lost their jobs overnight.3:54 Their 401(k)s, filled with now-worthless Enron stock, were vaporized.4:00 Kenneth Lay, Jeffrey Skilling, and Andrew Fastow were all convicted of fraud.4:06 Arthur Andersen, found guilty of obstruction of justice, collapsed entirely.4:12 For years, the twin glass skyscrapers of Enron's headquarters stood empty in downtown Houston.4:20 A two-billion-dollar monument to a company that was never really there.
