Kurt Eichenwald (Courtesy
Kurt Eichenwald is the author of Conspiracy of Fools, a detailed chronicle of the Enron scandal. Eichenwald is a 17-year veteran of the New York Times, a two-time winner of the George Polk Award for Excellence in Journalism and a finalist for the 2000 Pulitzer Prize. His last book, The Informant, is currently being adapted into a major motion picture.
Thomas Lang: Your book’s press release hypes your last book, The Informant, as “a gripping corporate thriller with more plot twists than a John Grisham novel.” And, like a John Grisham novel, this new book contains detailed blow-by-blow accounts of high-level meetings populated by panicky executives, up to and including the specific sink a certain executive chose to throw up in as the debacle unfolded. How did you go about reconstructing those conversations? And why should the reader trust that your reconstructions are accurate, when you don’t identify your sources?
Kurt Eichenwald: What I find so interesting in that [question] is that the most difficult reporting that I ever do is in these kinds of reconstructions. The other day I was at an event where a person who I interviewed [for the book] attended. It was a government official. He was commenting to people there that he’d never been through an interview like the one he’d experienced for this book. He started off telling me he was only involved in these events for ten minutes, that he shows up in the book for the equivalent of ten minutes, but that the interview lasted over two hours. The way it happens is simply asking questions, circling back, checking documents, finding out [what] things line up with each other, and, ultimately, getting the most detailed reconstruction you possibly can.
… [W]hat I’m doing, I’m checking people’s memories against the documents. I’m checking people’s memories against other people’s memories. I’m checking people’s memories against all of their records, and also against whatever they told me two-and-a-half hours ago when we spoke about the same thing. Ultimately, what I end up with is ten times more accurate than paraphrase, which is what most journalism relies on. The reason that it’s more accurate is because I’ve had to delve into it to this degree.
It’s funny, what I’ve found in having these kind of interviews is that there is some recess in people’s brain that stores information because as you keep bearing down and bearing down, probably in about an hour-and-a-half you start tapping into memories that people seem to not have been able to access earlier on. You could always say, “Well, they are being manufactured out of the torture of going through the interview.” But, in truth, it’s those memories that always seem to be confirmed in other interviews with other people. And the consistency of what people talk about is why I have a great deal of confidence that this is what happened. That, plus the fact that every time I’ve done this, I’ve had people who are participants in the events say to me “that’s what happened,” or “that’s the way it went.”
Why should people trust it?
Unlike a lot of reconstructions, and unlike a lot of journalism where we just say “sources said,” you can flip to the back of this book and you will see things like the FBI 302’s from the ongoing investigation, grand jury testimony, people’s personal diaries, schedule books, people’s personal emails, documents that you couldn’t get through a [Freedom of Information Act] request, documents that haven’t appeared in a news article. Virtually every scene has documentation like that backing it up. And so when people are wondering, “how can I trust it,” you can turn around and go “This kind of documentation is not easy to get. Not only that but this kind of documentation doesn’t stand behind anything else I’ve read [on Enron], so even though this is an exceedingly detailed rendition it is the most heavily-documented rendition, involving documents that other people do not have …”
I find it so unbelievably frustrating … people who’ve never done this … think that I’m just making things up. Have any of them ever sat down with someone for 72 hours? When you have a 72-hour interview you’re obviously talking about a lot of material [to get through] to get people to sit through these [interviews.]
TL: Was there any one standard or any one thing that would tip you off that someone wasn’t telling the truth? How did you test their [statements]?
KE: There’s never a single standard. One element is the way the interview works. I’ve never disclosed this before. The interview is three, well, four parts. Part one is always [gathering] general background on the individual being interviewed. Depending on that person’s significance to the story — if they are a minor player it can last forty-five minutes, if they’re a major player it can last two-and-a-half hours. Now, the reason that is done is several things. One, to give me a sense of how the person talks. Two, to give me a sense of who is this guy, where does he come from, what is his background? What are his influences? And when you talk to someone for two-and-a-half hours about their background, you are learning a lot of that. And three, to disarm them. When a reporter sits down with an interview subject, the first thing they’re thinking is that they are going to talk about the center of the storm. But suddenly we are talking about their favorite counselor at summer camp. And when you go on and on and on down that path, people relax. They also begin to learn how the interview works in a very non-threatening environment. When you are talking about people’s childhoods for the most part — a few times I’ve been surprised thinking to myself “this is the most horrible childhood I’ve ever heard about” — but for the most part it’s because it’s so non-threatening that people get used to speaking in the level of detail that I’m looking for.
Part two is what I call the overview. It can last about six hours. Again, I’m talking about for a major individual. You go from start to finish of the story. You do that, usually, without reference to documents. I do, however, do that with … [a] timeline that I bring to every interview that I’ve constructed prior to that.
Part three is the drill-down, where you go back and go through the exact same time period, day-by-day. That day-by-day drill-down where things get very, very specific. By then — I hate to say this—- people have been trained. By then, people have had their blowup at least once. Where they go, “Why do you need to know this kind of information? What you asking me about this for?” Somebody will get frustrated at me asking what kind of bread was on the sandwich they had for lunch. It gets frustrating.
Part four, the last part, is the specific drill-down. In other words, going back to areas of a problem. What’s useful — throwing aside the background — about [taking the individual being interviewed through] three renditions of the same story is that each time I’m going over the same topics, and at the end I have knowledge of thirty hours ago we talked about this and you said things slightly differently. People are not able to maintain a complete falsehood — or even a minor falsehood — with that level of specificity without slipping up. And I’ve experienced that.
The other is, when you’re doing it coupled with everybody else you can get, what I settle on is the consistencies. Whatever is consistent is the story. Now, I’ve had people that have denied things that are provable through the documentation. That’s the other thing, I would encourage [readers] to look at the notes and sources because it does give you the who-wins-and-who-loses standards. Documents are the foundation of the story. Documents define the story. And each document I give a different level of weight. The video or audio of the very thing I’m talking about is the ultimate winner. But if the documents establish something — and establish it clearly — I’ve had someone deny that something I had on video happen. He didn’t know I had it on video and I didn’t alert him to the fact that I had it on video. That told me that this guy was willing to lie. …
I don’t ever come in and say, “Ha, I know you’re lying,” at the beginning. That I’ll just save until the final drill-down when I go back and say there are some problems here. Primarily, that allows me to see how far this guy will go. So, when you take all that material, and you put it all together, and you have the foundation of the documentation that gives you a very good protector against deceit.
Whereas, I don’t think the traditional journalistic practice of two sources [for every fact] even gives you protection against mistakes. I don’t do “majority rules” on these things. My favorite story came out of my last book. I had four people in a room. I interviewed them and one of them said they had listened to a voice mail and three of them said they had listened to a tape recording. The question came down to “Where did the tape recorder come from? ” “Who picked it up?” “Who brought it in?” “What kind was it?” And people were having problems answering the question. The guy with the voice-mail, when I went back to him, said it wasn’t a tape recorder, it was a voice mail. Now I keep circling around and around and around, because I have this clear conflict. If I’m going to describe what they’re doing I can’t figure out where the tape recorder came from and I don’t have them picking up the phone to listen to the voice mail, so I have a problem. And it took four or five rounds until finally everybody said “Oh, it was a voice mail.” Now, if I had been a newspaper reporter and I had talked to two of them and they said it was a tape recorder that would have ended up in the paper.
TL: In the book you quote Mark Palmer, Enron’s spokesman, saying to Ken Lay, “I’ll tell you what’s going on, Ken! The Wall Street Journal knows more about what’s going on at your company than you do!” You also often refer to the Journal reporters whose stories propelled Enron’s downfall. As a New York Times business reporter, how did you feel about writing so positively about your competitors? Where was the Times on all this?
KE: It’s funny, this is the second time I’ve been asked this question. Once, by somebody at the Times. It never even occurred to me that it was an issue because, again, I’m not looking at these things from the viewpoint of how does this make me feel, or how does this make so-and-so appear. I never consider that. It’s what happened. That’s what Mark Palmer said, so that’s what I wrote. It’s what the Journal reporters did, so that’s what I wrote. It actually is the great upside of this kind of writing style — that it is emotionless. What happened, happened, and I can’t get in the way. So if the Wall Street Journal reporters come off looking really good, well that’s because what they did was really good. If I in any way hesitate, or hedge, because I don’t want to make a competitor look good, then what kind of reporter am I? I’m changing facts, influencing facts because of how I feel. That to me is the height of irresponsibility. They came out the way they came out because that is what they did, and good for them.
Where was the Times on all this? The Journal had been ahead on the Enron story, they did get their leg in first. Their initial stories did have an impact on what was happening inside the company. That was how I judged which stories I was going to talk about. Those stories that had an impact. There was a point when the Times did start to come in and one of their stories had an impact. That story is mentioned. The period through 2002 I don’t really mention a lot, the story ends pretty much on January 24 of 2002. I like to think through 2002 that the Times [was] much more competitive with the Journal on this story.
TL: I want to talk about another way someone comes off in the book. A New York Times book review by Charles R. Morris applauded your account, but quibbled with your portrayal of Kenneth Lay as a “kind of amiable simpleton, glad-handing his way through Houston’s moneyed upper crust.” Morris notes that Lay has a Ph.D. in economics and was a former deputy undersecretary of energy, and suggests that he must have been more aware of the financial flim-flammery all around him than your book indicates. How do you respond to that?
KE: First of all, Mr. Morris’ review was unbelievably generous. Also, his statement that Lay must have been more deeply involved in the accounting fraud than the book portrays is not … an unusual comment. … What’s so amusing is that I don’t think people know that Ken Lay hasn’t been charged with the accounting fraud. He hasn’t been charged with involvement with anything prior to August 15, 2001. In fact, the first true overt act of the criminal charges against [him] is September 26, 2001, just weeks before the bankruptcy of December 2, 2001. His charges are almost exclusively about statements he made while Enron was collapsing, which the government says were upbeat, positive statements which he knew were false. Every one of those instances is detailed in this book. Every single element that surrounds Ken Lay’s case is detailed in this book. Do I not link him to the accounting manipulations that took place in the period before that? No, he is not shown as a participant in those events.
I find it hilarious that people think that if the government couldn’t find sufficient evidence to bring a grand jury indictment that somehow or another I should be able to prove it. Bear in mind that I’ve had access to a lot of the material from the government investigation. My rendition is of Ken Lay prior to his indictment. He was indicted in July, the manuscript was finished in August. I was really, really happy because everything I looked at that that said this is an issue, this is a problem, ends up being in the indictment. And everything where I just took a flyer, and said I can’t find him involved in anything prior to 2001, I can’t find an issue, the government came out in the same place.
What’s so funny to me in this criticism is that people are criticizing the government case. They are saying, why didn’t the government find him more involved in the accounting machinations? Because the evidence isn’t there. Now, does that mean he wasn’t? That just means there isn’t sufficient evidence to prove it. Given all the government witnesses, given all the government evidence. they have chosen not to bring a criminal case [against Lay] relating to the accounting frauds involving the off-the-books partnerships. There is one accounting charge against Lay which is glossed over in the book. It’s a very complicated charge, and truthfully I could not figure it out one way or another. There are several things that happened and I simply couldn’t nail down the reality of what happened. …
People have not taken a close enough look at what the case against Ken Lay actually involves. Because my book lays out the case against Ken Lay. It does not lay out the case that people imagine is there.
TL: In my first question I mentioned the John Grisham-type press spin your publisher is going for. Random House even assigned you an editor who has edited mystery novels by best-selling authors like Patricia Cornwell and Dean Koontz. What audience did you have in mind when you were writing your book? And do you think the future of financial journalism hinges on the ability to captivate readers in the manner a great suspense novel does?
KE: It’s so funny. I think that a lot of people would think that I would be offended that they’re trying to cast this as a thriller, trying to cast this as a true Grisham novel. Actually, it was my idea. I kept noticing that the things I was covering were very similar to the things he was writing in his books. I eventually saw an interview Grisham did with a newspaper and he said that he gets all of his ideas from the newspapers. And I figured that this guy is read by everybody, and how many people read me? I don’t know how many. But he’s on to something. He’s right. These are really thrilling stories and they can be told be in a really thrilling way. And there is nothing about our job — our job is to deliver information to people — there is nothing about our job that says that that information delivery has to be a painful or unpleasant experience.
So in looking at it, I thought, John Grisham has cracked the code, he’s just doing it with fiction. If I invested the time and the effort to do the amount of reporting that I’ve been talking about, then the same thing is achievable. People will be able to go into these worlds, they’ll be able to see what goes into a corporate fraud. I’ve been writing about corporate fraud for 18 years. And I know it is an unbelievably fascinating world. But it’s so hard to convey if you’re going to spend your time talking about accounting rules, security laws, and people’s eyes glaze over and they want to move on. Instead, I take the narrative, I take the people. I’m also trying to say that these are not evil human beings; these are not the spawn of Satan who have just gone off and decided to rip off the world. These are human beings, these are normal — well, not normal — but these are the kinds of people that populate corporate American.
You will see how the decisions are made. What are the impulses? Is it greed? Sometimes. Is it envy? I think more times than not. Is it arrogance? I think that is more times than not. Is it stupidity? Yes. Is it mixture of all of them? We in the press tend to play far too much on caricature. People have said to me, “Were they crooked, or were they stupid?” And they can’t handle it when I answer, “Yes.” It’s this mentality of you’re either one thing or another, you can’t possibly be both. While I think in our human experience, we recognize a single person can be ugly but beautiful, a single person can be brilliant but stupid, a single person can contain far more character types than we can convey in a 1,000-word news article. So when it’s described as a Grisham thriller, when its described as being novelistic, that was my intent.
Who my audience is? I’m not writing for people who want to know the intricate rules of accounting. They might end up knowing that, but that is not who I’m writing for. I’m writing for people who are flying on airplanes. I’m writing for people who are on the beach, for people who can’t get to sleep at night and want to read a good book. Ultimately, by writing it in the style I’m writing it in, by delivering them something that they will enjoy, hopefully, I am conveying the critical information to a far wider audience that I would have otherwise.
TL: Without pressure from the financial press would Enron have fallen?
KE: That’s one of those “If things were the different, would they be the same?” questions.
To me, the amazing thing about Enron isn’t that it collapsed, it’s that it stayed up as long as it did. I think Enron would have collapsed eventually in any event. You’ve got to bear in mind that what came out in the fall of 2001, for a financially stable company, for a financially strong company, that should have been a hiccup. Today, AIG is facing far worse stuff in the newspapers than Enron did in the fall of 2001. But nobody is talking about AIG going under, because it is a financially strong company. That is what has always been so amazing to me about Enron …. When you actually look at the company and pull it apart, you realize that the combination of incompetence and crookedness is what drove it under. The incompetence created a balance sheet — a financial foundation — that could not withstand a bump in the road ….
The illogic and conflicts of interest which came out in the fall of 2001 were the spark. The balance sheet was soaked in gasoline and [the revelation of the fraudulent, self-serving deals Enron executives made with each other] was the spark. The fact that there was a manipulation of the income statement didn’t come out until Enron was gone. All we knew ahead of time was that the CFO had been the general partner of a partnership that did business with Enron. That there had been at least $7 million in profits [to him]. That Enron had announced [an inexplicable] write-down …. Just from that, the company starts going into a tailspin. Then, November 8 of 2001 comes along, and they announce the restatement of five years of financials, and they announce that two other people in the company had been profiting out of the partnerships. That was the end.
Again, these are not the kinds of things that should drive a financially stable company under. Was the press a precipitator in 2001? Yes. But if you have a room full of gasoline, something is going to set it off. If it’s not the press, it’s something else. Enron would not have survived and … when presented with evidence of how bad things were, people inside just ignored it. They didn’t believe it. They didn’t want to believe it. They were too wrapped up in their own sense of brilliance. … It was terrible. Worst company I’ve ever looked at.
TL: Which brings us to the next question. Your book contains plenty of “Omigod!” moments when one various high-level Enron executive or another finally realizes for the first time that the whole thing is a fabrication, a house of cards about to implode. In all your research, what single incident in the debacle stuck out the most? Shocked you the most?
KE: Those are two different questions. What shocked me the most is the scene immediately after Andy Fastow is removed as Chief Financial Officer and he is replaced by Jeff McMahon, and there is a meeting where they attempt to gather basic financial information to get a sense of what’s going on with the company. And they find out that Enron doesn’t track its cash. They find out that Enron doesn’t have a schedule of debt maturities. They find out that Enron has accidentally gone short about one-third of a public company. They find out that Enron has put together financing where their obligations are in direct proportion to the stock price falling. They find out that ultimately this place was … horribly mismanaged and set up as a disaster.
It’s so funny because people who are not in finance will talk about one scene or another that they find amazing. Every person in finance, I will know who they are, because they will walk up to me and say, without introducing themselves, “They didn’t have a schedule of debt maturities?” Which sounds really boring, but it’s like building a house without a foundation. … [T]here are people inside the company who when I told them this, they were insisting I was wrong. They said “That’s not possible. … That can’t possibly happen. … We had to have had that.” I was like, “No, you didn’t …”
To me, the true understanding of Enron comes on the morning of October 24. It doesn’t have anything to do with accounting, anything to do with fraud, anything to do with anything. It’s when Jeff McMahon [the new CFO] walks into a room and says, “How do we save the company?” and he walks out some time later and calls Ken Lay and says, “We need to get the bankruptcy lawyers in here.” What happened in that hour? What happened is that they found out that the company was not managed like a real financial company. It was managed like a lemonade stand. There was no way in a crisis to fix all those problems.
That was the most shocking. There are two that tie for [most memorable]. One is the scene where Ken Lay learns about [an off-the-books partnership called] Chewco. The whole story of everybody finding out about Chewco and that Michael Kopper [head of special projects in the finance division] has an interest through his domestic partner, and the bizarre efforts to keep Chewco as a valid special purpose entity, which would require 3 percent independent investment. It wouldn’t be independent if it was a spouse, and they start arguing that Texas has anti-sodomy laws so this is not a legal relationship. They are actually trying to make a huge financial decision on the basis of Texas anti-sodomy laws. It’s just surreal.
The other one is when Enron and Dynergy reach their agreement on a merger and everybody is finalizing everything and backslapping each other. Somebody looks at the press release and laughs, “Ha, ha, Dynergy you have the wrong price in the press release.” And it ends up the two companies have approved two different deals. To me, that just underscores the recklessness of the company. All of these things underscore the recklessness of the company. That they did not work like a normal company.
TL: Do you get to have a hand in the casting of the movie?
KE: Such confidence you have. My last book is being made into a movie, and I have absolutely no hand in it. So my answer would be, if this one is lucky enough to become a movie, I am sure that I will have no hand in it.