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Enron - The Biggest Fraud in History — Transcript

by ColdFusion · 3,015 words · 467 segments · language en · Watch on YouTube

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0:00hi welcome to another ColdFusion video
0:04it's a distant fact now but Enron was
0:07once the seventh largest corporation in
0:09America they revolutionized trading and
0:12the energy market there were far smarter
0:15than their competitors and their
0:17business was intricate and too complex
0:19for the average person to understand
0:20except in reality it was all a big scam
0:24filled with lies
0:25fraud and political manipulation Enron
0:28was the biggest scam in US history the
0:32fallout from the scam was monumental
0:34billions of dollars stolen thousands of
0:37lost jobs
0:37dozens of convictions one suicide and
0:40the unveiling of a very public display
0:42of corporate greed that shined directly
0:45into the heart of corporate America this
0:48is the story of how one company took ten
0:51years to grow to sixty billion dollars
0:52in value and then in less than a month
0:55go bankrupt this is the story of Enron
1:00you are watching ColdFusion TV
1:08[Music]
1:10Enron began as an energy supply company
1:13mainly dealing with natural gas
1:14eventually the company moved on to
1:17trading making energy deals in power and
1:20then later
1:20moving on to broadband and even trading
1:22the whether there were Wall Street's
1:25darling the company that could never
1:27lose and a stock price kept growing
1:29year-on-year the company was also
1:32well-connected politically for example
1:34Enron was the single biggest contributor
1:36to the George W Bush campaign Bush even
1:39called Kenneth Lay the founder of Enron
1:41Kenny boy and it's with Kenny boy that
1:44the story starts
1:48growing up in a poor family Kenneth
1:51Leia's father was a Baptist priest the
1:54young Ken would often ponder about his
1:56future a future where he could escape
1:58his current conditions when he grew up
2:01he became a prominent figure in the
2:03deregulation of the energy sector the
2:05PhD graduate spent his time as a
2:07financial analyst in the Pentagon before
2:10climbing the ranks and becoming close
2:11friends with George Bush Senior Ken Lay
2:15would even send the Enron corporate jet
2:17to take George senior and his wife to
2:19their sons inauguration as you will see
2:22later these favors did not go unruhe
2:28[Music]
2:30the first red flag the founder of the
2:33company Kenneth lay the something was
2:35wrong within the company came during the
2:36valhalla scandal of 1987 to oil traders
2:41working for Enron gambled enormous Lee
2:43on the company's behalf shifting money
2:45to fake accounts with names such as my
2:47ass or my ass worried auditors told lai
2:51that they found the two traitors moving
2:53money into their own accounts
2:55manipulating earnings and gambling on
2:57trades beyond their capacity but instead
2:59of firing the two road traders lai made
3:01no changes didn't seem to matter what
3:04they were doing as long as they were
3:05making the company money and run even
3:07sent them a letter saying please keep
3:09making us Millions
3:10later the two were convicted of fraud
3:13Ken Lay acted shocked saying that he was
3:16not aware of their reckless gambling and
3:18theft but as revealed later he actually
3:21encouraged it one of the convicted
3:23traders was sent to jail for a year and
3:25this gave Ken Lay a big problem one of
3:27his main moneymakers was behind bars and
3:30he needed someone new to bring in cash
3:32enter Jeffrey Skilling
3:37[Music]
3:40skilling Enron's new CEO was leis
3:42biggest asset when he arrived at Enron
3:45he started moving the company in a new
3:47direction
3:48skilling wanted to turn Enron from a gas
3:50supply company into a stock market for
3:52natural gas he also introduced the
3:55company to mark to market accounting an
3:57idea that would allow the company to
3:59fraudulently reap billions so
4:03mark-to-market accounting simply allows
4:05the company to write down profits in
4:07their books on the day that the deal was
4:09signed this meant that if Enron signed a
4:11deal worth 50 million dollars over the
4:13next 10 years they could write 50
4:16million dollars in their books that day
4:18despite not receiving a penny it didn't
4:20even matter if the deal fell through
4:22effectively this myth of the company was
4:25worth more on paper than it had actually
4:26earned the deals were often subjective
4:30they could be worth whatever Enron
4:32thought they were worth when the
4:34Security and Exchange Commission
4:35approved the accounting trick of
4:36mark-to-market for Enron the office
4:38celebrated they knew that this was the
4:41key to making billions meanwhile
4:46skilling was known for his Darwinian
4:48philosophy survival of the fittest his
4:51favourite book The Selfish Gene
4:52describes how greed and competition
4:54motivate human nature at Enron skilling
4:58wanted to unlock these instincts in his
5:00employees one way he did this was
5:03grading all employees on a scale of one
5:05to five with one being the best and five
5:07being the worst the thing was 10% of all
5:11employees had to be greater to fire and
5:13when you were graded a five you were
5:15fired this created the competition that
5:18skilling was looking for people began to
5:20work 18 hours a day and were ruthless in
5:23their efforts to earn the company as
5:24much money as possible skilling famously
5:26said that money was the only thing that
5:28motivated
5:29unsurprisingly skilling was a massive
5:31risk taker he often went on wild
5:33adventures with other Enron executives
5:35this includes dirt biking on dangerous
5:38trails where people often flip their
5:39cars an executive even required stitches
5:42after a biking accident on one of these
5:43trips skilling said he liked guys like
5:47this guys with a bit of edge Lao PI a
5:50mild-mannered executive was one of these
5:52guys with a bit of edge
5:56skilling called Lao PI is ICBM
6:00intercontinental ballistic missile
6:02he will CEO of an Enron subsidiary and
6:05seem to be motivated by two things money
6:07and strippers PI isn't as mysterious
6:11thing as one can be in such a huge
6:13scandal he left and on in 2001 with 215
6:17million dollars became the second
6:19largest landowner in Colorado
6:20he left his business division with 1
6:23billion dollars of losses and escaped
6:25the whole scandal pretty much intact pi
6:27would come back later into this story a
6:29few decades after the dust settles Enron
6:35online will change the markets for many
6:38many commodities it is creating an open
6:42transparent marketplace that replaces
6:45the dark blind system that existed it is
6:49real simple to turn on your computer and
6:52it's right there and if you want to do
6:54business you push the button
6:58that's our vision and we're trying to
7:00change the world
7:01[Music]
7:08and it wasn't just Internet companies
7:11feeling the fever and run stock had
7:13tripled in the space of two years
7:15everyone with a little bit of spare cash
7:17was playing the stock market game and
7:20run knew that as long as the company met
7:22or exceeded endless expectations the
7:24stock price will keep rising and somehow
7:27they always met or exceeded those
7:29expectations during this time while Jeff
7:33Skilling stood at the company's
7:34conventions telling his staff to put
7:36more of their 401k in to Enron he knew
7:38that the profits were actually going in
7:40the opposite direction around the world
7:43they were losing billions on natural gas
7:45projects Enron had poured billions of
7:48dollars into appliance in India you need
7:50to realize that India couldn't afford to
7:51buy the electricity the site lay in
7:54ruins but that didn't stop the
7:55executives at Enron writing down future
7:57profits for the project into their books
7:59and handing themselves massive bonuses
8:03the analyst the very people who were
8:05supposed to stop the corruption fell
8:07under the spell of skilling the
8:09complexity of the company and the
8:10charisma of skilling made analysts
8:12simply take him at his word in fact the
8:14ones that didn't were fired the company
8:19soon began trading bandwidth after some
8:21calm inspiration they made a deal with
8:23blockbuster to provide streaming
8:25services but the technology just simply
8:27didn't work well enough yet the deal
8:30fell through but Enron still rode fifty
8:33three million dollars in their books for
8:35things began to get out of control and
8:37Enron soon began trading weather
8:39yes the weather like sunshine and rain
8:43they would soon sell futures on the
8:45weather essentially gambling what the
8:47temperature would be you would probably
8:50imagine that most people would be
8:52skeptical of this but it was activities
8:53like this that led and run to being
8:55listed on the fortune 500s most
8:57innovative companies list but one
9:00reporter at fortune would soon start
9:02asking questions and this would later
9:04lead to the company's demise Bethany
9:09McLean a reporter at fortune was doing a
9:11piece on Enron she had a phone call with
9:14John skilling where she asked some
9:16simple questions like how exactly does
9:18Enron make its money
9:19skilling said he couldn't answer because
9:22he wasn't an accountant so he sent a few
9:24finance guys including Andy fust our the
9:26CFO to answer her questions the next day
9:28they sat in the office for three hours
9:31poring over documents at the end as
9:33others had left the room and he turned
9:35to the reporter and said I don't care
9:37what you write about the company just
9:39don't make us look bad Andy Foster was a
9:43character described as having no moral
9:44compass
9:45he made Enron deaths disappear by moving
9:47them to show companies so that on paper
9:49and run was profitable he even set up
9:52his own fraudulent firm just to buy an
9:54Iran assets this fraudulent firm was
9:57called ljm Andy would later convince
9:59ninety-six bankers to invest in the scam
10:02ljm firm ljm would make Andy Faust our
10:05forty five million dollars but it seemed
10:08to that the banks were in on the deal
10:09too
10:10Merrill Lynch bought three Nigerian
10:12barges from Enron and sold them back
10:14five months later this was to help
10:17anyone cook their books and later
10:19several bankers would go to jail for
10:21this both skilling him lay knew that
10:24even this couldn't last forever they
10:26needed a new gold mine and then they
10:28turned their eyes to the Golden State
10:30California now skilling became
10:36increasingly volatile arriving at work
10:38unshaved and retired on a 2001 investors
10:41call he even called an investor in a
10:44hole a brash reaction from a fortune 500
10:47CEO the pressure was getting to him
10:51the company had to keep making quarterly
10:54targets
10:54despite their businesses failing at home
10:56and abroad California was going to be
10:59their next big score Enron merged with
11:02Pacific Gas & Electric which gave them
11:04access to the Californian grid once this
11:06was achieved strange things began to
11:08happen in the newly deregulated
11:10electricity market of California rolling
11:13blackouts became common but strangely
11:15the state had almost doubled the
11:17capacity than there was demand so why
11:19was this happening it turns out Enron
11:22traders were manipulating the market
11:25they moved electricity out of state to
11:27increase demand and when the price got
11:29high enough they would move it back in
11:31they even called power plants and asked
11:34them to make excuses to shut down for a
11:36few hours increasing the price as those
11:38less demand traders had energy maps and
11:40the control to move the energy they knew
11:43exactly how to squeeze every last dollar
11:45from the people of California while the
11:48state faced blackouts causing unknown
11:50holes on the lives of Californians the
11:52Enron traders were high-fiving
11:54themselves over their bonuses Ken Lay
11:57even said it doesn't matter how many
11:59rules you Californians make I've got a
12:01bunch of smart people here that will
12:02figure out how to make money anyway the
12:05year-long ordeal would cost California
12:0730 billion dollars but why didn't the
12:10state put a stop to it well the law
12:13states that it's the federal government
12:15issue and it's their responsibility to
12:17take care of it and guess who the
12:19president was at the time that's right
12:22leis good friend George W Bush Bush
12:26refused to step in saying that it was
12:28his administration's belief that
12:30intervention would not solve anything
12:32the Federal Energy Regulation Commission
12:34also didn't step in until the Senate
12:36forced them to the chairman of the
12:39Commission was personally recommended by
12:41Kenneth Lay this whole ordeal caused the
12:44people of California to turn on their
12:46governor and appoint a new one one that
12:48was more suitable for the role the
12:50Terminator
12:55one day in 2001 out of the blue skilling
12:58suddenly resigned
13:00perhaps he figured he could leave the
13:02company years before it imploded then he
13:04could say well it was fine when I left
13:06it regardless
13:08Kenneth Lay took over the CEO role just
13:11one day later Sharon Watkins who worked
13:14under the company CFO Andrew foster sent
13:16a letter to Kenneth Lay detailing the
13:18staggering amount of corruption and
13:20fraud that she'd found within the
13:21company The Wall Street Journal would
13:24write a piece about some of Andy's
13:25dealings and soon the SEC would launch
13:28an informal inquiry at this point
13:31investors began to feel nervous Kenneth
13:35Lay tried to bring calm and reassurance
13:37to investors and employees while he was
13:40addressing the company's issue to a
13:42speech to employees to several blocks
13:44away and runs accounting firm was busy
13:46shredding documents one of the
13:49accounting firms shred one ton of paper
13:52on October the 23rd but it was too late
13:54the walls began to fall and over the
13:57course of a month the company went from
13:59that healthy appearance of one of the
14:00leading innovators to total bankruptcy
14:04you want us to believe that you sat
14:07there in your office and didn't and had
14:09no clue that this place was about to
14:12collapse
14:12on the day I left on August 14 2001 I
14:17believe the company was in strong
14:19financial condition I did not do
14:21anything right that was not in the
14:23interest and all the time I worked for
14:24an run corporation that was in the
14:26interest of the shareholders of the
14:27company if I could go back and redo
14:29things I would not know
14:33for the thousands of people who held
14:36Enron stock the market was frozen at the
14:38$32 mark and when it reopened it was
14:40nine dollars a share meanwhile andron
14:44executives had a fire sale of all of
14:45their stock in the months leading up to
14:48the bankruptcy skilling told his
14:50employees to blame or stock while he
14:52sold all of his as the media began
14:55circling the story criminal
14:57investigations were launched cliff
15:00Baxter a trader who often went on
15:02Skilling's wild adventures cashed in 30
15:04million dollars from Enron after being
15:06called to testify in court
15:08Baxter Cod in his Mercedes drove down a
15:10quiet street and shot himself
15:12Andy Foster the former CFO pleaded
15:16guilty to conspiracy to commit wire
15:17fraud he ratted out and cut himself a
15:20deal to testify against other Enron
15:23executives he was sentenced to 10 years
15:25but only served six and paid 23 million
15:28in fines and runs accounting firm Arthur
15:32Andersen the one that shredded one ton
15:34of paper was convicted of obstructing
15:36justice America's oldest accounting firm
15:39collapsed due to the loss of reputation
15:4229,000 people lost their jobs
15:45Ken Lay earned 300 million from Enron he
15:48was found guilty of 10 counts of
15:50securities fraud and was facing 45 years
15:53in prison but died of a heart attack a
15:55month before his sentencing 20,000
15:59people at Enron lost their jobs and
16:00medical insurance with an average
16:02severance pay of only $4,500 executives
16:06were paid 55 million dollars during the
16:08bankruptcy and cashed a further 774
16:11million in the year before the collapse
16:14skilling the mastermind behind Enron was
16:17convicted of 19 counts of security and
16:19wire fraud he was sentenced to 24 years
16:22and 180 million in fines while in jail
16:26his parents and his son passed away
16:29I only served 12 years of his 24 year
16:32sentence and was released in early 2019
16:34but this isn't where the story ends
16:38[Music]
16:40skilling is hoping that he can get a
16:42second chance he appears to be applying
16:44a return to the energy sector only two
16:47months after his prison release in early
16:492019 skilling was entered as a manager
16:51of a new company which he founded a few
16:53years ago Lau PI / former Enron
16:56executive who sailed off into the sunset
16:58with us 250,000,000 is reported to be
17:00helping skilling regain connections and
17:02funding according to The Wall Street
17:04Journal skilling has been holding
17:06meetings from former Enron executives in
17:08relation to starting a new venture this
17:11may be difficult for him as obviously
17:13his reputation has been massively
17:14smeared
17:15but apart from people's perception
17:17there's technically nothing stopping him
17:18the SEC has banned skilling from being
17:21an officer if any public company so as
17:23long as this venture stays private he
17:25can do whatever he wants so that is the
17:30story of Enron with a not so typical
17:31ending despite being one of the biggest
17:34players in the biggest scam in the US
17:36history resulting in billions of dollars
17:37in losses for average people tens of
17:39thousands of lost jobs and executives
17:42reaping and billions skilling is out of
17:44jail and free to start again
17:47Enron's motto was asked why during his
17:51astronomical rise it seemed that no one
17:53bothered to ask why how or where the
17:56money was coming from and now with
17:58skilling out of jail and trying to
18:00re-enter the business world maybe once
18:02again we should ask why
18:05[Music]
18:08so that wraps up our look at Enron
18:10thanks for watching this video I hope
18:13you enjoyed it if you want to see stuff
18:14like this or much more you should
18:16definitely consider subscribing to this
18:17channel if you want to see my last video
18:19on business fraud which was the fairness
18:21story I'll leave a link for that after
18:23this interestingly enough Elizabeth
18:25Holmes as dad was a former executive at
18:28Enron I'll say no more anyway that's it
18:31thanks for watching this has been - gogo
18:33and you've been watching cold fusion and
18:35I'll see you again soon for the next
18:36video
18:36cheers guys have a good one
18:43[Music]
18:44cold fusion it's me thinking
18:49[Music]
18:57you

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