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Sunday, Nov 22, 2009
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.
Jan 29, 2002 | 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.
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."
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.
