October 25, 2001
The stock opened at $16.40. It would close at $16.35. Enron’s stock would never close higher than it opened again, not even on the day the Dynegy deal was announced, and the October 25 loss would be one of the smallest ones Enron would know from here on out.
Steve Bergstrom, president of Dynegy, was like most oil and gas execs in Houston: he knew everyone. One of his friends was Stan Horton, CEO of Enron Transportation Services, which was basically Enron’s pipelines. Horton called Bergstrom and asked him to meet for lunch, and added that he’d like Greg Walley and Mark Frevert who was CEO of Enron Wholesale, to join them.
Bergstrom had floated the idea of combining Enron’s European trading ops with Dynegy’s and since both Whalley and Frevert were coming from trading backgrounds, it looked to Bergstrom like maybe Enron was coming around to that idea in light of the crisis.
They met at the Plaza Club at One Shell Plaza. On the forty-ninth floor, it has an astonishing view of Houston (speaking from experience, especially at night). Whalley gave it to him straight: they wanted to discuss a merger. With the whole company. Not just European ops.
Bergstrom, taken aback, was certainly open the idea. He said he needed to talk to Ken Lay directly. Whalley said that was no problem. A few hours later, Ken Lay got in touch with CEO Chuck Watson. They made an appointment to meet on Saturday at Ken Lay’s home.
Meanwhile, Enron had announced its plan to draw down its $3 billion in bank lines. The WSJ was all over that. They called Mark Palmer and during that conversation casually mentioned Chewco — what was that? Palmer said he had no idea.
Rebecca Smith and John Emshwiller had found the name in an LJM private placement document. Since Enron was in the throes of a crisis, they knew that they could get their names out there if they found a new controversy so they were attempting to find an angle nobody else had found yet. Chewco, it turned out, was that angle.
The article reads in part:
While Enron disclosed its Fastow-related transactions in SEC filings, a computerized search of the SEC’s database of public filings produced no reference to this other employee-related entity known as Chewco.
Chewco was established in 1997 “with approximately $400 million in capital commitments” to buy an interest in Enron assets, according to one of the partnerships documents. The document didn’t further specify what assets were purchased, and it didn’t disclose the financial impact of the transactions for either Chewco or Enron. Chewco was being run by Michael Kopper, a managing director in Enron’s Global Equity Markets Group, according to the document.
Enron, which has maintained that its complex financial transactions with employee-related entities were legal and properly disclosed, didn’t have any comment regarding its dealings with Chewco.
Mr. Kopper, who Enron says left the company this year to focus on helping to run the Fastow-related partnerships, didn’t return phone calls. A person at his office in Houston Thursday said Mr. Kopper was traveling. In response to questions about Chewco, an Enron spokesman would say only that “Michael Kopper was never an executive officer of Enron.” Mr. Fastow repeatedly has declined interview requests. He severed his relationships with the partnerships in July.
This statement is an apparent reference to SEC disclosure regulations regarding related-party transactions. Under SEC rule S-K, a company has to report any transaction that exceeds $60,000 and involves “any director or executive officer.” By contrast, Mr. Fastow, as CFO, would have fallen into that category, but Mr. Kopper, as managing director of a business unit, presumably wouldn’t have.
However, reporting guidance issued by the Financial Accounting Standards Board seems to have a broader definition, one that might include Mr. Kopper. According to FAS Statement 57, a related-party transaction involves a “material” piece of business between the company and a member of management. The statement defines management as directors, top officers, vice presidents in charge of major business units and “other persons who perform similar policy-making functions. Persons without formal titles may also be members of management.”
All that stuff about Michael Kopper is a transparent effort to cause trouble. Classic muckraking.
Inside Enron, Mark Palmer was trying to get some answers about Chewco so he could talk to Smith and Emshwiller about it. He wasn’t able to get good answers so he called a meeting with McMahon, Greg Whalley and a few others. Ken Lay got pulled in and basically everyone tried to cobble together what they knew about Chewco. Jeff McMahon mentioned that an issue was Michael Kopper’s partner was chief investor in the fund.
Ken Lay was confused. “He has another partner in this?”
“Um.. No,” McMahon said. “His.. lover. Michael Kopper’s gay lover.”
Ken Lay finally lost his composure. “What the fuck is happening here!?” he yelled.
The pressure Jeff McMahon was under during this time must have been otherworldly. He was working nonstop to keep the company afloat. Drawing down the bank lines was slated for that day, and the New York bankers weren’t happy about it. No bank had thought that Enron would draw down over $3 billion in one giant gulp. They didn’t want to send it. McMahon was a bulldog. “Send it,” he said.
“But … but.”
Meanwhile, Andy Fastow, newly fired, spent the day on the phone with attorneys. From 11am to 1:30pm he was on a conference call with Michael Rubenstien, David Gerger, and Lea. Then from 1:30 to 3:00 he was on the phone with Gerger alone. Then at 5:30 he spoke to Gerger again for thirty minutes.