Jeffrey Skilling
MBA, Harvard University
For those who missed it, Enron was… well, it’s not so easy to say what Enron was, other than an epic scam. The company was based in Houston. It started out in the mid-1980s as a merger between two natural gas companies. It was soon known for being super… what’s the word?… oh, right: innovative. So innovative that Fortune crowned it America’s Most Innovative Company six times in a row. It claimed gross revenues of $111 billion in 2000. In late 2001 it declared bankruptcy. Turned out, Enron’s impressive innovative spirit was mainly focused on the invention of creative—i.e., fraudulent—accounting schemes. And the chief architect of that fraud was a Harvard MBA* named Jeffrey Skilling.
Skilling came to Enron in the late ’80s as a McKinsey consultant on the make. CEO Ken Lay spotted his talent and snapped him up to head Enron’s finance division. By the late ’90s, Skilling was president and CEO of all Enron, reporting only to Lay. In 1999 Skilling introduced an online natural gas–trading operation that, to us, appears to have been something like eBay for energy; it was quickly adopted by nearly every energy company in the country.
Skilling’s illegal activities were legend, but they’re either too technical for a book of this nature or we’re not fucking smart enough to understand them. Instead of a detailed explanation of what he did, we’ll go a little impressionistic here to give you a sense of the man.
• After California deregulated the energy market, Enron was responsible for dozens of “rolling blackouts” designed to extort higher prices from energy consumers. (Deregulation, in brief, meant that commodities traders like Enron, not government regulators, determined the price of electricity. California’s deregulation had been driven by campaign contributions the company made to legislators involved in the process.) Here’s a joke Skilling thought was amusing during that period: “What’s the difference between California and the Titanic? When the Titanic went down, the lights were on.” Heh heh.
• In 2001, PBS’s Frontline investigated the blackouts. Reporter Lowell Bergman noted that Enron invented electricity trading, which, he said, was the cause of California’s energy problems. Skilling laughed, then parried that it’s exactly the same as trading wheat or steel (which it’s not; electricity is a public utility), then capped his self-serving argument by ludicrously asserting: “We are on the side of the angels.” (Bergman could have replied, “Satan was an angel,” but didn’t.)*
• Between the summer of 2000 and the summer of 2001 the price of electricity in California more than tripled. The increase had nothing to do with the cost of producing the power and everything to do with traders, especially Enron.
• Skilling took home $132 million during the same period.
• When, during a conference call, a financial analyst pointed out that Enron was the only financial institution that didn’t show a balance sheet or cash-flow statement to explain the earnings it claimed, Skilling wittily replied, “Thank you very much. We appreciate that—asshole.”
Skilling resigned in August 2001, “for personal reasons,” and sold off close to $60 million of Enron stock. In December the company declared bankruptcy. What Skilling knew was that Enron’s financial success was an illusion* and the whole house of cards was about to come crashing down. Luckily, Skilling sold his stock before it collapsed from around $90 to pennies a share. Oh, wait. Did we say “luckily”? We meant “insider tradingly.”
In 2006 Skilling was convicted of thirty-five charges, including insider trading. He was sentenced to twenty-four years and four months of prison time and a $45 million fine; in a subsequent bargain, the sentence was reduced by ten years.
When Skilling leaves prison he will be a widely despised man—but, unlike those who made the mistake of investing their life savings in the most innovative company of the 1990s, he’ll still be rich.