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Living in a House of Cards

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"[E]verything we know so far about Enron suggests many, many employees were, at the very least, willing accomplices to the schemes dreamed up by their bosses. And now they want their money back!" Lewis wrote in a column that appeared in, among other publications, The Washington Post. "The Enron case as it is currently playing out sends the following message to corporate employees: You aren't responsible for what you do…[So] long as you aren't one of the top bosses, you will enjoy the moral status of the victim."

Indeed, after reviewing the now-familiar partnerships, the Powers committee concluded that "literally hundreds of people…were involved in one way or the other in the transactions." Watkins told Lay that deceptive accounting was an open secret at Enron. "We're such a crooked company," she quoted one co-worker. During the company's internal investigation, Watkins told Vinson & Elkins attorneys that she was worried that as many as 300 employees with knowledge of the transactions would start talking to journalists, the SEC or both.

Watkins also pointed to the "Lay It On The Line" survey as a possible source of corroboration. She told the V&E lawyers that two employees involved in the survey said questions about accounting issues were not reflected in Lay's summary. Watkins suggested that a legal assistant could "plow through" the responses to find out how widespread the concerns were, although there is no evidence that either V&E or the Powers committee ever did that.

Nonetheless, according to the survey's results, many respondents were aware that something was indeed rotten in the state of Enron. Nearly one in three respondents told Lay they thought Enron had become less ethical during the previous 12 months. Almost 40 percent considered the company more arrogant and less trustworthy, while far fewer than half the respondents believed senior executives possessed "a clear view of where Enron is going and how to get there."

Lay skillfully dodged those concerns in his summary, instead noting that "Lay It On The Line" confirmed the "great things you feel about Enron." According to Lay, Enron's stock price, which had been cut in half since January 2001, was the No. 1 concern of the 4,000 respondents. He blamed the decline on several factors: the recession, the slower-than-expected pace of electricity deregulation, a marked decrease in natural gas prices and a "meltdown" in the high-speed Internet, or broadband, industry, which Lay estimated accounted for more than a third of the company's stock price at its peak a year earlier.

But by last summer, many employees were wondering how Enron stock ever got as high as $90 a share. "People were aware that the stock was overvalued, that the earnings being reported did not reflect reality," says Michael L. Miller, a former vice president with Enron Wholesale Services. "There was more uncertainty than people [outside the company] perhaps appreciate."

Why that hasn't translated into more people offering up evidence to prosecutors is a question some former employees have asked themselves. Michael J. Miller -- not to be confused with the Enron Wholesale executive, Michael L. Miller -- says that as the investigations grind forward, he expects more former employees to contribute to the prosecution of those responsible, many by offering firsthand accounts of wrongdoing.

"That's the way they are going to weed out a lot of the facts, by corroborating evidence, having people step forward who are credible and in a position to know what was going on in the machine," says Miller, whose tenure at Enron dates back to before it emerged from the conglomeration of Houston Natural Gas and Internorth in 1985. "I don't know how five people could have pulled this off."

Testimony and evidence from a broad range of former employees may also keep them in the hunt for whatever is left once Enron's bankruptcy runs its course. While the rank-and-file employees of failed companies are rarely given much consideration -- or at least no more than other unsecured creditors, such as vendors -- the high-profile plight of Enron's workers won them an unlikely victory on Valentine's Day.

Acknowledging the more than 20,000 participants in Enron's employee benefits plan, a trustee with the Department of Justice appointed a separate committee to represent former workers. Federal law allows for such special committees, says Nancy Rapoport, dean of the University of Houston Law School and a bankruptcy expert. But she knows of only one other case when such a panel was approved. "I think it was done for perception reasons in order to reduce tensions," says Rapoport, noting that Enron paid more than $50 million in "retention" bonuses on the eve of its Chapter 11 filing. "I think it was a wise decision, but it has a price: [An employee committee] increases expenses, which inevitably will come out of whatever assets are left for the unsecured creditors."

When the committee representing the "employee class" is finally seated, the Severed Enron Employees Coalition hopes to have at least one member, if not several, appointed to it. The coalition's goal -- to secure $150 million in additional severance allegedly owed to laid-off workers -- is chump change compared to the hundreds of billions in secured claims staked by the "investor class" of banks and institutional shareholders. But it won't come easy. For one thing, both the secured creditors and Stephen Cooper, who was hired by the Enron board to restructure the company, have opposed additional severance beyond the $5,600 per employee that's already been paid out. Meanwhile, Cooper says he'll need another $50 million to keep his current workforce from fleeing to other companies.

"If Cooper can figure out a way not to pay employees, that just means more for the company if it survives," says Randy McClanahan, an attorney from one of four firms hired on a contingency basis by the severed-employees coalition. "And the investor class is against the employees, because that would mean more for them if Enron is liquidated. It is not in either of their interests for the employees to succeed."

McClanahan plans to counter the opposition by expanding the coalition's lawsuit to a claim for damages under the federal RICO Act. McClanahan will have to first convince the bankruptcy court that Enron was a criminal enterprise, and that the investor class conspired with the company's management to deceive shareholders and employees.

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