Resisting Corporate Corruption, 3rd Edition

Case 2Enron Oil Trading (B): An Opening for Enron Audit?

I thought we had those oil traders under control. Seidl wouldn’t be getting on a plane unless they had done something that’s a problem.

ON OCTOBER 9, 1987, KEN LAY WAS OVER THE ATLANTIC flying back from meetings in Europe. In mid-flight he was handed a message. Enron president Mick Seidl was getting on a plane and flying to Newfoundland, where Lay’s plane would stop for refueling. This couldn’t be good.

Within a couple of hours, Lay and Seidl met at the Gander International Airport. Seidl told Lay what he had just learned from EOT president Louis Borget. EOT was “short” some 84 million barrels of crude oil. This meant that EOT had sold but did not possess oil equivalent to that amount. More significantly, EOT had sold the oil at prices well below current levels. If Enron were forced to cover the position at current prices, the company would incur more than $1 billion in trading losses. Clearly EOT had hugely exceeded its authorized trading limits and in the process had put the solvency of debt-laden Enron in jeopardy.

Lay immediately rerouted his flight to New York, interviewed Borget, and terminated him. Lay then returned to Houston and began figuring out how to salvage the situation.

Mike Muckleroy and a group of Houston traders were sent to EOT’s Valhalla, New York, office. Over a three-week period, they were able to shrink EOT’s short position to a level where it could be covered with “only” a $140 million pre-tax ...