Ignorance is bliss? Ken Lay may have been as clueless as his lawyers claim. It shouldn't matter.

Conspiracy of Fools

By Kirt Eichenwald

Broadway, $26.00

When Enron collapsed three years ago, it was reasonable to anticipate the story that would one day be told of how the nation's seventh-largest company lost its way. Maybe the once-lean energy machine had bloated up on dot-com excess until it burst. Or perhaps California's insane electricity deregulation scheme and its lure of easy money had crazed corporate executives in Houston who were otherwise sane. But in Conspiracy of Fools, Kurt Eichenwald leaves no doubt that the criminal enterprise and deranged mismanagement at Enron were firmly established years before the tech boom peaked or rolling blackouts dimmed the Golden State.

Of course, one cannot help but ask whether many people will want to read 750 more pages on the late, unlamented giant. Other purportedly definitive accounts of the Enron saga were published more than a year ago, not to mention the ink that was spilled during the scandal's unfolding and subsequent probes and trials. For all that, Eichenwald's meticulously research-ed volume will captivate readers beyond those poor souls (myself, alas, among them) who still can't get enough of the Enron tale. His hook is chilling exploration of how far down the road to destruction any venture can travel when a collection of supremely self-assured but wrongheaded minds are given enough power. (Some readers might discern parallels, for instance, with governments past or present.) And it's also a really good read.

Eichenwald, who spent three years covering the scandal for The New York Times, too kindly uses the word "fools" to describe the characters who built up and brought down Enron. Other terms would have been apt: lunatics, greedsters, idiots.

Former Chief Executive Officer Jeff Skilling comes across as a man barely holding it together. Long before the year he both took on and abdicated Enron's top post, he was drinking too much wine, putting on extra pounds, spiraling into bouts of depression and self-pity, and veering between overweening ambition and an impulse to cast aside his career. In one weird scene, he compulsively punches his console to pick up every ringing phone on the floor during an interview with a prospective executive employee. Yet none of the calls are for him; he just transfers them as if he's the receptionist.

The aspect of Skilling's dysfunction most relevant to Enron's demise, however, was his inclination to treat the ability to perceive bad news as a sign of weakness or stupidity. He blasts employees who tell him money can't be made in the retail electricity business, or that this loss must be reported in this upcoming quarter. And because nearly everyone around Skilling wanted to please him (and the cut-throat compensation system he set up gave every reason to want to do so), fewer and fewer inconvenient realities made their way across his desk. It was the perfect medium for the rise of Andrew Fastow, the perpetual good-news man, creative enough to find a way of doing any deal, making any transaction appear profitable, pulling off the impossible every time.

Fastow's method, it is now well-known, was brazen fraud, through which he swindled millions for himself on the side. Press accounts have too often portrayed Fastow as a whiz kid or numbers genius. Eichenwald shows that, quite to the contrary, colleagues were regularly astonished by Fastow's second-rate intellect. Before his ascent to chief financial officer, underlings tried to teach him why a lack of cash flow jeopardized Enron's credit rating, but it was "like teaching basic swimming to the new lifeguard." He blithely entered deals depending on future market conditions without accounting for the most basic risk posed by interest rate changes. He sought advice on how a hedge--a financial device used to protect against the drop in value of a stock or other asset--could be used to avoid ordinary business losses. If such a hedge existed, replied Enron risk analyst Vince Kaminski, why bother having customers--"We can all just make money by hedging." Fastow appeared to absorb this comment without its intended irony. One of a core group of admirable characters in the book is that Cassandra figure, Kaminski, unheeded when early on he labeled the off-the-books partnerships an "idea so stupid that only Andy Fastow could have come up with it."

Eichenwald's book unfolds like a suspense novel, albeit an amply footnoted one, making it a more enjoyable read than previous Enron books. In The Smartest Guys in the Room, Bethany McLean and Peter Elkind of Fortune magazine devoted a mere handful of sentences to the warming tale of how Fastow very rapidly failed at running Enron's retail electricity business. Eichenwald's account brings to life, page after page, the mounting distress in the office while Fastow flounders with the task of producing the business plan. Pretty scary, when you realize this fiasco is just a steppingstone on his path to chief financial officer.

Eichenwald makes his own attempt to pierce the enigma of the man who allowed Fastow and his schemes to flourish--former Enron Chairman Kenneth Lay, who faces trial soon on charges that he lied to investors and the public as the company entered its death spiral in late 2001. Lay has given every indication that he will employ an "I was duped" defense. As much as it gnaws at the soul to think of Enron's top guy eluding responsibility on such grounds, evidence of his cluelessness apparently will be easy for his legal team to muster. Lay gives new meaning to the phrase "believing one's own press" when he swells with pride that Fastow was being considered "CFO of the Year" by CFO magazine, a feat engineered entirely by the Enron public relations team at Fastow's prodding. One colleague notices in conversations that Lay's information about Enron was "years out of date," and concludes this world traveler and glad-hander was "not up to running things." Lay's genial and uncomprehending fagade doesn't crack until he learns that the director of one Enron partnership doing dirty deals was Fastow's assistant's gay lover. "What the fuck is going on here?" he demands, far too late.

Since the author's technique involves getting inside the heads of key players, a la Bob Woodward, even a casual reading triggers the parlor game of guessing who talked to Eichenwald. It's a significant question, because the book unequivocally portrays Fastow as a criminal while remaining agnostic to the culpability of the befuddled Lay and off-kilter Skilling. Of course, this may be in part because Fastow has pleaded guilty while the law's judgment has yet to fall on his former bosses. But the reader is left with the nagging suspicion that Eichenwald pulls his punches concerning the men at the top because he relied on their cooperation to pull the Enron story together. That is unsatisfying on two levels. First, the book fails to fix responsibility on the corporate chieftains, despite the fact that it was clearly their duty to know what was going on. And at the same time, it's unclear if readers can trust the portions of Eichenwald's Enron story that appear to be told through a useful mist of Lay and Skilling's bewilderment.

The author's notes say only that his research involved "more than one thousand hours of interviews with more than one hundred sources and thousands of documents;" as with other Enron books and stories, the figures remain anonymous while the lawsuits and criminal trials drag on. But when Eichenwald recounts what Jeff Skilling is thinking when he's alone prone on the bed of a hotel room crying--not an unusual posture for him, by the way--well, how many other witnesses could there be?

As for the emotions emanating from the solitary Lay, they seem too mild and self-serving to be anything but self-reported. He was disappointed that Vice President Cheney's energy task force didn't do more for Enron, irritated with the first questions raised on Wall Street over Enron's accounting practices, and felt that some in the media were on a crusade against the company. In other words: no schemer, he. But Eichenwald throws cold water on attempts at source speculation, noting he relied on documents and testimony more heavily than interviews. He warns ponderously: "Readers should not assume that any individual participant in a conversation is the source of the statements or even among the sources." Spoilsport.

Ultimately, the success of the risky nonfiction-as-novel method rests on the quality of the research. And here, one has to be impressed at the new details Eichenwald has unearthed from the well-trampled Enron story. Eichenwald's interviews delved deeply enough that he can show readers Fastow as those around him saw him, with the anxious tics of a crook, whistling his words when he's nervous, pulling his collar, stretching his neck, squinching his face.

Even more impressively, Eichenwald knows Enron's far-flung operations well enough to interweave the tale of what was happening in Houston with contemporaneous Enron disasters in other parts of the world: a deadly explosion at a Puerto Rican natural gas affiliate that had been warned its workers were poorly trained; the panic that ensued when Enron took over a utility in Argentina, culminating with workers trashing the offices and destroying the company's billing system. The pace of the vignettes quickens at the end of 1999 as Enron accelerates its schemes to meet earnings target: "All it took was paper shuffling, accounting errors and some sweetheart deals. That, and a few crimes."

Eichenwald also takes some of the sheen off Enron whistleblower Remembering Alistair Cooke. Sherron Watkins, whom he says ventured far afield of her personal knowledge in her testimony before Congress. In Watkins's own book, she mentions how she congratulated Fastow's replacement and offered her help. Eichenwald, however, quotes from her email at length, showing it to be short on congratulations and long on efforts to advance her own career and criticize "all these latecomers joining the band wagon" questioning Enron's accounting. Watkins developed a reputation as the lead Enron whistleblower and shared a Time cover with the FBI's Coleen Rowley and WorldCom's Cynthia Cooper as "Persons of the Year." In fact, the book's most powerful disclosure is that, long before Watkins, more than a half-dozen figures inside Enron and its late accounting firm, Arthur Andersen, were trying to warn that the company was drifting into dangerous waters. Nine months before the bankruptcy, one mid-level analyst, Kevin Kindall, delivered a report to the treasurer that identified the precise off-books arrangements that would fail and exactly how that would trigger a company-wide crisis, "as if an unknown engineer at the White Star Line had laid out the dangers of icebergs to the Titanic." Neither Lay nor Skilling would hear this or any of the other reports of pending doom, because the organization they created, like so many others, wouldn't permit dissent from the grand vision they created.

No one will stop the presses for these revelations now. But at a time when the quality of journalism has been so degraded by the competition to be fast, brief and shocking (and The New York Times knows something of this), there's great virtue in Eichenwald's approach to the most important business story of our time. It took time to write. It takes time to read. It won't surprise you, but it will offer much to contemplate.

Marianne Lavelle is a senior writer covering business for U.S. News & World Report.