A Reporter's Notebook: Powerful Information Lies in Plain Sight

While covering the federal criminal trial of former Enron Corp. top executives Kenneth Lay and Jeffrey Skilling earlier this year, I had some chances to think about the power of the press. The defense repeatedly argued that misleading stories by two Wall Street Journal reporters, rather than alleged widespread misdeeds at the company, had really caused the late 2001 collapse of the energy-trading giant. That line of argument held a particularly personal interest for me since I had been one of those two reporters.
          My involvement in the Enron saga began on August 15, 2001, back when Enron still stood as one of the nation’s premier corporations. The day before, Mr. Skilling had suddenly resigned as chief executive after only six months in the top job. He and Mr. Lay, Enron’s chairman, had insisted that the resignation had been for purely personal reasons. But the Journal editors wanted someone to do a little more digging. Since the regular Enron reporter, Rebecca Smith, was on vacation, I drew the assignment.
          Knowing little about Enron, I did what I had long ago been taught to do as a Journal reporter when I needed to learn about a company: I went to its public filings with the Securities & Exchange Commission. Though often boring and coated with boilerplate, SEC filings can be a treasure trove of information. With the SEC’s online Edgar database (at http://www.SEC.gov), access is free. (There are private websites, such as http://www.10Kwizard.com, that charge a fee for more sophisticated searches of the Edgar database.)
          Being in a hurry that day, I went straight to certain sections of the Enron SEC filing that often contain news. One dealt with so-called “related-party transactions.” These are deals where a top company insider has some kind of business arrangement with the company beyond his or her job. Related-party transactions frequently raise conflict-of-interest questions.
          That day I came across what would turn out to be a whale of a conflict: the so-called LJM partnerships, which were run and partly owned by Enron’s chief financial officer, Andrew Fastow. At the time, we at the Journal had no idea just how important LJM was, or would be, for Enron. We just knew that the LJM partnerships had apparently done hundreds of millions of dollars of murky-looking deals with Enron and that Mr. Fastow had a potentially huge conflict as a top official on both sides of the transactions. So, the Journal ran a story mentioning the partnerships.
          The story prompted a call from a source that said we’d only scratched the surface of the rot in the LJM-Enron relationship. This person gave us leads that helped launch Rebecca Smith and I on a reporting effort that resulted in a series of LJM-related stories in October 2001. Those stories, combined with a troubling third quarter earnings report from Enron, helped spark the fatal crisis that pushed the company into bankruptcy on December 2, 2001.
          At the Skilling-Lay trial in Houston earlier this year, the two defendants and their lawyers made those 2001 Journal stories a centerpiece of their defense. According to them Enron had actually been a thriving company, essentially free of fraud, in the fall of 2001. However, those Journal stories, combined with the efforts of short sellers – traders who profit from the fall in the price of a stock – created an unwarranted market panic that killed Enron. On the witness stand, Mr. Lay said he felt the Journal had been on a “witch hunt.”
          My colleagues and I have always been proud of our Enron reporting, though none of us took any joy in seeing thousands of innocent people hurt by the company’s collapse. Besides the questions raised about the power of the press, the Lay/Skilling defense also served as a reminder that very big stories can have very humble origins. Like many reporters, I spend a fair amount of time trying to cultivate confidential sources that can provide inside dope on important matters. And that’s certainly worth doing.
          But the most powerful information can be also be sitting in plain sight, amidst the torrents of public documents that come out of government bodies and corporations. While a confidential source proved critical to our early Enron reporting, we never would have gotten to that source if it hadn’t been for a couple of paragraphs in an otherwise pedestrian public report.     
         As it turned out, the Lay/Skilling defense strategy of blaming the press didn’t turn out so well. Both men were convicted on fraud and conspiracy charges.