The Best American Crime Writing (36 page)

Arriving at the St. Regis Hotel on a Sunday morning, Avery wore a black pantsuit and high-heeled boots and carried a slim folder of documents, as if she were on her way to a deposition. She had driven from her house near West University, a neighborhood formerly inhabited by Rice University professors which had been taken over by the young Enron crowd. Many of the brick cottages had been expanded into mini-mansions, and SUVs and Porsches
circled the area. At former chief financial officer Andrew Fastow’s house, a guard stood in the winter fog. There was an atmosphere of impending catastrophe in the city.

I had first noticed Avery a month earlier at an Enron hearing in federal court. She was seated directly behind me in the press section, scribbling in a black ledger. She wore a vivid purple suit and had the put-together look of a woman who knew her way around Neiman Marcus. It was impossible not to notice her in the press seats, because she did not join in the easy conversation of the reporters seated around her. She had an aura of vulnerability underneath her good looks, a sadness around the edges. I guessed she might work for a law firm, but before I could speak to her she had vanished. Later, Avery told me she was actually trying to look like a reporter. It was her first time inside federal court, and before the hearing she had sat in the empty courtroom and watched a flotilla of lawyers wheel in seven carts of documents. To calm herself, she started counting the attorneys arriving in Judge Lee Rosenthal’s court; she stopped at thirty. Fearing that she would be caught in the background by one of the camera crews outside, she left during a break.

Avery had come to court to watch William Lerach in action. Lerach and his firm, Milberg Weiss Bershad Hynes & Lerach, were vying for a share of the billions of dollars in potential awards claimed by the hundreds of corporate creditors and pension funds that had seen their investments in Enron become worthless. The University of California retirement system alone had lost $145 million; Florida claimed $335 million. The total loss to state pension funds was $2.9 billion. Lerach’s assistant worked the press row, passing out an oversize color chart. It was the first time I had ever seen a lawyer employ a public relations intern at a routine hearing. The chart appeared to show the astonishing profits made by twenty-nine Enron officials who had sold off $1.1 billion of company shares.

This was early in December, and the narrative of Enron as corporate
Antichrist had yet to grip the networks. There was no mob of shouting bankrupt employees outside the courthouse, no Jesse Jackson, no CNN tent in front of the chrome Enron headquarters, no Linda Lay dragging NBC across an emerald lawn and declaring that the Lay family was impoverished. Lerach was attempting to freeze the assets of the twenty-nine officials, but he was also selling his story, attempting to launch a fusillade into the national media.

“This is fraud at the top,” Lerach declared in a booming voice with the thick sound of his native Pittsburgh. “Enron’s goal … was to keep these debts off the balance sheet so the rating agencies would not be able to see them.” Lerach’s task was to convince Judge Rosenthal that a group of Houston’s finest citizens, whom she saw socially in River Oaks, had morphed into this decade’s Robert Vesco and Marc Rich, global money launderers, and might be attempting to evade prosecution. “We know that the other night [Andrew Fastow] pre-cleared customs in Houston … and had booked passage to Tel Aviv on three separate flights! … Skilling has been in Brazil for the last couple of weeks! … One top executive named McMahon, the treasurer, was known for going around the company after he met with Skilling, Lay, and Fastow, and they directed him to do some bogus deal and say, Well, we’ve all got to go drink the Kool-Aid.’” Lerach tossed out unfamiliar terms like grenades—“costless collars,” “derivative trades.”

Lerach, the scourge of the tort reform anti-lawsuit lobby in Washington for his championing of class action suits, from tobacco cases to those involving nursing homes, has a passion for theatrics, and his unruly hair looks as if he had stuck his finger into an electrical outlet. Standing in front of a chart of what he called “the Mike Milken model”—a reference to the Drexel Burnham Lambert architect of junk-bond finance in the eighties, who ultimately went to jail for securities fraud—Lerach pounded on the board with his
black marker and then drew an immense daisy. “[Milken] was here in the middle … so what Milken used to do is trade the bonds around …. It goes around and around in a big circle … it creates the phony appearance of a market.” Then Lerach threw out more sinister phrases—“dark swaps,” “massive insider trading.”

Judge Rosenthal studied Lerach coolly, as if she were trying to come to terms with a new set of variables for the Ken Lay who had chaired a campaign for the local United Way, who went to dinners at the White House, and who threw out the first baseball at Enron Field. Lerach, who once directed a civil case against Milken and others that collected damages of almost a billion dollars, appeared hardwired with moral outrage as he told the court, “A member of Enron’s tax group who structured many of these transactions has told us he was told his job was to keep Fastow out of jail!” At that moment, I turned in my seat and saw the woman in purple behind me blanch. Later, I would learn that the remark had been made to her as a joke by Fastow’s friend Jordan Mintz, an Enron senior attorney who in February would testify before the House of Representatives that he had attempted to warn Jeff Skilling in May 2001 that his off-the-books partnerships were questionable. “I am keeping all my papers in a salt dome,” Mintz had told a friend.

Lerach, who calls himself a private attorney general, is a connoisseur of criminal schmutz. He and his partner Mel Weiss run a thriving class action firm which employs about two hundred lawyers from San Diego to New York and twelve private investigators. They target savings banks, drug companies, and offshore scams. Their specialty is securities fraud, a form of plaintiff law that has been stymied by the 1995 tort reform act, which was pushed through Congress by a group led primarily by Chris Dodd, senator from Connecticut, with the financial backing of the powerful insurance lobby. Tort reform advocates insist that it lessens the ambulance chasing that used to clog the legal system; trial lawyers rail that it punishes victims and allows large corporations to get away
with outrageous financial manipulations. The act put a stop to virtual automatic discovery of legal documents in class action cases; because of that, lawyers like Lerach say, the standard of proof for legal pleadings has become onerous, and the investigations needed to file airtight complaints have become unduly expensive.

William Lerach is one of the foremost practitioners of aggressive research, and his investigators scour the world for witnesses and class members, an activity that is questionable under the new law, which prohibits lawyers from trolling for victims. Lerach is also criticized for his public displays. Last fall he chose an unusual strategy to win the Enron case. He decided to feed the media openly and ignore the barrage of legal moralists who would take him to task for it. He reasoned correctly that the bigger the story became, the sooner Enron whistle-blowers and witnesses would come out of hiding. Under tort reform, plaintiff firms must compete for the ultimate stake of being the assigned class leader. “I see it as a $3 billion case,” Lerach told a partner, meaning the aggregate of all the claims. The class leader could reportedly earn between 10 and 30 percent of that.

By the time I saw Lerach in court, he was competing with law firms representing Florida and Illinois. Outside in the hall that day, he held forth with fiery indignation. “This is nothing but a Ponzi scheme! There it all was:
You have to drink the Kool-Aid!”
Within weeks Lerach’s accusations proved to be accurate and made the leads of national news stories. His strategy—called “Leraching” by his detractors—had worked perfectly. According to one of his partners, “After that hearing we went back to the Four Seasons and for two days did not leave the room, there were so many Enron former employees who wanted to talk to us.” (In February, Milberg Weiss won the class-leader position.)

In the early days of the scandal, Houston reverberated with the social and legal conflicts arising out of all the possible Enron prosecutions. Judge Rosenthal’s husband, Gary, is an attorney who used to work at Vinson & Elkins, Enron’s lawyers, and the
Houston Press
would later report that Ken Lay had once lobbied unsuccessfully to get Lee Rosenthal a circuit judgeship. Within weeks, Judge Rosenthal recused herself from the case, as did the entire Houston U.S. Attorney’s Office. By the time I arrived in the city, fear verging on panic was spreading through the River Oaks set. As a South Texas native, I had a modest acquaintance with the folkways of Houston, but Enron had turned the village of oil into an almost unrecognizable society. One truism remained: The city has never been neutral about the poetry of money. The collapse of Enron had caused the cave dwellers to begin to reconsider their friendships with Ken and Linda Lay. Lay had ascended into an orbit so rarefied in Houston that his very presence at parties could change the atmosphere. He would stand in one place, as a king might, and allow himself to be greeted with fulsome praise. He brought a new persona to Houston, appearing to be a kindly naïf, in contrast to Oscar Wyatt, the former head of Coastal Corporation, the energy company. Houston has long tolerated the foibles of Wyatt, who revels in his flamboyant reputation for buying oil from Saddam Hussein.

By early December the easy hyperbole of Texans swearing eternal loyalty to friends who are potential felons was sounding thin. Ken Lay and chief officers Jeff Skilling, who had left the company abruptly in August, and Andrew Fastow, who had been fired by October, were at ground zero in the Texas endgame, victims of the “tall poppy” syndrome, the phrase Australian Enron traders used for unspeakable hubris.

On my first night in town, at a grand dinner in the Huntingdon, a luxurious River Oaks high-rise, several floors away from the Lays’ 13,000-square-foot, $7 million spread, Ken Lay’s friends were speaking
in code about the loss of his fortune. “Ken went to see Fayez to ask him for help,” one said. “Fayez told him no way.” In the Houston big-money world, this haiku spoke volumes. Fayez Sarofim, the secretive Egyptian money manager with multiple mansions, Rolls-Royces, and wives—one of whom died after collapsing mysteriously on Mount Kilimanjaro two years ago—could have delayed Lay’s fate with a single call, but he dismissed him peremptorily. “I wouldn’t dream of recommending Enron,” he said. His remark circulated quickly through the Tudor mansions of River Oaks and Shadyside, many of whose owners are Sarofim clients. That same week Lay appeared pink-cheeked and cheerful to have lunch at the Coronado Club, implying in the casual tone he had learned to use that he was in communication with the president and Laura. But, as Lay’s intimates could tell you, their friend was out selling. It was known that Ken’s fervent phone calls to “the Oval” were not being returned.

“Hi, I’m Jan Avery, the president of Southwest Reserves and their only employee. I am a WMBE—a woman in a minority business enterprise—trying to move MM BTUs from the Permian Basin to the California border.” That’s how Jan Avery would cajole representatives from the pipeline companies who worked the booths at gas trade shows and energy conventions in New Mexico and Oklahoma. It was 1990. Avery had invested $250 to start her one-woman corporation, taking advantage of a new regulation which gave women and minorities special advantages. She had the legs of a model and did not play down her good looks, but she was also adept at fending off advances at a time when a subtext of sexual favors permeated the wildcatter atmosphere. Avery was struggling with a vicious divorce. She had run away from a grueling marriage to a rich lawyer from Arkansas and was living with her 7-year-old daughter, Kay, short for Katherine, in a small rented house in Santa Fe. The only telephone was in the hallway, and all day long she would make calls on it, pretending
she was in an office, trying to get people to buy her brokered gas.

When Jan Avery talks about her history, she tends to skip over difficult periods. She grew up in Leeds, Alabama, outside Birmingham. Her father was a sheet-metal worker, the son of an heiress whose only remaining legacy was her insistence on fine linens, good manners, and a full-time housekeeper. She taught her granddaughter to appreciate finery and to excel in school. After attending a junior college, Jan worked as a receptionist for a forklift company. She also helped out with the books and became so intrigued with accounting that she enrolled in night school. In 1974 she married her first husband, Gary Kirsch, and soon followed him to Houston, where at 29 she got a job at Arthur Andersen. In the office she met Bob Avery, who worked near her in the tax department. Her marriage broke up, but she and Kirsch remained friends. Avery moved to Tulsa, and Jan followed, getting a job at Arthur Young, just when oil was moving toward $60 a barrel. There she had her first view of the sea of criminality surrounding the wildcatter crowd. When she came to believe that one of her clients was defrauding investors, she and Arthur Young walked away from the account.

Avery and Jan went out for three years before they married. Avery’s wealthy father owned an oil field machinery company. The couple moved to the Avery family plantation in Eudora, Arkansas, but when the marriage crumbled, Jan took her baby daughter and fled. She struggled over custody issues while trying to maintain a relationship with Avery. “I loved him,” she said, “and I wanted Kay to have a father.” When Kay was 5, Jan moved to Santa Fe, where she worked part-time as an accountant and sold gas on the phone in the hall. A neighbor recalls that Jan said she was terrified of Avery.

Through cold-calling Jan met the chairman of Gas Mark in Houston, and he agreed to back her on her first deal to move gas on
Enron’s pipeline to Southern California. Then the market changed, and only big players could stay in the business. Jan became clinically depressed and for a time followed a doctor’s advice and took lithium, a fact she confided to Bob Avery. That year Kay went to see her father and his new wife and children over spring vacation, and Avery, a part-time district attorney, filed a motion for custody. According to Jan, he refused to allow his daughter to return home, using the fact that Jan had once fled as a way to convince the court that she was an unfit mother.