LecTro. Together, they offered an enormous array of products, services, and integrated solutions for oil and gas exploration, development, and production. And when they officially outgrossed their biggest rival, Halliburton, the company was able to rightfully call themselves the largest and broadest unified oil and gas services company in the world.
By 1997, EGenco’s worldwide revenues were somewhere around nineteen billion dollars. Then, according to Roger Mallone, they got greedy.
“Can we go back a minute?” Justin asked.
“We can do anything you want,” Roger said.
“A unified oil and gas services company. Put that in English.”
“It’s simple. There is literally nothing in the finding, development, and processing of oil and gas that they don’t have their hand in. They explore and develop, they produce, they handle maintenance for other producers, they convert and refine. They run plants and oil wells, build plants and wells, manufacture everything from drill bits to subsea pumps. And with LecTro, they actually even supply and sell electricity. So they literally are capable of controlling every aspect of the energy business.”
“Is that legal?”
“It’s legal if the government decides it’s legal. Would it have been twenty years ago? Well, let’s say pre- Reagan? Probably not. Today? Well. . would you want to be the government prosecutor that downsizes them and runs the risk of costing people tens of thousands of jobs?”
“The numbers are that big?”
“Sure. They probably employ a hundred thousand people, maybe even more, full-time.”
“Worldwide?”
“Christ yes, worldwide. They’ve got bases in a hundred and twenty, hundred and thirty countries. I’d be willing to bet they’re in every country you can name and a hell of a lot you can’t. Over the years they’ve expanded both internally and through major acquisition. They’re sharks. They’ve bought engineering and construction companies, petrochemical processing plants, you name it and they’ve built it, managed it, or devoured it.”
“You said ‘the base of their production attributes.’ What other attributes are there?”
“This is where it gets a little complicated. And it’s where they got greedy, as I said. And my guess is, it’s also the root of their current problem.”
“The government investigation.”
“Investigations, plural. Right.” He glanced at Jonathan Westwood. “Do you agree with that?”
Jonathan nodded, so Roger went back to his dissertation.
“What happened is, about seven, maybe eight years ago, they were huge and successful. Particularly after they bought LecTro. And when they bought it, that company was a money machine. The energy business was being deregulated-the rate of returns, the caps-so cash was just flowing in. They decided to take advantage of that and began trading electricity.”
“Electricity trading? Is this remotely as complicated as NBA salary cap stuff?”
Jonathan Westwood groaned. Roger Mallone just shook his head and said, “Actually, no. It’s a lot simpler. Especially with deregulation. Think of electricity as something physical. A plant somewhere has excess supply and someone somewhere else doesn’t have enough. They
“That can’t be legal.”
“Welcome to the twenty-first century and a government that’ll let big business do just about anything they want.” Roger snuck a glance at Jonathan Westwood and added, “Thank God.”
“Keep going,” Justin said.
“Electricity is traded very actively-because it’s unevenly used. So the geniuses over at EGenco decided they didn’t want to just broker. They wanted more. So they decided to buy, not just represent. They brought in a bunch of Masters of the Universe types who looked around and saw what was happening on Wall Street-remember, this is when the economy was at a record high-so they thought they couldn’t lose. And now what they were doing was buying from plants, holding on to the electricity, and then selling what they owned to other plants. The problem was they bought high.
“How huge?”
“EGenco probably wasn’t going to go under, if that’s what you’re asking. They had too many other assets. But from what I hear-and, again, all this is conjecture-LecTro was a fiasco. If I’m right, we’re talking billions of dollars of losses. If that’s true, I suppose it’s possible it might have sunk the whole thing.”
“So what happened?”
“Well, that’s the question. That’s what’s being investigated.”
“What do
“Look-at a certain level, you get so big, you have so many fixed assets, it’s almost impossible for anyone to know exactly what you’re doing. Again, if the losses are as great as I suspect, my guess is that EGenco management decided to hide a huge amount of debt. In essence, keep the stock high, fool the public and Wall Street, and hope they could keep things hidden until they figured out a way to right the sinking ship.”
“How?”
“How’d they cover up? Again, this is just a guess, but I’d say they’ve been screwing around with retirement funds, IRAs, and pension plans, a lot like Enron did. If that’s true, there are going to be a lot of angry, broke people. It’ll make the Enron thing look like small potatoes. I’ve also been hearing rumors about SPEs gone wild.”
Justin forced himself to think back to his business school days. SPE. . Special Something Something. . Special Purpose. . Entities! That was it. A way for corporations to hide money. They’d create a company within a company, make someone the CEO with signing power, and, like magic, you had a financial structure that could work outside of any corporate rules. That CEO could authorize salaries-including his own-and designate payments for board members. Without anyone else even knowing about it. Big business was a world where rules were something to be bent or broken. Another reason why Justin liked being a cop: you could play around with the rules but ultimately there were limits. Once you exceeded those, you had to pay the price.
“Special Purpose Entities?” Justin said now. “Good way to make sure someone’s taking out a lot of cash if the company’s going down the drain.”
Jonathan spoke up, a touch of relief in his voice. “I’m glad to see that Princeton wasn’t a total waste of time and money.”
“SPEs are a great way to hide a lot of crooked things,” Mallone said. “And to buy a lot of favors, which EGenco has certainly done. I mean, look at their presence in Iraq and other parts of the Middle East. They don’t get there unless they’re paying a lot of people a lot of money. It doesn’t just happen that they get no-bid government contracts for billions of bucks to reconstruct an entire country.”
“You said something about lawsuits,” Justin said. “What’s that all about?”
Mallone tapped the suitcase. “You’ll have your reading cut out for you. There are several hundred pages of those babies in here. The two most interesting ones are from STE and New York.”
“Okay, you’ve lost me.”
“STE-Save the Earth. The ecological group. They had the suit that the Supreme Court just rejected.”
“Oh, right. About the energy policy, right?”
“About the meeting that set the energy policy. It got a ton of publicity and it’s all in the suitcase.”
“What’d you mean about New York being the other interesting suit?”
“I’m not a legal expert. You’re better off reading the filings. I also downloaded a bunch of articles off the Net that’ll help give everything some perspective. The thing you have to understand is that this country’s so politically divided, it’s hard to know what’s valid or not. I mean, half the people hate our vice president so much, they’ll do anything to harass him. And the other half will do anything to validate his actions. I can’t say if these suits are valid or if they’re politically motivated.”
“When was Dandridge involved with EGenco?”
“Involved? He was more than involved, Jay. He was their CEO from. . ohhh. . I’d say for about eight years, right up until he ran for VP. When he got the nomination, he resigned.”
