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My Own Private Enron

Ryan Smith

How many more corporate scandals are out there? A former employee at film-ratings firm Veritasiti tells of the day he and his co-workers were let go without warning, amid reports of SEC investigations and bouncing paychecks.

I remember watching Enron: The Smartest Guys in the Room and shaking my head in disgust at the collective greed and corruption as the film unveiled the biggest corporate scandal in recent American history. But while I thought the story of Enron was fascinating and sad, I couldn’t help but feel like a passive observer of a watershed moment of the past, much as if I’d caught a special on the History Channel about Watergate or the Iran-Contra Hearings. The days of the corporate scandal seemed an already distant memory.

Enron CEO Ken Lay’s recent death of natural causes briefly brought the memories back. Still, some in the media eulogized him as if he were a mythic Darth Vader-like character. An editorial in the Houston Chronicle compared Lay to a hero from a Greek tragedy, a once simple small-town man who grew into a benevolent visionary, but was finally drawn to the dark side by arrogance and ambition. From this perspective, Lay is a sort of folksy supervillain, an exception to the rule of the ordinary good governance of American corporations. But my own recent personal experience in corporate America made me think otherwise.

When I began working at Veritasiti (which by then was doing business as Media Data Corporation) early in 2006 I certainly wasn’t overly concerned about goings-on there. Sure, I held general concerns about my personal job security, in that my 90-day probation period was up soon -- MDC was a so-called at-will employer, meaning they could fire you anytime for no reason -- but I mostly mused about the aesthetics of being laid off. I had always imagined, for example, that if I were ever laid off from a corporate job, it would come in the same dramatic, succinct fashion Donald Trump has perfected on TV. Or perhaps a simple, casual, businesslike dismissal performed with a flick of a Rolex-encrusted wrist.

Then came one sunny May morning when our visibly shaken company president, David Kinney, announced to three dozen or so of us uneasily stuffed into a conference room that we were all being “let go.” It came not as a bold pronouncement from on corporate high but part of a 10-minute ramble, and Kinney, in his best George W. Bush impression, insisted in vague terms that the company would be “continuing to move forward” and “focusing on the positives.”

But there were no positives about the situation. There was nowhere forward to go. Kinney wiped his forehead nervously while revealing that his money and all the millions invested in our company had disappeared. I was stunned hearing these words from the same man who four days earlier had smugly insisted that I and every employee sitting at the same table “could be a millionaire” like him and that once we performed this simple feat, learning to make more millions was like “learning to ride a bike.” When directly questioned about the circumstances, he reluctantly disclosed that our chief financial officer Frank J. Russo had been involved in a legal situation and that all funding for our company was suddenly gone. Poof. And as a result, all employees of the corporation were laid off. Yes, and we would not be receiving checks for our previous two weeks of pay. And we had an hour to clean out our desks, turn in our keys and leave the premises. Oh, and have a nice day.

I couldn’t help but glance at some of the faces of those coworkers sitting around the cold black table once the reality of the situation became apparent. Some sat stiffly in stunned silence, staring straight ahead as if not hearing all the words being said. A few others looked on the verge of tears. Others shook their heads in disgust, rolling their eyes at every one of management’s reassuring “I feel your pain” remarks. Kinney couldn’t resist adding that he and the rest of us “are in the same boat” because he of the multimillion dollar Bel Air estate now had to try and figure out how to pay his mortgage. We had trouble doling out sympathy.

It was more than a little surreal as we trudged like zombies to our now former workspaces. Shortly before being whisked away to the fateful meeting, I’d been ensconced in my Zen-like workday-morning routine, quietly eating apple and cinnamon oatmeal, and suddenly I was throwing my now-crusty oatmeal in the trash and walking away from my desk for the final time.

Along with a few bitter jokes tossed in at the expense of management, a subdued anger and sadness dominated the room: anger about the situation that left many of us wondering how we were going to pay our rent or even buy food, and sadness that our jobs and all of the friendships and camaraderie that had come with it was gone in a blink of an eye. Some were offended when we discovered that management took the “precaution” of having someone sneak into our desks while we were in the meeting and remove our work materials and unplug the Internet from fear that we’d loot the place or sabotage the network server with computer viruses.

I wish I could say we armed ourselves with pitchforks and torches and rose up in a full fledged proletarian rebellion, but we just packed up and drifted away like it was the last day of high school -- that is, if the principal announced over the intercom on a random Wednesday in February that it was the last day of school and no one would be getting report cards.

That night, now inundated with free time, many of us crowded around the virtual water cooler we had created on MySpace (featuring a token Photoshopped picture of our CEO behind bars) and fervently exchanged opinions, rumors and links to Boston Globe articles about the scandal and the SEC investigation into the fall of our company.

We weren’t exactly surprised that Veritasiti had failed, it bore more than a passing resemblance to some of those infamous speculative dot-coms from the pre-crash stock-market bubble days of the late 1990’s. But we didn’t expect the other shoe to drop so spectacularly either.

Founder David Kinney, a investment banker in the go-go 1980s and a salad dressing and magazine entrepreneur in the 1990s, bragged to every new hire in training (often while stroking the fat Harvard class ring on his finger) that he created the corporation in response to a remark Motion Picture Association of America president Jack Valenti once made about movie ratings. According to Valenti, the MPAA’s movie ratings were more art than exact science; the sexual content, violence and profanity in films couldn’t be precisely quantified. Kinney not only disagreed with Valenti’s assertion, he set out to prove the old man wrong. And make millions in the process.

The company had a simple mission. We’d comb through every movie and video game possible, record every instance of sex, violence, profanity and store that information in a database. A value would be placed on each instance and then each of those products would earn a new rating, Kinney’s so-called PSV rating (which stood for profanity, sex and violence.) At the very least, Kinney’s goal was to make a viable alternative to the MPAA and the video game’s industry rating system (MRSB), but ultimately he hoped PSV ratings could be adopted as a new universal ratings system.

My job was on the frontlines, so to speak, as a “data capture specialist,” a nice enough euphemism for watching movies and playing video games all day to locate and record the naughty parts. It sounds like a schoolboy fantasy, but we weren’t getting paid to sit on couches drinking Mountain Dew and playing Halo 2 all day. Each movie was scanned meticulously sometimes on a frame-by-frame basis for every mumbled F-word or semi-concealed nipple in the background of a shot. Still, it was a corporate Bizarro world in which dry, detached discussions of blood-curdling violence were held over morning coffee and bagels the same way employees at the bank downstairs might have discussed small-business loans.

On our first day we were given traditional training packets: One was strictly about profanity and the precise use of four-letter words such as George Carlin's infamous seven words you can never say on TV. We were constantly drilled on the minutiae of nudity and sex and the fine differences between "passionate" and "erotic" kissing, and full-frontal and partial male nudity. At one typical Tuesday meeting our scruffy, eyebrow-pierced manager deadpanned, "Today, we're going to talk about decapitation," With a bored look, he told us that our company was going to enact a specific rule for decapitated heads and (alas!) also for decapitated heads that are pictured with headless corpses. Soon I was ready for my first training video, Pulp Fiction, a cinematic boot camp for those of my profession scanning objectionable content. After three days of scouring it, I found about 800 instances of violence, sex and profanity.

To fulfill Kinney’s idea that what we were doing was purely objective and almost scientific in practice, we had to determine exactly what we were seeing. I remember debating with co-workers whether or not a polar bear in lowbrow sex comedy Out Cold was giving a helpless skier oral sex or if the animal was just licking his crotch area. It was these sort of determinations that could raise a movie’s PSV sex rating from yellow to red, the color that was supposed to be a proverbial red flag for parents.

The information we gathered in this process was primarily used for a website called Family Media Guide (still online at, which ironically caused many in the entertainment business to write off Veritasiti as a group of ultraconservative prudes run by guys like James Dobson or Michael Medved. Family Media Guide was the “public arm” of Veritasiti that pulled in a small amount of advertising revenue but not much in the way of profit. In the same way, a push into press releases and PR campaigns earned some notoriety -- Howard Stern unsurprisingly ripped the company for counting the dirty words on his new satellite-radio show, and a story the company prepared about the number of curse words each best picture contender at the Oscars contained was widely reported. This attention, however, didn’t translate into profits.

To fund Veritasiti initially, Kinney approached his old Harvard buddy, Russo, who managed investments in the smallish Boston suburb of Everett, Massachusetts. Though members of the partnership thought they were investing in hedge funds, stocks and bonds and the like, nearly every dime of their money was allegedly being invested in Veritasiti, with Russo redirecting their funds into the company with the belief that he’d pay them back and more with the millions the company would pull in.

By late 2005, with expenses still high and money generated low, Kinney proclaimed a company wide “focus on profitability” and made wholesale changes with stunning frequency. In a few short months, the company name was changed to the ambiguous sounding Media Data Corporation, expensive consultants were hired from Time and others to churn out a new magazine, and the company was moved from one section of west L.A. to another, more expensive office in Culver City. Business plans meanwhile continued to change week to week (“We want to be the Google of media data,” Kinney boldly proclaimed at one point.) Among the strangest ideas was one to outsource our data-capture department (the ones, including me, who actually watched movies to record their scandalous content) to Fiji -- that would be the island of Fiji. As humorous as it is to visualize the idea of islanders watching Vin Diesel movies so that parents in the U.S. could protect their children from Chronicles of Riddick, the plan fell through.

In the midst of all this corporate chaos, few of us batted an eye when we were told in late April that our direct deposit was having “technical difficulties” and that we’d be issued paper checks. But after Memorial Day weekend, a small brief in the Boston Globe reported that Russo was under investigation by the SEC because he’d been pressuring an investor to cash out his $1.2 million retirement fund. It was that corresponding payday when we were told the bad news about our jobs and our paychecks. Two days later, while management tried to pull off a last-second emergency deal with a big media company (Echostar, AT&T, and others) to stay afloat, we found out the rest of the bad news. We suspected MDC hadn’t paid for our health care in two to three months, and our taxes, 401Ks and other deductions in a month (hence the direct-deposit “problems”). And those who hadn’t yet cashed previous paychecks discovered that they had bounced.

A dozen so of us disgruntled former employees confronted management about these things in a hotly contested meeting two days later. Kinney, still trying to exude something resembling confidence, went a step further than asking us not to sue, pleading with us to “volunteer” for the company on the theory that he could only save the company with employees still in the building to give off the perception from potential buyers that MDC wasn’t a company that had zero capital or employees. When we asked more questions about his integrity, Kinney accused us of being on a “witch hunt” and told us in dramatic fashion, like Jack Nicholson in A Few Good Men, that we had two choices: either help the company or “Get out of my way.” Within days the SEC froze Russo’s assets and sued him for running a Ponzi scheme and siphoning up to $25 million from his clients, including up to $11 million to directly fund MDC. At the end of June, the SEC also froze MDC’s assets. The game was over. None of it made sense, or maybe it now made too much sense.

It’s been a few months now since what many of us ex-employees have called Russogate first broke, but many of our lives are still being affected. I was forced to go on unemployment and am still catching up on bills I couldn't pay in the meantime. Many of us MDC employees were not able to afford expensive Los Angeles rent payments and moved, whether it was to a couch of a friend elsewhere in L.A. or to parents' homes in the Midwest. We are hardly alone in our predicament: After all, our economy is one where many employees have less and less job security. A recent article in the L.A. Times noted that half the jobs in America created since 2001 are temporary, unsalaried positions. But our captains of industry tell us that this is an “empowering” position to be in because we are all free agents in this free-market paradise. Some of us have found jobs, but as young white collars, many of us have taken up with new corporations, and the question still haunts us: Will it happen again to us?

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