Documenting Enron Trades

Cox, Balls, & Naked Shorts

Oh my god.

Just Because

Money Never Sleeps

The whispers are just starting to piss me off now. Is there a sequel to Wall Street, or not? And is it called Money Never Sleeps, or not? QUIT TEASING ME ALREADY. JUST GIVE ME THE GODDAMN SEQUEL, BITCH.

Banking sites are running wild with speculation about this movie, and I have my own ideas:

Financial vehicle/mode of global domination:
Hedge fund

Mode of communication:
Blackberry, obviously.

Bullshit shorthand move to let us know how much time has passed:
Sweeping view of lower Manhattan with no World Trade Center.

Gratuitous mentions:
Emperors Club
Moody’s
CDS-related insider trading
Enron
Tyco
WorldCom

Home after prison:
Immense loft. Some things never change.

Bad Guys:
They’ll go global on this one. Chinese might be too on the nose, so I say Russians.

Odds that a character will be based on either Jeff Skilling or Andy Fastow:
2-1

Odds that Gordon Gekko will abandon the “greed is good” mantra
12-1

Odds that they’ll show real news footage of Jeff Skilling being arrested:
2-1

Journalistic Silence

I became interested in how the media shaped the story when I began to notice that news reports often left out exonerating details of Enron stories. After that, I had to wonder what else was going on that the media didn’t report or chose to over-report. Today, while sifting through the 400 pages of Caylee Anthony documents, I was shocked that I hadn’t read anywhere that George Anthony had been cheating on Cindy Anthony. The allegation was uttered by Casey Anthony’s boyfriend, Anthony Lazzaro. He says that Casey said she “hated” her father, and that her father had been unfaithful to her mother.

Why hadn’t I heard that in any of the reports that have crossed my browser? To my mind its not especially favorable to anyone – but it is rather salacious, which means it would have fit inside the frame of this story quite well. So why the silence?

This isn’t about the Caylee Anthony case specifically, or even the Enron case. It’s about how those with the loudest voices get to write history, even when its wrong.

Enron Rises Again!?

How excited am I to read that Norne is resuming oil production? Extremely. Because it spells Enron backward! And that’s newsworthy!

The Norne production and storage ship could resume oil production this week, five days ahead of schedule, after a major maintenance shutdown, according to StatoilHydro.

In 40 days the company managed to replace the swivel transferring the oil stream from the pipelines to the ship. This is the first time an operation of this kind has been carried out at sea in any waters. Such operations have always been performed in a dock, the company says.

The swivel replacement was necessary to extend the Norne ship’s lifetime from 2016 to 2021 and to prepare it for receiving gas and condensate from the Alve satellite field.

“”After thorough testing of both old and new equipment we can conclude that everything works perfectly and the shutdown has been successful in every way,” says Øystein Michelsen, StatoilHydro’s head of operations north. “The reason for the good result is careful planning and a qualified and enthusiastic organization.”

Oh.

So it really has nothing to do with Enron?

How disappointed am I?

Damn It Feels Good To Be A Banker

Click, right now. No excuses. You can thank me later.

Mr. Fastow’s Barges: An Enron Fairytale

Once upon a time, there lived a structured-finance guy. He did deals with big banks, like Merrill Lynch, Citibank, Smith Barney, Wachovia, Bank One, Greenwich Natwest.

When his company, Enron, wanted to sell its interest in two Nigerian power-producing barges, he had a bright idea! He would call his friends at Merrill Lynch and see if they would like to buy the barges for the low, low sum of $12 million dollars.

They would!

So Mr. Fastow went about the business of selling the barges to Merrill Lynch.

Finally, a deal was struck and Mr. Fastow’s barges were sold to Merrill Lynch!

But the government didn’t like the deal. They said it was illegal because of a “Secret Side Deal.”

The government got very angry and threw all the bankers in jail!

Companies Get Protected From DOJ Pressure

Kate Plourd, writing for CF0.com, has some great news for companies being held hostage by the DOJ.

The U.S. Department of Justice revised elements of a controversial internal policy governing federal investigation and prosecution of corporate crimes. The revision — making it illegal for the government to demand certain privileged information from companies — comes in response to criticism of how prosecutors often pressure executives by promising permission to say their companies are “cooperating” with investigations.

The new restrictions “will be binding on all federal prosecutors within the Department of Justice, effective immediately,” Deputy Attorney General Mark Filip told a press conference at the New York Stock Exchange. “As an important element of that commitment, the revised principles will be set forth for the first time not as a memo, but in the United States Attorneys’ Manual.”

Wait… They have a manual and yet some of the Enron abuses were not covered in that? How about threatening witnesses? Is that in there under the “Don’t” column?

In the past, revisions to federal prosecutorial guidelines have taken the form of internal DoJ memos, the most recent of which was the controversial ‘McNulty memo,’ written by former Deputy Attorney General Paul McNulty in 2006. It required that the deputy attorney general sign off on any prosecutor’s request to share attorney-client-privileged information.

While the guidelines are binding on the DoJ, other federal entities, including the Securities and Exchange Commission, aren’t required to follow the new rule.

Oh. So Jeff Skilling would have still been screwed. Good to know.

But according to the new revisions, a company now won’t need to disclose to the DoJ — and the department can’t demand that it disclose — “non-factual” attorney work product and communications covered by attorney-client privilege. Nor will prosecutors be able to consider whether the company has paid its employee’s attorney fees in advance, or entered into joint defense agreements when evaluating cooperation. Finally, prosecutors won’t be able to take into account whether, or how, a company disciplines culpable employees.

I’m not sure any of that stuff is relevant to justice. Fees? Discipline? Who cares.

“Our new policy now makes very clear that no corporation is obligated to cooperate or to seek cooperation credit by disclosing information to the government,” Filip said. “Refusal by a corporation to cooperate, just like refusal by an individual to cooperate, is not evidence of guilt.”

Excellent! Let’s see how it works in practice.

Though the SEC and other federal agencies are not bound by the rules, they may still protect companies in cases in which the Justice Department is working with the securities regulator, and sharing information on prosecutions. The SEC’s own policy — set in a document called the Seaboard report, and continuing to grant wide latitude to prosecutors — was created by former Commissioner Harvey Pitt. One of the SEC policy’s most controversial provisions is a recommendation that companies share results of internal investigations with the SEC, regardless of whether the reports are protected by attorney-client privilege.

A bill introduced in the Senate in late June by Pennsylvania Republican Sen. Arlen Specter, and now pending, would change that. If passed, the Attorney-Client Privilege Protection Act of 2008 would protect the attorney-client privilege in prosecutions by all federal entities. It has support from both parties, including Delaware Democrat Joe Biden, his party’s new vice presidential nominee. A companion bill to Specter’s legislation passed the House last November.

In a letter sent this July, Deputy AG Filip asked Sen. Specter to hold off on pushing the bill through so that results of the latest DoJ revisions could be tested first. Although the DoJ believes the rules should apply across all federal agencies, as Specter’s bill would mandate, Filip said the matter should be taken up internally by each agency.

“We have had discussions with the SEC, Filip said in the press conference. SEC officials “can make up their own minds. We’re hopeful and encouraged that they’ll follow us in this direction.”

The guidelines leave some problems unresolved, Specter said in a statement in response to the new guidelines. “The new guidelines expressly encourage corporations to comply with the waiver and disclosure programs of other agencies including the SEC and EPA,” he said. “Legislation, of course, would bind all federal agencies and could not be changed except by an Act of Congress.”

Other supporters, such as the Coalition to Preserve Attorney Client Privilege, also continue their push. “The Justice Department’s track record of five different policies in ten years cries out for a permanent legislative solution that cannot be revised at the whim of each new Deputy Attorney General,” the group said in a statement. “The new DOJ policy does not address similar offending policies on privilege at other federal ageincies including the Securities and Exchange Commission.”

The American Bar Association applauded the policy, yet said that it can’t stand alone while other federal policies create “a culture that is seriously undermining both the confidential attorney-client relationship and basic employee rights in the corporate community.”

In related news, the 2nd U.S. Circuit Court of Appeals in Manhattan affirmed a low-court ruling last July that dismissed charges against 13 former KPMG executives, after a judge determined their former employer shouldn’t have refused to pay their legal fees. In a 2006 decision, District Judge Lewis Kaplan ruled that prosecutors violated the constitutional right to legal representation for many of the former employees by pressuring the accounting firm not to pay their legal bills.

Andy Fastow Was Jewish and Therefore, Innocent?

While trying to find out the machinations that went into former Enron CFO Andy Fastow’s scandalously short prison sentence, I found an archival copy of a story in the New York Timeswhich quotes Judge Hoyt, who sentenced Fastow, saying that though Fastow had “drunk the wine of greed,” he had also been the “subject of great persecution,” including anti-Semitic slurs and personal threats.

Not to be unduly insensitive to racial slurs, but so what? What impact does widespread revulsion have on his requirement to serve time for his bad acts? Also, I’d like to know the evidence behind that particular proclamation.

But what’s more, the judge gave Fastow credit for caring for his two young sons while their mother, Lea Fastow, served a year in jail due to Mr. Fastow’s criminal activities. From the NYT article, “Judge Hoyt acknowledged Mr. Fastow’s devotion to his family and community service and his efforts to redress his crimes at Enron. “The best evidence of remorse is what you do going forward,” Judge Hoyt said.”

This reminds me of Jeff Skilling departing Enron because he wanted to spend more time with his family. His children, too, lost their father. His wife remains at home without her husband. Yet there was no consideration at all for them when a different judge (Judge Sim Lake) sentenced Skilling to over 24 years in federal prison.

Jeff isn’t Jewish, so he didn’t have anti-Semitic slurs to bolster his arguments for a lighter sentence, but he certainly was reviled by the community.    In his sentencing hearing, his former assistant tells of being in a restaurant when somebody confronted Skilling, claiming to have lost millions.  Other stories of rudeness, threats, and outright hostility pervaded Skilling’s years between the collapse of Enron and his final sentencing.   Yet none of that counted for much in the mind of the sentencing judge.

What is it about being Jeff Skilling that is so inexcusable?   And in contrast,  how is it that Andy Fastow can be so admittedly guilty while also being treated with kid gloves?  I’m sure that it has to do with his willingness to sell his soul, but I thought prosecutors and judges were above politics.  I thought they were pure, seeking only the truth – the unvarnished truth.   They made themselves into the Andy Fastow Fan Club and for that, they deserve shame.  Not Jeff Skilling, or any of the other executives who pleaded guilty to avoid Skilling’s fate.   But the prosecutors and judges who looked at these two men – Fastow and Skilling – and saw more sanctity in Fastow.  

During Jeff Skilling’s appeal in New York, the Task Force prosecutor Doug Wilson actually said that Fastow got a shorter sentence because of “his character.”   Let that sink in a moment.  Realize exactly what the US government identifies as character.   And realize what, in Skilling, they scorn.

Bloomberg Publishes Jobs’ Obituary

Bloomberg today accidentally published Apple co-found Steve Jobs’ obituary, though he is (as of this writing) still very much alive. His battle with pancreatic cancer, as well as his gaunt appearance at a conference earlier this year has spurred speculation about his health. Gawker has the full text of the ghoulish error, including the expected change in stock price on the announcement and the name of his “survivors.”

Ghastly mistake.

Today In Enron History

August 28, 2001.

Greg Whalley was tapped as president and COO and Mark Frevert was promoted to vice-chairman to help fill the vacancy in leadership created when Jeff Skilling resigned the previous week.

“Greg and Mark bring a wealth of talent and experience to the office of the chairman,” said Dr. Lay in a statement. “In addition to having led Enron Wholesale Services, they have a collective 26 years of extensive experience across Enron’s businesses, and both played key roles in increasing our deliveries of energy and other commodities in North America and Europe.”

By this time, Enron stock had declined 10% since Skilling resigned. When the positions were announced, the stock rose 1.7%, to $38.40.

Andy Fastow had a busy day. Lots of meetings, interrupted at noon for lunch with Lea and his children at the office. After lunch, he had yet more meetings – three with Michael Kopper alone. At the end of the day, he attended Happy Hour for Michael Kopper’s going away. Then he went to a baseball game, Cincinnati Reds Vs. Houston Astros.

Because of the general busy-ness of the day, it is impossible to know if either Dr. Lay or Andy Fastow knew what had been printed that morning in the Wall Street Journal, though we are certain they found out later. It was a small item in the “Heard on the Street” column, written by Rebecca Smith and John Emshwiller. It said that Dr. Lay was promising more transparency to investors and to abandon the in-your-face management style that had become so infamous at Enron. But the real importance of the article was that it was the first time LJM was mentioned in a national newspaper. It revealed that Andy Fastow had sold his interest in them and quoted Lay saying it had become a “lightening rod” inside the company.

Jeff Skilling remained on vacation, rafting with his son.

Loren Steffy Attempts Enron Rhyme

Loren Steffy attempts to make a rhyme from Lou Pai’s SEC settlement. Here it is:

In the faraway land of Enron-Gone-By

Lived a really lucky guy named Lou Lung Pai.

Enron, you see, was a magical place

Where stocks always rose and Porsches did race

Into this land came a quiet government guy

Who soon would be known as Lucky Lou Pai

Enron was run by Ken Lay and Jeff Skilling

“Stick with us,” they said, “we’ll all make a killing.”

Enron’s accounting proved a big lie

But that mattered not to Lucky Lou Pai

He ran retail energy, a couldn’t-lose endeavor

He made gobs of money that he doled out at Treasures.

The stock options kept raining down from on high

And filling up the pockets of Lucky Lou Pai.

When his division’s profits began to turn sour

Enron cooked up new ways to make the books flower

It moved all the losses to hide them from view

Lou sold all his stock and got divorced, too.

Then Lou ran away, to a ranch in the Rockies

Leaving Enron with bankruptcy and lawsuits to jockey

Investigations brought indictments from the FB of I

But none bore the name of Lucky Lou Pai

Ol’ Lou, that luckiest of guys, skated clean away

Even shareholders stopped demanding he pay

Lou was just lucky that way, don’t you see

His stock sales had timed out fortuitously

And the SEC, which makes markets safe for civilians?

They asked for only thirty-one point five million

It’s a big fine, they said, one of the biggest ever

But for Lucky Lou Pai it’s just a small sliver

The rest of the money he himself gets to keep

To pile up like mountains, so high and so steep

And so it is done, another Enron tale told

Justice, it seems, is bought if not sold

So Lucky Lou, now that Enron is over,

Returns to a life of suburbs and Range Rovers.

With the clouds all lifted there’s only blue sky

For that luckiest of guys, Lucky Lou Pai.

Well. I’m not sure how lucky he was, considering he was coerced out of tapped for $35 million by the SEC. But no matter, the rhyme is still stupid. This is how you make an Enron rhyme:

they moved the flame and they moved all the SPARK
but they got into water thanks to Becky MARK
now flame, spark and water just do not MIX
then you factor in Kopper with some dirty TRICKS
Andy’s true compensation was a matter of LIES
the Raptors were all cross-collateralIZED
he hoped that the stock price could support the LOAD
while he quietly rigged the place to exPLODE
then just when the debt started to get BIGGER
the post 9-11 stock hit the limit price TRIGGER
then the SEC is at the door like they’re at your SERVICE
and the trading counterparties start to get NERVOUS
they worry about the credit so they want collateral CASH
now’s about the time to toss Andy in the TRASH
but Moody’s and the S&P cut the credit RATING
I bet McMahon found it very frustRATING
because in the aftermath of the fastow CAPER
the poor bastard couldn’t roll commercial PAPER
now it was time to drop the other SHOE
stock’s down and so is credit so obligations come DUE
it’s a little like walking through a field of land MINES
they had to pull down the revolving credit LINES
but the company was getting what it didn’t DESERVE
quickly running out of its cash RESERVES
they had to find capital and they had to seek a BUYER
Shit, the stress couldn’t get no HIGHER
Dynegy showed up to buy Enron all PREPARED
when they saw all the debt they started to get SCARED
they backed away, left Enron to FALL
took a little time but the market took it ALL
Skilling’s in prison now, 24 YEARS
even after the conviction, he shed no TEARS
he’s strong like titanium, says Bitches, FUCKIT
taking my issue straight to the 5th CIRCUIT

Peace out.

Merrill Lynch Says Tom Cruise Is A Bad Risk

Merrill Lynch is examining its contract with United Artists as the beleaguered bank looks to revise the deal on more favorable terms.

Merrill’s goal is to see if studio parent Metro-Goldwyn-Mayer violated any terms by axing Paula Wagner – superstar Tom Cruises’ movie partner – as UA’s CEO.

Careful, Merrill. Couchy McCouchjumper might put a Thetan spell on you if he senses you’re about to ditch him. Sort of like what he did to Katie Holmes.

Meanwhile, as a safeguard against Merrill’s maneuvering, MGM has retained Goldman Sachs as a strategic adviser to raise equity for film financing as well as other alternatives, including a potential sale of the famed studio, according to three people involved in or close to the situation.

Since Tom Cruise still is technically tied to UA, MGM boss Harry Sloan likely hasn’t defaulted on any of the terms of the $500 million credit facility that Merrill extended to UA.

Reps for Merrill and Goldman did not return calls or could not be reached, while an MGM spokesman said the UA fund is “completely safe.” For now, that is.

Sources said Merrill is looking for any event that might trigger a default on the loan and open the door to renegotiations.

Hi Merrill. Let me help you out. He’s fucking TOM CRUISE. Get out! Run! Cut your losses, just go! Run!

Merrill’s moves mean that Sloan’s hope to put the financing under the control of MGM production chief Mary Parent isn’t likely to happen.

“Sloan isn’t going to be able to use United Artists funds for non-United Artists movies” without a significant altering of the original agreement, said one person involved in the process. According to this person, the terms of the original financing agreement were so favorable to UA that Merrill and its syndicate of lenders would love to get out of it entirely. Short of that, the lenders are seeking any concessions they can get, the person said.

Indeed, Merrill has had bad luck in the movie business, having recently disbanded its film-financing unit because of the poor returns generated from deals with Summit Entertainment, Paramount Pictures and others.

By retaining Goldman, MGM hopes to finally raise its own money so it doesn’t have to rely on convincing Merrill to give it access to UA’s cash. But that may be easier said than done in the current tight credit climate. MGM has tried unsuccessfully to raise equity several times in the past year, though people close to the studio insist it is weeks away from securing its own film-financing deal.

Perhaps that’s why sources said Goldman also has put together a book that values MGM at $5.2 billion in a sale. A group comprised of Providence Equity Partners, Texas Pacific Group, DLJ Merchant Banking Partners, Sony and Comcast acquired MGM in 2004 for $5 billion.

Goldman’s asking price was bolstered by a recent review of MGM’s film library by BMO Capital Markets that valued it at about $6 billion, based on roughly $550 million in annual cash flow. (The library is valued higher than the studio itself because it doesn’t account for such expenses as overhead and production risk.)

“It’s no secret that if there was a way for MGM’s owners to cash out at the right number they would,” said one person close to the situation.

But sources said a sale is a long shot, since no buyer is interested in meeting MGM’s asking price and its owners aren’t yet desperate enough to take a haircut on their investment.

CSI

The sticker is difficult to read but it says, “In Memory of the Police and Firefighters Who Died In New York and Washington DC On September 11, 2001.” It was touching, but also a bit strange to find on a crime scene processing vehicle. I can’t make heads or tails of it.