January 20, 2000 was an important day in the study of Enron. If there was a single day that could be simply deleted from Enron history, which might make a difference in how things ultimately ended, it might be this day. Certainly, if it had not happened, the government would have had many hundreds of fewer counts to pile on the executives at Enron.
On January 20, 2000, Enron was hosting an analyst conference at the Four Seasons Hotel in downtown Houston. The analysts had been in session since 7:30 that morning. There had been only two fifteen-minute breaks between 7:30 and lunch. As the analysts returned from lunch, they took their seats to settle in for a nap. The first presentation immediately following lunch was Enron Broadband Services.
Ken Rice and Joe Hirko gave their presentation, which included a two-minute pre-recorded video on technology by Rex Shelby. If the audience was even aware of the tape, or that energy industry financial analysts would have cared about it even if they were awake, is too incredible to fathom.
As they concluded their presentations, a few sleepy analysts applauded politely and then Jeff Skilling took the stage. He announced that Scott McNealy of Sun Microsystems was here and Scott McNealy of Sun walked from the back of the room to the stage to give his talk. This woke the crowd up because McNealy was not on the agenda, and the analysts did not know he was there until Jeff Skilling invited him to the stage.
The surprise appearance of Scott McNealy is what the analysts remembered, and it was what they wrote about that afternoon and the next day. By communications industry standards of the time, the EBS presentation was subdued and contained no hype at all. By high-tech start-up standards (which is what EBS was), the presentation was downright staid.
When the government began handing out indictments like party favors, they focused on the January 20, 2000 analyst conference and decided that since it had been successful, it must have also been criminal. They accused the Broadband executives of lying about the capabilities of the system to increase the Enron stock price.
Various executive statements have been quoted in complaints and indictments as examples of the so-called lies uttered about the capability of Enron’s software. For example, in an SEC complaint, Joe Hirko is quoted:
“…this software layer, is this a pipedream, is this something that we’re going to get done in the next five years? No, this is something that exists today.”
The government alleges that this was a lie. Yet
Shania Twain, Drew Carey, Pete Sampras and others can attest to the fact that the software did in fact exist “today”.
The defense is expected to argue that Enron possessed — at various levels of quality — the technical ability it claimed. And the proof, say software specialists from Enron and other industry executives, lies in part in the technical features that the company offered while streaming video over the Internet for Mr. Carey’s comedy show, the 1999 Country Music Awards, the Wimbledon tennis competition and a Web site that provided an assortment of independent short films…..At bottom, the technology in Enron’s Internet division — Enron Broadband Services, or E.B.S. — may have been more developed than the indictment suggests, presenting prosecutors with some complex challenges.
This seems to derive to the single point: at what point is software “done”? Rex Shelby said during his trial that “software is not complete until it’s obsolete.” Like art, software is constantly improved and expanded – there is no natural “stopping point.” The fact that the government seized on a piece of software that was, in fact, working and said it was not makes them look foolish.
Sort of like accusing a man who tried to liquidate his entire net worth to help his flailing company of trying to enrich himself by lying about the abilities of the company. There is a logical inconsistency that the Department of Justice seems to willfully ignore.
Ken Rice eventually accused himself of lying at the conference. So passionate were his denunciations of the conference, he even testified to seeing a video that simply wasn’t there, which even the government admitted was a mistake. He served his sentence and was released.
Joe Hirko has said all along that he said nothing inappropriate at the analyst conference. He has recently pleaded guilty and will be sentenced in March. He will not serve a term longer than sixteen months.
During his first trial, Rex Shelby’s jury hung on all the counts related to the analyst conference. He and Scott Yeager remain embroiled in the legal system. Scott Yeager’s case is pending before the Supreme Court. Mr. Shelby’s re-trial has been suspended until the Supreme Court has ruled on Yeager’s case.
