Canales Setting Them Up And Knocking Them Down

At EBS, Bill Collins wrote an almost incoherent email in which he said that BOS was a “bitch on the sofa”. I think the poor guy was thinking of “the lipstick on the pig” concept but got confused. For some reason the government loved that email. Strangely, the email did not go to any engineers who could actually have set Collins straight. Scott Yeager, however, was a recipient.

Yeager’s attorney, Tony Canales, always referred to the email as “the pig on the sofa” email instead of “bitch on the sofa”. For some strange reason, this irritated prosecutor Ben “Opie” Campbell terribly, so of course, Canales being Canales, he kept doing it. At one point, Campbell stood up and declared, “Your Honor, there are no pigs in this case!” Everyone at the defense table started laughing.

Why Was The Government Afraid Of Its Own Indictment?

Should a jury always have an opportunity to read the indictment for the defendant whose fate they are deliberating?  I believe the defendant should always be given the right to decide if the indictment is given to the jury or not.  The reason is that the indictment is a government spin document — literally nothing in the indictment should be accepted as fact, not even background data.  Lots of judges, including Gilmore, routinely do not give the indictment to the jury because defense attorneys routinely object.
 
That’s what makes the EBS situation so fascinating.  Here the defense attorneys moved to place the entire indictment, the core spin document written by the government, into the hands of the jury.  The defense wanted it in the jurors’ hands because it is an inane document and because the government failed to even address the bulk of their accusations.  In other words, the government did not follow the record of their indictment during the trial. 
 
The government, who wrote the document, objected to the jury seeing it.  Gilmore said she would not give the document to the jury because it had bad things about the defendants in it.   What a farce!  The government panicking over its own indictment! 

Kathy Ruemmler’s Stupid Question

During Jeff Skilling’s trial, there was a moment I found absolutely maddening. Cliff Baxter’s widow testified briefly for the defense. When it was Kathy Ruemmler’s turn to cross-examine her, she asked Mrs. Baxter, “Did you ever work at Enron Corporation?”

Mrs. Baxter answered, “No.”

Kathy Ruemmler had no further questions.

This seems to me the stupidest question she could have asked. Carol Baxter may not have worked at the company but surely she was closer to her husband, Cliff Baxter, than any other person. Surely she knew from him what was happening at the company.

But Kathy Ruemmler didn’t work at Enron Corp. either and furthermore, she never had an inside track on the company. All she knows of it came from her prosecution witnesses.

Mrs. Baxter was far too polite to point this out, of course.

Enron Is Back In Business! (Sort Of)

HBJ reports on the exciting news:

A global energy power player led by a former Enron executive is plugging into an initial public offering.

AEI, registered in the Cayman Islands with operational headquarters in Houston, has filed with federal regulators to raise as much as $862.5 million and gain a listing on the New York Stock Exchange.

The timing and size of the offering are regarded as positive signs by analysts who see the IPO market beginning to thaw out after being frozen shut since August 2008 (see related box below).

Starting with the assets of a predecessor company, Prisma Energy International Inc., AEI has quietly grown into a multinational utilities giant in the power distribution and natural gas pipeline industries.

Prisma Energy emerged from the ashes of Enron Corp. after the once high-flying Houston corporation crashed in late 2001. Since then, Prisma and subsequently AEI focused on electrical power and natural gas distribution and generation, and also owns retail fuel centers.

While based in Houston, AEI does business in emerging international markets, with operations in 19 countries spread across Latin America, Europe and Asia.

AEI generated $9 billion in revenue in 2008 from more than 50 subsidiaries and other operating companies from China to Jamaica in which it has invested, according to the filing.

In a May transaction, AEI acquired a 19 percent stake in Emdersa, an Argentine power distribution holding company, in exchange for cash and AEI shares.

Oscar Serrate, an AEI spokesman, cited regulatory requirements in declining to comment further on the filing or the company’s business model.
essence of Enron

James Hughes joined AEI in 2007 as chief operating officer and was appointed to his current position as CEO later that year.

A former securities attorney in Dallas and Poland, Hughes spent a decade with Enron, as president and chief operating officer of Enron Global Assets and also as general counsel of Enron International. Hughes was later Prisma Energy’s president through 2004.

The largest AEI individual stockholder is high-profile energy executive Ronald Haddock, with 1.5 million shares. Haddock, AEI’s chairman of the board, was the company’s CEO from 2003 to 2006.

A former Enron director, Haddock has several decades in the energy business, with lengthy stints at Exxon and later at FINA, where he was CEO from 1989 to 2000.

Other former Enron executives in key AEI positions include: Brian Zatarain, executive vice president for risk management, who worked in international business development at Enron; and Brian Stanley, executive vice president of operations, who previously oversaw all of Enron’s power plant operations and was CEO of Enron Engineering & Operational Services, responsible for global construction and operation of power generation and natural gas processing facilities.

British wealth management and investment firm Ashmore Investment Management Ltd. is AEI’s largest shareholder, with a 55 percent stake.

AEI was spawned in early 2006 when Ashmore transferred certain energy interests to an affiliate, Ashmore Energy International LLC. Ashmore Energy then purchased Prisma Energy from Enron for $1.8 billion in two stages in May and September of that year. Prisma Energy was the last of the three key business entities under Enron’s bankruptcy plan to be distributed to creditors or sold.

After the sale, the combined Ashmore-Prisma Energy entity was reincorporated in the Cayman Islands and changed names to Ashmore Energy International, which more recently was shortened to the existing AEI.

Financial disclosures in the IPO prospectus show:

• Power distribution is AEI’s most lucrative business, contributing 52 percent of earnings before income taxes, depreciation and amortization, or EBITDA, in 2008. Geographically, South America is AEI’s most lucrative market, with Brazil and Colombia accounting for 71 percent of EBITDA last year.

• Total revenue dipped to $3.7 billion for the first six months of 2009 compared to $4.6 billion for the year-earlier period, but income before taxes remained constant at about $348 million in both periods.

• AEI focuses on emerging markets for their long-term growth potential, based on those countries’ need for large-scale infrastructure development, and has spent $1.5 billion since early 2007 to acquire well-positioned power and energy companies in those markets.

• Considering the company’s large number of operating subsidiaries, AEI carries a debt load of nearly $3 billion.
Power rivals and pitfalls

Emerging market infrastructure development is attracting plenty of interest, says Travis Miller, senior equity analyst with Morningstar Inc.

I am PSYCHED. I want a job with them. Pronto.

Also, have you noticed how long it has been since we heard about any IPOs? I blame the lack of IPOs on Sarbanes-Oxley, which of course, people blame on Enron. But this harsher business environment makes the barriers to going public too much trouble, so small companies stay private. Thanks, government!

The Brilliant Wisdom of Tony Canales

As I pointed out in a previous post Scott Yeager’s attorney, Tony Canales, is an astonishingly good, brilliant attorney. He will use whatever tools he has at his disposal to get his point across. Often it is humor; some of his lines are laugh out loud funny. But he is also not afraid to be loud, obnoxious, forceful, in-your-face, relentless, and definitely Alpha. In other words, he is my ideal man.

It was Tony Canales who flushed out the truth about the Shelby 2 video – that it was NOT played during the 2000 Analyst Conference. And man oh man, was it fun to watch. He was unstoppable. Even Judge Gilmore tried to tangle with him and he put her in her place. The lesson is clear: you do not trifle with Tony Canales. Ever. You will lose.

On April 19, 2005, Tony Canales began his crossexamination of Ken Rice. The day started out with a jocular enough tone:

Mr. Canales: Your Honor, the court reporter has instructed me to slow down once in a while. So, if I look at her, she’s going to give me a frown, I’m going to slow down.

The Court: Don’t give her the evil eye, now.

Mr. Canales: Only if absolutely necessary.

A little friendly back and forth with the judge is never a bad thing. So Canales starts in with Rice. He’s very polite,
everything is ordinary. He gets Ken to talk about how he was out of the office a few days before the Analyst Conference due to a cold. It’s always the innocuous stuff with Tony Canales. He never starts crap over nuclear issues, he goes for the small stuff, and then completely screws up your day, like this:

Q Would you agree with me then, sir — let’s look at the big map — at the big calendar — that if you missed the 9th, 10th, 11th, you’re saying in the e-mail on the 13th that you were rejoining from the world — you know, coming back to the world of the living, you were out at least since the 9th to the 13th?

A That’s probably true.

Q Now, you — did you intend, sir, to leave the impression with this jury that, at some point in time before the
Analysts’ Conference, you met with Scott Yeager to conspire and plan and confederate and every other adjective for the Analysts’ Conference? Is that the impression you’re trying to leave with this jury?

MR. CAMPBELL: Objection to form, Your Honor.

THE COURT: Objection sustained.

Q Sir, did you meet with Scott Yeager on the 9th?

A No.

Q On the 10th?

A No.

Q On the 11th?

A No.

Q On the 12th?

A No.

Q On the 13th?

A I don’t think so.

Q You don’t think so?

A I don’t remember everything I did on the 13th.

Q But you have talked — have you not, sir, testified for three days before this jury date, time, location to
Mr. Campbell’s questions because you knew exactly what you were — where you were and who you met with? Did you not do that earlier?

MR. CAMPBELL: Objection.

THE COURT: Objection sustained. First of all, that isn’t even true, Mr. Canales, so come on now.

MR. CANALES: Sure it’s true, Judge. He testified to –

THE COURT: Objection is sustained. I said stop it. It’s not true. Ask another question.

MR. CANALES: I believe it’s true, Judge.

THE COURT: You know what, leave, because this lawyer, obviously, needs some talking to.

THE COURT SECURITY OFFICER: All rise.

THE COURT: Go on out, please.

(The jury begins to leave the courtroom.)

THE COURT: I am not going to argue with you in this courtroom, Mr. Canales. If I make an objection — if an
objection is made and I sustain it, that means stop talking.

MR. CANALES: And I will. And I will but you cannot tell that what I said wasn’t true. You’re attacking me,
Judge. You said –

THE COURT: First of all, it’s not true because you can’t just sit up here and say this is what you did all during the trial. That’s not true. Now, you –

MR. CANALES: Yes, it is.

THE COURT: Stop it. Just cut it out. That is not going to be happening in here. I’m not going to argue with
you. If I make a ruling, that is it. I’m not arguing with lawyers.

MR. CANALES: And I accept the Court’s ruling. I do not accept the Court telling me that I did something that was
not true. That, I do not accept.

THE COURT: I said that what you said about this witness’s testimony was incorrect, and that is not true.

MR. CANALES: Well, that’s the way I took it, Your Honor.

THE COURT: Well, if the objection is sustained, that means that’s it.

MR. CANALES: And I accept it. But I do not accept the Court saying that I said something that wasn’t true. That’s why I objected.

THE COURT: You know what, that’s just too bad for you. Go to lunch and see if you can get your attitude together over the lunch break.

MR. CANALES: I — yes, ma’am.

THE COURT: Get out of here. Go. Get out of my courtroom. We’re at lunch. You-all be back at –

MR. CANALES: What time do you want me back?

THE COURT: — 1:35 this afternoon.

Something else happened in this transaction that you probably didn’t notice. In the official record, in a pre-trial conference, one of the attorneys (I believe it was Zimmerman but I may be mistaken) made the grave error of calling Judge Gilmore “ma’am.”

“Don’t ma’am me,” Judge Gilmore snapped. “I hate that. I won’t have it in my court room.”

Nobody called her “ma’am” again until this point when Tony Canales sneaked in a brilliant passive-aggressive “ma’am”. But it gets even better.

During lunch, the attorneys huddled over the fact that Gilmore had admonished Canales in front of the jury, just as they were getting up to leave. So naturally, they had something to say about it after the recess. Gilmore doesn’t sound very judge-like here. I love this exchange with all the attorneys being so polite and she’s just losing her mind.

[Mr. Sepenuk represents Joe Hirko]

MR. SEPENUK: Good afternoon, Your Honor. Your Honor, on behalf of Mr. Hirko, as the old guy member of the team, I would respectfully move, Your Honor, for a severance of the case regarding Mr. Hirko.
My reason for asking that, Your Honor, is this. Mr. Rice is the pivotal, crucial witness against
Mr. Hirko. When Your Honor engaged in the colloquy with Mr. Canales –

THE COURT: You mean when he was screaming at me?

MR. SEPENUK: Well, I believe that’s the one, Your Honor. And when you admonished Mr. Canales and actually told Mr. Canales that he had improperly characterized Mr. Rice’s testimony, I think Your Honor’s words were, “You’re not telling the truth, Mr. Canales.” You did that, Your Honor, I respectfully note, in the presence of the jury. You did it not once. You did it twice. You had asked the jury, I think very properly, to file out, but while the jury was just beginning to file out, Your Honor, you made the comment again to Mr. Canales that Mr. Canales was not telling the truth. That, Your Honor, I believe –

THE COURT: I did not say — use those words.

MR. SEPENUK: Well, that’s my recollection, Your Honor. And I apologize to Your Honor if I have improperly characterized it.

THE COURT: That’s not what I said. You know that’s not what I said.

MR. SEPENUK: Well, that — Honestly, Your Honor, that’s the way I heard it. I think what’s happened is that you have –

THE COURT: Okay.

MR. SEPENUK: — I’m sure inadvertently, bolstered Mr. Rice’s credibility.

THE COURT: No. I haven’t bolstered anybody’s credibility. The issue had to do with the objection of whether or not Mr. Canales was improperly characterizing earlier statements that “every single time, every single date, that he asked you about” — “every time, every date, every place, you got exactly right.” Well, that just wasn’t correct.
The objection was sustained because the witness forgot some stuff before, remembered some things, remembered some things accurately, remembered some things inaccurately. It just wasn’t correct that every single time he got the exact date, time and place correct on every single question. It just wasn’t true, which is exactly what the question was. In any event, let me cut it short for you. Your request for a mistrial is denied.

MR. SEPENUK: Your Honor, just one more moment. Needless to say, I know you’ll squash me like a bug if I argue with you, and I don’t intend to do that, truly.

THE COURT: Are you still on the motion for mistrial that I’ve already ruled on?

MR. SEPENUK: Actually, the motion was for a severance. If you deny the motion for severance, Your Honor, then we would ask for a mistrial –
THE COURT: Okay.

MR. SEPENUK: — based on what I’ve previously stated.

THE COURT: No severance. No mistrial.

MR. SEPENUK: And then, finally, Your Honor, very, very respectfully, we would ask the Court to let the jury
know that it’s the duty of counsel to present evidence on behalf of their client, have colloquies with the Court on disputed issues –

THE COURT: It’s not the duty of counsel to scream and holler at the Court. I’m not putting up with that.

MR. SEPENUK: Your Honor, could you at least tell –

THE COURT: In this day and age, with what’s been going on with judges recently, judges do not have to put up with lawyers that are openly hostile to them. That’s why we’re not having any podium in here from now on. Y’all can
question from your seats. I don’t want any lawyers that are that openly hostile that close to me, the witness or my jury.

[NOTE: She enforced this new question-from-your-seats rule for about a day before she gave up trying to enforce it. It was silly. How do you pass exhibits to the witness from your seat? Even Gilmore eventually saw the stupidity of that ruling. ]

MR. SEPENUK: May I make one final, respectful request that you tell the jury that nothing you said to Mr. Canales or, indeed, to any lawyer in the case is meant to reflect your opinion of any issue in the case or your opinion with respect to the credibility of any witness?

THE COURT: I’ll do that at the end of the case.

MR. SEPENUK: Thank you, Your Honor.

MR. TOMKO: We join that motion, Your Honor, for Mr. Shelby.

THE COURT: No need to stand up just to say “Amen”.

MR. LAVINE: Your Honor, on behalf of Mr. Howard, we join the motion for mistrial, but we’d like to put on the record that there is a different basis, that the prejudice from the exchange between the Court and Mr. Yeager’s counsel would flow to Mr. Howard, and we’d move for mistrial on that basis.

THE COURT: Okay. So, that means that anytime a lawyers decides that they — things aren’t going too well for them they just start standing up and screaming and hollering at the Court and then everybody stands up and says, “Oh, my God. We need a severance because somebody has been screaming and hollering at the Judge and that’s going to reflect poorly on all of us”? That’s a good tactic. Your request is denied.

MR. LAVINE: We move for a severance, in the alternative, based on that.

THE COURT: Denied.

MR. LAVINE: Same basis, Your Honor. In addition to the request for jury instructions that Mr. Hirko’s counsel has asked for, we would ask that the Court instruct the jury that they are the exclusive finder of fact as to what the witness –

THE COURT: I’ll tell you what. Why don’t you guys submit what you want for the jury instructions at the appropriate time, and I will definitely look at every single thing that you give me.

MR. LAVINE: We would ask that those instructions be given to the jury now, Your Honor.

THE COURT: I’m going to do it at the end of the case.

MR. CAMPBELL: Can I ask one question, Your Honor? It’s merely procedural. Would you like us to object from — sitting down or do you want us to stand up for objections?

THE COURT: You need to stand up for objections. Otherwise, I won’t even know who it is.

MR. CAMPBELL: That’s — I thought it would be easier to hear if we stand up.

THE COURT: But everybody can question from their seats. This is not a day and age where courts have to put up with hostility from people in the courtroom and where anybody should have to, and I’m not going to. Go get the jury.

Campbell is such a toadie. In any case, Canales wasn’t through. Oh heavens no. His next “fuck you” to the judge came that same afternoon. There has been a lot of quiet talk about Gilmore’s racial prejudices, her general dislike for “rich white guys” and I think Tony Canales was picking up on that, and giving it back to the judge, not necessarily Ken Rice, when the following exchange took place:

Q. Did you confer with anybody – anybody – as to whether or not at that 2000 Analyst Conference Shelby 2 was played?

A. I talked to my lawyer, Mr. Dolan, and he doesn’t — he told me he doesn’t know more than I do.

Q. He was no help to you?

A. All that money. No.

Q. Maybe a cheap Mexican lawyer could help you out.

A. I didn’t hear you.

Mr. Canales: Forgive me, Your Honor, for that.

Well, we must give credit to Ken Rice – that was a cute comment. But wow, Canales hits hard when he wants to.

He then argues with the judge about giving the Prosecution time to view the tape that they had given the defense. It made no sense then, just as it makes no sense now. But Canales eventually prevails and shows the tape of the Analyst Conference which shows that only one Shelby tape was played.

If Gilmore bolstered Ken Rice’s credibility with her comments that Canales was lying, Canales certainly reversed that with his proof that Ken Rice was at least mistaken.

What Could Possibly Happen In 32 Seconds?

All the Enron Broadband defendant attorneys are brilliant, of course, and they all have strengths that are unique to themselves, and which contributed to the overall strength of the defense (and this is one reason, apart from the defendants’ innocence, why I think there were exactly zero convictions.)

I do not want to tangle – ever – with Per Ramfjord because he apparently has a photographic memory. If you lie to him, he will catch you and make you pay. David Angeli is a brilliant tactician. He has some weird voodoo mind-control power that makes you act exactly as he wants you to act on the stand. Ed Tomko is low-key and friendly, which, I think, lulls victims witnesses into a false sense of security. Zimmerman is polite to a fault. But my favorite is Scott Yeager’s attorney, Tony Canales. Tony Canales cracks me up. Tony Canales will have you laughing in the seconds before he snaps your back in two and leaves you mortally wounded on the witness stand. It is so smooth, you don’t even feel it at the time. And It might take him a whole day to get to his point but when he does, you are done. He reminds me of one of those supreme sushi chefs who will cut open a fish and leave its heart beating for a few seconds so the patrons can see that this fish is fresh.

It was Tony Canales that asked Ken Rice, “If you said that second [Shelby] tape was played at the conference you’d be a liar, wouldn’t you?”

Poor Ken Rice had no idea what was about to happen to him. None.

Snap.

I’ve heard from people who know Canales that he’s a total pain in the ass, but that only makes me love him more.

In today’s venture into the Broadband trial, Tony Canales is funny because he gets his client to point out that the key slide from the 2000 AC that was in front of the jury the entire trial had a few key points on it. The entire case is based on if those specific things existed or not on that date and if not then the entire Analyst Conference was a lie. This included the notion of Shelby II but after that was blown out of the water the emphasis was on this slide.

Here is the slide:

Out of an 8 hour day and over 289 or so slides this slide was in front of the analysts for 32 seconds. That is it. The case is based on a slide and definitions of words on a slide that lasted 32 seconds out of an 8 hour day. That is what drove up the Enron stock on Jan 20th 2000 and caused Enron to fail 18 months later?

Also, it drives home why Yeager believed the slide told the truth, the presentation was true and the definitions the Government are forcing on the jury are wrong. Yeager did not have to stand up and say anything because he believed then and still does that everything presented was true. EBS was using real definitions of functionality, not the made up distorted ones the Government used. Those definitions were industry standard ones. The case is full of examples of crossexamination by Angeli and Per on how EBS was redefining QoS and the EIN was by definition a new kind of Network that included applications running on servers.

Here is Canales questioning Yeager on this subject:

Q. As a result of doing this study and the business plan and so forth, sir, did you reach any type of — by
January the 20th, 2000, did you reach any type of belief or an opinion that you honestly held regarding the functionality of the EIN network?

A. Yes.

Q. And what was that belief or opinion that you reached, sir?

A. On January 20th, my belief was that we had come a long way during ’99. We had uncovered issues, dealt with them and we had, I believe, at that point, a 14-city fiber optic backbone composed of plenty of bandwidth, conduct business for Media Cast and Media Transport. We had the pooling points in place, which were critical. We had written the software for all of that. It was integrated together. We had a network control system. We had everything we needed to not only deliver those services, but to expand them and to grow new services and
revenues.

Q. How did you know those things?

A. I knew them from working at the company and going around to different locations within the company. I knew them from observing the actual use of the applications and the equipment, both physically inside of our network in buildings and by going to customer locations.

Q. So, you actually traveled throughout the United States?

A. Yes.

Q. Did you, actually, physically go to visit customers?

A. Yes.

Q. What, sir, was your belief on January the 20th as to what the EIN network consisted of?

A. Based on what we had as a group or the company had decided to expand the definition of the EIN from earlier, it was very clear to me on that day that the EIN was fiber, servers, pooling points and software.

Q. Did you hold a belief or an opinion, sir, as to whether or not there was the existence of Network Control Software?

A. Yes.

Q. And what was that opinion or belief based on?

A. It was based on my experience and knowing what Network Control Software does in networks and what I saw when I was at EBS.

Q. And what did you see when you were at EBS?

A. When I was at EBS, I saw the network operations control center operational earlier in ’99. I saw Jim Rowh give a
presentation in August of ’99 where he articulated all of the software that we had in place and it was up and running. I physically went to it. And then later we were building a NOC in Houston. And, so, it was a lot of different ways that I knew about it.

Q. Now, when you say they were building a NOC in Houston, is that a physical place, the NOC?

A. There is a physical thing called a: Network operations control center”, which is the term we would use with this,
and it’s a room where there’s a lot of computers and software connected through a dedicated private network to
all of the elements inside of the network.

Q. And where was it established here in Houston, this NOC?

A. Well, there’s one in Portland, but the one in Houston — There was a room in the Enron building — the main Enron building that was the room you could go into and see all the screens of all the software that was controlling the network.

Q. Well, I’ve heard something in this case — or have you heard something in this case about a location on Shepherd Street here in Houston?

A. Yes. There was also a location on Shepherd.

Q. What was that location on Shepherd?

A. My recollection is the location on Shepherd has a lot of equipment, but it was more of the staging area for preparing all the servers and the routers and the LAN switches and other things to ship out as we expanded the EIN.

Q. So, then the NOC, as you were describing it to us, was physically located in Downtown Houston?

A. Well, since the — The notion of a NOC is a little — By definition, our notion was a distributed system. The way that you could see the NOC was in a room, and the — there was a room in Houston — in Downtown Houston.

Q. In the Enron building down the street?

A. Right. But some of the servers could have been on Shepherd, they were in Portland, and they were spread all
over the United States on all the EIN POPs.

Q. What about the NOC in Portland?

A. The NOC in Portland was another — was the first instance of it. And there’s people that work in the NOC;
so, that’s why we think of it as a room, because you actually had people man the NOC.

Q. Okay. There’s been a lot of testimony regarding this particular chart here. Do you have a recollection, sir, as
to whether or not this particular chart I’m showing you –And I think it’s a demo exhibit, Government’s Demo
Exhibit 1. Do you see it, sir?

A. Yes.

Q. Now, does this same exhibit appear in the Analyst Conference?

A. Yes.

Q. All right. Was there a PowerPoint?

A. It was a slide in the PowerPoint.

Q. All right. And I believe that slide was Slide No. — Let me see. I have it right here. Just a second.
Let’s see YD2464 at 182. Out of YD2464. Now, do you have a recollection, sir, as to whether or not this PowerPoint that we’re seeing here ending in 563, as you’ve told us, appeared in the Analyst Conference as part of the video?

A. Yes.

Q. All right. And do you know, sir — Well, have I asked you to time how long this particular slide appeared at the
Analyst Conference?

A. Yes, you did.

Q. And how long, sir, did this particular slide appear at the Analyst Conference?

A. From viewing the raw footage, it was 32 seconds.

Q. And how long did you tell this jury that this conference was, sir?

A. It was all day.

Q. Eight hours?

A. Roughly eight hours.

Q. So, you’re talking 32 seconds out of eight hours that this particular slide appears?

A. Yes.

Q. And, sir, can you tell the jury whether or not at my request you’ve counted the number of slides that appeared at
the Analyst Conference?

A. Yes. I attempted to count the slides in there, yes.

Q. And how many?

A. There’s like 289 slides or something.

Q. 289 slides. That’s from the beginning, in the morning?

A. From the morning through the afternoon. All day.

Q. Sir, did you have any type of role or participation in the preparation of this particular slide for the Analyst
Conference?

A. No.

Q. Did you have any role or participation as to whether or not this would be inserted or deleted?

A. No.

Q. At the Analyst Conference, sir, did you make any comments on this particular slide?

A. No.

Q. Well, sir, you — Are you surprised at all, sir, that, you know, you got indicted for a slide that you did not
prepare and that was only up for 32 seconds?

MS. MONACO: Objection, Your Honor.

THE COURT: Objection sustained.

That last question cracks me up. Why did the Government object? I’d be curious to know Mr. Yeager’s answer. And I adore Canales for asking it, though he probably knew that the government would object and pro-government Gilmore would sustain the objection. He had a few of these sly insertions, which I will explore in my next post.

Scott Yeager and Seinfeld

I’ve previously compared various elements of Enron to Seinfeld. While writing my update on Scott Yeager, another Seinfeldian element occurred to me. The government accused Yeager of “criminal omissions”. That sounds an awful lot like the crime of “criminal indifference”, which was the crime committed by Jerry, George, Kramer and Elaine during the final episode when they refuse to come to the aid of a fat guy being mugged.

As lawyer Jackie Childs says when he hears about the case, “This is America. You don’t have to help no-one.”

Seinfeld writers certainly understood the absurdity of being accused of a crime based on your refusal to commit an overt act. Theft, rape, murder, espionage, insider trading all require the defendant to DO something. Even a case of child neglect seems that the accused would be doing something other than what he/ she should do. For example, instead of feeding your kids, blowing the money on hookers and blow.

But Scott Yeager did nothing. He didn’t even do anything INSTEAD OF SOMETHING ELSE. In perfect Seinfeldian style, he sat down and watched an analyst conference, thereby comitting criminal indifference. Supposedly he should have jumped in front of Jeff Skilling like the Secret Service taking a bullet for the president, screaming “No! It’s all lies!”

But Skilling wasn’t lying. Yeager had no knowledge of any insider information, and thus had no reason to stop any comments uttered at the Conference. And even if he did (and let me be clear: he didn’t) who does that? Can you imagine if he actually stood up and interrupted the speaker? It would be funnier if it were during Rice and Hirko’s comments, I think. Jeff Skilling would have made a joke and diffused the situation. Rice and Hirko would have no fucking idea what to do. I can imagine Yeager standing up, saying in a loud, clear voice, “This is bullshit!”

The room goes completely silent. Analysts aren’t sure what to think. Rice forces himself to stay cool. He puts one hand in his pants pocket. Hirko looks to Rice, then back to Scott. “Scott?” Hirko says, an uncertain smile playing at his mouth. “Did you have something to say?”

“This is bullshit,” Scott says. He is clearly on the verge of a meltdown. He would have to be in order to behave in such an irresponsible way. His career is over. The stock price would be dropping even as he staggered up to the podium, shoving Joe aside for the microphone.

“I’m sorry but I can’t sit here and be criminally indifferent,” Yeager would say. He would rip off his jacket. Sweat would be pouring down his face. Pit stains would show through his blazing white shirt. Maybe he would have been drinking. The smell of alcohol would waft from him, but that alone wouldn’t explain his unfocused eyes or the strange manic energy charging the air around him.

Ken Rice would have moved to the side of the room where Skilling was standing in shocked horror. Rice would pull his phone out of his pants pocket and discreetly dial 911.

Joe Hirko, the peacemaker, would put his hand on Yeager’s shoulder. Speaking away from the microphone, he would ask, “Scott, buddy, are you okay? Why don’t you sit down? Do you need a glass of water?”

Yeager jerks his shoulder back, accidentally striking Joe in the face. Only then does Joe realize Yeager is beyond reason. “This is all lies,” Yeager says. He’s breathing heavily. He starts unbuttoning his shirt. “All lies. The Broadband Operating System… Lies!” From the back of the room Rex Shelby stands up. He walks toward the podium. Scott sees him and shouts, “Stop!”

Shelby stands still. Skilling signals for him to stay where he is.

“You!” Yeager shouts at Hirko. “You approved press releases last year that didn’t specify the timeline of the BOS development! And you,” he says to Rex Shelby as spit flies from his mouth, “you are planning to sell stock tomorrow on insider information with your friend from Modulus who will also sell the exact same number of shares at the same time but not be indicted. I can’t bear these horrible lies!”

He rips off his shirt and looks at Hirko. Hirko says calmly, “Scott, sit down.”

Suddenly the shirtless executive bursts into tears. He hugs Joe, clinging to him. Hirko, having no idea what to do, awkwardly pats his back in a fatherly gesture. Suddenly, Scott screams, “Damn EBS!” He backs away from Joe, wiping fiercely at his teary face, and collapses partially onto the podium, holding his face in his hands and weeping.

Then he looks out at the analysts and through his tears, sobs, “I am a lot of things. But I am NOT criminally indifferent!”

That would be so hilariously ridiculous. Yet that is the only way I can imagine Scott Yeager or indeed any executive standing up to interrupting an analyst conference. They would have to be out of their mind. Certifiably crazy.

But let’s put the onus on the government. Does the gov have any documented cases of somebody actually doing that? Doubt it. They don’t have any cases of “criminal omissions” either because it is not against the law to do nothing.

Oh and I seem to recall a certain “right to remain silent”. Granted, an analyst conference isn’t an arrest, but if you don’t have to talk to police to keep from incriminating yourself, it stands to reason you can also decline to say anything to some analysts who are barely listening to you anyway.

Criminal omissions?! This is just nonsense. It is getting increasingly difficult to take the Enron Task Force clowns seriously. At least in the Seinfeld episode, Jerry, Elaine, Kramer and George only got a year in prison. Yeager could go away for fifty.

Team Yeager all the way!

Today In Enron History

I won’t even try to take this TIEH seriously. It is so ridiculous.

In August 2004, the “Enron Tapes” were still being leaked out so people could be horrified over the “Grandma Millie” references and give themselves the vapors because some traders named their strategies Death Star and Get Shorty.

On August 26, 2004 the world was aghast to learn that Enron traders did the unthinkable and laughed about killing

innocent

defenseless

baby

salmon.

What happened was, they joked about killing Northwest salmon as dams in Oregon and Washington state churned out power meant to ease California’s 2000 “power crisis” but which, as the myth goes, Enron actually resold at a high profit to the nation’s Southwest. The Seattle Post-Intelligencer at that time quoted spokesman as saying that for every four to six hours salmon went through the dam turbines, 2 percent of the young among them would be killed.

Sen. Maria Cantwell, whom I’ve written about before because she’s such a bubble-headed fruitcake and her grasping of the Enron name to position herself as a populist hero is funny to me, was behind this outrage. Her office transcribed the mean anti-salmon tapes and disseminated them to the salmon-loving public.

Update On Scott Yeager’s Status

As incredible as is to normal people, the government is still trying to try Scott Yeager after the Supreme Court ruled in his favor. Earlier this month, the government filed a Motion To Allow Supplemental Briefing On Double Jeopardy Issue in an attempt to distort the Supreme Court decision on Yeager. They argue that they can still try Yeager, and they want the 5th Circuit to reconsider their earlier decision that Yeager did not necessarily possess insider information or withhold it from the public.

The government’s position is that if only the acquittals and not the hung counts are considered, Yeager’s retrial is barred. In other words, the government is reiterating established law of double jeopardy (that is, Yeager can not be retried on the acquitted counts) but is acting as if the issue of the hung counts was never even considered!

Yeager’s team replied with a fierce response to the government’s motion. They accurately point out that when the jury acquitted Yeager of multiple charges of conspiracy, securities fraud, and mail fraud it must have determined that ” Yeager himself did not have any inside information that contradicted what was presented to the public” and therefore “when we consider the acquittals by themselves, it appears that Yeager is correct that collateral estoppel bars a retrial.”

The Supreme Court considered a narrow legal question whether hung counts should be weighed in collateral estoppel analysis. They, of course, reversed the 5th Circuit, making it clear that hung counts have no place in the analysis, and thus further prosecution of Yeager was barred.

The government asks that the 5th Circuit reconsider it’s conclusion that the jury at Yeager’s trial necessarily determined that Yeager did not possess inside information. Amusingly, the Government cites the dissenting opinion of the Supreme Court in its Motion (the Government also cites the minority Supreme Court opinion in its reply to Rex Shelby’s Motion to Dismiss.) “Although the terms on which the Supreme Court remanded the case to this Court do not require reconsideration, the Court’s opinion and the concurring opinions joined by four Justices strongly support that course of action,” the Government writes. (Emphasis mine.)

Strongly? If it strongly supported that irrational course of action, perhaps it would be better demonstrated by the Supreme Court ruling against Yeager. To borrow a terse phrase from President Obama: Yeager won.

The government hilariously then states, “Because any further prosecution of Yeager on the mistried counts will be barred by the Double Jeopardy Clause if this Court does not revisit its factual analysis at this stage, the Court should allow the parties to file supplemental briefs addressing the application of the doctrine of collateral estoppel to the facts of this case in light of the Supreme Court’s remand to this court.” In other words: If you don’t help us get the bastard now, he’ll walk free! We can’t let that happen!

As Yeager’s Response states, that argument misses the point entirely. Further prosecution of Yeager is exactly what the Double Jeopardy Clause prohibits. The writer of Scott Yeager’s Response is positively eloquent when he points out, “After more than six years of living under indictment and through a thirteen-week trial, at which he was acquitted of the lead charges of the indictment and convicted of no charge, followed by appellate and Supreme Court proceedings in which he eventually prevailed, Yeager deserves a final judgment dismissing the charges against him. The Government, “with all its resources and power” should not be permitted to continue this prosecution, subjecting Yeager “to embarrassment, expense and ordeal and compelling him to live in a continuing state of anxiety and insecurity.”

Amen.

Unlike the Government’s motion which has a whining tone like a kid who didn’t get his favorite ice cream for his birthday, Defendant Yeager’s Reply actually addresses the core issues in a factual, straightforward way. Defendant Yeager uses the Court’s own words against them, reminding them that in their denial of his appeal, they wrote, “[w]hether we can weigh hung counts in applying collateral estoppel then is critical to our analysis.” Of course, we know now that they may not weigh those hung counts in their analysis. Hung counts are a nonevent, as the Supreme Court ruled. Thus, Ashe prevailed. If the hung counts were included as part of the Ashe analysis, Yeager could be retried on the insider trading and money laundering charges against him. If not, his retrial was prohibited.

The government is asking the court to revisit this analysis, though it has no legal basis to do so. The majority opinion of the Supreme Court prevails, not the minority. Furthermore, Justice Alito conceded in his dissent that “[i]n light of the length and complexity of the trial record, I am not in a position to say with certainty that the Ashe was not met in this case.” Furthermore, Alito’s brief summary of the record was in error. He wrote that while he correctly noted Yeager’s attorneys stated that Yeager “had nothing to do with Counts 3 to 6″, he mistakenly understoodo Counts Three to Six to be the “securities fraud and wire fraud counts.” The securities fraud count, however, was actually Count Two of the indictment and it was that count alone that the 5th Circuit based its analysis. The error was important to Justice Alito’s view that Yeager denied all participation in the Analyst Conference and that therefore the jury could have concluded merely that he did not participate in the conference, without necessarily deciding that he did not have inside information.

The jury would have had to convict Yeager on Count Two if it believed that Yeager had insider information but failed to correct misstatements at the Analyst Conference. These were called “criminal omissions” by the Government and Yeager could very well have been convicted of “not getting up” (as the Government put it) to correct what the Government believes were false statements. Yet Yeager was acquitted on the securities fraud charge of Count Two, meaning the jury must have determined he did not possess insider information. The Fifth Circuit already rejected the Government’s arguments on this factual issue and the Government gave no basis to reconsider them in their motion.

In his Response, Yeager points out that the Government’s continued insistence on reexamining every factual and legal issue in this case, whether decided by a judge or jury should be recognized as an effort to wear down Yeager through the judicial process so that “even though innocent, he may be found guilty.”

As a supporter of Yeager, I would like to point out that if my math is right, Yeager is 57 years old today. The man has been robbed of what should be a comfortable middle age surrounded by friends and family, and instead has spent the last seven years in court rooms and lawyer’s offices. The Enron Task Force has created a legal morass that never should have gotten this far. We can theorize why they continue their pursuit of Scott Yeager (as well as Rex Shelby and the Nigerian Barge defendants), but the bottom line appears to be that they must justify the existence of the Enron Task Force. Without indictments, the Task Force was just a government gang who wasted taxpayer time. But with indictments, they’re a government gang who is wasting taxpayer time but with the twilight hope of seeing dividends from their efforts.

Scott Yeager has earned some tremendous successes. He won at the Supreme Court. Yet the Government still attempts to find some way to convict him. They do not know when to quit.

It is my deepest wish for Scott Yeager that the Government is barred from submitting a Supplemental Brief, and that his case is dismissed. If it is, the Government will probably appeal.

It’s amusing that people complain that defendants “use the appeals system” to avoid justice. You hear this argument about death row cases particularly, that defendants get many years of appeals with no conclusion in sight.

In the Yeager case, it is the Government abusing the appeals system, filing frivolous motions, making absurd arguments without any legal foundation, and generally clogging up the Court system with a case that should have withered on the vine seven years ago. The Government is wrong to pursue Scott Yeager long after the Supreme Court has delivered its final verdict on the case.

Scott Yeager is innocent. He has suffered quite enough. He needs to be returned to his family and friends, and to the world of technology where he makes such startling, vivid successes. The world is better off when he is at a desk working on telecommunications, not working on replying to the Government’s nonsense.

Enron Art 1

David Angeli v. Bill Collins

As much as I focus on the Broadband Three and indeed all the Enron defendants, the attorneys are also colorful, interesting and brilliant folks. To illustrate some of this, I’ll be adding more posts about the testimony to show how these men did such great jobs.

Here is funny insight about Bill Collilns’ cross by Joe Hirko’s attorney, Dave Angeli. Angeli did a brilliant job with Collins.

Angeli had a big black notebook with Collins’ 302s and Grand Jury testimony in it. These are not exhibits but can be used with a witness to show he is lying. During the cross, Collins would say something and Angeli would pick up the black notebook, and say “But previously, you said xxxxx, did you not?” The first couple times Angeli used the notebook and Collins resisted, Angeli would hand him the notebook and have him read his previous statements to “refresh his memory.” But eventually, Angeli had Collins trained like Pavlov’s dog. All Angeli had to do eventually is put his hand on the notebook and Collins would agree with Angeli. It was both funny and sad to see a grown man behave like Collins.

Collins is simply a congenital liar or medically delusional. What does it say about Kroger that he would shape his case on the words of a man in that sorry condition?

Enron Gossip

This is dangerous because I’m repeating things that Enron executives have told me but, of course, I will not name names. Compromise sucks, I know.

“Berkowitz was a cocksucker.”

“Berkowitz was okay.”

“Berkowitz reminds me of a neanderthal.”

“Berkowitz had it out for him.”

“John Hueston acts like a frat boy.”

“Kroger was a lying piece of shit from the first day.”

“The FBI was worse than the prosecutors because they were too stupid to know what was important and not important.”

“Jeff Skilling used to walk the halls with a whip in his hand. One of the secretaries gave that to him. He loved it, thought it was funny.”

“Even my lawyer didn’t think it was a crime.”

“Rex Shelby is a good guy.”

“I never saw Ken Rice do anything criminal.”

“Jeff Skilling is damn stubborn.”

“Joe Hirko was the most honest man at Enron.”

“Ken Rice is not my favorite person.”

“Kevin Hannon lies just because it’s Tuesday.”

“Andy Fastow kept toys and candy in his desk.”

“Andy Fastow was a jerk.”

“You are giving Andy Fastow way too much credit.”

“I could not go to prison for thirty years. Period.”

“Tim Despain is not my favorite person.”

“Kevin Howard hates to lie.”

“Joe Hirko was totally laid back. Even after he left the company, I called him and he had nothing bad to say about anyone.”

“Rex Shelby is brilliant.”

“Liar, liar Shawna Meyer.”

“Rick Causey was my boss’s boss. I hated my boss so I’d go to Rick when I needed something. He was just a great guy. Always looked out for me… for all his guys, in fact.”

“I was just trying to get my guys compensated and Andy Fastow attacked me.”

“Bob Butts was a great guy. No complaints.”

“I only met Fastow once. He was our big boss, you know, and this party was a chance to say thanks to all the employees for their hard work and whatnot. So my friend walks with me up to him and introduces me, and he looked at my hand and without saying a word, he walked away.”

“I liked Michael Kopper but Ben Glisan was always arguing with me.”

“Michael Kopper was the most polite person I ever worked with. Polite to a fault.”

“Ben Glisan is gorgeous. He mesmerizes you with those green eyes. But you have to be careful because he’s going to find a way to get what he wants.”

“I sat in meetings with Ben. He’s a smart guy. But too smart, in a way.”

“I don’t hate Jeff.”

“I don’t hate anyone.”

“Kroger told me to lie.”

“This isn’t rocket science, it’s law. The law is clear. I violated it repeatedly.”

“He’s still lying.”

“I hate Ben Glisan.”

“Ben Glisan is not my favorite person.”

“Ben Glisan is a great guy. I like him.”

“Ask Ben Glisan. He got screwed in the same deal I did.”

“I have to be philosophical. Otherwise, I’d go crazy.”

“Prison was horrible. The worst experience of my life.”

“Prison isn’t so bad once you get acclimated.”

“There are two types of prison employees. Those who will fuck with you and those who are too lazy to fuck with you. You have to make sure those who fuck with you know that you have money outside, and if they fuck with you too much, the money will be used to hire more lawyers and put an end to the fucking with you.”

“Prison is like living at the DMV.”

“Prison employees couldn’t even get a job at the DMV. Too stupid even for that.”

“I don’t hate Ken Rice.”

“Ken Rice was weak. The government was evil.”

“Andy Weissman used to call me up every day and say tomorrow I was going to be indicted.”

“I testified before Congress and then they kept after me. I told them if they didn’t back off I would plead the Fifth. They left me alone after that.”

“How did a Brit working for a British company end up a Texas prison? It’s one of the many mysteries.”

“I lied and kept lying.”

“Jeff McMahon is good man.”

“Rex Shelby is a good man.”

“Scott Yeager is a good man.”

“Ken Rice and I used to ride motorcycles together.”

“Bob Herman had a drinking problem. I think that explains a lot of his actions.”

“He was kind of an ass, but that was typical of Enron.”

Today In Enron History

August 25, 2004, the SEC charged Mark Koenig, Former Direct of Investor Relations at Enron, with fraud. As part of a settlement with the SEC, Koenig agreed to be barred permanently from acting as an officer or director of a public company. As part of the settlement agreement, Koenig paid disgorgement and a civil penalties totaling $1,493,572.

Koenig’s alleged crime was approving “false and misleading information to the public about Enron’s business in earnings releases and analyst calls.”

Basically Koenig drafted scripts for analyst calls which the DOJ said were false based on their own opinion of what was happening at various business units of the company, including EES and EBS.

Koenig testified against Jeff Skilling and Ken Lay (he was the first prosecution witness.) In emotional testimony, in which he actually wept (more than once), he said that he knew Enron was in terrible financial shape and did not correct statements to the contrary. He stated that he misled investors in 2001 by claiming the retail division of Enron was thriving when it had amassed $726 million in debt. Koenig says that Enron hid that figure from the public. He said that if the debt from EES had been revealed, it would have spooked investors and cause the stock to dive. So, he said, he and others hid the losses inside Enron’s burgeoning trading division and lied about it.

This transaction was exhaustively explored at trial and Jeff Skilling’s explanation that it made perfect business sense also made perfect common sense — and numerous accountants and other employees agreed with that, including some who actually testified against Skilling. Enron executives were not “hiding” the debt. Furthermore, is this same debt they were hiding while also “hiding” profits from the trading division? Oh yes, indeed it is. Unlike Skilling’s business sense, this is an unsound prosecution theory.

As an employee for a decade, Koenig had been close to Skilling, though he was not one of the inner circle. His testimony was followed by another of Jeff’s inner circle: Ken Rice.

Ode To Enron

Oh you
You you you blue monstrosity as round and blue as God’s eye
Have you any clue
What you do
What you will be
When I die?
Will you miss me
As I miss you?
Will you?
Could you undo
What they did
And uncover the real you?
Oh you
Pristine blue
Where I worshiped every Sunday
And Tuesday too
Only to understand you
To know what they did to you
To get inside the yellow that lives inside the blue
How I miss you
And your gin-grin frat boy smile
Your easy laugh
That says stay a while
And kiss me too
Oh you
I left, it’s true
But I will come back, back, back to you
What I must do
Out here is learn to move on
But my heart heart heart
Belongs to you
Enron

The Strange, Sad Case of Joe Hirko

Joe Hirko was one of the original Broadband Three until Judge Gilmore split Scott Yeager off into his own case. For seven years, Joe Hirko fought the allegations against him and then in October 2008, he abruptly took a plea deal. He would admit guilt for signing off on a 2000 press release that the government alleges was full of lies and in exchange, he would serve not more than sixteen months in federal prison. The travesty must still be a shock to himself, his friends, and his loved ones. How could somebody so essentially good, who never took a short cut in his life, end up admitting guilt and going to prison? And over a press release?

While Co-CEO at Enron Broadband Services, Joe Hirko had many responsibilities. One of them was approving press releases. Pardon the tangent, but while at trial, Rex Shelby was asked a question about press releases by prosecutor Benton Campbell:

Q. Press releases are disseminated to the public by companies. Correct?

A. That’s correct.

In actuality, Rex Shelby was incorrect. The “public” and even investors do not receive press releases. Journalists receive press releases sent by companies who are hoping to have stories written about their product or service. Cara Ellison Corporation does not send press releases to its millions of shareholders, and neither did Enron Broadband Services or any other company on earth.

If the press release that Joe Hirko approved was full of false information, it was only seen by journalists – and there was never an accusation that the press release was actually used in any article. Like Shelby’s “Shelby 2″ video which was never shown to analysts, Hirko is accused of lying to shareholders who never saw the press release or any information that originated from the press release. It is the equivalent of locking yourself in the bathroom and saying into the mirror, “I am the fairest of them all!” It has absolutely no impact anywhere at all.

The press release that Joe Hirko will say is false was much too high-level to confuse anyone and utterly insignificant. The government contends this was part of Hirko’s scheme to inflate the stock price, yet logically it follows that no press release has the power to impact a company’s balance sheet or cause stock to rise or fall or do anything at all. Look at your own company. Every time your marketing department sends out a press release, does your company stock jump or fall? No.

Press releases are tools to interest journalists. They are not generally for public consumption. They aren’t sworn documents either, incidentally.

Let us review:

A press release issued by a teensy tiny start-up inside Enron Corporation was issued.
Nobody cared enough about it to write an article about it.
Nothing in the press release was false.
Joe Hirko goes to prison because he wrote “ok” in the margin of a draft and signed his initials.

This is utterly reprehensible.

After the first Broadband trial, Joe Hirko was exhausted. Never in his life had he been so tormented. Until his indictment, he lived a quiet, ordinary life as a family man and executive. To find himself indicted must have been just an awful, terrible shock. He hung in for a long time. But every person has a breaking point. Hirko’s desire for a conclusion to the neverending nightmare of the case is completely understandable, and thus, so is his plea.

On September 28, 2009, Joe Hirko will be sentenced. And the United States Department of Justice will burn in hell forever for doing this to such a good man.