Monthly Archives: October 2010

WJS Pre-Games Skilling’s Appeal

WSJ:

What will likely be the last, best chance for former Enron Corp. President Jeffrey Skilling to get out of prison soon is scheduled to be heard in a Houston federal court on Monday.

A three-judge panel of the Fifth U.S. Circuit Court of Appeals will hear arguments about how many, if any, of the 19 felony counts on which Mr. Skilling was convicted in 2006 should be overturned as a result of the landmark Supreme Court decision in his case.

The Supreme Court in June found that the Justice Department had been misapplying a crime theory, known as “honest services” fraud, in Mr. Skilling’s case and others. The court held that honest-services fraud could only be used when someone failed to live up to his fiduciary duties as a result of taking a bribe or kickback, which wasn’t alleged in the Skilling case.

The ruling raised immediate hopes among his defenders that Mr. Skilling, who is incarcerated at a federal facility in Colorado and has served nearly four years of a 24-year sentence, might soon be released.

The Supreme Court’s Skilling decision sparked a wave of defense requests to throw out cases that used the honest-services fraud theory, and some have been dropped. At the same time, observers believe that the fate of Mr. Skilling, an emblematic figure of this century’s first big wave of corporate scandals, remains in doubt.

The Supreme Court decision “could turn out to be a major victory for the defense bar but a pyrrhic one for Mr. Skilling,” says Jacob Frenkel, a former federal prosecutor and enforcement attorney for the Securities and Exchange Commission who is now in private practice in Potomac, Md.

Mr. Frenkel believes the appellate panel could uphold much and possibly all of the case against Mr. Skilling on the theory that prosecutors had proven their case on grounds other than honest-services fraud.

Rather than ruling on the validity of Mr. Skilling’s conviction—which included conspiracy, securities fraud and insider trading counts—the Supreme Court sent the matter back to the same Fifth Circuit panel that had previously upheld his conviction with the instruction to determine whether its honest-services decision required the dismissal of any or all of the 19 counts.

One potentially bad sign for Mr. Skilling came when a member of his three-judge panel recently turned down his request for bail following the Supreme Court decision. Legal observers say that decision suggests the panel doesn’t yet believe the Supreme Court decision will knock out enough of the case to result in Mr. Skilling’s immediate release.

Mr. Skilling’s lawyers argue that all 19 counts were tainted by the use of honest-services fraud theory and thus should be overturned and their client given a new trial.

Mr. Skilling’s “convictions are presumptively invalid” and there isn’t any way for the government to prove that jurors didn’t rely on the honest-services fraud theory to reach their verdicts, one defense court filing says. The filing also notes that one Fifth Circuit judge in a 2006 ruling wrote that use of the honest-services fraud theory created “serious frailties” in 14 of the 19 counts. However, that jurist isn’t a member of the current three-judge panel.

In a recent interview, Daniel Petrocelli, Mr. Skilling’s lead defense attorney, said “the law requiring reversal is extremely favorable to our position given the record of our case.”

For Mr. Skilling, he added, the upcoming hearing and subsequent decision are “crucial to the rest of his life.”

A government court filing counters that none of the counts needs to be overturned. Prosecutors at the 2006 trial sufficiently proved their case under the still-valid criminal theory of securities fraud and therefore any use of honest-services fraud was a “harmless” error, the filing says.

The 2006 trial, the filing says, “overwhelmingly demonstrated that Skilling participated in a conspiracy to commit securities fraud by manipulating Enron’s earnings…and deceiving the investing public.”

A Justice Department spokesman declined to comment.

The appellate panel could take several weeks or months to hand down a decision.

Write to John R. Emshwiller at john.emshwiller@wsj.com

Jeff Skilling is factually, actually, technically, and truly innocent. That’s something missing in the discussion. The door was closed on the question of innocence on the day his verdicts were rendered. Now we have to rely on the technicalities to see him free.

I pray the 5th Circuit does the right thing in this case. Frankly, I’m a little nervous; they seem to be vehemently anti-defendant and particularly anti-Enron defendant. I hope justice prevails this time.

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Enron Pictures From 1954 and 2091

Today is a lovely day in Houston – much too sunny and temperate to spend indoors. So I went downtown with the aim to walk around and take pictures, and this was the result. You can see the entire set at my Flickr page.





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Analysts and Enron

In the aftermath of the Enron collapse, executives were hauled before congress, indicted, harassed by shareholders and other angry people, ridiculed, cursed and damned. There was enough blame and shrieking outrage to go around for everyone. Including analysts.

Several analysts were investigated, questioned, and yep, even hauled before congress to explain how they “got it so wrong.”

I’ve always disliked that, but now that I am one, I dislike it even more. An analyst’s job is to find out as much information about a company as he/she can, supply that actionable intelligence to his/her client, and give an informed, balanced, non-biased recommendation on what to do with that intelligence. Some analysts, such as Aaron Diamond at the Highfields hedge, are very direct, even confrontational with their questions to the leadership of the company. I suppose, if I am being charitable, I can attribute to his desire to really understand what is going on with the company. But I think there are better ways to get that information.

At the opposite extreme, you have me. I’ve never intentionally asked a question that would put an executive in an awkward position just for the sake of making my reputation. I tend to ask very open-ended questions, very politely. If I feel like I’m being lied to – and I have – then I go Socrates on him and just keep asking deeper questions, and ask other people in the leadership to expound on the issue.

But I can only go with what I can prove. I can tell my client that company A trades at a multiple fit for a penny stock, has a Ba1 rating, and the board of directors has just resigned – all verifiable facts that I could responsibly cite to urge him to drop those shares from his portfolio. But I can’t tell my client that I get a “weird feeling” on the phone with the CEO and that I think he’s lying to me. The client needs something concrete to look at, some objective measure of what is going on inside the company.

And so it was with Enron. Analysts could speak to Jeff Skilling and the other leadership, they could scour financial reports, they could do some comparative analysis and some independent research, but if Enron was corrupt (and it was not), then they wouldn’t know it, and whatever advice they gave to their clients was based on publicly available information, thus, in conclusion, they are completely free and clear, period.

It did not work out that way though.

I always found it curious that Occam’s Razor never seemed to apply in the Enron cases. The easiest answer was never the right one. Congress viewed the fact that the analysts had no indication of corruption as an indication that the analysts themselves were involved in malfeasance. Instead of coming to the obvious conclusion that there was simply nothing odd going on, the hapless analysts were accused of being part of this make-believe crime syndicate.

In mid-September, I wrote a research note urging clients to buy a certain company. I gave my reasons, raised the price target, and hoped that I was right.

I was right. The Q3 earnings were exactly where I predicted they would be. Everyone was happy.

I kept thinking about it though, if I had been wrong… There are a million ways I could have been wrong. My company could have had a relationship with the company that I knew about but didn’t weigh as seriously as I should have. There’s supposed to be a Chinese wall between analysts and bankers, but what if not everyone in my company or the target company was honest? What if one of the guys in banking had promised the company leadership that we’d rave about the stock, even if the stock was performing badly?

There are a million ways you can screw up and only one way to get it right.

I think the analysts who covered Enron were honest. They did their own financial modeling, due diligence, and research. These people were paid to research Enron. Nobody I know would risk his/her reputation or bonus by lying about what they’d found in one of their companies. The knowledge web is strong and vast: you have your peers and bosses to ask if you find something wonky. You have other companies to compare it to. And analysts have relationships with other analysts in other companies; you can call them up and ask what they think.

The fact that this vast network of many different analysts all said the same thing, and nobody cried fraud, is an indication that there was no fraud at Enron. The congress and the DOJ were seeing what they wanted to see.

There was no fraud or conspiracy at Enron Corporation.

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The Truth About Enron

It had been a bad day and it was only going to get worse because I wanted something specific. I’d missed my first two classes at Rice University and was late for a meeting downtown. Frustrated behind the wheel of my car, I blasted the music and turned up the air conditioning. Houston in summer is like hell, without the charm of novelty.

The drive up from Memorial was uneventful. I split off to Allen Parkway, a long strip of road without stop lights that lead directly to the teeth of downtown. To my left, I noticed the sleek bright red hood of a Ferrari. I was not in a particularly playful mood, but I was feeling dangerous, so as the driver edged up, I punched the gas of my Porsche, spooling up the turbo, keeping even with him. He pulled ahead, and I hung back a second, passed behind him, and then sped up in the left lane where it was completely clear. I laughed, checking the rearview. He was right on my quarterpanel. I accelerated from 50 to 60 then 85 on a narrow, winding, three-lane road, and it felt dangerous and good. Up ahead, a Fedex truck lumbered onto the road. I pushed my little German auto-legend to cut in front of the Ferrari. The Ferrari pulled to my right. Just up ahead, there was a split where one could enter downtown on a sweet curve, or go straight and turn left. At the exact right moment, I chose straight as the Ferrari chose the curve.

A game of tag; the roar of the engine. The simple pleasures of speed and music always yielded more joy than it took.

I drove through the city streets toward my destination and turned the corner just in time to see the Ferrari pull into the garage. My heart caught in my throat. Oh no. That could not be who I think it might be. No no no no. I knew Ken Rice and if he recognized me from that little jaunt, I was in trouble.

He parked near the elevators and I rolled several aisles back in the hope that he would grab the elevator, and I would not be seen. I stepped out of the car and locked it, then quickly tried to straighten my clothes and pat down my wind-tossed hair. The garage was silent, and in the silence was a low moan. I lifted my head at the exact moment in my peripheral vision I detected a black blur, and a slicing katana, coming directly for me. As I opened my mouth to scream, I felt the sickening clutch of a hand – bones – on my neck. The next second, the head of a fetid zombie rolled under my right front wheel. Before I could even react, I saw that coming from all directions, more roving packs of the sorry stricken were lumbering toward me.

“Come on,” the ninja Ken Rice said. He shoved me behind him as a group of undead Enron workers clustered around us in a hive of moans and reaching hands. The zombies wore the suits they had been buried in, ties off or askew, filthy and torn from their climb from the tomb. I could barely stand to glance, horrified, into their grisly faces. Hairless, with bulging eyes and flesh eaten away. In one zombie, a fat worm slid from his nostril, and hung, swinging, out his empty eye socket.

I screamed, but neither the zombies nor Ken Rice paid any attention. His katana blade sliced through their necks by the dozens as we moved through the clustering crowd. The numbers didn’t seem to diminish as I trembled in horror behind Ken, but his exacting and rapid swordwork kept them at bay until we could reach the sanctuary of the elevator.

As the sliding doors secured us inside, Ken looked upon my ragged state. “It’s bonus time,” he said. “You shouldn’t be here.”

“Bonus time?”

“They get this way around bonus time. Only the strong survive…” His words faded. He watched the numbers on the elevator. I trembled, awed at his skill in the deadly arts.

“Where did you learn..?”

“I practice at Dr. Ciscon’s shaolin.”

“I’ve heard of it,” I offered timidly. “The best sparing dojo in all of Houston. But I had no idea you…” I blushed, for lack of appropriate response. What does one do when a gentleman ninja saves you from roving zombies?

“You shouldn’t be here,” he said. “You should go.”

“I need to speak to Jeff Skilling.”

He began to laugh. “Nobody sees Jeff.”

I straightened my spine. “I am sure he will see me.”

“Good luck getting past his assistant.”

I glanced at him but Ken said nothing more on the subject of Mr. Skilling’s assistant, so I let the matter rest, instead opting to ask a more germane question. “Why are there zombies at Enron?”

“They’re cheap,” Ken replied simply, examining the zombie remains on his beautiful sword. A little blood streaked the silver blade, and green flesh clung to the serrations. I fought the urge to vomit on his shoes. “We lease them for seven hundred years,” said Ken Rice. “They’re good workers. Except during bonus time. Everyone gets a little rambunctious around here.”

“But you slaughtered them…”

“Some people say it gets easier over time to kill your rogue co-workers. I never found that to be the case.”

The doors glided open. From my vantage point, I saw nothing – and even less when Ken pushed me back against the wall. “I must check for more zombies. Unless of course you’re in the mood to be zombie food.”

“No,” I said meekly. “I would prefer to keep my head about me.”

He permitted me to exit the elevator. As we rounded the corner, a frightful commotion was to be heard inside a nearby office. It sounded like someone was fighting zombies right inside that office!

“Ken,” I exclaimed, “Should you go in to help?”

“No,” he said and grabbed my elbow to lead me farther down the corridor.

“Wait… please, wait….” I jerked my elbow back, and quite indignantly demanded to know why a gentleman with a katana would refuse assistance to his compatriot in that office.

“It’s not zombies,” he said simply.

I grew quite frightened. “What… what is it?”

From inside I heard a man’s voice say, “Down! Here! Take it!” Then the odd sounds of … a man cooing, as if to a child, or someone he wished to comfort. “Good boy. That’s a good boy. You like that, don’t you? Of course you do, you sweet bastard.”

“What on earth…” My eyes felt wide as milk saucers.

Suddenly the door opened and then quickly closed. A man I recognized from news reports as Andy Fastow approached. It was his elegant, coffin-shaped face that matched my image of him. His gray eyes glanced from Ken to me. I knew my appearance must have been alarming. The spatter of zombie blood covered my dress, and I felt like I must have a finger stuck in my curls behind my ear. I dearly hoped that was not the case, even as I cogitated on the possibilities of what horror lie behind that closed door.

“Zombies?” Andy asked.

“Afraid so,” Ken replied.

“I detest zombies,” Andy replied, his expression never changing.

“Me too,” I offered quickly, perhaps too quickly because he glared at me with silver eyes that left me cold. I smiled in an effort to put him at ease. “You’re not a zombie, are you?” I asked in a joking way.

Without cracking a smile, he replied, “Don’t be ridiculous.”

He walked past, and I looked hopefully to Ken. “What’s his problem?”

“He’s just… That’s Andy.”

Ken glanced up the hall where another pack of unmentionables were coming for us. They appeared to be feasting on the flesh of a recently-killed mortal. I trembled and hid behind Ken for safety. “Stay here,” he said and ran at them. I watched in awe as he ran up the wall, performed a backflip, and brought his sword down across the necks of two zombies, and then easily hacked the putrid heads off at least fifteen more; his performance was so inspired others – even zombies who were not rogue – stepped out of their offices into the hallway to marvel. They provided raucous applause when each zombie lay headless on the floor. Ken took a gracious bow and laughed.

I ran to him. “You’re very brave.”

“Not brave. Just have a strong survival instinct,” he said.

I smiled, pleased with his modesty. “Would you be so kind as to direct me to Mr. Skilling’s office?”

He smiled again, amused at my persistence. “I am telling you, his assistant is never going to let you in to see him.”

“Allow me to worry about an over-protective gatekeeper,” I replied.

“Very well. Come along.”

I followed him to the top floor. He indicated the office and before he turned to leave, I thanked him. “Not just for your assistance but your…. relentless assassination of your co-workers.”

“I am sure you could have handled yourself,” he replied gallantly. I said good day and turned to meet The Assistant.

***

When I saw her, I nearly laughed. She did not look foreboding at all. Petite and blond, she barely looked old enough to have a job at all. She looked up from her work and smiled. “May I help you?”

“I am here to see Mr. Skilling,” I replied.

“Oh, I’m afraid he’s indisposed just now.” She looked genuinely sad that I had troubled myself to come for naught.

“If you could just ring him, perhaps?”

“No.”

I blinked. “Pardon?”

“No, I’m afraid I can’t do that.”

Perturbed, I frowned mightily. “Please, it will not take long.”

“No.”

Perhaps this is what Ken Rice had warned me about. Well her stubborn refusal was just childish. I turned and walked toward the door of Skilling’s inner sanctum, but then felt something grab me, and yank me back quite roughly. I realized in horror they were purple tentacles, many of them, and I was wrapped tight as a bug in a cocoon, unable to breathe. I writhed desperately, to no avail.

“Oh, Sher–” Ken Rice appeared in the office once again, his eyes wide at what he had found. His exasperation was evident and I was ashamed for having taken so much of his day already. “Release her into my custody,” Ken said dryly, and one by one the tentacles released me, leaving a sticky glue behind.

“I told you she was good.”

“Good!” I replied indignantly as I ungracefully rose to standing. “She’s murderous!”

“That’s why she’s paid the big bucks. What is your business with Skilling anyway?”

And just then, the door to Skilling’s inner sanctum opened and a bright light flooded the area. I felt weak in the presence of such light, and felt that it was only beneficent and good. I swayed on my feet, held steady only by the presence of Ken Rice beside me.

“Sherri, can you get Causey on the phone?” said the man.

Was he a man? He did not quite appear mortal He was not particularly tall but he seemed regal and his blue eyes burned with a cold fire, sunk deeper than Atlantis. His hot, focused gaze flicked onto me. “Are you selling Girl Scout cookies?” he asked in a rougher voice than I had anticipated.

“Cookies…? Oh, no sir…”

“Then get the hell out.”

“Told you,” Ken and the Assistant said in unison.

“Sir, I have an appointment with you.”

He looked to the Assistant. “Does she?”

“Name?” she asked.

“Sunfower.”

“Sunflower?”

“Cara Ellison. But my friends call me Sunflower.”

“What do you know. Sunflower, two o’clock. Why didn’t you just say you had an appointment?”

“She’s dumb,” Ken replied.

I blushed furiously, wishing a zombie would appear and bite his head off. Then I looked at him and saw that he was smiling and instantly forgave him.

“Come on, then,” Skilling said. “Somebody find me some Girl Scout cookies!”

“Sir,” the Assistant said, “It’s August. I believe they’re only sold in the Spring.”

“Get Andy to do it. Andy’s a man who knows how to get things.”

“Andy’s busy,” the Assistant said calmly.

“Then Rex Shelby,” he said. “I need to speak to him anyway. Tell him if he doesn’t come back with two packs of Thin Mints, he, Scott Yeager, Joe Hirko, Michael Krautz, Kevin Hannon and Kevin Howard are fired!” He paused and slit his eyes at Ken. “And you too.” He then looked at me. “Are you just going to stand there and wait for an engraved invitation?”

“No sir, I …”

“Get in.”

I walked forward, into the bright light.

***

He sat in a black leather chair and then put his feet on the desk, which was immaculate. That was another part of the reason I was here at Enron. I needed to know how Enron made its money. And the fact no work was on his desk only deepened my curiosity.

“So what is it you’d like to know, Mizz Ellison?”

I frowned, trying to imagine where to begin. “Why are there zombies working at Enron?” I asked timidly.

He shrugged. “They only get like this during bonus time. They’re usually very assiduous workers. And they’re cheap.”

“So what happens when ten percent of the workforce is lost to Ken Rice’s sword almost every day?”

He laughed then. “You should speak to our HR people. You’d be awed at the number of applicants we get every day. Trust me, there’s no lack of zombies who wish to work at Enron.” He swung his legs off the desk and opened a desk drawer where he brought out a cigar, which he lit with a hundred dollar bill. He dropped the remains of the money into the wastebasket, which was overflowing with other destroyed tender.

He set the cigar down and studied me in a way that made me want to hide. I blushed to the ears.

“Why are you really here, Sunflower? Are you writing an article for your college newspaper? Or is it more than that?”

“They say you’re doing something… unsavory… here at Enron.”

“And you came to discover what it is? Well, I give you points for your naiveté.”

He stood up and walked over to the large windows in his office, where I had already surmised the bright light originated. The city spread out before him and he seemed lost to me in that instant, faraway.

“Come here,” he said without turning around.

I rose and followed him to the window.

I felt his hand at my neck and shivered. It was dead cold. Colder than the zombie’s hands had been when they grabbed me in the parking garage. Ice on my neck, freezing into my very soul.

“What is happening at Enron is we’ve created a perfect system. A meritocracy where a person rises exactly as far as their wits take them. One day the world will be run like this.”

I blinked up at him and he smiled, then dragged his gaze from the city to me. I had the strange thought that he was reading my thoughts, and then he was going to kiss me.

He smiled a half smile.

“You’re a vampire,” I whispered. The words had left my mouth before I had consciously formed them.

“Don’t be silly,” he said and I relaxed just a micron. “I’m the King Vampire.”

I didn’t move, frozen to the ground with some otherworldly pressure and fascination. His eyes were magnificent, deeply blue, like the color of the earth viewed from space. I felt the force of his personality behind them, the joy and the sorrow of being Jeff Skilling, and I perceived that he was seeing me in the same way, the small being that was I. “What do you want, Cara?”

“What you have,” I replied automatically, my voice but a rasp. “Money and power. They say you’re doing something bad to get it. Are you?”

His mouth curved into a smile which seemed infinitely sad. “No,” he replied at last. He shook his head sadly. “When you are three hundred years old, you become good at what you enjoy.”

I was silent, letting the thought sink in. Three hundred years old.

The possibilities made my mind sparkle.

Skilling smiled. “No.”

“No what?”

“No, I’m not going to make you a vampire.”

“I’d be a good vampire,” I said softly.

“You’re a better mortal.”

I felt there was a compliment in that statement and I felt humbled to receive it from him.

With his ice cold hand, he lifted my chin so I had to meet his eyes. Gently he brushed my hair off my forehead, and then pulled the zombie finger from the mess of my hair, and tossed it into the trash with the burned money. I blushed, knowing a lady should not have extraneous zombie body parts in her hair. I did not look my best at all, with the zombie spatter and tentacle juice stinking upon my Edwardian-pale skin. But I felt that he looked beyond that, to the soul inside.

“Mr. Skilling, you’re making me quite dizzy,” I murmured.

I stood beside him, feeling warm inside. How could a man so dead make me feel so alive? I heard Sherry in the ante-room, telling Rex Shelby to leave the Girl Scout cookies with her. I had seconds to make my move, or forever regret it.

I glanced upon Mr. Skilling’s lips, and then before he could move or say a thing, leaned up and kissed him. He did nothing. I shut my eyes and set my lips upon the cool satin of his, and only then did I feel the reassuring resolving pressure of him returning the kiss. After a moment, he began to gasp as his long-dead heart sputtered to life, and air began to inflate the sacs of his bronchi as I’d transferred the anti-vampire serum into his mouth. He shrieked back, stumbling with his eyes wide with horror but it was too late. I’d made him into a mortal. My evil plan had worked! With him a mortal, I could take over Enron. The money and power and zombies would all be mine!

As I began to laugh, the door swung open and Ken Rice stood with Rex Shelby while Jeff Skilling writhed on the floor as his body came back to life after three hundred years of death.

“What is happening?” Rex Shelby demanded.

“I think he’s ill,” I replied. “I must go.” I walked past them, and began to run past The Assistant, into the open corridor.

“Cara!” Ken Rice’s voice sounded behind me. “Zombies!”

I turned and saw the zombies were chasing me. Numerous, grotesque, these were freshly dead and putrid, too recognizably human. Beside me was the office where Andy Fastow had emerged. Quickly I opened the door and ran inside, only to slam the door on the zombies reaching for me. As I stood with my back to the door, I saw Andy Fastow feeding the raptors blocks of money. There were four, and they had seven heads each, and their food bowl was empty, but Andy was tossing blocks of money, cooing, “There you go, boy. Settle down…”

He looked at me from his chair, as if he expected me.

And he smiled as the hungry raptors inched closer, their enormous green heads sniffing me out, mouths open to reveal teeth as sharp as Ken Rice’s blade.

I don’t know if I screamed.

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Rex Shelby Vs. The United States of America

Shelby v. United States made the list of “Petitions to Watch” for the 10/29/10 conference on the SCOTUSblog. It one of only 13 selected. And in my humble opinion, one of the best Supreme Court cases that will be heard this term.

If you want to read any of the briefs, the last two (Amicus brief and Petitioner’s Reply) tell the story in the fewest number of words.

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James A. Brown Speaks to WSJ

The link requires a subscription so here is the article in full. I love seeing James Brown vindicated!

Retrial Dropped, Enron Figure Talks

By JOHN R. EMSHWILLER

James A. Brown didn’t act like a guilty man eight years ago when federal authorities contacted the Merrill Lynch executive during the early days of their Enron Corp. investigation.

Unlike some colleagues at the securities firm who didn’t talk, Mr. Brown spent hours answering questions. “I figured that as long as I told the truth I couldn’t get into trouble,” he says.

Still, he was convicted in 2004 of perjury, obstruction of justice, fraud and conspiracy. Mr. Brown went from minor-hero status for objecting inside Merrill to a suspicious Enron deal involving barges off the coast of Nigeria, to facing three decades in prison. His career was destroyed, and he spent 12 months in prison before an appeals court reversed part of the conviction.

Former Merrill Lynch executive James A. Brown says a key email of his was misunderstood.
The 58-year-old Mr. Brown has always maintained his innocence. In September, the Justice Department dropped the fraud and conspiracy charges only days before a scheduled retrial. Mr. Brown, still fighting his perjury and obstruction convictions, recently gave The Wall Street Journal his first interview about the legal ordeal.

Mr. Brown’s retelling of his part in the corporate scandal comes as federal investigators sift through the rubble of the financial crisis for possible crimes. Much of the nitty-gritty of such investigative work involves little-known figures of the corporate world like Mr. Brown, who often are snared by prosecutors hoping to nab higher-ranking executives.

The U.S. government’s Enron Task Force criminally charged about 30 individuals, including Mr. Brown, but said there were more than 100 other unindicted co-conspirators. The task force got guilty pleas from more than a dozen people and won a 2006 fraud conviction against former Enron President Jeffrey Skilling.

Some of the group’s courtroom victories have been upended on appeal. Mr. Skilling’s conviction and 24-year sentence are under appeals-court review following a Supreme Court decision invalidating part of his case.

Critics contend the Enron Task Force abused its powers by threatening potential defense witnesses and bludgeoning individuals into admitting to crimes. Government officials deny those assertions, and courts haven’t upheld any defense claims of prosecutorial misconduct.

Mr. Brown’s odyssey began in December 1999 when Enron asked Merrill to acquire an interest in electricity-producing barges it owned off the Nigerian coast so that the Houston company could book a $12 million profit on the deal by year end.

A Chicago native, Mr. Brown joined Merrill in 1994, turning to finance after tromping through snake-infested swamps in Florida, looking for phosphate deposits as a geologist, helped convince him to change careers.

Investigative records show Mr. Brown, then heading the Merrill unit that handled the barge deal, argued against the transaction. One of his worries: Merrill might be viewed as helping Enron manipulate earnings.

In the interview, Mr. Brown said he didn’t think the barge transaction was illegal—just a bad business deal. Senior Merrill officials gave a go-ahead anyway.

Enron collapsed in December 2001, and investigators later found documents suggesting the company had illegally guaranteed Merrill a profit on the barge deal, which would make the supposed “sale” a sham. Enron Chief Financial Officer Andrew Fastow allegedly made the guarantee to Merrill executives during a conference call. Merrill later sold its barge interest—at the allegedly promised profit—to a partnership run by Mr. Fastow.

“I had no feeling of danger,” says Mr. Brown, who didn’t participate in the conference call. He wasn’t one of the four Merrill officials sued in 2003 by the Securities and Exchange Commission over the barge deal.

Still, the transaction became a focus of the Enron Task Force. As the only Enron-related criminal case brought against people working on Wall Street, it aimed to send a message of “deterrence,” according to a person familiar with the situation.

Mr. Brown’s lawyer soon told him that prosecutors considered him a target for indictment. “I said: ‘How can I be indicted?’” he recalls now. “I haven’t done anything wrong.”

A possible turning point came when investigators discovered a March 2001 email written by Mr. Brown. He wrote that Mr. Fastow had made a “promise to pay us back no matter what.”

Mr. Brown says he wrote the email hastily and never meant to suggest an illegal guarantee. Instead, Mr. Brown says he heard Mr. Fastow had merely promised to use his “best efforts” to get Merrill out of the barge deal.

The criminal charges filed in September 2003 against Mr. Brown and three other former Merrill executives turned his comfortable life in suburban Connecticut, including a wife and two children, upside down. Nancy Brown says her husband “could hardly move or speak” on the arraignment day in Houston.

While family and friends were supportive, Mr. and Mrs. Brown’s 17-year-old daughter felt “ostracized” by some schoolmates, they say. Mr. Brown took Merrill up on its suggestion that he accept an early retirement.

Merrill, now owned by Bank of America Corp., still is paying Mr. Brown’s legal bills. A Merrill spokesman declined to comment.

The U.S. government recommended Mr. Brown get a sentenced of more than 30 years. He prepared a will and gave signing authority over assets to his wife. When a federal judge handed down a sentence of 46 months, “I felt like the firing squad had missed,” he says now.

Mr. Brown’s 22-year-old son nearly died in an auto accident shortly before the former Merrill executive reported to a low-security federal prison in Fort Dix, N.J. Weeks passed before it was clear the son would survive.

“After that, I said whatever else happens I can handle,” he says. In prison, Mr. Brown taught inmates about basic personal finance and dined once a week with mobsters while schooling them in reading newspaper stock tables, he recalls.

In 2006, a federal appeals court overturned part of the barge case, ruling the government had misapplied a controversial crime theory, known as “honest services” fraud. The court upheld Mr. Brown’s perjury and obstruction convictions, but he was released from prison.

The Justice Department moved in 2007 to send Mr. Brown back to prison, arguing that the law required him to serve the rest of his 46 months.

Sidney Powell, Mr. Brown’s lawyer, says one prosecutor claimed “he had ‘tremendous leverage’ and could force Jim to testify” against co-defendants in planned retrials. A judge rejected the government’s motion.

By early this year, the Justice Department dropped plans to retry any of the former Merrill officials, except for Mr. Brown, who was pressing claims that prosecutors in his 2004 trial withheld favorable evidence.

Days before jury selection for Mr. Brown’s retrial was to begin in September, the government abandoned the fraud and conspiracy charges. A Justice Department spokeswoman declines to comment. In court filings, the government denied withholding evidence and the judge rejected the misconduct claims. Mr. Brown says he plans to continue pressing that issue.

Write to John R. Emshwiller at john.emshwiller@wsj.com

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Highfields Capital: Constitutionally Snide

I’m on the Encana earnings call and Aaron Diamond from Highfields Capital asked a question. Highfields is Richard Grubman’s outfit. And Grubman’s was the subject of Jeff Skilling’s “asshole” comment. Anyway, Aaron’s question seemed rather snide and unnecessarily confrontational. What is it with that company? They just love to cause problems. More on this later.

Updated to add this fun fact: One of the female execs at EnCana, who is now the midstream marketing director (though I’m pretty sure that isn’t her title) worked at North American before it merged with Enron.

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EBS Is The Next Big Thing (Again)

Check this out. RBS Capital Markets is having a conference on software as a service in London next month. That’s the Broadband Operating System. And I’m sad that Enron will get no credit for it.

(This post was slightly edited. I mistakenly wrote UBS for the host of the conference when in fact it is Royal Bank of Scotland’s Capital Markets group who is hosting the conference, and that explains why I received the notice in the first place. Onward!)

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I’m Fine

Honestly, I was just having a bad reaction to my prescription medication for allergies. Thanks for the emails, comments which I deleted but am nonetheless thankful for and tweets. I’m sorry to scare people. Cara Ellison, Enron Denier, is back!

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Having “Something On The Boards”

John Kroger is a mean, small, ignorant and arrogant little man who cares nothing about the US Constitution or the rights of individuals he targets. He pretty much admits it in this passage from his book, Convictions. Notice he never mentions justice, or the so-called “Enron victims” or anything else. Just his own desire to “get something on the boards.”

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McKinsey’s Valuation of Enron Broadband Services

I am not sure I ever knew this, but apparently McKinsey valued EBS at $30 billion. I’m reading Ken Rice’s 302 notes and found this:

It seems to me that those who were actually elbows-deep in EBS, including analysts, consultants, and the executives themselves, valued EBS much more than the lawyers after the collapse of Enron. Just an observation.

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Scott Yeager & Ken Rice Discuss Yeager’s Title

I like this interaction because of what it isn’t. It isn’t Scott whining that he wants to be Sr. this or that (unlike Bill Collins and his desperate pleading for a better title.)

I also like it because Scott was too busy working on stuff to care what his title was. He was a man who knew his worth, and left it for others to discover it for themselves without relying on his title to command respect. Incidentally I also like Rice’s answer here. It’s thoughtful – (ie, the stuff about Europe and Asia).

It all began because Scott needed new business cards:


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Update on CNN Post

I’ve written to CNN to ask for a retraction and apology for publishing Ms. Duarte’s lies. This is the email I sent:

Hello,

I have written to the author of the above opinion piece but have gotten no response. The author has outright lied about at least three critical points, and I would like an apology and a retraction.

Ms. Duarte states:

“Of course, we can’t be naive: a persuasive presentation isn’t necessarily a good presentation. In 2001, Enron Corp. executives Ken Lay, Jeff Skilling and Richard Causey presented PowerPoint slides at an employee meeting that winningly depicted the company’s robust health and the bright future of its projected earnings. By the end of that year the company was worthless. Eventually, the U.S. Department of Justice charged those executives with 10 counts of a variety of crimes — based on their presentations.”

Ms. Duarte is simply making this up. I have researched Enron exhaustively and have indeed seen almost every PowerPoint that came out of Enron from 1986-2001 and have can’t imagine which power point she’s talking about. I’ve asked her for the date the PPT was given or the authors of the slides, to no avail.

Secondly, I’ve which ten counts among the three executives were related to that presentation? Because the answer is: none. Skilling was convicted of counts related to signing letters to Arthur Andersen, and insider trading (Sept 6 and Sept 17, 2001.) He was never convicted for anything to do with PPTs. Richard Causey pleaded guilty to wire fraud having to do with a transaction involving Enron Broadband Services. And Ken Lay’s convictions were wiped clean, but he was convicted of pretty much the same things as Skilling, plus some banking charges. Nowhere in any of the three indictments is the word “PowerPoint” presented. For this, I want an apology, and a retraction.

And secondly, she said:

“Arthur Andersen accounting firm feebly warned the Enron Board of Director’s audit committee of the company’s sketchy accounting. Had that presentation sounded a bold warning, the audit committee might have been able to save the company. For that matter, it might have saved Andersen, which did not recover from its role in Enron’s dealings.”

This is very vague, but I suspect it is also a lie, created out of the same fantasy that created the first two lies. I would either like Ms. Duarte to prove her points with the actual PowerPoints, or submit to an apology, and in any case, CNN must run a retraction for publishing lies.

I eagerly await your response.

Sincerely,

Cara Ellison

I will, of course, happily post any reply either from Ms. Duarte or CNN. But I am not letting this go. The flagrant publishing of lies about Enron stops today. It stops right now.

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The Post Office v. Enron

The headline made me laugh.

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Enron PowerPoints Criticized By CNN

For the love of taco sauce. Now they’re making crap up about Enron PowerPoints:

Of course, we can’t be naive: a persuasive presentation isn’t necessarily a good presentation. In 2001, Enron Corp. executives Ken Lay, Jeff Skilling and Richard Causey presented PowerPoint slides at an employee meeting that winningly depicted the company’s robust health and the bright future of its projected earnings. By the end of that year the company was worthless. Eventually, the U.S. Department of Justice charged those executives with 10 counts of a variety of crimes — based on their presentations.

Pardon? Which presentation would this be? Can I have a date that it was presented? Or what was depicted, exactly? And what “10 counts of a variety of crimes”? I CALL BULLSHIT.

Meanwhile, the Enron scandal may have been preventable by the right presentation. In 1999, a presentation by the Arthur Andersen accounting firm feebly warned the Enron Board of Director’s audit committee of the company’s sketchy accounting. Had that presentation sounded a bold warning, the audit committee might have been able to save the company. For that matter, it might have saved Andersen, which did not recover from its role in Enron’s dealings.

No, Arthur Andersen did not recover from a voracious, vicious, mendacious, and illegal attack on the company which was later unanimously exonerated by the Supreme Court of the United States. Oh, and again, these make-believe PPTs may be great little details to prove that PowerPoint sucks, but I think the author of this essay is just making stuff up out of wholecloth.

And incidentally Enron did awesome PPTs. I’ve published several and have many more, which I will flash up over the weekend as time allows. But this is crap crap crap!

Mark Palmer in Broadband was a freaking PowerPoint wizard and Ryan S. in Tax was pretty awesome, and there are a few other great PPTs floating around, and great people made them.

And that is a stone cold fact.

UPDATE
I have emailed the author of that article and asked for details about the presentations she’s criticized. I will, of course, post any details she provides. This is the full content of my email:

Ms. Duarte,

I am a blogger for the Enron Blog (caraellison.wordpress.com) and I saw on your CNN essay that you cited two Enron-related presentations. In the first you said:

Of course, we can’t be naive: a persuasive presentation isn’t necessarily a good presentation. In 2001, Enron Corp. executives Ken Lay, Jeff Skilling and Richard Causey presented PowerPoint slides at an employee meeting that winningly depicted the company’s robust health and the bright future of its projected earnings. By the end of that year the company was worthless. Eventually, the U.S. Department of Justice charged those executives with 10 counts of a variety of crimes — based on their presentations.

Could you please tell me which presentation this is? Do you have it in your possession? If so, might I see it? I’m unfamiliar with the presentation you’re referring to and would like to clarify this point.

Also, which ten counts among the three executives were related to that presentation?

And lastly, you said:


Arthur Andersen accounting firm feebly warned the Enron Board of Director’s audit committee of the company’s sketchy accounting. Had that presentation sounded a bold warning, the audit committee might have been able to save the company. For that matter, it might have saved Andersen, which did not recover from its role in Enron’s dealings.

Again, would it be possible for you to share this presentation? Could you give me a date that this presentation was given and who was present?

I appreciate your assistance.

Thank you very much.

Cara Ellison

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