Errata

Sorry, I meant to post the post about Matthew on my personal blog.

Dahbol Fact Sheet

This is a interesting document drafted by the House of Representatives. I haven’t read it all but I like the chronology.

Enron and Art

This article featuring filmmaker Tom McCarthy (I’ve never heard of him either), is amusing – but there’s also an undertow of great significance that I’d like to address after this quote:

The idea of good things resulting from morally questionable deeds is something McCarthy’s been kicking around for nearly a decade.

“Andrew Fastow, the CFO at Enron, grew up 10 minutes from me,” he says. “I played soccer with his brother. Great family, the Fastows, terrific people. A lot of great things came out of the productivity and profit of that company – philanthropy, all these wonderful things. But all the good that came out of it, it’s not built on [anything] real. And when the cards came down, we had to pay for that. I thought that was a really interesting theme for this movie.”

Forgetting the fact that McCarthy believes Enron’s wealth wasn’t there, I really responded to his explanation of his process. This spoke to me very directly. Very forcefully. Artists transpose some experience into some other context all the time. I do it with my writing. One day I will be writing something that has NOTHING to do with Enron and I’ll remember something Ken Rice or Ken Lay or Dan Boyle said at trial and think, “Oh this is perfect, that goes right here.”

Sometimes it can be a line from trial, but more often its just a theme. Or a sense of things – the ambiance of a particular day or person and idea.

Enron is especially useful as a creative resource because there are so many facets to it. It has everything: beauty and love and lust and poverty and wealth and sadness and joy. There are a million ways to tell this story, but I think what will ultimately happen is that a million stories will be told, with bits of Enron DNA holding it all together.

Level 3 Steals EBS Technology

In 2009, Level 3, the company John Griebling came from, won a patent for technology based on EBS technology and InterAgent, which was Larry Ciscon’s invention. He created InterAgent while at Modulus with Rex Shelby, David Berbarian and Mark Palmer.

The guys who own the BOS patent should file a patent infringement suit.

Jeff Skilling Is Not Crazy For Calling Grubman An Asshole

Daily Finance, an AOL outfit, announces that to be a CEO one must be certifiably insane. The article points to that old cliche, that Jeff Skilling was cray-cray and the evidence was the Richard Grubman call.

Intermittent explosive disorder: Repeated episodes of violent, aggressive behavior out of proportion to the situation; may include angry outbursts or temper tantrums

Let’s set the wayback machine to April 2001 for one of the most impressive outbursts of CEO fury ever. Before Enron’s devastating failings were known, analyst Richard Grubman posed a very legitimate concern on the company’s conference call: “You’re the only financial institution that can’t produce a balance sheet or cash flow statement with their earnings.”
CEO Jeffrey Skilling’s response: “You, you, you… Well, uh… thank you very much. We appreciate it… a–hole!”
Granted, it’s arguable that outburst wasn’t particularly “out of proportion,” given what we all later found out about Enron’s true financial condition. People who are doing the wrong thing probably don’t enjoy exposure to anything close to critical thinking. Still, Skilling’s outburst seems pretty nuts.

Actually no it doesn’t seem nuts. As I’ve explained numerous times on this blog, there was a reason he called Grubman an asshole, the most important of which is that Richard Grubman was being an asshole. Enron did not have the cash flow statement because it was still collecting and collating information. If Enron had published a cash flow statement at that time, it would have been incomplete and/or incorrect.

Furthermore, the whole idea of CEOs being crazy just grinds my gears. For every crazy CEO, you have a million who are normal, quiet, unassuming guys (heck, look at Joe Hirko and Ken Lay within the same organization; they were CEOs and they didn’t call anyone an asshole.)

Can’t we as a culture please get this event correct in the correct context? Can’t we do that?

Reply To “Things Enron Can Teach Us About Frank-Dodd”

On Law.com, Ryan McConnell has written an article entitled “Three Things Enron Can Teach Us About Frank-Dodd.

He writes:

Enron’s Code of Ethics in July 2000 was 61 pages long; it addressed a wide range of topics, from the insider trading laws to the FCPA. Enron’s code also addressed whistleblowers—two years before Sarbanes-Oxley’s prohibition against whistleblower retaliation and the requirement that public companies’ audit committees establish mechanisms for whistleblowers to report potential misconduct. In the last few pages, Enron’s code notes that “[Enron] will not condone any form of retribution upon any employee who uses the reporting system in good faith to report suspected wrongdoers, unless the individual reporting is one of the violators. [Enron] will not tolerate any harassment or intimidation of any employee using the reporting system.”

But Enron failed to follow its own code.

In August 2000, Enron’s Vice President for Corporate Development sent an anonymous letter to Enron’s CEO warning that the company would implode in a wave of accounting scandals. According to the legislative history of Sarbanes-Oxley, after this letter, Enron evaluated the risks associated with the whistleblower’s termination under Texas law. An independent report by William Powers later noted that in the weeks following the accounting allegations, Enron’s regular outside law firm conducted a cursory investigation and concluded that the optics of many of the Enron deals were bad, but that a comprehensive investigation by independent counsel or auditors was unwarranted. Instead of addressing the whistleblower’s concern, Enron violated its own Code of Ethics and failed to adequately investigate the accounting irregularities. The company filed for bankruptcy in December 2001.

Mr. McConnell, with all due respect, Enron did NOT violate its code of ethics. Ken Lay went out of his way to protect Ms. Watkins from Andy Fastow, putting her in Cindy Oslen’s HR department. He investigated her claims, regardless of the fact that they were absurd.

Regarding Vinson & Elkin’s report, though even they called the investigation “preliminary”, it wasn’t pro forma. They did in fact investigate:

- Interviews with V&E employees familiar with the transactions
- Interviews with Enron employees familiar with the transactions
- Reviewed Board Metting minutes, including Audit & Finance committee
- Reviewed public filings including 10-K and 8-Ks
- Reviewed deal approval sheets for LJM transactions
- Reviewed deal summaries for LJM transactions
- Reviewed various presentations and other documents
- Interviews with Enron personnel including: Andy Fastow, Richard Causey, Rick Buy, Greg Whalley, Jeff McMahon, Jordan Mintz, Mark Koenig, Paula Reiker, Rex Rogers, and Sherron Watkins herself.
- Interviews with Arthur Andersen auditors including David Duncan and Debra Cash.
- Second interviews with Andy Fastow, Rick Causey, David Duncan and Debra Cash.

All according to the “preliminary” investigation. What else would you have done? What did V&E overlook here?

Lesson Number One: Have a Strong Code Preventing Retaliation, and Follow the Code
Corporate compliance programs are not one size fits all—every program is different and must fit the specific needs of the company. But every program should have certain core elements to keep the company and its employees out of trouble. Enron’s Code of Ethics had many of the key elements, but the company ignored these principles.

I’m unsure what you mean here. How did it ignore its own principles? I’m genuinely curious what others think that the Enron leadership could have and should have done?

Companies must follow their code to have a robust compliance culture. A company’s commitment to a strong code and following the code encourages open communication and an environment where employees feel comfortable reporting potential compliance concerns to the company. Post-Dodd-Frank, at a minimum, a company’s code of conduct should encourage candid and open communication of potential violations of the code or other ethical issues and clearly state that employees have an obligation under the code to report misconduct to the company. And the code must make clear that retaliation against employees is forbidden.

Surprisingly, not every company in the Fortune 500 has language in the code of conduct addressing retaliation—16% of oil and gas companies, 27% of technology companies, 9% of chemical companies, and 10% of financial institutions do not address retaliation in their codes of conduct.

Failing to address retaliation and create a culture that encourages employees to come forward with violations of the code of conduct sends the wrong message to employees. Employees are more likely to first report issues internally if they know that the company has a strong compliance culture. When a company fails to follow its own code, however, employees lose confidence in the compliance program.

Lesson Number Two: Communication and Training Are Essential to Identifying Compliance Issues
Successful compliance programs, much like successful companies, foster a culture of open communication. Enron had a culture of secrecy.

This I gotta hear. How did they keep secrets? What are these mysterious the mysterious secret leadership was secretly keeping – secretly?

Sarbanes-Oxley and Dodd-Frank require that companies have an effective communication system for employees to report potential issues to the company. Reporting procedures must be tailored to address local laws in countries where anonymous reporting is restricted, such as France. Every employee must believe that internal reporting and compliance are valued within the company. Employees must understand that the company takes violations of the code of conduct or law seriously. Unlike Enron, companies must ensure that employees believe that they will not be penalized for voicing compliance concerns.

Who was penalized for voicing complains? Surely not Sherron Watkins. She was coddled and protected. So to whom are you referring here?

Ryan D. McConnell is a partner at Haynes and Boone LLP and former federal prosecutor. Katharine E. Southard is an associate at Haynes and Boone LLP.

Awesome. With a background like that, surely he can explain what the heck he’s talking about since his post was full of misdirection, obfuscation, and outright inaccuracy.

Enron Didn’t Exist

This, according to a Tweet:

Understand that I am not picking on this person; I don’t know him and he might very well be an awesome guy. But his accusation that Enron was dealing with products that don’t really exist is just baffling. And incidentally the analogy could not be worse because eBooks are kicking traditional books in the gut.
eBook sales reported by 15 companies to the Association of American Publishers comprised $73.4 million for May, and accounted for 18.5 percent of all net trade sales for the month, consistent with the prior two months. eBooks were the second-largest trade format again, behind trade paperbacks.

And if that doesn’t convince you, ask anyone with a Kindle. They’ll explain that yes indeed, eBooks are real things.

But back to Enron. I am always curious what people think “didn’t exist” in Enron’s business model. Its products were wildly popular and its technology is being used today. The proliferation of cloud computing is directly attributable to Enron Broadband Services. And as for the trading side, I always like to smirk and remind people that Enron didn’t trade in bad mortgages. Ahem.

It’s been nearly ten years since that poor, sweet company went under and I marvel at the myths and lies and misunderstandings that have mushroomed up around it. That it was dealing in virtual products isn’t the worst myth, but it might be the most frequently citied one.

Bad Judging and Bad Reporting

A local news station reporting on Rex Shelby’s sentencing back in March 2011 played some Joe Hirko footage, mistakenly saying that it was Rex Shelby. They also label Joe Hirko “Rex Shelby” in a still-shot on the website:

I’m intrigued by the name of the reporter: Courtney Gilmore. I wonder if she is any relation to Vanessa Gilmore. My inquiries so far have gone un-answered.

Recent Search Terms

Some of today’s search terms:

“enron ursprünglicher geschäftsbericht” - What the hell?

“ken lay, jeff skilling, and other “white collar” criminals like bernie madoff fit the crimes committed?” – I like this. Someone is obviously in an ethics class, and they’re CHEATING. In an ethics class! Dude.

“jeff skilling conference call” – There are plenty of these on my site.

“prosecutorial bias in nigeria” – I think Google saw “Nigerian barges” and “prosecutorial abuse” and shuttled you my way, but I don’t know anything about the justice system in Nigeria.

“enron employees nude pictures” – That’s one thing I’ve never posted. Jeeze Louise.

“sweet thing your such a sweet thing” – Oh, you’re looking for the lyrics to Sweet Thing by Renee Stahl

“enron broadband prosecution” – On this subject, I can talk your ear off.

“scott a yeager” – Maybe not the right Scott Yeager since the one I write about is F Scott Yeager.

“jeff skilling, circuit, 2008″ – Fifth Circuit Court of Appeals?

“what enron did wrong” – Nothing.

“enron executives where are they now 2010″ ?

“donald duck’s wife” I only know about his uncle.

“world trade center 9/11″ – God. It is so hard to believe its been ten years.

“the culture at enron” The air was made of Awesomesauce.

“enron farm.” – Wha…? Maybe “wind farm”?

“who is cara ellison?” A mystery wrapped in a blanket.

I’ve Been Afraid Of Changing

“At times,” he said to me one night, “I actually enjoy fighting the vultures, but when I think about how hard this has been on my friends, I feel guilty about the moments when I enjoy the battle. Mostly, I think I must win for my friends and my ex-coworkers.”

We were just getting to know each other. I was already in love with him. From that first moment, he shot me up with love heroin and I was happily stoned, ready to trade in my car, my body, my very soul for my next hit. I couldn’t get him out of my head. Or my body. I walked around like a bereft zombie every minute he wasn’t balls-deep inside me.

He felt the obsession too – he once said he was obsessed, and I was nervous about the word, but he told me it was a good thing. I came to agree. I watched us both act our obsession, amused, dazzled and dazed, and deeply, seriously in love.

In the grips of one of those obsessive moments of longing, he would send an email from his lawyer’s office. “They’re having cake in the law library. I have five minutes.”

“Don’t eat anyone else’s cake,” I’d say.

He’d promise to stay out of the library.

Ten minutes later: “The meeting is regrouping. We’re working on something. You’re beautiful and you’re a queen. I’ll say hi as soon as I can.”

God. With trembling fingers, I’d try to write something cheerful and supportive. “I’m fine here, just work hard. Talk to you later!”

I moved through the days like a sphinx. I could not be touched. Nothing mattered but him and having his cock inside me. Smelling him. Kissing him. Talking to him. Fucking him some more. My body was buzzing, languid, a living poster for Woman In Ecstasy.

From the first moment, I felt that way. I was just always there, I think, like a flower in my chest that only bloomed when he was within pheromone distance.

I loved him for his sense of humor, for his high-frequency intelligence, for his strength. I loved him because he treated me like a queen. I loved his hands, and his bony knees, and his perfect smooth belly. I loved his smell, and the way he smiled. I loved that anytime I said something, he would reply with just the right thing. I loved him unlike I’d ever loved anyone before. I love him rationally and realistically.

When he told me he enjoyed fighting the vultures, it was perhaps the first glimpse though of something I didn’t realize until later. I didn’t realize there are really those sort of Randian heroes. I thought everyone must have a breaking point.

The strength exists in a lot of people; I see that now; it exists in the coworkers he was so worried about. When I think of them in prisons and halfway houses, under the thumbs of idiots who work in those places that has nothing to do with them, I feel a vast, cold loneliness. The careening light of the past comes blazing up on me, reminding me who they are, what they did and I feel a helpless desire to re-write their histories.

I have none of the strength they do. I have none of the strength he does. Surely I would go crazy if they accused me, pinned me to the wall, took all the money I had worked my whole life for, threatened me, imprisoned me. And yet they’ve emerged beautifully whole, radiant and beautiful with roses between their grinning teeth.

Sometimes, in the morning when I wake, I forget what they’ve done. Five, ten, twenty seconds of pure calm. Then the ache comes. The body is nothing but a map of the heart.

Chef’s Enron Experience Leaves Bad Taste

Houston Press has an interview with the chef of an up and coming new restaurant (which, by the way, sounds amazing: “Italian style barbecue”? I’m in.) Anyway, she explains how she ended up in Houston, and it is all Jeff Skilling’s fault:

EOW: How did you come to Houston?

DC: I never would have pictured myself living in Houston, but my husband’s family is from there and when he finished his MBA at Northwestern, he took a job with Enron Broadband. But two days after he started, Jeff Skilling resigned, and that whole debacle began.

When I see little stories like this, I flash back to voir dire of the Corporate trial when Dan Petrocelli and the other attorneys had been unsuccessful in getting a change of venue, and the lawyers were questioning potential jurors about their biases. These kinds of stories were all over the place. I don’t think people understand just what the collapse of Enron really was like for Houston, how big a deal it was. Everyone knew someone effected by the bankruptcy. For a state that prides itself on doing everything bigger, the collapse was massive. And it showed up in the juror’s replies. Of course the defendants couldn’t get a fair trial in Houston.

I hope the chef’s husband found new work easily and is doing well.

Enron Questions Answered

I received this comment on my post about James Taranto’s new hypothesis of Enron’s demise and thought it was a large enough issue that I could make a whole post out of it.

Good day,
I have been studying Enron history for about 4 months and try to embrace all possible aspects from organizational structure to PR and collective behaviour. You can see regular links to your blog in my twitter And thank you for rare video (analysts conference). I’m going to conduct a seminar for students about the lessons of corporate crises on this case. No one tried to describe Enron as a WHOLE, in a complex view. My point is that ENE give us the example of human relationships with future, its risks and specific. ENE accelerated (social) time day by day.
I have stored several essential questions that are not (it seems) answered nowhere. Most of them are about derivative schemes. It would be great for me if you’ll find 10 minutes for brief answers (just in two words) or give me some links.

1) Where should I seek any information about ENE PR campaign (in mass-media)? I found only several TV commercials on YouTube…

I’m not sure what you mean about an Enron PR campaign. There were always general PR efforts but I’m not sure if you mean as part of its usual course of business with investors/government/pubic or if you mean maybe the crisis management issues that Mark Palmer at Corporate handled so well. Could you expand on this a bit and maybe I can give you a better answer?

2) I tried hard to find the complete mechanics of the partnerships and just don’t catch it. What was the SOURCE of these over-100% (up to 2500%) profits for external investors (banks etc.)? It couldn’t be ENE shares (because of their growth rate was much less). Was it the profit from sale of some assets (not shares, but unfinished industry objects, for exmaple) that partnersip bought earlier from ENE? – Then what was the reason to sell them to partnerships for lower prices, if these assets could give real profit to ENE itself?

Well you stumbled upon a truth: the growth wasn’t just Enron shares. But I am not sure which investment you’re talking about that made a 2500% return. Which one was this?

3) What means ‘TECHNICALLY bankrupts’ in Sh. Whatkins memo?

Watkins never uses the term in her memo to Ken Lay. Not sure where you’re seeing that.

3) Why had A. Fastow created MANY partnerships? In Congress hearings the head of the Subcommittee mentioned about ’6000 schemes’ (!)

All big companies have partnerships. If you google “shell llc” you’ll see about 45,000 of these related partnerships. Even if it was 6000 separate shell companies, there wasn’t anything wrong with that. He didn’t have 6,000 ‘schemes’ of any kind, so again, I’m not sure where that info is coming from.

4) Was there undermined that partnerships would be closed after some specific operations (that give these profits)?

There were objectives for each partnership or SPE that was untaken, but I don’t think there was any hard and fast rule about when to close a project.

5) What was the common aim of the deals BETWEEN partnerships themselves?

Each partnership had very specific goals. There was no common aim between the partnerships that I know of.

6) What was the expected destiny of debts of the partnerships (as far as I understand, = debts of ENE)?

I don’t understand this question.

7) Do you personally trust Fastow in his confessions: “I was extremely greedy, I lost my moral compass and I did many things I regret” (http://money.cnn.com/2006/03/08/news/newsmakers/enron/index.htm) ? What was the ‘material’ significant components of corporative culture except Code of Ethics?

I’m very cautious about believing any statement that is given under duress – such as during a sentencing, particularly if those statements are given under a plea deal.

8 ) What was the ‘material’ significant components of corporative culture except Code of Ethics?

It was a tough culture. There was a lot of fighting for rank. But when it came down to it, most people most of the time abided by the Code of Ethics. They’re just good guys — they didn’t need a formal outline of ethics.

9) Is anywhere an approximate form of PRC with questions and quailies to review?

I might have one somewhere. If I find it I will post it.

Thanks for the questions.

Jennifer Binder’s Photofete Board Presentation

Jeff Skilling briefly dated Jennifer Binder, a young woman who had a small company that he invested in. His investment would become controversial during his trial. The premature ejaculator Sean Berkowitz asked him how much a certain check was for. It had been written six years earlier and he had no idea; the question came out of left field. Jeff guessed it was five thousand dollars. It was actually $30,000. Berkowitz jumped on it, accusing Jeff of lying. He then asked if Jeff disclosed the investment to the Board. Jeff said it was possible he didn’t – though Ken Lay had also invested in the company. Berkowitz then made it sound like Jeff was committing war crimes when in fact it was a tiny technicality.

In any case this is Binder’s Board presentation.

Chronology of Ken Rice’s Ferrari 2001 – 2005

Ken Rice was the first owner of the 2001 360 Challenge Ferrari.

June 8-10, 2001 – raced at the Canadian Grand Prix with Ken Rice under the Ferrari of Houston banner. Finished 34th.

Sept. 28-30, 2001 – raced at the US Grand Prix with Ken Rice under the Ferrari of Houston banner. Finished 6th.

January 21, 2003 – sold to Page Stevens who never raced or tracked the car.

March 2, 2004 – sold by Page Stevens to current owner (currently in California).

March 23, 2004 – raced at Infineon Raceway with Robert Canepa under the Ferrari of San Francisco banner with Giuseppe DiGennaro doing any needed work on the car. First race 9th, second race 7th.

August 19, 2004 – raced at Laguna Seca with Robert Canepa under the Ferrari of San Francisco banner with Giuseppe DiGennaro doing any needed work on the car. Finished 9th.

June 10-12, 2005 – raced at Canadian Grand Prix with Robert Canepa with Kerry Agapiou as team manager under the LA Auto Gallery banner. Finished 9th.

August 13, 2005- shown at the Diablo Club Auto Show

August 19, 2005 – shown at Concorso Italiano.

October 16, 2005- shown at the Danville d’Elegance 2005.

November 19-27, 2005 – shown at the San Francisco International Auto Show.

Court Denies Jeff Skilling, Ken Lay and Rick Causey’s Motion For Change of Venue

Court denies Jeff Skilling, Ken Lay and Rick Causey’s motion for change of venue.