There is a typical discussion going on in my About the Enron Blog section. It is a dynamic I have seen dozens of times during the past ten years. Basically, it goes this way:
A person with an accounting background has suddenly discovered the old Enron financial statements. Using a limited set of documents, he has declared that he is absolutely convinced that there was accounting wrongdoing at Enron. Based on this limited analysis, he decides to not question anything else about the various Enron trials, but to focus entirely on a few accounting transactions. He also states that it is my job (or the defendants’ job) to prove that the accounting transactions were not based on intent to commit criminal wrongdoing.
I haven’t responded much because I have seen this argument played and replayed so many times that I find it boring. But, once again, let’s run through some basics:
1. Good for the accountant for looking at some accounting documents. But he has discovered nothing new. All his alleged issues (and more) were litigated at the various trials. The accounting issues were largely ineffective for the prosecutors. Witnesses and accounting experts failed to convince the jury that there was anything wrong with the transactions. Even where the Feds won convictions (Skilling), it was not accounting wrongdoing that got the convictions, according to the words of the jurors themselves. No, this does not absolutely mean that there was no accounting wrongdoing, but it does mean that the Feds could not prove it to the jurors.
2. Looking at one side of the issue is self-deception. If we could convict a person without examining their evidence, there would be no need for a trial.
3. I am sorry it is so difficult and relatively expensive to get trial transcripts. But if you are serious about understanding the Enron trials, they are indispensable. Looking at the full trial and how the Feds attempted to use the accounting transactions is much more revealing than basing your entire analysis on a few documents.
4. I saw one comment in which the accounting guy justified his view by declaring that textbooks teach Enron as an example of corporate greed and corruption. I wonder if his point is that the textbooks couldn’t be wrong?! Even if you assume that the two convictions that the Feds actually managed to get at trial were legitimate, they utterly failed at dozens more. If the Feds falsely accuse a few dozen people in order to attain two convictions, that strikes me as a textbook example of (at least) Federal over-reach. I am amazed that people are satisfied with this behavior by the Feds.
5. Finally, I suspect that the accountant is missing the forest by looking at a few trees. Let’s assume that the few accounting transactions that the accountant is focused on were actually the result of intentional wrongdoing. Even in that circumstance, they would historically rise only to the level of a civil complaint against Enron, not criminal indictments against dozens of individuals. The accountant’s analysis ends just where the real work begins. If there was wrongdoing, who is responsible? Based on the transactions the accountant has questioned, I see at most 4 or 5 counts against a couple people. The accountant is ignoring the huge question of how do you go from a few accounting transactions to hundreds of counts of criminal wrongdoing against dozens of people?! That’s the kind of bigger question that is being totally ignored in the obsession with a limited set of accounting transactions.
I am not sure how to respond to people like the accountant. On the one hand, I like that he has taken the time to look at a few documents. On the other hand, I am frustrated that he is satisfied to stop at that point. His position seems to be that somebody is guilty of criminal wrongdoing because of certain accounting issues, but he refuses to try to definitively link the wrongdoing to an actual person, and he refuses to examine the actual cases to see how the evidence he so loves actually stood up at trial.
And the accountant wants me to argue with him on my blog and spoon feed him information. I used to do those things, but my standards are higher now. I want to talk with people who actually have cared enough about justice to go out and dig through both sides of the issue.
By the way, based on what I am hearing, academia is ** finally ** starting to actually examine the Enron cases with growing skepticism. A new generation, less steeped in the Enron Myth, is starting to wonder what actually took place. It will be interesting to see what emerges from this new analysis.
I don’t have the time to go through the entire mess of documents and I’m certainly not going to spend $700 for the trial transcripts, as I have stated. I’ve covered enough to get a good flavor of what the transactions were like, a couple failing very, very basic accounting standards which any CPA would understand.
“All his alleged issues (and more) were litigated at the various trials. The accounting issues were largely ineffective for the prosecutors.”
Regarding the Lay/Skilling trial, the accounting issues were not litigated. If they were to be, this would be the trial where the major impropriety woudl be brought out. But that didn’t happen. At Richard Causey’s sentencing hearing, his own Defense, as well as the Judge, are clear that no significant litigation of the transactions occured at the Lay/Skilling trial. See page 11 and 12 where the Defense states, “And obviously the court tried it (referring to Lay/Skilling trial) so it knows in the government’s case in chief, there wasn’t much accounting evidence. I think that was to the government’s advantage.”
http://caraellison.files.wordpress.com/2010/01/transcript-of-causey-sentencing.pdf
So little accounting evidence was presented at trial, according to this statement. The fact he states he thinks this was to the government’s advantage would certainly mean to me that the phrase “wasn’t much accounting evidence” would mean little was presented at trial rather than meaning there wasn’t much evidence of accounting impropriety. If you interpreted the phrase to mean that there was little evidence of impropriety, it would not be to the government’s advantage in any way.
Then, on page 22, the prosecution states, “…..but obviously the government takes a quite different view about whether or not the accounting at Enron was appropriate and whether or not it complied with GAAP in all respects.
THE COURT: You can’t dispute the fact that eliminating that from the case simplified the government’s burden at trial.”
The Judge who presided over the trial states that the appropriateness of the accounting and whether it complied with GAAP was “eliminated” from the trial. So, you have both the defense and the judge saying the same thing. The transactions and their propriety were not significantly litigated at trial. I believe the jury and public at large remain ignorant of all the monkey business that went on.
IN regards to the Braveheart Project, among other things, the side agreement between Enron and CIBC negates CIBC’s $115 million investment being at risk, negating a sale of a financial asset, per SFAS 125, negating recognition of any revenue from the Project. I believe the CAO or CFO confessed to fraud in a plea deal, once the accounting issues were separated from the other EBS allegations. So, on record, he has admitted to guilt.
I haven’t researched the Merrill Lynch Barge case or transactions. I think the total involved was a measly $16 million or so wasn’t it? Not material enough for me.
Granted, seeing the Defense’s position could potentially change my view to an extent, but I honestly don’t think it would change it materially. I don’t believe I am the one self-deceived btw.
In regards to the accounting profession, FASB and the AICPA are the folks who created the standards which they claim have been violated in the Enron transactions. I regard considering they could be wrong as “spin”. I think they got it right from what I have reviewed.
Thanks for allowing me to post opposing views on your blog. I can understand the frustration. From what I have reviewed, it would be a hard sell to tie Skilling or Lay directly to the fraud. But, not Duncan, Causey, Fastow, Kopper, Glisson or other accounting personnel involved in creating the transactions, as named in the Causey sentencing hearing. So, based on the limited research I have done, that’s my judgment of who is guilty of knowingly preparing materially misleading financial statements/information and violating SEC and IRS Regs as well as knowingly violating GAAP.
Thanks again.
“I am amazed that people are satisfied with this behavior by the Feds.”
Where in my posts do I say I am satisfied with their behavior? I have repeatedly stated that the allegations of misconduct should be looked at. I realize that such misconduct is a problem. This is about the 7th or more time I have stated this. Why are my words being misconstrued?
From a previous post: “So, after reading some of the Houston Clear Thinkers Blog and another article (link below), it is reasonable to see their point of view, which I would tend to agree with, in regards to law enforcement over reaching and being too powerful in some instances.”
I do enourage you to continue to raise this issue.
What I find frustrating are unsubstantiated claims such as this:
“Enron executives are innocent. Their company was toppled by a run on the bank, exactly like we’ve seen with Bear Stearns, IndyMac, Lehman Brothers, and other companies. There was no fraud or conspiracy at Enron.”
It seems clear to me that some execs are not innocent and that there was clear and obvious fraud at Enron. I think it’s clear from the number of banks/investment firms involved in the monkey business that it took a host of companies to pull off the fraud, not just Enron. So, it does appear to me they “conspired” with Enron to aid them in the impropriety.
“His position seems to be that somebody is guilty of criminal wrongdoing because of certain accounting issues, but he refuses to try to definitively link the wrongdoing to an actual person, and he refuses to examine the actual cases to see how the evidence he so loves actually stood up at trial”
This is simply not fair. I have stated who I believe to be guilty, how, and why in previous posts. I’m not paying $700 for trial transcripts. Claim all you want that I’m not interested or care enough. Simply not true. As posted above, the material transactions, LJM, Chewco, the Raptors, were not litigated at trial, per the Causey sentencing hearing. Paying $700 would not have yielded what I was looking for, material accounting impropriety or fraud. It was not presented at trial in any substance.
In regards to linking wrongdoing to an actual person, as I’ve stated before, the transactions don’t jump off the bookshelf and record themselves. Obviously, the management in the accounting dept. is responsible for them, as was Fastow, and AA. You can build a strong circumstantial case on such obvious impropriety. The AA trial reversal in no way exhonerates the AA auditors involved with Enron, as I’ve stated before. I believe an initial SEC civil investigation would have resulted in criminal prosecution, ultimately.
“And the accountant wants me to argue with him on my blog and spoon feed him information. I used to do those things, but my standards are higher now. I want to talk with people who actually have cared enough about justice to go out and dig through both sides of the issue.
The truth is, Cara, in regards to prosecutorial misconduct you have a strong case. In regards to accounting impropriety and fraud at Enron, the truth is on my side, not yours. No one will debate me on the details of the propriety of the transactions themselves. Why? Because they are fraudulent from the get go, that’s why. Enron took a legitimate business tool, an SPE, and distorted and manipulated its use for illegal, fraudulent purposes so it could record illegitimate revenues and hide debt off of its books. Enron, itself, restated its own financial statements, for heavens sake. I find the unrepentant, proud attitude of those who defend Enron as very offensive in light of the obvious and criminal impropriety. (Criminal meaning with intent to defraud and deceive) I don’t know that it gets much worse than this admission:
http://caraellison.wordpress.com/2011/09/29/discussion-with-an-enron-executive-about-mark-to-market/
The open, bald face admission of intent to misrepresent, to “cheat”, using M2M. This is still the attitude. This person openly admits to the intent to “cheat”, unrepentant. Yet you defend such behavior. To me this is totally disgusting.
“and he refuses to examine the actual cases to see how the evidence he so loves actually stood up at trial. ”
I am not refusing to look at anything that is readily available for me to research. This is just a lie, both in regards to myself, and in regards to the transactions being litigated at trial. They were not litigated at trial in any material sense. You are hiding behind a bluff. The transactions were not litigated at trial.
Anytime you want to debate them in detail, rather than make unsubstantiated claims about them, I am here to do so. There simply is no justification for them, whatsoever.
If I strictly separate the blog analysis of potential accounting issues from the actual prosecutions, they are somewhat interesting to me, in an academic sense. What concerns me is that care must be taken to avoid inter-mingling the two perspectives (the academic versus the actual). If the accounting issues were litigated at trial, they were unsuccessful for the government, thus bolstering the innocence of the defendants; if they were not litigated at trial, then they are irrelevant to the legal consideration of criminal wrongdoing at Enron and imply nothing about possible guilt of any individual defendant.
Fred,
The accounting transactions are the heart of what this case is really about. However, as best I can determine, without obtaining actual trial transcripts, the material transactions were not discussed or explained by either side during the trial to any significant degree. That’s the gist I get from Causey’s sentencing hearing, as I have referenced. The fact they were not in NO WAY makes them irrelevant to determining legal criminal wrongdoing by Enron employees. The reason they were not could have been due to their complexity and required knowledge of accounting standards and theory to understand how they were improper. It may have been too much to ask of a lay jury to understand all of that.
AS I have said several times. transactions don’t record themselves, people record, them……… specifically accounting personnel and those who supervise the accounting department are responsible for approving and recording them, as well as the auditors who review the transactions for propriety. The transactions themselves provide an audit trail of likely guilty parties involved in approving and recording the transactions.
I totally disagree with your comments. I’m not interested in continuing to debate Enron. I am satisfied with the verdicts, based on my limited research.
If anyone wants to challenge my assertion that the transactions material to
Enron’s misrepresentation of its financial picture to its shareholders, the SEC, and the public were not discussed in any significant manner or in any significant detail (meaning the entire transaction was explained in detail by either side), you will have to provide trial transcript to counter my assertion. I have seen nothing to date to contradict my assertion and assume none will be forthcoming.
Concerning the “accounting issues”, Enron restated its earnings for several years as a result of failing to follow accounting standards for whatever reason.
Best case, if Enron followed the rules to the LETTER, which I don’t see that they did nor does the accounting profession in general, the end result of following the LETTER of the rules and laws was to miss the Spirit of them and to materially misrepresent Enron’s true financial picture in the end. Such material misrepresentation is evidenced by the the restatements of 2001 10-Qs and prior year financial statements, as well as the 4-22-2002 8-K, and Andy Fastow’s recent speech on 3-19-2012 at the Univ. of Colorado.
My guess is the jury in the Lay/Skilling trial decided that the prosecution’s witnesses were more credible than the defense’s and that the outcome of the other trials was largely based on such testimony, rather than a detailed and material discussion of the transactions themselves. So, I don’t know where the argument that the transactions were not successfully litigated at the Lay/Skilling trial comes from. I find the argument to be without merit for that case specifically.
Fastow states that he used the rules to subvert the rules. My thinking exactly. There was an effort to follow the rules, that failed miserably, and the end result was subverting the rules, i.e.overturn, overthrow, corrupt the rules. Simply put, FRAUD. Fastow was not the only responsible party. He didn’t have the accounting training nor intelligence to be able to do it all himself. He relied on subordinates and Arthur Andersen, and perhaps the approval of top management, to carry out this subversion. I’ve explained in detail in prior posts how this occurred and who could be culpable. Don’t care to discuss it any more. I’m not going to change your mind, and you sure as hell are not going to change mine.
@bettendorf: As usual, I think we are talking at cross purposes. I have no interest in changing your mind. If you believe your own analysis convinces you that there was financial-based fraud at Enron, that is fine with me. My point is entirely different — I am more interested in what was actually litigated at trial and that the DOJ be held to their burden of proof.
When I read the trial transcripts of the Skilling/Lay trial, it appears to me that the DOJ was far below the threshold of meeting their burden of proof. Whether this was because the DOJ was incompetent or because the defendants were not guily, I don’t know, of course. But it concerns me that the DOJ won convictions without a credible presentation at trial. This concerns me not because of any support of Skilling and Lay specifically, but because I don’t think any citizen should receive a conviction unless the prosecution can prove their charges beyond a reasonable doubt.