10 Reasons Houston Doesn’t Care About Enron Anymore

Forbes has published an article titled Why Houston Doesn’t Care About Enron Anymore.

On the face of it, it is good news. It’s over: hooray! But there are also some really cruel remarks about Ken Lay, which are just inappropriate.

Houston healed up, as did the rest of the country, so I guess we can all put away our Ask Why stickers and go home. Oh, except for the Jeff Skilling and the other innocent people who went to prison for nothing more than the aggrandizement of the DOJ.

Time does heal the collective. We don’t sit around and bawl our eyes out over 9/11 every day, or malinger over a loved one who passed away when we were 6 years old. But the individuals of the injustice – Jeff Skilling, Rex Shelby, Scott Yeager, Andy Fastow and many others – can hardly be expected to simply shake it off. It is their life we’re moving on from, and whatever scars they have won’t go away so easily.

The world really is moving on. I was a decade younger when I began writing about Enron, and I am not the same person I was. Yet the agony and injustice of it still eats at me. That angst is precious to me; it is what I have instead of justice. It reminds me of how brilliant some human beings are, and what can be accomplished with skill and competence instead of glamour and glitz. It motivates me to do better. To reach farther. And it reminds me to quietly whisper to myself, every once in a while, “fuck the police.”

How Time Off Works

I was chatting about Jeff Skilling with an Enron exec who has served time in prison and this is what he told me about prison’s time off system:

You get 12.5% (not 15% as widely reported) off for good time behavior, one year off for the drug program, and usually up to six months off (although it can be up to one year) for the halfway house. So, if re-sentenced to 14 years, he has about 4.25 years in prison remaining.

For the love of fruit loops, this is crazy. To think Jeff has already spent so much time behind bars, and he has to spend even more… it just feels so infuriatingly wrong.

However, I don’t think he could have done any better. I’m just not sure the DOJ would have bent much more than they did; they have to save face.

Meanwhile, at least Jeff Skilling now has a horizon. He knows there is an end to this madness.

My friend also mentioned:

He will be eligible to move to prison camp now, which will make it much better for him and for anyone that visits. But the pain comes from the separation, not from the conditions.

That last line has stuck with me all day. It hurts more every time I look at it.

Most Innovative Company in America

This fascinating article caught my attention. It is about how researchers created a better tablet/smartphone typing interface during their research work with Enron emails. How appropriate that Enron is associated with yet another innovation!

Fortune Magazine named Enron “Most Innovative Company in America” for six years in a row, 1996 – 2001. Even rabid Enron detractors admit that the designation was deserved — Enron was a transformative company during a period of rapid business model adjustments in America. In every market it entered, Enron brought not just new product and service ideas, but new business model approaches. Enron was consistently ranked near the top of everyone’s lists in quality of management, employee talent, and quality of products and services. Enron was a bold company in the best tradition of American free enterprise. Enron embraced and tried to manage the risk inherent in trying out new ideas.

One of the comments I have seen frequently in the transcripts of attorney interviews with potential witnesses is the belief that Enron tried too many new ideas at once and that, in doing so, its management team “reached too far beyond its grasp”. Because the federal government, after many years of investigations and prosecutions, found little compelling evidence of criminal wrongdoing at Enron, this “too many balls in the air” explanation makes a certain amount of sense to me — it is consistent with the Enron culture of encouraging experimentation that is clear from a reading of Enron documents.

A possible downside of having the kind of success that Enron had in hiring the brightest people from America’s top universities is that the company’s average employee age was remarkably young, and these young, ambitious Enronites were eager to spread their wings and make an impact. As I pour through hundreds of thousands of pages of Enron documents, it is incredible to see the number of ideas being actively pursued by Enron employees, with the support of Enron management. Enron Broadband Services (EBS) was a huge innovation in itself, a pioneer in cloud-based services, “we have an app for that”, usage-based billing, etc. — a business model and technologies that now are dominant among America’s most successful technology companies.

So effusive was the outpouring of entrepreneurial ideas at Enron that, in 2000, the company launched a separate business unit, called Enron Xcelerator, to help evaluate and foster business and product ideas from Enron employees. This does not match the contrived portrait of the Enron culture that you have been getting from the government and media, does it? Instead of a culture based on greed and bloodthirsty competition, Enron actually developed a culture that encouraged and nurtured innovation.

In fact, I would say that it was an excess of innovation, not greed, that led to Enron’s downfall. And, if you must fall, that is definitely the way to go!

Why Enron Is (Still) Important

I have been researching and writing about Enron for more than a decade now. People often ask me why I continue to write about the topic. I have answered that question a number of times on this blog. The critical importance of the subject matter is obvious — Enron Corporation was a ground-breaking American enterprise, and the Enron legal events were among the most important criminal prosecutions in American history. I also believe that the Enron prosecutions were, collectively, one of the major witch hunts in American history, and it is important that we draw lessons from the prosecutorial abuse which permeated the Enron legal proceedings.

However, in addition to those subject matter reasons for my interest in Enron, I have also experienced an evolution in my perspective on the subject which has kept my interest alive over the years and which has refreshed the topic for me on a regular basis. When I first learned of the federal government claims of criminal activity at Enron, I simply assumed, like most people, that the government had done a thorough investigation and had sound reasons for their accusations. I am pretty much a “law and order” person, so I fell easily into the “bring the evil criminals to justice” knee-jerk mindset.

However, as I began to research Enron, I was frustrated by the shallowness of the reporting on the Enron proceedings in the mainstream media, and I was surprised at the irrational character of the anti-Enron hysteria in the press and public. I had worked in a company that did business with Enron, and I had interacted many times with Enron employees — the characterizations of Enron and Enron executives being hawked by the media simply did not match my own experiences. I begin to be dismayed by the lack of rigorous analysis by journalists and the general absence of press and public skepticism about the specter of the federal government hounding private citizens.

That initial frustration and dismay begin to turn into anger as I dived more deeply into my research. It took relatively little digging to see that there were huge holes in the Department of Justice (DOJ) tale of Enron. I was perplexed at why the press was not jumping all over the inconsistencies. As indictments were delivered against former Enron employees, the text of which was often laughably internally inconsistent, it became clear to me that most of the press was so gleeful at the prospect of having “greedy lying bastards” to write about that they were largely uninterested in pursuing the actual facts. And the public seemed to be wallowing in the mindless comfort of the simplistic morality tale of evil business executives which quickly congealed into the Enron Myth. That the Enron Myth persisted in the face of revelations about “questionable tactics” by the federal prosecutors (the quote is from prosecutor John Kroger), turned my anger into a kind of smoldering indignation which fueled a large number of my posts about the Enron legal proceedings.

Gradually, the outrage has evolved to where I find myself now — with a determination to use the Enron legal fiasco to help people understand the flaws in our criminal justice system and to motivate the need for reform. The Enron proceedings offer textbook examples of many of the major problems with the American criminal justice system — abusive plea bargains, over-charging, witness intimidation, suppression of exculpatory evidence, statute creep, broken grand jury system, etc. — the list is long and shameful. You may have already noticed the increasing focus of my blog posts on drawing out the lessons we should learn from the Enron witch hunt. I will be expanding on this reform focus as I go forward.

But don’t worry. For the many readers who also have told me they like my lighter, more irreverent and satirical posts, there will be plenty of those also. And thanks to all my readers, new and old — you are another reason why it has been so rewarding writing about Enron!

Enron Broadband Ventures

A Forbes article mentions Enron’s “venture fund”. The line that caught my attention was this one: “[Swildens] acquired Enron’s venture portfolio in a bankruptcy proceeding in 2002.”

I’m not actually interested in Swildens, of course; I am interested in Enron. So here’s some background about Enron Broadband Ventures (with some juicy EBS insider baseball). Enron Broadband Ventures was the investment arm of EBS. It had a few early successes. It invested in FastForward Networks, a software manufacturer acquired by Inktomi. It also invested in Avici, a developer of high-speed, high-bandwidth network routers. Enron acted as the company’s technical advisers to help them develop its products. Meanwhile, Enron used Avici’s routers to power the broadband trading operation.

Avici would later become ensnared in the Enron mess because LJM2 and Raptor 1 did a hedge in September 2000 for the tech firm. The DOJ says the hedge was fraudulent. When Andy Fastow pleaded guilty he stated that he backdated documents to make it appear that Enron locked in the value of its investment in Avici in August of 2000, when Avici’s stock was trading at its all time high price.

Here is an old Forbes article (January 2000) about the deal with Avici. There are some quotes by John Griebling, which frankly surprised me. Griebling, by all accounts, is a hard-core, old-school engineer, someone I personally would not select to make comments to the media. But that is just me. (On the other hand, maybe in a random act of journalism, the writers actually wanted to know about the software, not the gloss. For that, Griebling would be a good choice; I just don’t associate Forbes or Fortune or Business Week with actual journalism.)

For context, John Griebling became head of network operations and engineering about the time John Bloomer became head of products. Bloomer, Griebling, and Collins were Scott Yeager’s guys. (Stan Hanks reported directly to him, for those keeping track of these things.) Griebling was initially pretty close to Bloomer, but it became obvious after a while that Bloomer was using him. Bloomer began to trash Griebling covertly in his emails while pretending to be his friend. Griebling found out about it and the two had a falling out that was never repaired. There are some funny emails from Griebling to Bloomer in which he calls Bloomer’s process nonsense “gobbly gook”.

Griebling meant well, but most accounts indicate that he was overwhelmed by his job at EBS. One person said he was a hothead who thought he could get things done by bullying people. He once, toward the end of 1999, exploded at David Berberian in a meeting (accusing Berberian of wanting to control things, which seemed to be a regular accusation). Joe Hirko, not liking confrontation, walked away. So Rex Shelby – who is very close to David Berberian- jumped in and told Griebling he was crazy, and they needed to talk now.

In the hallway, he schooled Griebling on Berberian’s accomplishments, stating that everything tangible that had been accomplished by EBS in 1999 had Berberian’s name on it. Griebling wrote a letter of apology to Berberian that same afternoon. (A classy move, in my opinion.)

When the company collapsed, John Kroger saw him as an easy target. Griebling initially made some stupid comments to Kroger, but then he tried to backtrack and got threatened by Kroger at the Grand Jury.

Leave Andy Fastow Alone

A few days ago, I saw an article on some website about Andy Fastow. I can no longer find it but the gist was that the reporter had tracked down Lea Fastow and Lea – who by all accounts is a sweet, lovely woman – was gracious enough to talk to the reporter instead of slamming the phone down. Lea said that she and her family were at a friend’s house on a “mini-vaction” and that they’re all just trying to relax.

It was by any measure a truly gracious response to the reporter’s questions. But the report was full of snickering sarcasm and left one with the feeling that a Christmas effigy was in order.

Incidentally, Sherron Watkins defended Andy Fastow in that article. She stated something to the effect that Jeff Skilling was the real bad guy. I can’t remember the exact words because every time she opens her mouth, she sounds like the Peanuts character’s teacher. Wahwhahahahaha.

I bristled at the reporter’s usage of Watkins in the report. Who cares what she thinks of Andy Fastow? And hasn’t she graced us with her opinions on everything from Jeff Skilling’s competence to the United States’ prosecution of corporate crime? Maybe it’s time to shut her pie hole and go away. Her expiration date was about ten years ago.

I am tired of hearing from Sherron Watkins at all about anything. But I am also frustrated by people jumping all over Andy Fastow without thinking – and I include the corpulent moron in this statement. Andy Fastow and Jeff Skilling were both persecuted mercilessly in the media. Both were accused of things they didn’t do. Andy has rejoined society and officially speaking, the DOJ has no problem with him so we shouldn’t either.

I fear that Andy Fastow is going to bear the brunt of the Enron collapse, and that isn’t quite fair. Even if he stole $100 million from the company, it would not have been enough to topple Enron. The liquidity crisis wasn’t caused because he took all the cash, as some people seem to think. He is not a choir boy, but it is far too easy to put all the blame onto him. It is too simple an answer. And even if he is guilty of everything you believe, the least you could do is leave his wife alone.

Detailed Responses To Lay It On The Line Survey

I have a giant folder of Enron stuff. I really do need to find a better way to organize it. I feel a bit overwhelmed when I see ten thousand documents or whatever. Today I just randomly opened a PDF and was surprised by what I found.

These are answers to the Lay It On The Line survey, organized by executive. In other words,comments made about Andy Fastow, Greg Whalley, et cetera are aggregated. I don’t know quite what to make of this yet. My first impression is that it reads like a bunch of very catty people unloading all their grievances. For example, the comments under “Greg Whalley” sound like they were written by a high school sophomore. Under Ken Lay, someone complained about the carpet. After I read a bit more, I’ll have a better opinion but right now it just seems like BLAH BLAH BLAH BLAH BLAH.

Lay It On The Line Survey Results

No, Scott Yeager Was Not In Smartest Guys In The Room

This query has been asked at least fifteen times, probably more like twenty-five. Here are a few:

(This one I included because it has a very strange search term about Kevin Hannon)

Whoever is asking is obviously in distress so I figured I would help. No, Scott Yeager is not in Smartest Guys In The Room. As for why he was not “cast”… basically nobody accused of crimes was going to willingly sit down and explain themselves before trial. And the fact that “cast” is being used sounds like my pet peeve, mistaking Enron people (or anyone else for that matter) for cartoons and “characters”.

As for why Scott did not “appear” in the movie (as opposed to being “cast”), not every Enron executive was discussed in the movie. In fact, most Enron defendants did not appear. Only Ken Lay, Jeff Skilling, Ken Rice, Timothy Belden* and Andy Fastow were actually discussed in the movie – and what was said about them was koo-koo bananas. I’ve documented all those lies here. Scott Yeager would have ultimately destroyed the credibility of Bethany McLean since he was vindicated at the Supreme Court. Bethany and her cohorts chose to focus on the lurid, manipulatable aspects of Enron.

I hope this has helped.

*Corrected from original to include Timothy Belden.

Enron’s Unfair Trial

This letter to the editor of the Chicago Tribune is so encouraging I can barely sit still. I have perceived a change in the public’s feelings about Jeff Skilling and Dr. Lay over the last few years. Letters like this only solidify my belief that since some of the facts about Enron have been exposed, more people are noticing that Skilling and Lay were not guilty.

Phil Rosenthal’s column about the failure of Enron (Business, Dec. 4) missed out on several interesting points in law and economics.

First and foremost, Jeffrey Skilling and Ken Lay were convicted of wire fraud even though they had no personal gain from the fraud. The Supreme Court later unanimously found the “honest services” version of fraud was too vague and ruled only bribes and kickbacks are illegal.

By contrast, Andrew Fastow, then chief financial officer of Enron, established the off-book entities where much of Enron’s debt was parked. To be legal, the off-balance-sheet special purpose entities were supposed to be independent of Enron. But Fastow did not let this happen. Indeed, he siphoned off tens of millions of dollars to his personal account by virtue of being an officer of both the partnerships and Enron.

Fastow initially indicated to the FBI that the lack of independence was not reported to Skilling. Fastow later testified just the opposite. The earlier, exculpatory testimony was kept from the defense by both the prosecution and trial Judge Sim Lake.

Skilling was convicted on only one count of insider trading out of ten charges in the indictment. According to courtroom observers, the prosecution won conviction because the trading occurred after Sept. 11, 2001, and therefore it was seen as “unpatriotic.”

Perhaps the most egregious error in the Enron case was the denial of a change of venue. Passions in Houston were running high, with so many residents and their friends having been personally affected with Enron’s collapse. In the opinion of Supreme Court Justice Sonia Sotomayor, who cannot be considered a conservative, the jury pool was most likely biased.

– Paul Fisher and Jim Johnston, directors, Heartland Institute, Chicago

Those of us who know Jeff Skilling is innocent might be a minority, but eventually our view will be justified. I am certain of this.

Jeff Skilling’s New SCOTUS Petition

At SCOTUSBlog, Jeff Skilling’s new filing is the Petition Of The Day. I have not yet read the petition for certiorari but here it is.

When Is A Conspiracy Not A Conspiracy?

It is usually counter-productive for me to check out the HuffPo because I fundamentally disagree with just about every sentiment expressed in that liberal fever swamp. Today was par for the course, but Enron was mentioned. I had to chime in.

At HuffPo, a writer is screaming for more regulation and wondering why more bankers are not in prison for the 2008 financial meltdown. The reason is simple: the bankers were making home loans available to anyone regardless of whether they would be paid back – as was dictated under the Community Reinvestment Act. The people who enacted that are in congress and congress will not indict themselves.

So the writer quotes – of all people – Loren Steffy, who has made a career out of hating business and Enron in particular:

Three years ago, I asked Sam Buell, the former federal prosecutor in the government’s effort to indict Enron’s Jeff Skilling, the question of whether we’d see widespread prosecutions from the financial crisis. His prediction: Don’t count on it. As I wrote at the time:

In the current crisis, few people understood the complex debt instruments that had become common on Wall Street and therefore the firms failed to make good risk assessments. But what they were doing — such as packaging dodgy mortgages into investment pools that were supposed to minimize risk — was widely known.

“It’s not a conspiracy if everybody’s in on it,” Buell said. “In order to have a fraud conspiracy you’ve got to have some effort by one group to deceived another group.”

But what about the fact that America as whole seems deceived by what happened? Doesn’t matter, Buell argues. Just because Main Street didn’t understand what was happening doesn’t make it a fraud. Those who are stand-ins for investor interest — regulators, brokers, credit agencies — “seem to have known what was going on,” he said.

Sometimes I am actually embarrassed for Loren Steffy. I have said stupid things too, but usually I try to keep them to a minimum. Steffy, on the other hand, proudly flaunts his stupidity like a badge of honor.
That question: “what about the fact that America as a whole seems deceived by what happened?” is just embarrassingly inane.

If that were the standard, incidentally, we would not have a federal government, particularly a Department of Defense. The ignorance of the general populous does not create the legal grounds for conspiracy – not even for the much-despised Enron.

Buell is right, of course. There was no group of people inside Enron who were trying to deceive anyone else. I’ve always marveled that according to the naysayers, Enron managed to hire people from the mailroom to the C-Suite who were criminals. Oh, and they also did business with criminals: NatWest, Merrill Lynch, Vinson & Elkins, Arthur Andersen, Citigroup and McKinsey. And Ken Rice was actually involved in two conspiracies! One in Corporate and one at EBS. And Scott Yeager was so deceptive that he not only fooled everyone at EBS, he managed to fool Jeff Skilling too! And Jeff Skilling was also involved in a conspiracy!

How exactly is this supposed to work? How was Enron able to not only hire a statistically impossible number of criminals, but also just happen to find all the other criminals in its partner organizations? Only five people went to prison for the Watergate scandal (seven were indicted). And yet, eighteen went to prison for Enron – 36 were indicted. Was Enron really that much larger than Watergate? How was it that all these smaller conspiracies were taking place inside this much larger conspiracy? The EBS conspiracy is just ridiculous. Rex Shelby, Joe Hirko and Scott Yeager didn’t know each other outside of work. Rex and Scott had worked on one project before. But why would they agree to conspire illegally with Joe Hirko, who neither one knew? And why would Joe Hirko, who is known as a gentle, kind man decide to start fucking over Enron?

At Corporate, the conspiracies are just absurd. Jeff Skilling supposedly took reserves and added it to the earnings – while at the same time hiding earnings from wholesale. Why? If Enron was in trouble, there were thousands of things he could do to fix it. Such as start cutting costs. But during that time, Enron was buying new jets. If there was a problem, they could have delayed delivery. Jeff could have written a check for millions and laundered it through Andy Fastow and his SPEs, since that’s what the DOJ says happened at Southampton with Ben Glisan, Kristina Mordaunt, and the NatWest bankers. If he and Andy Fastow were already committing multiple felonies every day, what is one more? Why not just make up the loss with a personal check? Or he could have even done it openly and bought some of Enron’s art*. Yet the man who supposedly thought up all kinds of crazy scams just didn’t bother to anything wacky to fix this supposed earnings gap, other than take reserves which was possibly the sloppiest method known to mankind.

The idea that a bunch of smart guys who were already multimillionaires got together and then started conspiring to commit fraud is just laughable. It makes no sense at all. There was no fraud or conspiracy at Enron Corporation.

*There was a story in, I think, 2007 or 2008 where a company declared in its 10-K that the CEO had bought some art from the company and had paid something like $5 million for it. I wish I could find the details, but it was on footnoted.com, which has become a Morningstar company and I can no longer find it.

Conversation With An Enron Executive About Proper Meeting Decorum

I have a meeting in DC tomorrow. I’m very excited and I asked Big for some last-minute advice. He once again proved he is the King of the One Liner:

Me: How do I wow them tomorrow? I need some of your mojo for this one.

Big: Stay sober and don’t kick anyone!

Me: That is good advice, I suppose, but I was hoping for something better. Did your mom tell you that?

Big: No, I learned that from trial and error.

Amazing Picture of Rebecca Mark

This is a very strange – and very impressive – picture of Rebecca Mark on one of her international tours. What businessperson gets mobbed like this? You very rarely see women who are not entertainers or murderers getting mobbed or celebrated at all, so the novelty is certainly arresting, but so is her general mien. The dark glasses, her hair pulled back, her hand out to make room. And the cameras go all the way back, filling the entire frame. Just plain wow. She was the Evita Peron of Enron.

Let’s Remember Jeff Skilling Today

I am undecided on the question of whether Jeff Skilling made mistakes at Enron. I see him as a revolutionary thinker, a risk-taker, a market-maker, a genius who could make things happen. When I really think about it, I’m not sure what he could have done differently that would have resulted in a different outcome. He said at one point, “I wish I never heard of LJM.”

Well, what would have been different if he hadn’t ever heard of it? Enron did not collapse because of LJM. Enron collapsed because people stopped believing in the company. It was a trust-based business and like Santa Clause, you have to believe for the magic to work.

Maybe one can make the argument that if LJM had never happened, there would have been no doubt about Enron and it would still be alive today. I don’t buy that argument. There was a lot of context to that epoch – the summer of 2001 and into the winter. The tech bubble had burst and I think investors were very willing to believe that a CEO or a whole organization was dirty. It is sort of like today, for that matter. CEOs are vilified (just check out the #occupy movement).

Jeff Skilling never did anything that looked fishy to me. He didn’t leave the country (and he could have). He didn’t take anything with him from Enron. He left all kinds of money on the table.

His leadership did not bring the company down. Let us remember him today. It is a sad day. A company collapsed. Billions of dollars were lost. Two good men would die from the fall-out. Many would go to prison. But none of that was Jeff Skilling’s fault. My thoughts are with him and his family today.

Enron Podcasts

For those who want to listen to Houston public radio’s Enron series, you can download the podcasts here. It is not the most elegant system, but if you click on each of the Enron pages, and scroll all the way to the bottom, you will see a choice of “podcast” which is just an xlm version of the site. Select “iTunes” and it will download properly.