We now know that the Feds have managed to achieve only one conviction at trial that has held together without reversal — that of Jeff Skilling. And Skilling has already had one of his counts dismissed outright and was planning a motion for dismissal of all counts and a re-trial based on prosecutorial misconduct. I suspect that the strength of that motion is why the Feds have agreed to a deal that will reduce Skilling’s sentence by more than half.

I need to double check my numbers, but if you score this in terms of number of defendants tried, the record or trial wins is something like Enron 22, Feds 1 (if I give the Feds full credit on Skilling). If you score this in terms of counts tried, the record is even worse, something like Enron 400, Feds 18 (all Skilling).

So, this is what the Feds have achieved after spending tens of millions (at least) of taxpayer funds and, worse, after hounding innocent people for years. Now, I bet that the majority of the people reading this post are surprised by this record because it does not fit into the simplistic Enron narrative that we have been fed by most of the media.

Now, come on, Enron haters, doesn’t that record make you at least a little bit skeptical? Doesn’t it make you want to learn more about the real Enron?

Apparently, the Skilling plea deal would require Skilling to play a penalty of $40 million. This is a staggering sum of money, but how does it compare to taxpayer funds the Feds spent in getting it? Well, I have been trying to ascertain what the government actually spent on the Enron prosecutions for a long time — the Feds do not report such costs, so I have had to use the best estimates I can get from people familiar with the process and the Enron cases. Conservative estimates put the cost to the American taxpayer of the Skilling prosecution at a sum of at least twice what the Feds are recovering from Skilling. I wonder if the Enron bashers feel that this was taxpayer money well spent?

The reason the Skilling case was so costly to the taxpayer is not because Skilling could afford good attorneys — lots of people have good attorneys. The reason it was so expensive is because the government had no real criminal case. Lacking criminal wrongdoing, the Feds were reduced to trying to criminalize Skilling’s business decisions. That was an expensive undertaking because it consisted of a contrived case full of prosecutorial misconduct and legal shortcomings that made it open to rational appeals which, in turn, gave Skilling leverage in negotiating his plea deal.

Indeed, as best I can estimate, all the Enron-related cases that went to trial cost the Feds much more than they recovered in penalties from the defendants. So, not only is the human cost of indicting innocent men staggering, but so is the cost to the American taxpayer.

First, it is easy to show that Houston does, in fact, still care (a lot) about Enron. In addition, the shallowness of that article is a great reminder of why we should care even more about Enron than we do — the last thing we want is that kind of hollowness to be the only lessons we learn from Enron.

So here are my “Ten Reasons Why Houston (and America) Still Care About Enron”:

1. Houstonians are demonstrably interested in Enron. I’m not sure who the writer of that article hangs with, but my friends in Houston tell me that the topic of Enron comes up constantly, in a variety of contexts, in day-to-day conversations. Enron is a ubiquitous topic in Houston.

2. If this blog is any indication, interest in Enron has broadened with time rather than contracted. I now have more readers from more places, asking better questions than ever before.

3. Few people really know much about the real Enron — most people, such as the writer of that article, seem to have been taken in by the Enron Myth. We are now beginning to see the stirrings of the deconstruction of that hollow narrative — this new, more skeptical analysis of Enron makes the topic seem fresh and new.

4. A new generation of Americans is taking on the topic of Enron. I am being contacted by more and more university students seeking information about Enron for class projects and theses, and these people are less mired in the false Enron Myth than the previous generation.

5. With the passage of time, the Feds are losing their stranglehold on the participants in the Enron prosecutions. Enron defendants, attorneys, witnesses, and others are slowly emerging to finally tell us the real story of the Enron prosecutions. I personally know of a number of projects quietly underway. I think we will see a renaissance of information about Enron within the next few years that will enlighten us all.

6. Witch hunts are always important to remember and to teach. The story of the Enron Task Force, the coven of federal prosecutors who used “questionable tactics” (this is prosecutor John Kroger’s own words), has not been told. But as the American public is becoming more willing to address the topic of prosecutorial misconduct, a whole new aspect of the Enron story is emerging.

7. There are victims of the Enron witch hunt whose stories have not been told. Their stories are compelling, and people will most definitely be interested in what they have to say as they begin to speak out.

8. Enron is not a single story. There were several different Enron prosecutions, each with its own background and storyline. For example, Enron Broadband Services (EBS), in some ways the most interesting of all the Enron-related tales, is all but unknown to the American public. I predict that people are going to find the EBS saga fascinating as that story is finally told by its participants.

9. Enron lives on in Houston and America in the many businesses who have adopted business models, products, services, and technologies pioneered by one of the Enron business units.

10. The topic of Enron still fascinates. The name is well known, even if the actual facts of the Enron story are largely unknown to people. Mention Enron, in almost any setting, and you will get an attentive audience. Tell that audience a few actual facts about Enron, and you will get a fascinated audience. People are attentive when they begin to learn that they have been hoodwinked and misled. As the real story of Enron emerges, any loss of interest will quickly reverse.

Bonus point: Enron is important. Check out this recent blog post to see the many ways in which this is so.

I suspect that I am preaching to the choir to the readers of this blog. The very existence of this blog and its readers are evidence that America still cares about Enron.

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.”

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.

Regular readers of this blog know that I abhor the American plea deal system. I have even compared the plea deal process to torture in an earlier post. The Feds hold an overwhelming advantage in the plea deal process, especially when the defendant is already languishing in prison, as is the situation with Jeff Skilling.

The impression I draw from the terms reported for the possible Skilling plea deal is that the Feds are trying as hard as they can to avoid the possibility of a Skilling re-trial. A release date of 2017 is probably about as long as the Feds could manage to delay a re-trial if Skilling was successful in a motion for one. In addition, the cost to Skilling of defending himself and actually financing a re-trial would likely exceed the $40 million penalty that the Feds are asking of Skilling. In short, the Feds have offered Skilling a deal that only a reckless man would refuse.

For Skilling, swallowing this plea deal must be like torture. The deal will rob Skillilng of his future appeals and his right to a re-trial. And, it will require that he lie about being guilty of something of which he knows he is innocent. Of course, we know that innocent people routinely plea guilty. But knowing that does not make it any easier for the innocent person who does it, even when accepting the plea deal is easily the most rational course of action.

I was thinking about Jeff Skilling’s situation earlier this week when I watched an episode of the Showtime series, “The Borgias”. That series is about the corrupt and manipulative Borgia family during the time of Pope Alexander VI, a Borgia. In an episode I saw a couple days ago, minions of the Pope drag a cardinal to a prison and leave him in the prison in shackles so that he can hear the screams of other prisoners being tortured. The goal of the Pope is to get the shackled cardinal to tell the lie that there existed a huge conspiracy among the cardinals to murder the Pope and that the shackled cardinal was a member of that conspiracy. One of the Pope’s minions tells the shackled cardinal that the cardinal will eventually say what the Pope wants him to say and that it is just a matter of how much the cardinal chooses to fight and suffer before he lies for the Pope. Being a rational man, the shackled cardinal chooses to lie for the Pope.

Substitute the Department of Justice for the Borgia Pope Alexander and Skilling for the shackled cardinal and you essentially have the tale of Jeff Skilling’s plea deal!

It’s a bitter pill to swallow that the former Enron CEO will end up serving eleven years in prison for something that is clearly not his responsibility. However, I understand Skilling’s fatigue. I know it from other Enron execs who have said they’re exhausted from fighting and simply give in. It took Jeff Skilling much longer to break.

I am relieved that there is an end in sight. Not a perfect end. Not a just end. But an end.

More to come.

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!

Rex Shelby’s community service requirement was 230 hours. I have found that most people get brainless assignments that require little of them (in terms of initiative or creativity) and which have little lasting impact — therefore, the people typically put little effort into the service — they do their time and that’s it. I understand that Rex requested of the Probation Office that it assign him something challenging through which he could really accomplish something useful.

Therefore, the Probation Office assigned Rex to an organization that helps the most desperate people in society learn how to find jobs. The organization teaches people how to search for jobs, how to write resumes, how to interview, etc. It makes sure they have clothes for a job interview. The organization makes sure that the people learn the basic computer skills needed to find jobs in today’s world — it makes sure all the people have an email account, for example. The mission of the organization is to move jobless people into jobs.

Rex Shelby helped the organization in a number of ways, but his core responsibility was to work with people to create resumes and cover letters to apply for jobs they wanted. Rex helped the homeless, veterans, ex-cons, disabled people, people with little education, recent immigrants, etc. — the most needy among us, in other words. Within his 230 hours of community service, Rex worked with more than 200 “clients”. He routinely worked hours that he didn’t count against his official total. He became a popular worker at the organization among the people needing help — people requested him by name because of what they heard from others he had worked with — people gravitated to him because he was kind to them and because he had a high success rate — he became known as “Mr. Rex” among his many Hispanic clients. Rex continued to help the organization long after his formal community service obligation had been met.

I understand that the organization has contacted the Probation Office several times to ask for more people like Rex Shelby. The Probation Office has told the organization that “unfortunately, we cannot find any more people like Rex.”

I am not surprised at what Rex Shelby was able to accomplish at that organization — it is consistent with his professional and personal history. What amazes me is that Rex, an innocent man who was falsely indicted by the government and has reason to be bitter and angry, shows no signs of either emotion and has been willing to contribute so much to others during his inane and worthless punishment phase.

This story just reinforces my disdain for the Department of Justice, the Enron Task Force, and the slimy prosecutors who hounded Rex Shelby and the other Enron Broadband defendants. Rex makes those prosecutors look small.

John Kroger was the federal prosecutor who wrote the original EBS indictment, as well as five of the incredible eight superseding versions of the indictment. Yes, you read that correctly — the government had such trouble coming up with a description of a “crime” at EBS that they wrote an unbelievable nine version of the indictment! According to Kroger’s own words, he rushed to write the EBS indictments because his huge ego made him want to beat the other prosecutors in getting an indictment “on the boards”. Thus, Kroger is the main villain in the EBS prosecution tale — he is the guy who wasted taxpayer money and tormented the families of innocent men, all to serve his own ego which had been bruised when his girlfriend left him for another attorney.

At the time of the EBS trial, Houston, and the entire country, were at the height of the anti-Enron hysteria. The government, even though they had no factual case, was confident that the EBS trial would be a “slam dunk” for the prosecution because of the solid jury bias against Enron. The government was certain that the convictions they believed they would get at this trial would be a perfect segue to the future trial of Ken Lay and Jeff Skilling. The government had reason to be cocky — polls showed that about 90% of the jury pool believed that any Enron executive who was indicted was automatically guilty and should be convicted immediately. In addition, Ken Rice and Kevin Hannon, EBS’s CEO and COO, had given up their defense and entered into plea deals with the government because they believed that the anti-Enron bias was too great to overcome at trial. So the EBS defendants who were bold enough to actually defend themselves, Joe Hirko, Scott Yeager, Rex Shelby, Kevin Howard, and Michael Krautz, faced incredibly long odds at trial.

However, the shallowness of the government’s case became apparent with their first witness. Shawna Meyer, a journalist major, was the lead prosecution witness — the government tried to use her to explain technology to the jury — she attempted to define terms such as “router”, “server”, “network”, etc. As I read the transcript of her comments, they are just laughable. And all the rest of the government’s witnesses had similar issues — they are like a rogues gallery of the EBS rejects: John Bloomer, a guy who tried to steal EBS technology and was fired; Bill Collins, an unbalanced liar who accomplished nothing at EBS but wanted a raise anyway and who was fired; David Reece, a guy who commented on technology but then admitted he had no actual technology role at EBS and was fired.

And then the defense witnesses spoke out: Larry Ciscon, the Rice University PhD software engineer who created the EBS technology in question and had authored a patent on it; Mark Palmer, the head of application development at EBS who was intimately familiar with the technology; Ellis Giles, the software engineer who actually wrote the software code which the government claimed did not exist; David Leatherwood, the engineer who headed the construction of the physical EBS network and facilities; etc. Even the most biased of jurors surely could see the obvious distinction between the credibility of the prosecution and defense witnesses.

But the coup d’etat for the defense was the defendants themselves — they turned out to be compelling witnesses in their own defense. Rex Shelby went first, a brilliant move by the defense team because it set a good tone for the entire trial. People tell me that Rex was eager to take the stand and that he was relaxed, natural, and totally un-intimidated by lead prosecutor, Ben Campbell, who cross-examined him on the stand. I am told Rex’s performance emboldened the other defendants and set the pattern for their testimony.

The trial lasted until mid-July when the jury returned from their deliberations with zero convictions, a number of acquittals, and many hung counts. I hear through the grapevine that the jury was very close to complete acquittals of the three technology defendants, Hirko, Yeager, and Shelby. So the trial was an unmitigated disaster for the government. So spooked was the government by the EBS experience that the it stipulated before the Lay/Skilling trial that it would not even get into the subject matter of the EBS case at the Lay/Skilling trial!

There are so many stunning moments in the EBS trial that I suspect that we will be hearing a lot about it, and the EBS case in general, over the next couple years. The EBS tale would make a great film. With a movie version of “Atlas Shrugged” about to be released, maybe it is time for a film about real businessmen being hounded by the an incompetent and arrogant government!

Incidentally, today is also the anniversary of the daring bomber raid by Doolittle’s pilots on Tokyo in 1942 during WWII. It is like the anniversary of the Enron Broadband trial in this way:

The Japanese Imperial Army thought they had the war sown up and that Tokyo was untouchable by American aircraft. The Enron Task Force thought convictions against the Enron Broadband defendants would be a “slam dunk”.

Both the Japanese Imperial Army in 1942 and the Enron Task Force in 2005 were wrong.

April 17, 2001 was the day Jeff Skilling called shortseller Richard Grubman an asshole on a public analyst call.

Highfields Capital analyst Richard Grubman joined a conference call at Enron and asked, for the sixth consecutive quarter, for a balance sheet with the earnings statement. For the sixth time, Jeff Skilling told him that at Enron, the balance sheet was not released with earnings statements (at trial, the reasons for this were covered at length; there was nothing illegal or untoward about it – there was a very deliberate business purpose for doing things the way Enron did.) The following is a transcript of the challenged part of the call:

Grubman: You’re the only financial institution that can’t produce a balance sheet or cash flow statement with their earnings.

Skilling: You…you…you. [One can imagine this is the point when Mark Palmer, VP of PR at Enron, handed Skilling a note, reminding him who he was dealing with.] Well, uh…thank you very much. We appreciate it. Asshole.

At this point, everyone inside the Enron building was jumping up and down and high-fiving each other because their CEO had finally said something to this guy who had been talking down the stock for quite some time – and even the question was a sort of accusation. Enron folks thought Skilling handled the call just fine. Of course, it wasn’t as well received in the rest of the business world.

It caused such a kerfluffle that it was even brought up at trial by Sean Berkowitz. To which Skilling replied, “The now infamous ‘asshole’ quote was used as an example of arrogance or something. It wasn’t meant that way.”

It was clearly not – and though Jeff was an executive who should have just rolled his eyes and passed the call to someone else, that wasn’t his style. He got his hands dirty. He talked to short sellers. He tried to get people to see Enron for what it was. As he said right after the verdict at his trial, some things work and some things don’t. Calling Grubman an asshole, as a strategy for handling pests, didn’t.

But the comment was never as earthshattering as the revisionists would like to believe. It did not signal some sort of meltdown. It didn’t mean that Skilling feared the question or was trying to deflect Grubman. Even Jeff Skilling is entitled to lose his temper once in a while.

By way of background, halfway houses were created as transition points to prepare people who are near the end of their prison terms for re-emergence into society. For ex-cons, re-connecting with families and getting an honest job are monumental tasks after languishing in prison for years, especially with a felony conviction on their record. The halfway house staff is supposed to help the ex-cons with the many crucial tasks they face, such as getting a new driver’s license, getting a new social security card, searching for a job, etc. A decent job is really the only thing that is likely to prevent an ex-con from returning to crime — without a job, or the understanding of how to look for one, an ex-con is eventually going to return to crime.

If the halfway house in Houston is representative of those around the country, then a big problem is that they are not staffed with people who could perform the mission of the halfway house, even if they fervently tried. I have been told that the staff of the Houston halfway house is only marginally capable of even the most basic tasks, such as filling out simple forms. The idea that those people could assist ex-cons in any meaningful way is a fantasy. In addition, the Houston facilities themselves are cramped and filthy, the food is worse than prison food, there is no space for vigorous exercise, and there is nothing at the facility to stimulate the hundreds of inmates other than a single television set. So the people at the facility are poorly nourished, under-exercised, under-stimulated, and subject to the supervision of a marginally functional staff. How could anything good possibly result from that situation?

One of the ex-Enron people who spent time at the Houston halfway house told me that the biggest impact of the halfway house on the inmates is to drive their respect of the criminal justice system even lower. They see a system that, at best, is indifferent to them, and this mirrors American society as a whole. In the USA, we are quick to throw people into a prison system that does not even attempt rehabilitation, we continue to treat ex-cons with suspicion and restrictions after they emerge from the dysfunctional prison system, and then we express shock that recidivism in America is so high.

The Enron people who spent time in halfway houses are the rare exceptions to the dismal statistics — they already had excellent work skills and knew how to hunt for jobs. Therefore, the Enron people emerge from the halfway houses with a lowered opinion of the government’s competence (“they can’t even operate a halfway house”), but fully capable of re-integrating into society without anybody’s help. For the Enron people, their time in halfway houses was like spending time in an asylum run by the inmates — an institution that was so obviously dysfunctional that it perplexed them why people were not outraged at the obvious worthlessness of it all. I suspect that the Enron people who spent time in a halfway house, such as Rex Shelby, did more to help the ex-cons there than the halfway house staff.

If the government had any sense, they would run as quickly as possible to the ex-Enron people and beg them to take on the task of revamping the halfway house system in America. The federal and state governments have failed miserably, but I am sure the ex-Enron people could handle the job!

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!