January 17, back in the age of Sparta, Rex Shelby was born.
Every year of his life has contributed to the wonderful man he is today. On this day, I wish for Rex Shelby happiness and a yummy piece of birthday cake.
Happy Birthday Rex!
Tag Archives: Broadband Three
Rex Shelby Gets New Trial Date
Rex Shelby, the last man standing from the US Government’s scorched earth campaign through Enron and Enron Broadband Services, has received a new trial date. Jury selection is to begin on January 10, 2011.
Shelby had hoped in May that the Supreme Court victory of his co-defendant, Scott Yeager, would help him in his case since the facts of the case were nearly identical. The Fifth Circuit, however, declined to dismiss the charges against Shelby and kicked the case back to the District court for re-trial. Shelby then appealed to the Supreme Court. The Supreme Court will determine by October whether to grant cert. If it does, then Judge Gilmore will suspend the trial until the Supreme Court decides the case. If the Supreme Court does not grant cert, the trial will speed ahead.
We here at the Cara Ellison Corporation grieve for Mr. Shelby’s ordeal. We weep into our pillows each night with the injustice of it. It is our dearest wish that the Supreme Court grants cert, rules in his favor, and puts an end to this nightmare.
Filed under Enron Broadband Services
Rex Shelby Heads Back To Trial
Rex Shelby’s motion to appeal was dismissed by the Fifth Circuit Court of Appeals and has been remanded to the circuit court. Shelby will returning to trail as soon as Judge Gilmore has space on her docket. The judgement badly misinterprets Yeager v. USA.
Shelby had the misfortune of having the government’s motion land in the hands of a judge notoriously unfriendly to criminal defendants. Thus, the 5th Circuit has made an exceedingly strange ruling that I believe is not only factually wrong, but violates fundamental due process as well.
This is the judgement:
U.S. v. SHELBY
UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
REX SHELBY, Defendant-Appellant.
No. 10-20148.
United States Court of Appeals, Fifth Circuit.
Filed: April 23, 2010.
Before: KING, STEWART, and HAYNES, Circuit Judges.
PER CURIAM.
The defendant, Rex T. Shelby, filed a pretrial appeal from an order by the district court that denied his motion to dismiss, on double jeopardy grounds, a Seventh Superseding Indictment filed against him on November 9, 2005. Presently before this court is the Government’s motion to dismiss Shelby’s appeal. The Government contends that we lack subject-matter jurisdiction over the appeal because Shelby’s double jeopardy claims are “not colorable” and “frivolous.” For the reasons discussed below, we agree and dismiss the appeal.
I. Background
A. Shelby’s Trial, Reindictment, and First Motion to Dismiss on Jeopardy Grounds
Shelby’s case relates to the collapse of the Enron Corporation and its subsidiaries. Shelby was a senior executive at Enron Broadband Services (“EBS”), Enron’s broadband and telecommunications unit. Shelby, along with co-defendants F. Scott Yeager and Joseph Hirko, were indicted in November 2004 on various counts of conspiracy to commit wire and securities fraud; securities fraud; wire fraud; insider trading; and money laundering. In July 2005, a jury acquitted Shelby on four of his insider trading counts—those involving trades made in the summer of 2000 (the “Summer 2000″ counts)—but hung on the remaining counts against him. The jury also acquitted or hung as to some counts against Yeager and Hirko. The district court declared a mistrial on the hung counts. The Government subsequently obtained new indictments against all of the defendants, including the Seventh Superseding Indictment against Shelby.
The Seventh Superseding Indictment recharged Shelby with four insider trading counts relating to trades made in early 2000 (the “Early 2000″ counts) on which the jury had hung. The indictment also charged one count of conspiracy and one of securities fraud. Shelby moved to dismiss the indictment on double jeopardy grounds. The district court denied the motion, United States v. Shelby, 447 F. Supp. 2d 750 (S.D. Tex. 2006), and we affirmed, United States v. Yeager, 521 F.3d 367 (5th Cir. 2008) (Yeager I), rev’d on other grounds, 129 S. Ct. 593 (2008).
In support of dismissal, Shelby’s chief argument was that in acquitting as to the Summer 2000 counts, the jury necessarily decided issues of fact that had preclusive effect as to the counts in the new indictment. Specifically, Shelby asserted that, by acquitting, the jury must necessarily have determined that he lacked the intent to defraud. The parties do not dispute that a finding that Shelby lacked the intent to defraud would defeat a necessary element of the insider trading and securities fraud counts in the new indictment, therefore precluding prosecution as to these counts. See United States v. Brackett, 113 F.3d 1396, 1398 (5th Cir. 1997) (“[C]ollateral estoppel . . . will completely bar a subsequent prosecution if one of the facts necessarily determined in the former trial is an essential element of the subsequent prosecution.”).
The district court determined and we agreed, however, that in acquitting as to the Summer 2000 counts, the jury did not necessarily decide that Shelby lacked intent. Rather, “[a]fter an extensive examination of the record,” we affirmed the district court’s conclusion that the jury’s acquittal could have hinged on the fact that the government had failed to prove beyond a reasonable doubt that Shelby actually used or relied upon material nonpublic information in his possession at the time he made the trades—another element of insider trading. See Yeager I, 521 F.3d at 372-73. The district court observed that “the government presented little to no evidence that Defendant Shelby made any material misrepresentations or acquired material non-public information in June and July 2000, the dates of Shelby’s acquitted counts of insider trading.” Shelby, 447 F. Supp. 2d at 761. The district court also noted that, by contrast, “the government presented substantial evidence that Defendant Shelby either made material misrepresentations or acquired material non-public information” before the trades that were the subject of the Early 2000 counts. Id. at 761-62.
We agreed with the district court’s reasoning, noting also that Shelby had specifically testified that he made the Summer 2000 trades “because he was uncomfortable with being in the stock market” and in reliance on a friend’s advice on when to sell. Yeager I, 521 F.3d at 372. We held that the jury was properly instructed that a trade that “used” or was “motivated by” inside information was an element of insider trading. Id. at 372-73. We concluded that the jury did not necessarily find that Shelby used insider information in making the Early 2000 trades:
In acquitting Shelby of the later [Summer 2000] counts, the jury could have differentiated between the two different sets of trades. The jury could have found that Shelby did not use insider information when he conducted the trades that underlie the Summer 2000 Insider Trading Counts but did use insider information when he conducted the trades that underlie the Early 2000 Insider Trading Counts. The evidence at trial supports this distinction.
Id. at 373. We noted specifically that Shelby’s trading patterns were markedly different between the Early 2000 and Summer 2000 trades. In the Early 2000 trades, Shelby exercised options that had vested in June 1999. We speculated that “[f]rom this delay, the jury could have rationally concluded that Shelby purposely waited for the stock price to go up before exercising his 1999 options and that Shelby knew the price would go up because of his knowledge of insider information.” We noted that by contrast, with the Summer 2000 trades, Shelby exercised his options as soon as they vested. Id.
Three days after granting certiorari as to his co-defendant Yeager, Yeager v. United States, — U.S. —, 129 S. Ct. 593 (2008), the Supreme Court denied Shelby’s petition for certiorari, Shelby v. United States, ___ U.S. ___, 129 S. Ct. 595 (2008); reh’g denied, ___ U.S. ___, 129 S. Ct. 977 (2009).
B. Yeager’s Trial, Reindictment, and Motion to Dismiss on Jeopardy Grounds
In Yeager I, 521 F.3d at 367, we also rejected the double jeopardy claims of Shelby’s co-defendants, Hirko and Yeager. At the 2005 trial, the jury acquitted Yeager of securities fraud, wire fraud, and conspiracy but hung on 20 counts of insider trading and 99 counts of money laundering. The government reindicted Yeager on the hung charges.
Yeager moved to dismiss the new indictment, urging that double jeopardy barred the insider trading counts. Yeager argued that in acquitting on the fraud and conspiracy counts, the jury necessarily decided that he did not possess insider information, an element of insider trading. We agreed that “the jury, acting rationally, could have acquitted Yeager on securities fraud only by concluding that he did not have insider information.” Id. at 376-77. We nevertheless concluded that collateral estoppel did not bar the insider trading counts. Applying our precedent in United States v. Larkin, 605 F.2d 1360, 1370 (5th Cir. 1979), we considered the hung counts and observed that if “the jury found that [Yeager] did not have insider information, then the jury, acting rationally, would have acquitted him of insider trading and money laundering. Instead, the jury hung.” Yeager I, 521 F.3d at 379. We reasoned that the hung counts therefore created uncertainty about what the jury necessarily decided. Id. In light of this uncertainty, we concluded that collateral estoppel did not apply. Id. at 379-80.
The Supreme Court granted certiorari on Yeager’s appeal. The Court then abrogated our precedent in Larkin and reversed, concluding that we erred in weighing the effect of the hung counts in determining the preclusive effect of the acquittals. Yeager v. United States, ___ U.S. ___, 129 S. Ct. 2360, 2368 (2009) (Yeager II). The Court held:
[T]he consideration of hung counts has no place in the issue preclusion analysis. . . . To identify what a jury necessarily determined at trial, courts should scrutinize a jury’s decisions, not its failures to decide. A jury’s verdict of acquittal represents the community’s collective judgment regarding all the evidence and arguments presented to it. Even if the verdict is based upon an egregiously erroneous foundation, its finality is unassailable. Thus, if the possession of insider information was a critical issue of ultimate fact in all of the charges against the petitioner, a jury verdict that necessarily decided that issue in his favor protects him from prosecution for any charge for which that is an essential element.
Id. at 2368-69 (internal quotation marks omitted). The Court reasoned that a “contrary conclusion would require speculation into what transpired in the jury room,” and noted that “[i]f there is to be an inquiry into what the jury decided, the evidence should be confined to the points in controversy on the former trial, to the testimony given by the parties, and to the questions submitted to the jury for their consideration.” Id. at 2368 (internal quotation marks omitted; quoting Packet Co. v. Sickles, 72 U.S. (5 Wall.) 580, 593 (1866)). On remand, we dismissed the indictment against Yeager. United States v. Yeager, 334 F. App’x 707 (5th Cir. 2009) (Yeager III).
After Yeager II, the Court granted certiorari as to Hirko and remanded for further consideration in light of Yeager II. Hirko v. United States, 129 S. Ct. 2858 (2009).
C. Shelby’s Second Motion to Dismiss on Jeopardy Grounds
After the Court issued Yeager II, Shelby renewed his motion in the district court to dismiss the indictment, contending that Yeager II was an intervening change in the law that provided a new basis to evaluate his jeopardy claims. On January 29, 2010, the district court denied Shelby’s motion to dismiss, but declined to find his claims frivolous. On January 29, 2010, Shelby filed an interlocutory appeal from that order, premised on raising a colorable issue of double jeopardy. See Abney v. United States, 431 U.S. 651 (1977); United States v. Dunbar, 611 F.2d 985 (5th Cir. 1980) (en banc).[ 1 ]
The Government then brought the present motion to dismiss the appeal, arguing that we lack jurisdiction over the appeal because Shelby’s double jeopardy claim is “not colorable” and “frivolous.”
II. The Legal Standards
Under the collateral order doctrine, we have jurisdiction under 28 U.S.C. § 1291 to review a pretrial order rejecting a claim of double jeopardy, provided the jeopardy claim is “colorable.” Richardson v. United States, 468 U.S. 317, 322 (1984) (“The appealability of a double jeopardy claim depends upon its being at least colorable.”). A colorable claim “presupposes that there is some possible validity to a claim.” Id. at 326 n.6. A claim is not colorable if “no set of facts will support the assertion of [the petitioner's] claim of double jeopardy.” Id. “It is well within the supervisory powers of the courts of appeals to establish summary procedures and calendars to weed out frivolous claims of former jeopardy.” Abney, 431 U.S. at 662 n.8; see also United States v. Bobo, 419 F.3d 1264, 1267 (11th Cir. 2005) (“[F]rivolous claims and arguments that have already been squarely decided by precedent do not afford appellate courts jurisdiction to review interlocutory orders.”).
Shelby disputes that the colorability requirement is in fact jurisdictional, pointing to the Tenth Circuit’s conclusion in United States v. Wood, 950 F.2d 638, 642 (10th Cir. 1991), that “[t]he summary determination of whether a defendant has raised a colorable claim is not necessary to our jurisdiction. Rather, it is a discretionary action within our `supervisory powers’ to ensure that defendants do not engage in `dilatory appeals.’” Richardson, however, states that a “colorable double jeopardy claim [is] appealable under 28 U.S.C. § 1291,” and that “the appealability of a double jeopardy claim depends upon its being at least colorable.” 468 U.S. at 322. Read together, these statements strongly suggest that a colorable claim is a prerequisite for jurisdiction. The majority of the circuits to have considered the issue treat colorability as jurisdictional. See United States v. Bhatia, 545 F.3d 757, 760-61 (9th Cir. 2008) (“Because [the defendant's] claims of res judicata and collateral estoppel are not colorable, we dismiss this interlocutory appeal for lack of jurisdiction.”); Bobo, 419 F.3d at 1267; United States v. Hickey, 367 F.3d 888, 891 (9th Cir. 2004) (“Both the Supreme Court and this court . . . have held that we have interlocutory appellate jurisdiction to reach the merits only of `colorable’ double jeopardy claims.”); United States v. Abboud, 273 F.3d 763, 769 (8th Cir. 2001) (“The Abbouds have not raised colorable claims of double jeopardy . . . . For th[is] reason[ ] we lack jurisdiction over these interlocutory appeals, and they are dismissed.”); United States v. Andrews, 146 F.3d 933, 942 (D.C. Cir. 1998) (“[T]he Supreme Court held in Richardson v. United States that a claim of double jeopardy must be at least `colorable’ to confer interlocutory jurisdiction on an appellate court.”). We join these circuits in concluding that a colorable, non-frivolous claim is a prerequisite to our jurisdiction under 28 U.S.C. § 1291 to hear a pretrial double jeopardy appeal.
We have already ruled upon and rejected Shelby’s motion to dismiss the present indictment, and “[a]bsent an en banc or intervening Supreme Court decision,” we may not overrule any part of that prior panel’s decision. United States v. Martinez-Rios, 595 F.3d 581, 586 n.5 (5th Cir. 2010). Therefore, jurisdiction, and ultimately relief, are available now only if the Court’s intervening decision in Yeager II raises a colorable issue as to the correctness of Yeager I. We conclude that it does not.
III. Analysis
Shelby asserts two reasons why Yeager II casts the correctness of Yeager I into doubt, both of which we conclude, after careful consideration, are frivolous.
1. The “Points in Controversy” Claim
Shelby first contends that Yeager II set out a requirement that a court attempting to determine what a jury necessarily decided must restrict its inquiry to the “points in controversy” at the trial. According to Shelby, this requirement represents a “correction” in the law that affects the result in this case. Shelby draws his argument from the Court’s statement in Yeager II that “[i]f there is to be an inquiry into what the jury decided, the evidence should be confined to the points in controversy on the former trial, to the testimony given by the parties, and to the questions submitted to the jury for their consideration.” Id. at 2368 (internal quotation marks omitted; quoting Packet, 72 U.S. (5 Wall.) at 593).
Shelby argues that whether he “used” insider information for the Early 2000 but not for the Summer 2000 trades was never a “point in controversy” in his case. Shelby contends that the Government never argued that Shelby relied on different information in completing the Early 2000 and Summer 2000 trades—to the contrary, the Government argued that Shelby made these trades based on a cumulation of inside information and did not differentiate between the types of information that may have motivated each trade. Shelby further urges that he, too, in defending his case, did not differentiate between trades but instead argued as to all of the trades that he had other reasons, unrelated to insider information, for selling his stock. Shelby argues that because the issue of whether or not he “used” insider information in the Summer 2000 trades as opposed to the Early 2000 trades was never a “point in controversy” at trial, we must necessarily conclude that the jury’s basis for acquittal was lack of intent.[ 2 ]
This argument has no merit. The test, as described by the Yeager II Court, is that in attempting to determine what the jury necessarily decided, the evaluating court should look not only to the “points in controversy on the former trial,” but also to the parties’ testimony and the questions submitted to the jury. The parties disputed as to all of the trades whether insider information was used. The testimony and evidence showed that different amounts of available information and different trading patterns were associated with the Early 2000 versus the Summer 2000 trades. And the jury was instructed that “use” was an element of insider trading. The district court and this court looked to precisely these things in concluding that the Summer 2000 acquittals had no preclusive effect as to intent.
Even if the test described by the Yeager II Court were not followed, however, there is no basis to conclude that Yeager II’s reference to “points in controversy” represents a “correction” in the law. Yeager II reached only the “narrow legal question” of whether a court may consider the effect of hung counts in evaluating what the jury necessarily determined. 129 S. Ct. at 1270. The Yeager II Court clearly found the consideration of hung counts to be a speculative undertaking out of keeping with the rule—which the Court did not otherwise accuse this court of violating—that a court must cabin its inquiry into what the jury necessarily determined to the points of controversy in the case, the arguments and evidence in the record, and the questions presented to the jury. And indeed, except for permitting the consideration of hung counts in determining what the jury “necessarily decided,” our court has consistently followed this rule. See, e.g., Garcia v. Dretke, 388 F.3d 496, 503-04 (5th Cir. 2004) (in evaluating a jeopardy claim, a court is required “to examine the record of a prior proceeding, taking into account the pleadings, evidence, charge, and other relevant matter” (quoting Ashe v. Swenson, 397 U.S. 436, 444 (1970)); United States v. Brackett, 113 F.3d 1396 (5th Cir. 1997).
In short, even if the district court and this court did not adhere to the “points in controversy” test that Shelby urges—and the record does not support this contention—there is no basis to conclude that Yeager II created an intervening change or “correction” in the applicable law. Therefore, we have no basis to consider this issue as a basis for finding jeopardy in Shelby’s renewed motion.
2. The “Consideration of Hung Counts” Claim
Shelby’s second argument, on which he places considerably less emphasis, is that the district court and this court in fact considered the hung counts in determining that the Summer 2000 acquittals had no preclusive effect. Shelby contends that this conclusion (reached by both this court and the district court) necessarily resulted from “the need, since absolved, to reconcile the acquittals with the hung counts.”
This argument has no merit. The district court’s and this court’s conclusions as to the Summer 2000 acquitted counts do not depend on any reference to the Early 2000 hung counts. We concluded that the Government presented very little evidence that Shelby had access to insider information when the Summer 2000 trades were made; we credited Shelby’s testimony that he did not rely on such evidence; and we noted that the jury had properly been instructed that the “use” of or reliance on insider information was an element of insider trading. These findings, by themselves, sufficiently support the conclusion that the jury’s acquittal as to the Summer 2000 counts could have been premised on insufficient evidence of “use” of inside information.
It is true that both the district court and this court compared the substantial evidence of “use” of insider information that accompanied the Early 2000 hung counts to the relative absence of such information accompanying the Summer 2000 acquitted counts, and cited this distinction as one reason to conclude that lack of insider information, rather than lack of proof of intent, could have led the jury to acquit as to the Summer 2000 counts. But this type of comparison does not run afoul of Yeager II. Yeager II stands for the proposition that if an acquittal establishes that the jury necessarily determined a certain element of an offense, the court may not examine the effect of hung counts to undermine that determination by showing that the jury was necessarily inconsistent or confused in its conclusions. Nothing in Yeager II prohibits the type of comparison drawn in this case, in which the distinction was cited simply to demonstrate one possible rational basis for the jury’s acquittal.
3. Shelby’s Claims are Not Colorable
Shelby has failed to cite any intervening change or correction in the law effected by Yeager II that has relevance to his double jeopardy claim, which a panel of this court has already considered and squarely rejected. The issues, as alleged in his motion to dismiss the indictment and in his response to the Government’s motion to dismiss his appeal, are not close and are without arguable validity. Accordingly, Shelby has not raised a colorable claim and we are without jurisdiction to consider his appeal from the district court’s denial of his motion. Richardson, 468 U.S. at 322.
Our conclusion as to the colorability of Shelby’s claims is bolstered by the fact that his invocation of Yeager II appears largely to be pretext for revisiting the reasoning and outcome of our prior panel decision. Shelby’s motion to dismiss the indictment argues at length that the prior panel made “factual errors in its analysis of Shelby’s acquittals” and erred in its conclusion that “legally significant differing evidence” underlay the Early 2000 as opposed to the Summer 2000 trades. Shelby does not contend that these conclusions are affected by Yeager II, but appears to assume that we could revisit these issues if Yeager II affected some other issue in his jeopardy claim. This of course is false—absent any change in the intervening law on a particular issue, we have no power to revisit another panel’s legal and factual conclusions. See Martinez-Rios, 595 F.3d at 586 n.5.
IV. Conclusion
Shelby has failed to raise a colorable double jeopardy claim. Accordingly, we DISMISS, for lack of subject-matter jurisdiction, his appeal from the district court’s denial of his pretrial motion to dismiss and REMAND for trial.
DISMISSED and REMANDED.
Filed under Enron Broadband Services
Honor Matters
In seven years of courts, crises and trials, the Broadband Three never turned on each other. The DOJ tried mightily to get them to finger each other as the bad guy. For instance, in Joe Hirko’s 302 Notes, the FBI memorialized him basically saying that it was all Scott Yeager’s fault. Hirko never said that, but that’s what the FBI wrote down. Hirko refused to go along with that and Yeager refused to be baited.
The FBI’s methodology of having the CEOs turn on the employees worked pretty well in the case of Ken Rice, but it failed everywhere else they tried it. Skilling wouldn’t play ball, and neither did Hirko.
Rex Shelby, Joe Hirko and Scott Yeager were not friends. They did not owe each other loyalty. And each was disillusioned when he left Enron. Rex Shelby did not like that EBS had gone core and he did not like the direction the company was going, so he left in November 2000. Joe Hirko left but came back under a consulting contract, which ended up costing him money (he was taxed twice on his payout – 50% each time.) Yeager was fired by Ken Rice and Kevin Hannon because he wasn’t out closing big deals – something that had never been in his job description. It might have been easy to simply look out for oneself in this circumstance, but none of the three men took that route.
Why not?
The reason they didn’t turn against each other is because each was individually passionately committed to the truth and had the integrity to stand by that. Rex Shelby, Scott Yeager, and Joe Hirko were imperfect executives – but they were not criminals. Each knew that about themselves and the other two. Whatever their faults, they were not and are not criminals.
The government has had eight tries to get their story straight. Eight indictments. The Broadband Three had one story, one defense. They’ve stuck to it because it is the simple truth.
Joe Hirko has accepted a plea deal and will be sentenced in one week. My heart breaks for him. Like Kevin Howard’s plea deal, it only hurts himself. Hirko is still honorable, still has integrity. It’s just a shame that the first and only lie he’s ever told about Enron will be told against himself, in a court room next Monday. He never lied about Rex Shelby or Scott Yeager, even when it would have benefited him. He’s only willing to lie about himself.
If that doesn’t move you to tears at the magnitude of this man’s strength, you’re already dead inside.
Filed under Enron Broadband Services
The Broadband Three
I wrote about these pictures a few months ago. I love these pictures. I love Joe Hirko’s smile; he’s so happy that his eyes crinkle. And Scott looks so all-American. It is just a great picture – and devastating too, knowing what we know now.
Filed under Enron
Are The Broadband Three Really This Dumb Or Is The Government Just Evil?
The record offers the following facts:
In January through April 1999 a series of press releases were issued by Enron Broadband Services. These press releases were written by a capable PR professional named Claudia Johnson. At trial she states that she wrote the press releases, relying on the engineering information provided by Stan Hanks and several others. Claudia Johnson took full responsibility for the press releases at trial, and indeed said the language was “boilerplate.”
Joe Hirko, the Co-CEO, approved the press releases.
That much is known. These facts are not up for debate.
The government’s theory is that Joe Hirko, Rex Shelby, and Scott Yeager began to conspire during this time to inflate the price of stock. Already there is a problem with this theory, however. The men were not close. They were not buddies. They never saw each other except for during Hirko’s weekly status meetings. Rex Shelby and Scott Yeager knew each other before they began working together at EBS but their relationship was strictly professional. They did not hang out or have beers together or talk about anything other than work – ever. Neither knew Hirko before becoming involved with EBS. So the CEO, a strategist and a software engineer who don’t really know each other very well or have any personal connection whatsoever, begin to conspire to inflate the stock price.
But then we have the second problem. The press releases, which were the tool of their giant conspiracy, were written by someone else. Yet Claudia Johnson was never accused of any crime, or being a part of any conspiracy. So the three guys who don’t know each other very well have a conspiracy and they are dumb enough to ask Claudia Johnson actually write the fraudulent press releases for them. Instead of just asking Hirko what to say in these fraudulent press releases, Claudia goes to Stan Hanks and others and asks for information. None of these engineering sources were indicted. So Claudia writes the press releases. And we have another problem with the government’s theory.
The press releases are not sent to stock holders, but to journalists. Journalists can talk about the product, but they can’t buy or sell stock. So ultimately, the conspiracy of the Broadband Three is sort of short-range.
Yet the stock does rise.
And now we have our biggest problem: none of the Broadband Three had any Enron stock.
They owned Enron Communications options which they could not exercise at that time — and none did.
So when the stock rose, they were conspiring not to make themselves rich, but their friends at Enron? Why were they working so hard to inflate stock they couldn’t buy or sell? If they are greedy, as the government contends, shouldn’t they get something from their criminal activity?
The record is full of these absurd government theories. The truth about the government’s pursuit of Enron is much more bizarre than fiction. It would be funny if not so bloody tragic for the men who are experiencing the full brunt of the government’s attention every day.
Filed under Enron
What Could Possibly Happen In 32 Seconds?
All the Enron Broadband defendant attorneys are brilliant, of course, and they all have strengths that are unique to themselves, and which contributed to the overall strength of the defense (and this is one reason, apart from the defendants’ innocence, why I think there were exactly zero convictions.)
I do not want to tangle – ever – with Per Ramfjord because he apparently has a photographic memory. If you lie to him, he will catch you and make you pay. David Angeli is a brilliant tactician. He has some weird voodoo mind-control power that makes you act exactly as he wants you to act on the stand. Ed Tomko is low-key and friendly, which, I think, lulls victims witnesses into a false sense of security. Zimmerman is polite to a fault. But my favorite is Scott Yeager’s attorney, Tony Canales. Tony Canales cracks me up. Tony Canales will have you laughing in the seconds before he snaps your back in two and leaves you mortally wounded on the witness stand. It is so smooth, you don’t even feel it at the time. And It might take him a whole day to get to his point but when he does, you are done. He reminds me of one of those supreme sushi chefs who will cut open a fish and leave its heart beating for a few seconds so the patrons can see that this fish is fresh.
It was Tony Canales that asked Ken Rice, “If you said that second [Shelby] tape was played at the conference you’d be a liar, wouldn’t you?”
Poor Ken Rice had no idea what was about to happen to him. None.
Snap.
I’ve heard from people who know Canales that he’s a total pain in the ass, but that only makes me love him more.
In today’s venture into the Broadband trial, Tony Canales is funny because he gets his client to point out that the key slide from the 2000 AC that was in front of the jury the entire trial had a few key points on it. The entire case is based on if those specific things existed or not on that date and if not then the entire Analyst Conference was a lie. This included the notion of Shelby II but after that was blown out of the water the emphasis was on this slide.
Here is the slide:
Out of an 8 hour day and over 289 or so slides this slide was in front of the analysts for 32 seconds. That is it. The case is based on a slide and definitions of words on a slide that lasted 32 seconds out of an 8 hour day. That is what drove up the Enron stock on Jan 20th 2000 and caused Enron to fail 18 months later?
Also, it drives home why Yeager believed the slide told the truth, the presentation was true and the definitions the Government are forcing on the jury are wrong. Yeager did not have to stand up and say anything because he believed then and still does that everything presented was true. EBS was using real definitions of functionality, not the made up distorted ones the Government used. Those definitions were industry standard ones. The case is full of examples of crossexamination by Angeli and Per on how EBS was redefining QoS and the EIN was by definition a new kind of Network that included applications running on servers.
Here is Canales questioning Yeager on this subject:
Q. As a result of doing this study and the business plan and so forth, sir, did you reach any type of — by
January the 20th, 2000, did you reach any type of belief or an opinion that you honestly held regarding the functionality of the EIN network?
A. Yes.
Q. And what was that belief or opinion that you reached, sir?
A. On January 20th, my belief was that we had come a long way during ’99. We had uncovered issues, dealt with them and we had, I believe, at that point, a 14-city fiber optic backbone composed of plenty of bandwidth, conduct business for Media Cast and Media Transport. We had the pooling points in place, which were critical. We had written the software for all of that. It was integrated together. We had a network control system. We had everything we needed to not only deliver those services, but to expand them and to grow new services and
revenues.
Q. How did you know those things?
A. I knew them from working at the company and going around to different locations within the company. I knew them from observing the actual use of the applications and the equipment, both physically inside of our network in buildings and by going to customer locations.
Q. So, you actually traveled throughout the United States?
A. Yes.
Q. Did you, actually, physically go to visit customers?
A. Yes.
Q. What, sir, was your belief on January the 20th as to what the EIN network consisted of?
A. Based on what we had as a group or the company had decided to expand the definition of the EIN from earlier, it was very clear to me on that day that the EIN was fiber, servers, pooling points and software.
Q. Did you hold a belief or an opinion, sir, as to whether or not there was the existence of Network Control Software?
A. Yes.
Q. And what was that opinion or belief based on?
A. It was based on my experience and knowing what Network Control Software does in networks and what I saw when I was at EBS.
Q. And what did you see when you were at EBS?
A. When I was at EBS, I saw the network operations control center operational earlier in ’99. I saw Jim Rowh give a
presentation in August of ’99 where he articulated all of the software that we had in place and it was up and running. I physically went to it. And then later we were building a NOC in Houston. And, so, it was a lot of different ways that I knew about it.
Q. Now, when you say they were building a NOC in Houston, is that a physical place, the NOC?
A. There is a physical thing called a: Network operations control center”, which is the term we would use with this,
and it’s a room where there’s a lot of computers and software connected through a dedicated private network to
all of the elements inside of the network.
Q. And where was it established here in Houston, this NOC?
A. Well, there’s one in Portland, but the one in Houston — There was a room in the Enron building — the main Enron building that was the room you could go into and see all the screens of all the software that was controlling the network.
Q. Well, I’ve heard something in this case — or have you heard something in this case about a location on Shepherd Street here in Houston?
A. Yes. There was also a location on Shepherd.
Q. What was that location on Shepherd?
A. My recollection is the location on Shepherd has a lot of equipment, but it was more of the staging area for preparing all the servers and the routers and the LAN switches and other things to ship out as we expanded the EIN.
Q. So, then the NOC, as you were describing it to us, was physically located in Downtown Houston?
A. Well, since the — The notion of a NOC is a little — By definition, our notion was a distributed system. The way that you could see the NOC was in a room, and the — there was a room in Houston — in Downtown Houston.
Q. In the Enron building down the street?
A. Right. But some of the servers could have been on Shepherd, they were in Portland, and they were spread all
over the United States on all the EIN POPs.
Q. What about the NOC in Portland?
A. The NOC in Portland was another — was the first instance of it. And there’s people that work in the NOC;
so, that’s why we think of it as a room, because you actually had people man the NOC.
Q. Okay. There’s been a lot of testimony regarding this particular chart here. Do you have a recollection, sir, as
to whether or not this particular chart I’m showing you –And I think it’s a demo exhibit, Government’s Demo
Exhibit 1. Do you see it, sir?
A. Yes.
Q. Now, does this same exhibit appear in the Analyst Conference?
A. Yes.
Q. All right. Was there a PowerPoint?
A. It was a slide in the PowerPoint.
Q. All right. And I believe that slide was Slide No. — Let me see. I have it right here. Just a second.
Let’s see YD2464 at 182. Out of YD2464. Now, do you have a recollection, sir, as to whether or not this PowerPoint that we’re seeing here ending in 563, as you’ve told us, appeared in the Analyst Conference as part of the video?
A. Yes.
Q. All right. And do you know, sir — Well, have I asked you to time how long this particular slide appeared at the
Analyst Conference?
A. Yes, you did.
Q. And how long, sir, did this particular slide appear at the Analyst Conference?
A. From viewing the raw footage, it was 32 seconds.
Q. And how long did you tell this jury that this conference was, sir?
A. It was all day.
Q. Eight hours?
A. Roughly eight hours.
Q. So, you’re talking 32 seconds out of eight hours that this particular slide appears?
A. Yes.
Q. And, sir, can you tell the jury whether or not at my request you’ve counted the number of slides that appeared at
the Analyst Conference?
A. Yes. I attempted to count the slides in there, yes.
Q. And how many?
A. There’s like 289 slides or something.
Q. 289 slides. That’s from the beginning, in the morning?
A. From the morning through the afternoon. All day.
Q. Sir, did you have any type of role or participation in the preparation of this particular slide for the Analyst
Conference?
A. No.
Q. Did you have any role or participation as to whether or not this would be inserted or deleted?
A. No.
Q. At the Analyst Conference, sir, did you make any comments on this particular slide?
A. No.
Q. Well, sir, you — Are you surprised at all, sir, that, you know, you got indicted for a slide that you did not
prepare and that was only up for 32 seconds?
MS. MONACO: Objection, Your Honor.
THE COURT: Objection sustained.
That last question cracks me up. Why did the Government object? I’d be curious to know Mr. Yeager’s answer. And I adore Canales for asking it, though he probably knew that the government would object and pro-government Gilmore would sustain the objection. He had a few of these sly insertions, which I will explore in my next post.
Filed under Enron
David Angeli v. Bill Collins
As much as I focus on the Broadband Three and indeed all the Enron defendants, the attorneys are also colorful, interesting and brilliant folks. To illustrate some of this, I’ll be adding more posts about the testimony to show how these men did such great jobs.
Here is funny insight about Bill Collilns’ cross by Joe Hirko’s attorney, Dave Angeli. Angeli did a brilliant job with Collins.
Angeli had a big black notebook with Collins’ 302s and Grand Jury testimony in it. These are not exhibits but can be used with a witness to show he is lying. During the cross, Collins would say something and Angeli would pick up the black notebook, and say “But previously, you said xxxxx, did you not?” The first couple times Angeli used the notebook and Collins resisted, Angeli would hand him the notebook and have him read his previous statements to “refresh his memory.” But eventually, Angeli had Collins trained like Pavlov’s dog. All Angeli had to do eventually is put his hand on the notebook and Collins would agree with Angeli. It was both funny and sad to see a grown man behave like Collins.
Collins is simply a congenital liar or medically delusional. What does it say about Kroger that he would shape his case on the words of a man in that sorry condition?
Filed under Enron
Enron Executives As Children: Rex Shelby
Rex Shelby stood in the cafeteria line, trying very hard to appear indifferent to the fact that the prettiest girl in school was standing right behind him. Katie was in two of his classes but he hardly ever talked to her. While most of his friends had gone through pre-K and elementary school together, Katie had moved over the summer and appeared in the sixth grade, fitting right in with everyone as if she was one of them. She was small and efficient; something about her reminded him of a hummingbird, always flitting from one place to the next. Also: she was was the purest ivory-cream perfection, with wide-spaced hazel eyes, thick brown hair and pale skin. Under her prim blue shift, he could detect a supple developing body.
“Hi Rex.”
He turned around and looked at her, trying very hard to be casual. “Hi.”
“What’s up, cowboy?”
“Um. Lunch.”
He grabbed a chicken sandwich.
Katie smiled. “I’m a vegetarian.”
He wasn’t sure what to say about that. He grabbed a carton of milk, paid for his lunch and walked to the table where Scott, Ken and Joe had witnessed the whole miserable exchange.
“She talked to you!” Joe hissed at him.
“I’m an idiot,” he said and took a drink of his milk. “I’m a complete idiot. She told me she was a vegetarian and I didn’t say anything. I just walked away.”
He glanced over at her, now sitting at a table with her girlfriends. She was smiling and laughing with the group; she didn’t even noticed that he hadn’t said anything.
He knew it as certainly as he knew his own name: he had really, truly messed up his only chance to impress her.
She was in his language arts class and science class. In science, after lunch, she sat in the middle of the classroom, her intelligent little face watching the teacher with an earnestness that made his heart ache. He didn’t understand her at all. She unexpectedly glanced over and smiled. Only then did he realize he had been holding his breath. Breathing was suddenly the most wonderful, fizzy feeling in the world; he had to smile back.
“Mr. Shelby?”
He blinked, realizing the teacher was speaking to him.
“Mr. Shelby, is something funny?”
“No,” he replied and looked down at his paper. Though he was smiling and happy, this was most definitely not funny. It was the most serious thing he had ever known. Therefore, he could not risk looking at her again.
It was fortunate that his logical side kicked in because the teacher was assigning a very big project and he had to pay attention. The task seemed crazy: “invent something”.
“It can be anything,” the teacher was saying. “It just has to be your own idea and you can not spend more than $100 on it.”
Rex wrote down, “$100″ on his paper.
“You will work in teams of four. Any questions?”
Katie raised her hand. “Is the $100 for each of us, or for the whole project?”
“For the whole project,” said the teacher. “However a company in California has agreed to partner with our school. Whoever makes the best project will get a four thousand dollar check to put toward your college education. That is one thousand dollars for each member of your team.”
Rex wrote down, “$1000!” on his paper. The number seemed incredibly huge. If his team won, he wouldn’t need to work as much through college, which would enable him to concentrate completely on his studies. This seemed like a great opportunity.
“Any other questions?”
Katie raised her hand again.
“Yes Katie?”
“Does it have to be, like, an actual thing or can we make an idea like a business plan?”
The teacher smiled. “There has to be some physical component. Okay? Any other questions?”
With no further questions, the teacher directed them to get into their groups and brainstorm on their inventions. Naturally, Rex, Ken, Scott and Joe gravitated together. Once he was with the boys, he didn’t look back at Katie. He was working and he took work very seriously. “I have an idea,” Scott said. “What if we make, like, a way to watch movies on the internet.”
“Like DVDs?” Joe asked.
“No, like you go to a website and you can watch movies.”
It sounded good to Rex. And more importantly, he was sure it would win the $1000.
Hours later, in Language Arts, the boy behind him tapped him on the shoulder. Rex turned and the boy handed him a piece of paper. Rex took it, holding it under the desk to keep it out of the view of the teacher. Very large blue loopy writing jumped off the page; all the loops seemed for a moment unreadable, so he looked immediately at the bottom of the page. It was signed Katie. He felt a pulse of surprise and pleasure. He squinted and read through her viney handwriting:
Hi Rex, it is me Katie. What is your project in Science?????? Our group is making a delivery service for kids we are buying Baskets for our Bikes and we are making a website where kids can make orders for things like candy or pizza or pencils or stuff like that. I want to make sure we have like pink pencils and blue pencils and green pencils and some cool pens and some nice erasers and maybe some pads of paper and like some rubber bands for girls who wear their hair back and because it can get really annoying in the Summer Time to have your hair down, it is very hot, you would not know about that because you are a boy, hahaha but you do have nice hair and I like your eyes a lot, they are very pretty, you have nice eyes. We think it is a good project. We think we will win the prize. What is your project???????
Katie
Rex surreptitiously wrote, “Movie website.” He passed the note back to the boy behind him. The note made its way across the classroom to Katie, who was sitting by the windows. The afternoon light was streaming through the windows; she looked angelic with the blue sky and fluffy clouds behind her. He watched as she unfolded the note. She didn’t smile. She didn’t appear to think the movie idea was very good at all. With an expressionless face, she read the words, then tucked the note neatly inside her book. She didn’t look at him for the rest of the class.
He wasn’t sure about this Katie girl. She didn’t act like other girls. He just didn’t know what to make of her. Anyway, he had work to do. He bent his head to the worksheet the teacher had assigned.
After the bell rang, he waited until Katie had packed up her stuff and walked with her into the hallway. “Did you like my project idea?”
She turned to him with a frown. “Yes I like it a lot but you apparently don’t like mine at all. You didn’t say anything!”
“You just asked me what our project was.”
She rolled her eyes. “I said you had pretty eyes.”
Rex was in completely unfamiliar territory. He looked at her helplessly, trying to figure out what he was supposed to say. “Sorry,” he said finally.
She smiled. “It’s okay.”
He saw Scott coming down the hallway so he said, “See ya tomorrow,” and walked away. Scott said, “What was that about?”
“She needed help with her homework.”
Later that evening, in the large dining room at Ken’s house, the boys sat around the table with notebooks.
“I’m the leader,” said Ken.
“Why are you the leader?” Joe asked.
“Because I said so.”
“I want to be the leader.”
“You can both be the leader,” Rex said. He was eager to get to work and didn’t care for the self-imposed bureaucracy of official roles.
To his surprise both Joe and Ken seemed to accept that. Scott rolled his eyes and Rex laughed.
Ken said, “What we’re going to do is, make a website where you can download videos, like YouTube but for movie companies. Rex, you’re the technology man. Scott, you’re going to find us a client.”
“What are you going to do?” Rex asked.
“I’m going to manage.”
Rex didn’t want to argue. He would concentrate on his own part of the project. He had been playing with computers since he was four; he was very certain he could put together a great website. Any obstruction to success wasn’t the bickering between Joe and Ken, it was the fact that Katie kept sneaking into his thoughts, distracting him.
The day before the project was due, Rex walked into the cafeteria and saw Katie in line. She waved at him, and he approached. “Here, you can cut in line,” she said.
“No, it’s okay, I’ll wait.”
She squinted at him.
“I can’t cut. That’s cheating.”
She shrugged. “Suit yourself.”
He walked to the back of the line and watched as she paid for her vegetarian lunch and walked over to the girl’s table.
Rex ate his lunch with Scott, Joe and Ken as they talked about their project. Ken suddenly dropped his fork. “Oh my God, we forgot to make a video to upload.”
Rex slumped in his chair. He had been so busy with the technology he hadn’t thought about the actual video. “Okay,” he said, “come over to my house after school and we’ll make some videos.”
During Language Arts, he received a note from Katie.
Hi it’s me Katie!!!! Are you finished with your project? We are finished with ours. We are going to win the prize tomorrow hahaha I hope you do well though!
He picked up his pencil and wrote:
Do you want to come over to my house this afternoon to help us with our videos?
He passed it through class. It returned thirty seconds later:
YES COOL OKAY!!!!!! OKAY I WILL BE THERE AFTER SCHOOL OKAY THANKS!
That girl was a spaz. But she was cute.
By three o’clock all the boys and Katie were in Rex’s room. Katie looked uncomfortable. She looked somehow smaller without the context of school. Maybe it was just because there were four boys and only one girl. “Okay, we need to make a video,” Scott said. “What should we do?”
“I’ll just talk about the technology,” Rex said. “Then we can upload it onto the website and show it for our final presentation.”
“What do you need me for?” Katie asked.
“You can introduce us,” Rex said. What he was thinking is that he would get extra points for having a member of another team on the video.
They went into the living room to film. Katie sat on the sofa while Scott filmed the introduction. Then he turned the camera to Rex. Rex talked for two minutes about the technology. He described what the technology could do right now, and also how it could be expanded to be even better.
“That’s it,” Scott said and put the camera on the table.
“I’m thirsty,” Joe said.
“There’s soda in the fridge.”
Scott, Joe and Ken went into the kitchen. Katie sat very still on the sofa. Rex sat down beside her. “You looked really cute,” Katie said.
She smelled nice, like Hershey kisses and cherry lip gloss. He picked up her hand, and she looked at him. He made his move and kissed her.
He pulled back just as Joe came around the corner. “You want a soda?”
“I have to go,” Katie said suddenly. She said goodbye and ran out the front door.
Scott grabbed his camera. “I have to go too.”
Rex said goodbye to his friends and slumped down on the sofa. He was excited about the project but he was also worried because Katie didn’t seem happy. “Girls,” he muttered, “what do they want?”
The next morning, Scott cornered Rex before first period. “The video,” he hissed. “It shows you kissing Katie!”
Rex betrayed no emotion. “Are you sure?”
“Dude, I think I would know if I am seeing you kiss Katie.”
“Okay, well we can’t show the video then.”
“We have to. You explain how the technology works.”
Rex shook his head. “I’m not going to embarrass Katie that way. No way. Just don’t use it.”
“You think we can still win?”
“Sure. But don’t use the video. And don’t tell Katie.”
Scott said okay.
When Rex saw Katie at lunch she was already sitting at the table with the girls. He smiled and she smiled back. He was feeling better about the whole thing.
During science, he watched Katie’s group give their presentation. The girls had hand-made some baskets for the handlebars of their bikes and handed out papers that showed a business plan for their delivery service for kids.
After they were finished, the teacher called Rex’s group. Each of the four boys spoke about their video system.
They didn’t show the video, but Rex was pretty sure they did okay. The students clapped wildly and the teacher even said it was amazing. They would have to wait until Monday to find out their grades, and who won the $1,000.
During Language Arts, he sent Katie a note:
Hi Katie, you look pretty today.
Within seconds, the note returned to him with her large, blue, loopy, crazy handwriting:
Hi!!!!!!!!!!!!!!!!!!!!!!!! I was worried because you didn’t talk to me during lunch after you kissed me yesterday. Hahaha you kissed me, that was nice I really thought you were very sweet but when you did it it surprised me so I hope that’s okay that I left like I did but I felt shy and I thought your friends needed to finish the project and today I see that you did a lot of good work!!!!!!!!!!!!!!!!! You have a great project and I am sure that you will be getting a 100 but I hope our team wins the $1000 because I would spend it on books, I want to go to medical school!!!! I want to be a heart surgeon because they make a lot of money and are good people!!!!! XOXO Katie
On Monday, as soon as Rex sat down at his desk in algebra, he was surprised to hear his name called over the loud speaker with Joe, Scott and Ken. The four boys convened in the principal’s office. “You’ve been accused of cheating,” the principal said. “The website doesn’t do what you claim it does.”
Bewildered, Rex looked to Scott, who shrugged.
“The teacher is willing to give you an opportunity to re-do the project. Meanwhile, you’re all getting detention.”
Rex stood in mute shock.
“Rex, apparently you showed a video about the technology?”
Rex shook his head. “No, I didn’t.”
“He did!” Ken exclaimed. “He did! He lied about the technology. It was his idea. He said in the video that you could buy movies from big movie companies but really you couldn’t. It was like YouTube and he was saying it was like Comcast OnDemand.”
Rex listened calmly. He did not understand what was happening. Why was his friend, and the project leader, lying about him? Why would he do that?
“Go back to class, boys.”
Rex walked back to class with a heavy heart. He kept trying to figure out what happened. He got a partial answer at lunch. Ken wasn’t at the table. Scott and Joe looked as depressed as he felt. “The principal is saying if I admit to cheating, I can serve a week detention and be done with it,” said Joe. “If I don’t, he’s threatening to fail me for the year.”
“What are you gonna do?” Rex asked.
“I can’t admit to something I didn’t do,” Joe said miserably. Rex thought of Joe’s family. His mom and dad and siblings were all very accomplished people. If Joe failed sixth grade, they’d be extremely upset.
Scott was angry. “This is bullshit! This is totally bullshit! I’m going to the superintendent. I’m not letting these assholes get away with this. No way.”
After lunch, Rex saw Katie in the hallway. He pulled her out of the flow of traffic to the lockers. “I guess you heard that we’re accused of cheating.”
“I heard.”
“We didn’t.”
She smiled. “I know.”
“Ken said we did. And I think Joe is going to say so too.”
“I know you didn’t.”
He nodded. “Okay.”
“I have to tell you something,” she said. “Our team won the $1000.”
Rex was genuinely happy for her. He thought of her in medical school, mending people’s hearts. It seemed to fit. Spontaneously he leaned forward and kissed her again. “You’re gonna get us in trouble!” she laughed.
He shrugged. There was nothing anyone could do to him. He was innocent.
********************************************************************************
As of this writing, Ken was given detention and released.
Joe confessed to cheating and is expected to receive his detention in the next six months. He is expected to graduate with the other sixth graders.
Scott took his case all the way to the Superintendent. The superintendent will rule on Scott’s case in the next month.
Rex maintains his innocence. The principal has agreed not to assign Rex to detention until the superintendent rules on Scott’s case.
Katie has changed her mind about medical school and plans to get an MBA instead, so she can implement her idea of a delivery service for kids.
Filed under Enron
Scott Yeager: Quirky Handsome
If someone had described this suit and necktie combination to me, I would cut them off and say, “No. Just no.” Seriously, goldish-brown necktie and charcoal suit? Nothankyouverymuch.
But wow, he looks effortlessly great here. The suit looks terrific on him. I love how long the sleeves are – they fall on his wrists beautifully. The necktie has color but is unobtrusive. And wow, that shirt is dazzling white. Scott Yeager bats it out of the park with this one. He represents the Broadband Three very well.
Filed under Enron
Everything Wrong With The Smartest Guys In The Room – Expanded Edition
Everything Wrong With The Smartest Guys In The Room is consistently one of the most popular posts every month; according to my statistics, it’s been viewed 51,032 times. But there are errors in it and I see places where I could go into more depth, so I bring you the Expanded and Remixed Version of Everything Wrong With The Smartest Guys In The Room.
The cover:
If you look at the picture, the tag line is “See where all your money went.” This line is just obnoxious, and furthermore, its false: the movie doesn’t demonstrate where the money went. Incidentally, don’t they all three look so young in that picture but especially Fastow? He is practically a fetus in this picture. Now we know him by the steel colored hair, the lines on his face. He must have just joined Enron when that picture was taken. And Jeff is all 1990s corporate hottie with the facial hair. That picture makes me ache.
The opening shot reveals a small church adorned with a neon sign that says ‘Jesus Saves’. The blue-glass and steel Enron tower looms behind it:
A suspicious, grinch-like voice superimposed over this image grumbles, “What’s he building in there?” Then: “What the hell is he building in there?” It is pure mood: all very nefarious, undoubtedly as the brilliant Tom Waits intended when he sang the words, but that said, Waits is not a legitimate critic of Enron. His credentials are about on par with the director’s, Alex Gibney.
John Olson, a man who constructed an entire career of being an Enron skeptic, is the first person to appear on camera. I spoke to Mr. Olson on several occasions while researching my Enron book. Mr. Olson said that Ken Lay killed himself by refusing to take his heart medication. This sort of statement is just appalling, but I think it shows you where this man is coming from.
He says, “It had taken Enron sixteen years to go from about ten billion of assets to sixty-five billion of assets. It took them 24 days to go bankrupt.”
This statement is the foundation for a point that will be illuminated momentarily.
An aerial shot of the Houston skyline appears and the grinch voice asks, “What the hell is he building in there?”
Bill Lerach is identified only as ‘attorney’, which is true, he is an attorney. He is an attorney for a class of Enron plaintiffs. So why didn’t Gibney inform the audience more about this seemingly respected attorney? Wouldn’t someone who wanted a fully informed audience know that this attorney and his firm had finagled billions in settlements? But nothing about the man is assumed in this first shot. Lerach says mildly that, “This company collapsed so quickly and so entirely, I mean, into bankruptcy within a matter of weeks. It just immediately had all the makings of a gigantic scandal.”
So John Olson and Bill Larach, two men with axes to grind, have insinuated that the speed of the collapse indicates “scandal”. Perhaps it was scandalous – just as Bear Stearns’ collapse was, I suppose, scandalous. But it wasn’t criminal.
Amanda Martin, beautiful and blond, says, “The fatal flaw at Enron was… if there was one, you say it was pride. But then it was arrogance, intolerance, greed.”
It should be noted that Ms. Martin has expressed dissatisfaction with the way she is portrayed in this movie, so whatever she says, I’m extra cautious about taking it to heart.
An unidentified man says “It all sort of became smoke and mirrors.” He will show up again later:
Jeff Skilling, his attorney Bruce Hilder, Sharron Watkins and her counsel are shown at the Congressional hearing. There were actually 65 congressional hearings about Enron, but this one was on February 25, 2002.
Skilling was the only executive from the C-Suite who testified. The other executives declined to testify. There is a man behind him in a yellow necktie – he becomes important later.
Bethany McLean makes her grand premiere. She was a cute, mediagenic writer at Fortune whose famous article, ‘Is Enron Overpriced?’ raised alarm bells. Bethany McLean played an enormous role in developing the idea that there was a scandal afoot. But she couldn’t have done it alone. Jim Chanos, a hedge fund manager, had decided in the winter of 2000 to short Enron stock. He then contacted Bethany McLean and told her to look into Enron Corporation, with the understanding that she should find something that would justify his enormous short positions. She wrote Is Enron Overpriced? when the stock was already vulnerable, and though she was not responsible for the collapse of Enron Corporation, she was responsible for creating a series of myths and outright lies that stand today (or they did, until I began fighting them.)
The meat of the story begins with a dramatization of Cliff Baxter’s suicide. A stationary Mercedes-Benz is depicted on a dark street, jazzy music drifting from the open windows. An unseen man inside smokes a cigarette and drinks from a bottle of water. If this is a documentary, why are they showing recreations of Cliff Baxter’s suicide? Documentaries should be about facts. Like Michael Moore’s hit pieces, this is a bizarre effort of mixing fiction with fact. It is also rather tasteless – of all the things to imagine in detail, this is the most obscene.
The voiceover talks about Jeff Skilling and his wife attending the memorial service for Baxter. The correlating images are of the back of a beautiful brunette and a balding middle-age man. The implication is that we are seeing Jeff Skilling and his wife Rebecca Carter. We are not. That is not Jeff Skilling or Rebecca Carter. What else is Alex Gibney, the director, falsely representing?
The focus turns back to the so-called scandal. Rep. Cliff Stearns asks Skilling if before Cliff Baxter died, did Skilling have many conversations with Mr. Baxter. Skilling answers in the affirmative. Stearns asks, “And were any of them relative to Enron?
Skilling looks heartbroken for a moment before he answers yes. He says, “Cliff came over to my house and he says, ‘they’re calling us child molesters. And he says, ‘that will never wash off.’” The grief in his eyes is so naked it is difficult to look at, yet you can not look away.
I’ve filmed it because it’s such an emotional moment (the quality is not great, sorry about that!) but I also wanted to show the screen shot of Skilling’s naked grief:
Stearns says, “Mr. Skilling, you don’t believe that.”
Skilling shoots back with eyes of utter contempt, “I don’t believe what?” Grief turns to indignant defiance.
Stearns says, “You don’t believe the press and everybody calling Cliff Baxter or yourself or anyone on the board of directors denigrating or tainting you, you don’t think it’s accurate. What you are saying to us here today….”
Skilling interrupts Stearn’s rambling monologue. “I do not believe – I did not – do anything that was not in the interest, in all the time I worked for Enron Corporation, that was not in the interest of the shareholders of the company.” His expression is fierce.
Gibney represents that this is the Enron trading floor. This not the Enron trading floor. This was in the new Enron tower that, because of the bankruptcy, was not used. (Later, at his trial, Skilling would testify that after he quit on August 14, 2001 he brought his brother back to the Enron building to the trading floor because he thought it was “so cool”.)
Jeff Skilling endures being told by the Congress that he was the captain of the Titanic, but before it sank, he gave himself and some friends a bonus, then lowered himself and friends to safety. This is egregiously misleading. Skilling did not take any bonus at all. In fact, he was entitled to a huge severance package, which he declined, and he was entitled to another $2 million to repay a loan, but Skilling declined that money too and repaid the loan himself.
Several key personnel were given retention bonuses to keep them onboard. This was not a last minute looting of the treasury as Gibney (and Congress) portray. If bonuses had not been given, every executive would have fled, leaving Enron to sink. At this time, remember, there was still talk that Enron would reorganize around the pipeline business. Bonuses and enticements were a valid and appropriate response to the crisis. Furthermore, there was nothing illegal about these bonuses at all. Had the Task Force reason to believe Skilling or anyone else looted the company, they could have indicted and charged that, insinuating it was hush money. Alas, that never happened.
President Bush appears on screen. Gibney attempts to make it a political issue. If Enron was so close to President Bush, why didn’t the Administration help Enron when Enron was sinking? George Bush says, “If they came to my administration looking for help, they didn’t find it.”
Linda Lay tries to set the record straight about the nickname ‘Kenny Boy.’ “That’s my nickname for my husband,” Mrs. Lay says, “which he [President Bush] overheard.”
Bill Lerach walks with a box of shredded materials. The sticky smile on that man’s face is so self-congratulatory and smarmy it makes Donald Trump look modest. Yet in early 2008, Lerach was sentenced to two years in federal prison for his involvement in a lawsuit kickback scheme. Like his very close personal friend, Bill Clinton, his license to practice law was suspended and disbarment is expected directly. This background becomes relevant very quickly.
Isn’t it convenient that so many media people happened to be there to watch him walk with his box? He says, “This is the shredded evidence we got that came out of Enron.” This is a lie. Enron was never accused of shredding a single document inappropriately. Arthur Andersen was indicted – and later vindicated after a wrongful conviction was overturned 9-0 by the Supreme Court– because of shredding but it was not Enron’s shredding. Whatever was in that box most likely did not come from 1400 Smith Street and was certainly not part of any wrongful shredding.
Even Kurt Eichenwald, author of Conspiracy of Fools and all-around Enron critic, admitted on page 659 of his book, “After several days, the FBI concluded that nothing of value had been destroyed and that – unlike with Andersen – there had been no concerted, illegal effort to shred documents at Enron.”
Like so much that happened in the aftermath of the collapse of Enron, this “shredded box” was just for show.
Back to the Congressional testimony. Question: “Did you convert stock worth sixty six million dollars?”
The camera cuts to Skilling saying, “I don’t know, I don’t have those records with me.”
The Senator says, “Would it surprise you to learn that you did that?”
Skilling replies, “No, it wouldn’t surprise me.” The original question was meant to do imply there was something unseemly about the sales. There was in fact nothing whatsoever improper about them, as the jury in his criminal trial found. But again, the false accusation appears unchallenged in the film.
Lerach appears again to say that there was shock at how much they had profited, a statement that is ridiculous on its face. There was no shock. That was the whole point of Enron: talented people earned lots of money by working there.
The camera then pans to a sweeping Texas oil field. The scene is voiced over with a rant about deregulation, as if it were the very worst thing that could happen because power might fall into the hands of ordinary people.
The Lay-Bush connection is mentioned again. What exactly is wrong with having friends in high places? Especially since, as proven, the friends in high places did nothing whatsoever to intervene in the crisis? But its worse than that. President Clinton, not President Bush, was the primary beneficiary of Enron’s largess. Furthermore, President Bush had been in office for less than a year when Enron went bankrupt and had spent the majority of his fledgling presidency fighting terrorism. President Bush might have known Ken Lay but he was not a friend of Enron. That much should be explicitly clear.
Rich Kinder was president of Enron for a period of time. When he left in 1996, the company put together a video valentine for his send-off. It shows both Bushes saying nice things about him. (It should be noted that Kinder was five years gone when Enron capsized.)
Ken Lay is seen cavorting with multinational businessmen, saying that he wants them all to feel they have been treated with the utmost respect. And you know what? They did feel that way. Not one vendor or Enron customer ever complained on record about Enron.
Jeffrey Skilling is introduced.
“Ken Lay saw Jeff Skilling as what the future is supposed to be.” McLean says, “Jeff Skilling had the biggest ideas of all.”
“Enron would become a kind of stock market for natural gas,” says the voiceover. This is a misrepresentation. Enron was not a trading company – it had a trading arm, but its core business was intermediation. They, like all Enron critics, aim to expand the idea that Enron is a speculative, dangerous, risky company.
Amanda Martin comments on the ‘bigness’ of Jeff’s ideas. Oddly, she is identified in the movie as someone “Jeff hired” and became part of the inner circle. While I suppose that could be literally true, I think it’s a bit misleading. Amanda Martin was an attorney at Vinson and Elkins who handled Enron’s legal affairs. Later, she was brought over to Enron and made president of North American Origination and Finance, where her job was to find financing for power plants. Maybe I’m being too fussy here, but I don’t like the way Gibney is distorting the timeline.
Bethany McLean says that one of the conditions of Skilling’s employment with Enron is that he be allowed to use mark to market accounting. This is disingenuous. Mr. Skilling always thought mark to market a necessity for the companies who did business in the markets he wanted to, and did, create. Mark to market is completely legitimate (it even has the SEC stamp of approval). McLean, however, is insinuating that Skilling had something devious in mind when he suggested mark to market accounting. Though there continues to be a lot of discussion about mark to market accounting, Enron was never accused of abusing the system.
From the same video valentine given to Rich Kinder at his departure, Jeff and other Enron employees spoofed themselves. Skilling here says, “We’re going to move from mark to market accounting to something I call HFV. Hypothetical Future Value.” He laughs because it’s so ridiculous and goes on to say, “If we do that we can add a kazillion dollars to the bottom line.” Throughout, he’s on the verge of cracking up. Jeff is many things but a fine actor, he’s not. I think this is a very important scene. It is actually very revealing about Jeff Skilling. It shows, first of all, that he has a great sense of humor. Later, at his trial, this subject would come up when he uttered the words, “they’re on to us” at a meeting. He said he was joking. Others said he was serious. This scene, where he discusses HFV, shows that he had a great sense of humor and he did like to play.
It also shows that he is incapable of acting. Look at the difference between the youtube video above, and this scene. When he is acting, when he’s saying lines that are not his, he’s stiff. When he’s speaking from the heart, you see that.
Bethany McLean puts on her amateur psychology hat and speculates that, “He really believed that the idea was everything, and when you came up with an idea you should be able to book the profits from that idea right away.” That theory is ridiculous. Jeff wasn’t making money for the company with mere ideas. Actual services and products were being provided to customers who relied on them. In their book – also titled The Smartest Guys In The Room, McLean and Elkind belittle Skilling as being “thrilled” by “the intellectual purity of an idea, not the translation of that idea into reality” (page 28). They then describe him doing just that, i.e. translating such an idea, (ie, the Gas Bank) into reality (pages 33-43). Similarly, on pages 106-108, they suggest that foray into electricity trading badly conceived, then note that by “1998, [Enron] was the biggest power merchant in North America.”
Whatever you think of Jeff Skilling, you can not say that he was an idea man with no follow-through.
The narrator explains mark to market accounting as the “ability to book potential future profits on the very day the deal was signed.” This is true but misleading as presented. In the September 20, 2000 Wall Street Journal article by Jonathan Weil, Mr. Rick Causey, the Chief Accounting Officer of Enron is quoted: “Enron’s unrealized gains don’t depend heavily on gains from long-term contracts that extend beyond the periods for which market quotes are available, reducing the potential for significant earnings revisions. The average length of Enron ’s risk-management contracts is just two years.” So while Enron might have to wait for two years to realize the full value of a specific contract, the portfolio of contracts was constantly maturing, bringing cash in the door. This is significant, but conveniently overlooked by Gibney. Furthermore, to address Ms. McLean’s theory, the contracts that Enron bought and sold were not “ideas”; Enron was not booking gains based on an idea of a contract but an actual contract.
McLean continues, “Because otherwise, some lesser man was taking the profits from the idea that some other man, a greater man [meaning Jeff Skilling] had come up within the past.” Trying to understand McLean’s theory is rather like looking at an Escher drawing – it only makes sense if you’re sleeping. Who is the lesser man? Who would be earning the profits that Skilling’s Enron Wholesale was earning? It is worth noting another inconsistency in Ms. McLean’s theory: mark to market accounting was not Jeff Skilling’s idea. It was developed in the 19th century, long before Jeff Skilling was even born. Furthermore, it was not used in Broadband or for any international assets. It was a limited and completely justified method of accounting which was the only way a complex organization such as Enron would have a meaningful balance sheet.
The next shot is the grinch voice saying, ‘When Jeff Skilling applied to Harvard Business School, a professor asked him if he was smart. He replied, “I’m fucking smart.” And of course he was right. But what are they implying here, that the admittance board of Harvard Business School was in some way in on the conspiracy to promote Skilling through Enron?
“One of his favorite books was The Selfish Gene,” the grinch voice says, “about the ways human nature is steered by greed and competition.”
How does the grinch voice know this is one of Skilling’s favorite books? In all the literature I’ve read about Enron and Jeff Skilling, I’ve never seen this book mentioned. But I guess if it makes good tv, what the heck, put it in there! But let’s take McLean at her word, and assume for the sake of argument that Jeff Skilling was impressed by this serious book which attempts to explain biological imperatives and the instinct to survive (ie, selfishness). But greed is not mentioned in any of the reviews that I’ve read. (Other reviews can be found here, here, here and here.)
Based merely on the reviews, I can argue that the book was not about greed, a word that is a place to retreat for the sloppy and those who would incite. Are McLean, Elkind, and Gibney not “greedy” in their ambition? They made/make/and will make more money than kings and queens in the eyes of more than half the world (and look how they’re doing it). Where does one draw the line between taking care of oneself and one’s family, and one’s employees before it is labeled “greed.” The threesome aren’t wearing rags, giving all their money to charity, or working to help kids in the slums. Who draws the line, Marx, Mother Teressa, Adam Smith?
Sperm are shown swimming merrily across the screen. Are we to assume that Skilling himself contributed to this music video?
“At Enron, Skilling wanted to set free the very instincts of ’survival of the fittest,” the narrator says. Skilling did engineer a competitive, aggressive, energetic culture at Enron, but he was not a mad social scientist trying to force his employees cannibalize themselves.
Bethany McLean says, “Jeff was famous at Enron for saying that money was the only thing that motivated people.” A bag with a money symbol is shown. This bag, apparently, was hidden in the bottom drawer of Skilling’s desk. But I question the premise. Was Jeff really known for that?
When I first read Mrs. Berkowitz’s book, I marked it up with my own comments, and one thing I kept noticing is that none of her sources are named. They are “an executive”, “an EBS employee”, “an Enron employee” but no “Firstname Lastname.” Look for yourself:
That’s just two randomly opened pages. The whole book is full of these anonymous sources. On screen she has Amanda Martin, who is no doubt a legitimate executive at Enron. But nobody else. Why not? If everyone is in the know, if she has all these sources, why not incent them to appear on camera? Instead, all we have is a big bunch of hearsay.
To support the critic’s view that Enron was a self-consuming machine of greed and avarice, Bethany explains the PRC, or the Performance Review Committee, as a humiliating endurance where peers graded each other on their performance. There is some truth to this – the PRC was a real thing- but regardless, there’s nothing inherently wrong with that. As Skilling said, it is an opportunity for employees to get direct communication on their performance from a wider group than just their direct boss. Anyone who hasn’t had a six-month review or an annual review is someone who has never held a 9-5 job. Bethany then goes on to lie that those with the lowest grades were fired, and thus this became known as ‘rank and yank.’ If firings occurred, it was not an institutional mandate.
Jeff Skilling agrees, “Our culture is a tough culture.” But so are any other highly sophisticated companies. Cantor Fitzgerald, Goldman Sachs, Citi, Microsoft are all known to be very aggressive cultures. Nothing wrong with that. They were not, after all, embroidering throw pillows and stitching doilies in those glitzy skyscrapers.
Amanda Martin, ESQ of Vinson and Elkins, says that if you wanted to trade at all, you had to deal with Enron.
Bethany McLean: “The traders were like the super-powerful high school clique that not even the principal dares to reign in.” What high school did Bethany attend? If she’s right, if even Jeff Skilling and Ken Lay were afraid to “reign them in” (I’m not sure they needed to be reigned in, but whatever), then doesn’t that mean that Jeff and Dr. Lay probably were not in on some huge conspiracy? After all, if they can’t control their own traders, how do they control everyone else?
I’m curious – I wonder if Bethany McLean ever set foot on the Enron trading floor while the company was still in business. If this isn’t first-person information about the nature of Enron traders, don’t we, as the audience, have the right to discover the source of this information?
Traders are shown, supposedly being evil as they worked.
Bethany McLean says, “They took Jeff Skilling’s and Ken Lay’s belief in free markets and turned it into an ideology.” What does that even mean? Belief in free markets is something of an ideology, but a successful one, implemented by entrepreneurs and others to direct their business decisions. It’s not a life philosophy, a dogma that must be relentless followed in every aspect of one’s life. Whatever one believes about free-markets and capitalism, one could hardly argue that they were invented by a bunch of 26-year-old traders on the trading floor of the Enron building in 1998.
A clip from an Enron ad for EnronOnline was shown. Jeff Skilling’s voice says, “We are creating an open, transparent marketplace that replaces the dark, blind system that existed.” The images show traders revolting against that dark system.
Skilling continues, “It’s real simple. You turn on your computer, and it’s right there. That’s our vision and we’re trying to change the world.”
They succeeded.
Bethany says, “I think Jeff Skilling had a desperate need to believe that Enron was a success. He identified with Enron. He proclaimed at one point, I am Enron.” While Bethany is telling this story, the very phallic, masculine image of Jeff standing before his building is shown.
But let us examine this accusation, which is quite serious. Are these the words of a businessman or a lunatic? I’d like to know who Mclean claims said that Skilling said “I am Enron” so I can interview him or her. Sound really unlikely. Maybe, at most, he was simply joking. Jeff Skilling was a leader, he inspired people and empowered them. They were Enron. I once described someone as giving others the ‘tools to imagine their own greatness’, which is what I think Jeff Skilling did, and I think he recognized that was his genius.
As the video attempts to get to the heart of Enron, they find people like, Mimi Swartz, introduced as the Executive Editor for Texas Monthly magazine. Swartz says, “The thing about people at Enron is that a lot of them are former nerds, including Jeff Skilling.”
Smartest Guys In The Room co-author Peter Elkind agrees, saying that Skilling had been “paunchy, had big glasses, and was losing his hair.” (“Um… Hi, Pot? This is the Kettle….”)
To address the more serious issue, how would either Swartz or Elkind know that Jeff Skilling was a nerd, or is that merely their own speculation? Is commenting on a person’s appearance a legitimate criticism of their business decisions?
They follow up with a picture of Jeff that shows the big glasses and male pattern baldness. (I suppose he could have found a more stylish frame of glasses, the fucking criminal!)
“And then one day,” Elkind says, “Jeff Skilling woke up and decided to change himself.” The transformation is astonishing.
“He remade himself by sheer will and force of personality,” Elkind says. And it’s true. I love watching people change for the better, and this aspect of Jeff Skilling, this ability to change, is one of his strengths.
Mimi Swartz says that when he got Lasik on his eyes, everyone at Enron got Lasik. I think it proves leadership that a man can inspire a crowd like that, but I too might be wrong to allow the audience to believe the wave of newly glasses-less office was the result of Jeff Skilling. Lasik was a newly available technology at that time and thus Enron employees all had the ability to get the surgery at the same time. Then of course, the camera has to go to an extreme close-up off Jeff Skilling’s newly Lasiked eyes. The fact that the video wastes time on this trivia just shows how weak the ‘real’ evidence must be.
The camera pulls back and Bethany says, “I think Jeff Skilling is really a tragic figure in the classic sense of the word. He’s a guy that people describe as incandescently brilliant. But he is also a guy who is radically different than he, at times, portrays himself. He portrays himself as someone who is tightly controlled but in reality, he’s a gambler,” McLean says. “He gambled away huge sums of money by the time he was twenty years old by making wild bets on the market.”
Huge sums of money? Was Jeff Skilling independently wealthy? McLean says in her book that Skilling grew up in a modest household: “He wasn’t poor the way Ken Lay was poor, but his family lived on the thin line that separates the working class from the middle class. He grew up feeling that he couldn’t ask his parents for money because they didn’t have much.” ( Page 28 ) Two pages later, she identifies the “huge amounts” (i.e., $15,000 he earned from his work since age fourteen at a television station and a $3,500 workers compensation settlement he was awarded after he broke his back while working construction on a toll road in Illinois during one of his summers home from SMU). Assuming these figures are correct, how much could he have really gambled away before his twentieth birthday, considering he presumably used some of this money to pay his own way through college?
And what in the name of cheese whiz does that have to do with him being tightly controlled? Most businessmen are risk takers. Most of them have experience with both failure and success.
Now the movie gets into just making crap up. They show professional dirt bike fiends flying over hills and speeding recklessly around corners, suggesting that Jeff and his crew undertook similar kinds of risks. Again, if this is a documentary, why are they splicing in images that have nothing whatsoever to do with Jeff Skilling or Enron?
Jeff Skilling would take friends and small groups of customers on these adventures, but it’s telling that the director couldn’t produce a single person who was there to describe the events; Gibney at best relied on second-hand information and rumor. The idea that Skilling was doing something above and beyond normal adventure-seeking is just a smear.
Amanda Martin says, “We can speculate what kind of strange insecurities they were trying to overcome, but it made them feel good as men.” Martin is not only an attorney; she also apparently shares a passion for amateur psychology with McLean.
We don’t know what those trips were really like because all we have are a few pictures of fortysomething men looking exhausted after riding dirt bikes. No actual video of the riding is shown in the movie. No-first person account is given. But, even assuming that they were crazy, dangerous, risky, and all-out stupid, so what? Men need to do masculine things sometimes. And I think sometimes, just as people, we need to push ourselves, to go beyond our everyday experience to get to the other side, to know that we can do something amazing. Martin’s comments imply that this kind of behavior was endemic to Skilling who had something to overcome. In reality, Jeff was merely enjoying himself.
Ken Rice got some stitches in his bottom lip on one of these trips. The narrator makes it sound like he nearly died.
“It fed the whole macho culture of the place,” the narrator says. But again, so what? There is an enormous spectrum of personality and character traits between ‘macho’ and ‘criminal’, but this entire segment is meant to subtly tie the two together. And of course they show someone who has probably never heard of Enron as an example of this crazy macho attitude.
The very next picture shows Jeff with his glasses on. Which means it would have been before he got Lasik. But forget about honest chronology.
Bethany McLean says that Jeff Skilling said he liked “guys with spikes”, with something extreme about them. Who and what is she talking about? Extreme? I thought they were all nerds? Ken Lay, was he a “guy with spikes”? Cliff Baxter was way out there; he liked sailing his big boat up and down the Houston ship channel. Woo-hoo!
Bethany McLean takes the screen again to say that Cliff Baxter was very talented but a manic-depressive. I’m not sure how she knows that, unless she simply took his suicide as evidence of it. Her smear rises to the level of libel in this instance.
Lou Pai. Head of EES, Enron Energy Services. The narrator claims that Pai was Skilling’s lieutenant who “dispatched his enemies with incredible skill.” WHAT? Is Jeff now a mafia don and Pai some kind of ninja? What does dispatched mean in this instance? And who was dispatched? Is the originator of that term the narrator himself? The narrator says, “And if that meant leaving bodies behind, Skilling was certainly fine with that.” Jeffrey Skilling’s attorneys should be suing the balls off these filmmakers for this kind of slander. Bodies! I’m agog at the mafia language here. Jeff Skilling was a CEO, not an assassin. I’ve read every page of the indictment and murder was not listed among the charges.
Max Eberts, identified as “former PR for EES (Enron Energy Services)” jumps into the fray and says that Lou Pai was a mysterious figure, “the invisible CEO.” He explains that he would sometimes pass Pai’s glass walled office and Paiwouldn’t be there. All very mysterious! Probably out doing his second job as Chief Ninja.
They then claim that only money and strippers fascinated Pai. Which might be true, but so what? Then it shows strippers, because who can resist putting naked women in a movie about oil and gas intermediation?
The narrator says, bizarrely, that “it was all about the numbers.” You mean strippers can count? But why are they showing strippers? What do they have to do with Lou Pai or the collapse of Enron? Are these the actual strippers Pai supposedly hung out with? Why couldn’t the director find an actual stripper to talk on camera about Lou Pai?
Ebert says that Lou Pai would take the traders to the skinbars and one of the traders said something like, “Lou, how do you keep the scent of the strippers’ perfume off so your wife doesn’t know you’re at the bars?” And Lou replied that he’d stop at the gas station and spill a little petrol on himself to mask the scent. Then the trader said, “But then doesn’t your wife think you’re fucking the gas station attendant?” Then according to the man telling this story, two days later, the guy got sent to Calgary. Ninja powah! Of course the victim in this case was never located – which only goes to show you how deep the conspiracy went. Then to demonstrate the horror of being transferred to Calgary, a man was shown trudging through a blazing blizzard on the sideof the road with a gas can. Is this the victim of the banishment? No? Then why is he in this movie?
The narrative again shifts. Swartz, like McLean, uses the high school analogy, stating that Enron was like high school and everyone wanted to be popular. She then goes on to say that Skilling understood those rules better than anyone. So Jeff is not only a sophisticated conspirator, he’s also stuck in 11th grade. Gotcha.
To the tune of “Lovefool” by the Cardigans, the next segment opens with a mélange of scenes from the NYSE and news anchors gushing over Enron’s market performance.
Amanda Martin, ESQ. comments that all the sudden even people with very little disposable income began to play in the stock market because nobody could fail. It just kept going up, up, up.
John Olson says that Ken Lay was right there acting as a cheerleader, then it cuts to Ken Lay saying, “Obviously our stock has been doing very well and I think there’s a good chance we can see our stock double again over the next year to eighteen months.”
Again, a slew of shots of the NYSE. It’s odd that the video makers put this segment in as it shows that Enron was not the only club in town making money. Unless… you don’t think…. oh my god! Maybe everyone on the NYSE was in on the Enron conspiracy! Alert the media! Call the FBI! I figured it out!
The narrator then claims that Enron mounted a campaign to capture the hearts and minds of stock analysts. I don’t know of a publicly traded company that wishes to anger or disappoint the analysts but I’ve never heard of any organized campaign to entice them into rating them a ’strong buy’ (i.e., that’s called bribery and its illegal. I’m sure the Enron Task Force would have done something about that had there been a scintilla of evidence that Enron engaged in that kind of behavior.)
Amanda Martin, ESQ. explains that the stock price was on a ticker in the elevator, that employees were “surrounded by the health of the company.” She goes on to say that the stock price was an obsession among employees. Why this is shocking to a woman with a law degree and what appears to be forty-something years of life experience under her belt, I haven’t a clue, but apparently it’s slightly nefarious to her that the employees would want a high stock price.
Again that incessant, Love me, love me, say that you love me tune is played over statistics, effectively proving that yes, Enron did list stock on the NYSE.
Lerach joins again and expounds on this mysterious PR campaign while images are flashed to prove that Enron got some ink. He says that Enron was trying to convince the public that they were “heralding a new era.” Which they were.
Ken Lay and a member of the Houston Rockets basketball team say, “Come work for us!”
Jeff Skilling is shown in running togs before a community race. He likes sports, therefore he must be guilty (just ask Ron Artest.)
Ken Lay says, “We encourage people to do new things, try new things, step out.” Then says “We are more comfortable with people who are comfortable in an environment of change.”
The entry at 1400 Smith Street is shown, with the glorious tipped-back E icon. I think they just put this in there because they needed some filler. It really explains nothing other than there was a giant E on the wall, which I covet devoutly.
Jeff Skilling follows up on what Ken Lay said: “When you work for Enron, you’re going to see the newest thinking, the newest markets opening up.”
Swartz says, “They were so good at their acting that they convinced Corporate America that they were smarter than anyone else.”
What a snippy, bitchy attitude. In the first place, their smarts are not in question. If you were secure in your own, you wouldn’t have to put down Jeff Skilling and Dr. Lay. In the second place, they were smarter than everyone else; they were the ones running Enron, they were the ones seeing markets in weather, timber, bandwidth. Where were you? What were you doing? What were you thinking about and working on? I resent the dismissive attitude toward these leaders, and I especially resent the doubt that they could be “no smarter than the rest of us.” What is so threatening about admitting others might be smarter than you?
The narrator says, “Enron was taking enormous risks.” Then Jeffrey Skilling agrees, in this scene saying, “We like risk.” Of course, the video doesn’t allow for the context in which Jeff Skilling said that. Skilling had risk preferences, and would leverage Enron’s competitive advantage to find the risks he liked and that potential and existing investors – e.g. shareholders –would like him liking. He wasn’t just throwing himself at the mercy of the market and hoping things turned out okay. Risk management was an enormous part of Enron’s business, and Skilling’s essentially cautious nature is why he set up hedges in the first place: he didn’t want to play dice with shareholder value.
More scenes of the fake bike jumping crap are shown. The fact that the man is essentially backflipping into a canyon on a motor vehicle tells you that this is where the big accusations start coming in.
Bethany McLean speaks over a variety of charts showing the general decline of stocks in high tech sectors. She says Enron was a particularly big deal and then says, “Everybody on Wall Street was looking for the Next Big Thing and here you have Enron, which appeared to be a shining star of a company. It’s stock had gone up 90% in the year 2000 and over 50% the year before that.”
Agreed.
Amanda Martin, Esq. says, “We were the poster child of the new economy” while more magazine covers with Jeff’s image sweeps across the screen.
Ken Lay’s warm, sweet, authoritative voice says to his employees, “Well, you’ve done it again. Enron has just been named one of America’s most innovative companies…” And it shows the Fortune article that named Enron as the number one most innovative company in America. The same Fortune that Bethany McLean was writing for – the same Fortune that was apparently fooled by Enron this whole time.
The voiceover says that Enron’s overseas investments were performing horribly, then cuts to Jeff Skilling giving a presentation on Dabhol, a project in India. He says Enron has had a “great quarter and a great year in India. Phase One of Dabhol is in operation, generating power. Phase Two has been financed and is under construction.”
But Enron had failed to see something basic, the grinch voice intones, India couldn’t afford to pay for the power that Enron’s plant produced. “Now, Dabhol is a ruin,” grinch voice says.
This is not true. It is up and running today.
During the trial, several defense witnesses denied outright that there were problems with Dabhol. One of them was Wade Cline, the CEO of Enron India and the CEO and Managing Director of the Dabhol Power Plant. During Ken Lay’s trial, Assistant US Attorney, Kathryn Ruemmler, asked Cline, “Dabhol, in late 2000 and 2001 was a deeply troubled project, was it not?”
Cline answered, “No, ma’am.”
The narrator says: “Though Enron lost a billion dollars on the project, Enron paid out multi-billion dollar bonuses to executives based on imaginary profits that never arrived.” Where did the “billion dollar” figure come from? Fastow is a possibility. From his trial transcript:
Q. And were there discussions about that in these meetings?
A. Yes. I think that’s why we had Dabhol in the troubled asset category or below expectations category in the – for the board meetings.
Q. Were there expectations about the write-down or a write-down that would be coming for Dabhol?
A. Yes. There were — there was a wide range of potential write-downs that people were discussing, but what I took away was likely a write-down ultimately in the $500 million, maybe up to billion-dollar range.
So, a $500 million write-down ‘likely.” I’d like to know if there ever was one, and when.
Bonuses at Enron were not always dependent on profits; they were structured differently in the various units, changed over time, and were based on several criteria. To address the primary point, the local government of Maharashtra refused to honor the contracts in place and pay for the electricity. Lawsuits were in fact initiated to force payment. But it really doesn’t matter. Jeff Skilling was not a fan of third-world investments, and certainly not a fan of Dabhol – and his skepticism of such projects were justified.
Amanda Martin says, “The pressure was enormous to come up with the next new idea. Failure was not an option.”
A news anchor then says, “Enron buys out Portland General.” The voiceover says, “The merger with P&E put Enron in the electricity business.”
The purchase of PGE was initiated in 1996 and completed in 1997. A spot market did not open up in California until 1998. The so-called California power crisis did not happen until 2000. The chronology in the movie is incorrect, and it assigns nefarious motives to Enron when in fact there were none.
Ken Lay says that the merger will allow Enron the opportunity to become the world’s largest marketer of electricity and natural gas at both the wholesale and retail level nationwide. He was, of course, correct.
A PGE lineman says he’d never heard of Enron until Enron bought them. He states that all PGE stock became Enron stock. “I looked around and all the guys around me buying Enron were doubling their money. The whole time I was there, I put in the maximum I could into my 401 and savings.”
Cut to Ken Lay: “Portland General has some good earnings and cash flow.”
Infamous video is played: Skilling and HR executive Cindy Olson speak to employees. Cindy Olson reads a question from the employees that says, “Should we invest all our money in Enron stock?” Cindy’s answer was, “Absolutely!” She turns to Jeff and says, “Don’t you guys agree?” Jeff smiles and nods his head.
Again with the NYSE shots is a news anchor’s voice saying, “Enron is a big winner today!”
Bethany McLean’s voice comes over again, saying, “What fascinated me is that all the analysts had strong buy ratings on the company stock.”
Fascinated? Sure, everyone was fascinated by Enron’s strong performance. But why do I sense something sinister about her fascination?
Sen. Lieberman asks, “Why were the analysts blinded by the company’s deceit?” This is interesting because no trials had been had yet. Nothing at all had happened except Enron’s bankruptcy. There was no proof any deceit, or that anyone was blinded, except for the efforts of Enron demonizers/myth-makers. It’s the same circular reasoning that is the foundation of this music video; first assume there was widespread fraud, then explain how it happened.
An analyst tries to answer by saying, “We relied on the information that was available at the time.” Which was true, they did rely on the information and the information was accurate.
Jeff says, “We’ve been absolutely up front with the analysts.”
Jim Chanos is introduced.
Now this guy, he’s a piece of work. He says here, “Jeff Skilling was the critical component of creating the Enron illusion.” Consider the source. Jim Chanos is a notorious short seller. In other words, he makes his money when a company’s stock declines, and he made a mudslide of money on Enron’s failure. He is the person who fed Bethany McLean the first nibblets of suspicion that Enron wasn’t as strong as it appeared because he was attacking the stock. In February 2001 he had a meeting of a group called Bears in Hibernation, a group whose agenda is exclusively devoted to deciding which stocks to attack. Enron was the stock they chose. Jim Chanos is the last person whose opinion about Enron you should take at face value. Peripherally, like Lerach, his ethics are questionable, though for different reasons: Chanos was connected to the hooker that serviced Gov. Spitzer and eventually caused his political downfall.
The narrator says that when analysts called Skilling, they were willing to believe anything he told them. How this relates to Chanos’s theory of an “illusion” is mysterious since it assumes that analysts were unable to think for themselves. Analysts, it should be noted, were extremely sophisticated and from companies like SmithBarney, Goldman Sachs, and others. Why were they willing to take Skilling’s word and no other CEO’s? The answer: they didn’t. They too looked at the 10K and Q filings, and the many other public filings. They talked to the Enron people on the phone and in person. They attended analyst conferences, and participated in earnings release calls four times per year. Additionally, the analysts did their own industry and company-specific research. They were not imbeciles, blindly taking Skilling’s dictation. They reported accurately that Enron was booming.
Then, without any support or documentation whatsoever, the narrator says, “Any analyst who didn’t buy the company line became an enemy of Enron.” Oh really? Why didn’t they go to the SEC and complain? Why didn’t they go to their bosses at Merrill Lynch, Smith Barney, Citi, First Boston, Credit Suisse, and Deutche Bank and complain that they couldn’t get any real information from Enron? Not a peep, not a word.
“CFO Andy Fastow had his eye on John Olson,” says the narrator. “One of the only analysts skeptical of the Enron story.”
Then it cuts to John Olson saying, “Enron loved analysts’ strong recommendations.” Well what company, pray tell, doesn’t? But don’t let critical thinking get in the way, there’s a witch hunt on!
Olson, then an analyst with Merrill Lynch, claimed that Andrew Fastow called Merrill and told them that ‘you either get somebody on board with us or we’ll take our business elsewhere.”
Olson, like Chanos, is not a particularly credible witness. Would he admit he was a not the smartest analyst on the street and perhaps didn’t understand Enron? He didn’t know what happened inside Enron, and of course Gibney doesn’t put up anyone that might suggest that there was another side to this story.
Merrill fired Olson, and “soon after, Fastow rewarded the bank with two investment banking jobs worth fifty million dollars.”
Fastow might have had the authority to steer business to specific banks, but I think calling this a “reward” for firing an analyst is a little extreme, and extreme speculation. Is John Olson’s word really worth fifty million dollars?
The narrator then shifts gears again and says that Skilling decided to take Enron into cyberspace. Again, the chronology is wrong and this isn’t exactly true anyway. Skilling at first was not convinced it was a good idea to but the platform online. At trial, he said, “I was not a big fan of these electronic trading platforms. I — I didn’t think it was a good idea, and I think you can spend a lot of money on it with no return.”
An ambitious woman in the London office named Louise Kitchen actually assembled a small group who worked on the platform for over six months. John Sherriff, who was the head of the office in London, flew to Houston and presented it to Skilling. He asked, “What do you think?” After further consideration of the more developed idea, Skilling was sold. “Good,” Sherriff said, “because we’re rolling it out in six weeks.” (More on EnronOnline here.)
Ken Rice, of the busted lip fame, was the head of the group that would now trade bandwidth on the internet like energy or pork bellies. “Enron has found a way to stay ahead of the curve,” Rice says.
A few people have told me that Ken Rice was not well suited to his role of co-CEO of Enron Broadband Services. Every person I spoke to has said the same thing: He wasn’t really cut out for that position, though they never saw him do anything criminal.
In 1999, after years of preparation, Enron unveiled its Enron Broadband Services division. It was a major focus of the annual conference Enron hosted for securities analysts on January 20, 2000. The reception to this was so great that on January 20, 2000, the stock bounced from $54 to $67.
Later, this conference would become key to the case against the Broadband Three. Prosecutors allege that they lied at the conference to inflate the stock. This is not true. One of the Three, Rex Shelby, had never sold or bought any stock before this date. He was a complete novice, and he sold on the advice of his friend who was a little more sophisticated in these matters.
(For more about the conference and the allegations against the Broadband Three, click here)
In July 2000 Enron announced a deal with Blockbuster to deliver video on demand. Prudential analyst Carol Coale says, “It was like being at a religious cult meeting.”
Coale seems to be talking about the January 2001 conference, not the Blockbuster deal from six months earlier. But Gibney conflates the two events. Blockbuster was not EBS. It was just a part, and a relatively small and transitory one at that, of a much bigger business. Enron explained it well, and was putting that business in to action. The analysts understood that. But Gibney/McLean/Elkind don’t, or no doubt more accurately, don’t want to, instead choosing to mis-describe it so it fits their bogus storyline. Nobody has challenged them about this.
The narrator claims that one analyst (unnamed) summed up his recommendation to his investors in one word: wow.
Enron stock soared 34% in two days.
“You can tell from the response from the stock market that they like the strategy. It makes sense,” Skilling said.
The technology, says the grinch voice, didn’t work and the deal with Blockbuster soon collapsed.
That’s not true, but tough to prove. The first EBS trial – in which the Task Force tried to prove the technology didn’t work — ended in disaster for the Task Force. One source for some interesting information is this Houston Chronicle article about an engineer’s testimony about the software. Lawrence Ciscon, Enron Broadband Services’ former leading software engineer testified that the network operating software that prosecutors disparaged really did exist, was being phased in on schedule and has since been patented. He also reports that he felt threatened by the Task Force, but that’s peripheral to this discussion. And Ciscon wasn’t alone: many of the engineers who worked on the technology testified that it did indeed exist. At the trial of the Broadband Three, one of the defense witnesses who actually coded the software was on the stand. Rex Shelby’s attorney, Ed Tomko, tried to admit the software into evidence but Judge Vanessa Gilmore would not allow it, saying that the code would be unintelligible to the jury. The programmer was ready, willing, and able to walk the jury through the code line by line but was unable to. This is a travesty of justice.
Furthermore, the government seized the software and all servers during the investigation and basically “lost” all the important defense evidence.
Of course, the movie was made before the trial so they could have known none of this. But they could have known that there was another side to this story – such as the fact that the software did in fact work; it had been used to stream a tennis event, the Country Music Awards, and some other events. That is a fact. Intelligent, honest people can argue over the question: When is software complete? but there is no doubt at all that the software did exist and was working. (Incidentally, Rex Shelby said on the stand that “software is not complete until it’s obsolete” (meaning, you keep refining software forever).
Bethany McLean: “By the end of 2000 Enron was running out of ways to make the Broadband business look successful. They’d tried every trick in the bag to try to create the illusion of a business where there was none and the people who were working there were getting increasingly desperate.”
McLean was wrong. EBS was still doing well then; the bottom didn’t start falling out until end of February and March, and if Enron hadn’t gone bankrupt would no doubt be hugely successful today (though this is an example why Enron such an easy target, given that because we never got a chance to see what would have happened folks can say almost anything and can’t be absolutely proven wrong.)
The voiceover claims, “The executives started selling their stock.” He lists the figures:
“Ken Rice had sold 53 million, Ken Lay had sold 300 million, Cliff Baxter, 35 million, Jeff Skilling, 200 million.”
How accurate are these numbers? For example, Skilling was asked about a sale of $66 million during his congressional hearing. Are we to assume that the congressional questioners didn’t care about another $134 million? The discrepancy can’t be overlooked, but was but untrustworthy Gibney.
In any event, the innuendo is hugely suspect. Again, let’s take Skilling. He periodically sold some of his constantly growing Enron stock positions. But he didn’t dump stock and run. He held onto massive amounts of stock right up to the bankruptcy and after (as he proved at trial, at the time he left Enron, he was a net investor in Enron and had more stock when he left than while he worked there). Like so many others, he too lost millions when Enron collapsed. If he were truly as greedy as his critics would haveyou believe, he would have maximized every bloody dollar.
It’s also worthy to note that in 1997 when Skilling became president of Enron Corporation, he left close to $50 million dollars on the table that he was entitled to. When he started the Wholesale operation, he was given an equity stake. When he became President of Enron Corporation in 1997, it was decided that he would switch into Enron stock and options (in other words, the interest he had in Wholesale was cashed out in the form of Enron stock and options.) Mr. Skilling decided, of his own free will, not to take all the money that he was entitled to under the cashout formula. During the trial he said, “I didn’t think it was reasonable to hold the company to that formula, because ECT had been so successful that the numbers were — were pretty large. And, so, I just — I agreed to a much lower payout.”
He was entitled to $70 million. Instead of the full amount, he took $21.5 million, leaving close to 50 million dollars on the table that was rightfully his. Does this sound like the actions of a man consumed with greed? Can you honestly say that you’d leave that money on the table for your employer?
Chanos says, “The fraud is the reality.” No fraud has yet even been mentioned in this movie. Not one thing has been proved or even, come to think of it, alleged. All that has been insinuated is that Jeff Skilling was a nerd who turned himself into a handsome corporate superstar, that lots of money flowed through the building, and that Lou Pai liked his women trashy.
Again, that thought isn’t complete or explored before the director jumps to a new subject.
A person asks Jeff Skilling how the new weather trading is going. Skilling explains to the audience, “We have a market in weather.”
The narrator mocks him: “When Enron announced its latest plan to trade weather, people wondered whether it was good science or science fiction.”
Here’s the answer: good science. While they were never a big deal to Enron’s bottom line, weather derivatives were a complete success. They are traded today.
A reporter walking with Jeff through the office, asks, “Do the weather guys get punished here if the weather is wrong?” The reporter’s question is completely meaningless, as either he was joking and having fun or he didn’t understand the product. Gibney exploits this, and the expected ignorance of the audience and reviewers of his cartoon. Jeff playfully leans over to a guy in a cube and says, “You have whip marks there on your back, Mike.”
Amanda Martin, Esq says, “Jeff, as time went on, had a harder time admitting things were wrong. And I have to believe that when the lights went out at night, he knew what was coming.” What exactly was wrong? What indication did he have that things were wrong? What is the basis for Martin saying this?
Then the director splices in some ridiculous footage of a basejumping guy to illustrate this false point.
Bethany McLean admits that Chanos contacted her and told her to look into Enron’s financials. McLean claims she poured through Enron’s financial statements but it wasn’t clear that there was fraud here. ‘But it was clear that something didn’t add up.”
What didn’t add up? It’s not revealed in this music video.
Rep. Henry Waxman (D-CA) says, “Bethany McLean, a reporter from Fortune magazine first raised questions about Enron’s financial condition.”
That’s not exactly true. The first article to raise “questions” about Enron’s mark to market accounting was Jonathan Weilin a September 20, 2000 Wall Street Journal article. It is also worth noting that the questions Weil raised had Enron-friendly answers.
Bethany McLean’s Fortune article, Is Enron Overpriced? followed on March 5, 2001. But McLean doesn’t bother to clear up the record, and again, that false statement makes it into the movie.
Waxman continued: “She asked a simple question that nobody could seem to answer. How exactly does Enron make its money?”
Nobody could seem to answer it? Jeff Skilling answered it over and over again, so did Rick Causey, Ken Lay, Mark Palmer (PR person, not the Mark Palmer in EBS), and an entire corps of public relations people. So to whom is he referring? McLean? Himself?
Skilling responds, “I very specifically remember the conversation that I had with the Fortune reporter. She called up and started asking some very, very specific questions about the accounting treatment on things. I am not an accountant.”
Bethany then interjects: “Jeff became very agitated and said that people who ask questions are just trying to throw rocks at the company and that I was not ethical because I hadn’t done enough homework.”
Waxman says it sounds like Skilling is bullying her.
Skilling responds, “I said to her I have six minutes before I have to be in a meeting and I can’t get into the details and I’m not an accountant. And she said ‘well that’s fine, we’re going to do the article anyway. And I [Skilling] said that if you do that, I personally think that’s unethical.” He then explains that Enron executives flew to New York to sit down, not withthe editors but with the reporter herself to discuss Enron’s accounting to help her understand the questions she was asking.
“And the next day we sat in this small, dark, windowless conference room for about three hours,” McLean says. It was her office. Ostensibly she could have found a better conference room. She goes on to say that when the meeting was over, the other two executives packed up their things and left the room but Andy Fastowturned around and said, “I don’t care what you write about the company, just don’t make me look bad.” It’s telling that McLean doesn’t reveal what they actually did talk about at her meeting with Andrew Fastow, Mark Palmer, and Mark Koenig. Did she understand what she was told? Bet not.
Grinch voice comes in and says, “And Fastow had good reasons for not wanting to look bad.”
Bethany McLean mentions the partnerships that Fastow set up. Then it cuts to her article that ran.
Skilling talked to his employees about the article. He says the gist is that Enron is sort of a black box. He holds up his hands and says, “Sorry, it’s true. It’s just difficult for us to show how money flows through, particularly, the wholesale business.” Skilling explains that the reason for the article is because Business Week had a favorable article the previous week. Enron was essentially a source of competition between the two publications.
A new segment begins with a picture of Andy Fastow. He looks typically Enron: sporty, handsome, accomplished, even while wearing a baseball cap and a t-shirt with the mascot of his son’s little leaguge team.
The narrator says, “Andrew Fastow. His job was to cover up the fact that Enron was becoming a financial fantasy land.” What? Fastow created the partnerships that later came under such criticism, which, ironically, for the most part were good for Enron, its shareholders and its customers. His job was to secure financing for Enron, which he apparently did very well.
Peter Elkindsays that Enron is hemorrhaging money yet documenting positive income on its financial statements. “The way to do that is structured finance,” he says.
Wait just a minute there, Boss. Structured finance involves real negotiations between real parties that create real rights and obligations that justify the accounting treatment as both a matter of form and substance. Saying ’structured finance’ has become something like saying ‘abracadabra’ — a spell is cast and all ability to understand and think critically is lost.
Sharron Watkins makes a re-appearance. She says that Fastow idolized Jeff Skilling.
Grinch voice says that to please the boss, Andy had to find a way to keep the stock price up while the company was 30 billion dollars in debt. We never hear in this music video what Andy did in this regard; how was Andrew Fastow responsible for keeping the stock price up? The grinch misses a key point here. He should not have said, “30 billion dollars in debt” – even assuming that was the right number — but that Enron “had $30 billion of debt.” The fact Enron had debt was no secret. Every large company has billions of dollars of debt. More importantly, Enron was solvent, and was solvent when it went bankrupt.
“It was black magic,” Lerach says. How clever.
While Fastow is shown giving a presentation, Sharron Watkins says, “Andy, we all knew, didn’t have a strong moral compass.” Yet she never saw fit to report her boss to Skilling or Ken Lay, or even utter her suspicions to others.
She then says, “It’s almost as if Jeff Skilling set up Andy.” And of course a nefarious overlay of Skilling’s image comes up over Andy’s presentation.
Sharron says, “There is a Body Heat element to this where Skilling is Kathleen Turner and Fastow is William Hurt.” That’s just a … wow… That analogy is …. fun. She goes on to say, “In the end, he got suckered into helping all the executives meet their earnings.” Again, why is Andy the victim here? But a larger point should be made that it is the entire purpose of a company: to meet goals.
Jeff Skilling appears before the panel again. He says, “In retrospect, I wish I never heard of LJM.”
Asked if it was his contention that he had heard of LJM and thought it was appropriate, Skilling replies, “Arthur Andersen and our lawyers had taken a very hard look at the structure and believed it was appropriate.”
The Enron board signed off on all the partnerships and the deals.
Andy Fastow is shown talking to some Merrill bankers about a deal.
Grinch voice intones that both Arthur Andersen and Vinson & Elkins were making money from Enron. Amanda Martin says, “They all had their hands out at the table.”
Counselor Martin seems to be ignorant of the fact that business-to-business is a legitimate way to earn money. This section is to imply that there was a multi-business conspiracy going on, a willingness for support companies to accept Enron’s ‘fraudulent’ activities because they were being paid.
Several images of a Senatorial investigation flash across the screen, ending with Carl Levin accusing Merrill Lynch of an improper Nigerian Barge Deal. The segment ends with innuendo and rumor. The postscript to that, of course, is that the people involved in the Nigerian Barge Deal have largely been exonerated.
Bethany McLean’s voice is superimposed over an image of Skilling. She says, “Over the year 2001, Skilling became increasingly despondent. He’d always been a moody guy, but people who knew him said he became increasingly volatile, showing up for work unshaven, looking blurry-eyed. I think it was the battle of holding these two totally disjointed thoughts in his mind at the same time.”
Then it goes back to Bethany to allow her to explain what Jeff Skilling was thinking: “One [thought] is Enron is a superstar company and the other of feeling like it was all crumbling away.”
Who are these “people who knew him”? Where are they? Give me some names so I can interview them. I’ve spoken to many “people who knew him” and they don’t use words like “moody”, “volatile”, “unshaven” or “blurry-eyed”.
Secondly, it appears true that he was becoming irritated with work. He has said innumerable times that he was just plain tired. He had given more than 10 years to Enron as an employee, and many more before that while he was with McKinsey& Co. as a consultant to Enron, and he was growing tired of the demands placed on him. He wanted to spend more time with his family. Accepting Bethany’s statement does not prove any sort of conspiracy. It proves he was tired.
The voiceover says, “The first cracks in Skilling’s public image appeared in a conference call with analysts in April, 2001.” More specifically, it was one of four quarterly conference calls related to Enron’s release of information about its earnings.
Short seller Jim Chanos appears to explain that, “Skilling took questions. And about midway through the session, there was a question that was aggressively wondering out loud, why it was that Enron, as a financial services company in effect could not release a balance sheet with its earning statement like most financial institutions do….”And quite audibly you could hear Skilling say, Asshole.”
Which was true. Here’s some context: Analyst, Richard Grubman, a short seller who may or may not be one of Chanos’ goons from his Bears in Hibernation, had asked Jeff Skillingin the past to issue the balance sheet with the earnings release. Skilling had explained that the balance sheet is not issued with the earnings since the two sets of data, earnings on the one hand and the balance sheet on the other, were prepared at different times out of necessity.
Transcript from the first of the two calls in which he asked the same question:
For example, in earnings release conference call, held January 22, 2001;
Richard Grubman: I was wondering if you could tell us what assets and liabilities from price risk management activities were at year end, both current and non-current, so those four balance amounts. Thank you.
Jeff Skilling: I don’t have that information with me.
Paula Reiker: The question had to do with price risk management and that comes out with the balance sheet, which will be disclosed in our 10K. In terms of impact on overall cash flow, we would expect, you know, for the full year 2000 that earnings would roughly equal cash flow.
Richard Grubman: I guess I don’t understand why we can’t get sort of seminal balance sheet data now.
Mark Koenig: Well – this is Mark Koenig. And Rick Causey is here, our accountant. We have not finalized all of the balance sheet data and we’ll disclose that as we put that together with the associated notes that are important to accompany that [the 10-Q]. That’s the reason.
Grubman: OK. Thank you.
The second conference, in which the same question was asked yet again, Skilling lost his cool and called the guy an asshole.
Nevermind that his rude word is not illegal or in this instance particularly improper, the camera guzzles up images of people discussing the ‘Asshole’ comment, specifically Waxman saying, “And as I understand it, you called the guy an asshole.”
Skilling is composed as ever but the guy to his right is cracking up. The man to Skilling’s right, though, is an interesting story in itself. He was counsel for certain plaintiffs who’d already sued Enron civilly at the time. In other words, he was a plant. He was put there to makes faces and belittle Skilling on national TV, and apparently in partial reruns like the ones used in this music video.
Bethany McLean says, “And this just caused unbelievable amounts of consternation all across Wall Street because people thought, ‘a Fortune 500 CEO losing it like this? Publicly calling an investor an asshole?”
Skilling replies, “If I could go back and redo things, I would not, now have used the term that I used.”
The plant-guy to his right laughs again:
Cut to Bethany McLean saying, “Mark Palmer, Enron’s chief PR guy even ran a note up to Skilling telling him to apologize and he just took the piece of paper and tucked it under the pile of papers on his desk. Afterward, Enron’s traders who had erupted into cheers when Skilling called this guy an asshole made him a sign. It was a play off Enron’s motto, Ask Why.”
Amanda Martin, ESQ. takes to the screen again and says, “My personal feeling is that Jeff looked at the numbers and he knew that we were in a massive hole.” Jeff Skilling was CEO. He looked at numbers every single day. It wasn’t as if he woke up one day and asked, Where am I? What are these numbers? Why am I sitting behind this large office behind a custom-made desk with a panoramic view of Houston? He had been there every step of the way, and if we remember what Bethany McLean said about his insistence on using mart to market accounting before he would agree to work for Enron, we also know that he had built up the entire Wholesale operation at Enron. No doubt, Skilling’s only sense of surprise came much later, when the company collapsed.
Shot of Jeff while Amanda continues, “It was the only time I saw him truly, truly worried about keeping the stock price up and he just kept saying to me, ‘I don’t know what the hell I’m going to do.’” Really? When did this ‘only time’ happen? Might this be an example of the rumored taking out of context of what Ms. Martin said?
Peter Elkind appears onscreen again to say that the Broadband business was in meltdown as Jeff, as Chief Operating Officer, was in his office when Ken Lay came in with swatches of fabric for the new G5, 45 million dollar corporate jet Ken wanted to buy. To me, this speaks to Dr. Lay’s and Mr. Skilling’s honesty when they said that Enron was in strong financial shape.
Furthermore, Jeff Skilling was promoted to CEO on February 12, 2001. If Skilling were still COO, this incident would have been before the ‘asshole’ comment, so this entire ’story’ is completely taken out of sequence, much less context. Secondly, where did this story come from? One can safely assume Elkind wasn’t in Jeff’s office when this incident happened. How does he know this happened? Why couldn’t they produce the person who actually was in Skilling’s office when this event ostensibly occurred? Or is just so much Enron rumor that continues to live on as truth?
The narrative then does a crazy jump, which is consistent with Gibney’s apparent inability to tell time. One needs to take things out of sequence to distort and avoid the true story, I suppose, and this a quick and easy way to do it. Art, comrade, Art!
Max Eberts is introduced as ‘Former- PR at EES (Enron Energy Services)’. Yet no title is attributed to him, no dates of his employment at Enron. Technically, he could have been a one-semester intern, and we’d not know it from this video. But his word is taken for the gospel when he says that during the quarter there was always this impression that Enron wouldn’t make its numbers, but somehow, oddly, Enron always came through. Then one day, somebody (again, the unnamed ’somebody’) asked Tom White, Lou Pai’s second-in-command, how they made their numbers and White’s reply was one word: California.
It opens with that OC song, ‘California… here we come… California….’ and as fitting this music video, there are some nice stock images of Cali.
The narrator says, “The first clues to Enron’s new strategy hit California with a jolt.”
NEW? What? What is this guy even talking about? If it was new, then the Max Eberts was mistaken when he said that Enron “always” made their numbers on California? But it’s a lie either way. California was a troubled market, similar to Cuiba and Dabhol.
Now we’re into one of the most controversial areas of Enron, and one of the most misunderstood. Before this goes too far, let’s just immediately skip to the court transcript and find out what Jeff had to say about California:
(From Jeff Skilling’s cross examination. Questions are from Mr. Sean Berkowitz.)
Q. All of those risks [regulations in foreign countries] that are separate and apart from risks that you’d have if you invested the money here, correct?
A. Unless you’re in California.
Q. We’ll talk about California
A. Okay.
Q. Do you think that’s funny? You were smiling. “Unless you’re in California”?
A. I think the –
Q. What happened out there, do you think that was funny?
A. I think the regulatory environment in California was not at all dissimilar to the regulatory environment in Brazil. In fact, they were very similar.
Q. You previously made fun of what happened in California, right, Mr. Skilling?
A. I think probably fair to say that I felt the State of California was unfairly targeting Enron.
Q. And you publicly made jokes about the situation out there, didn’t you?
A. A joke, yes.
Q. And you regret that now?
A. I think — you know the situation behind that. You know the situation that was going on.
Q. Do you regret making that joke about what happened in California now, Mr. Skilling?
A. Yes, now I do.
Q. All right. To get back to international assets.
In Skilling’s congressional testimony, he explained, “As far as the joke related to the Titanic, all I can say is that was at a time of very, very frayed tempers as a result of the situation that was going on in the state of California. One week prior to that meeting in Las Vegas, where I made that statement, the highest law official in the state of California, Attorney General Bill Lockyer said – and let me quote – “I would love to personally escort Ken Lay to an eight-by-ten cell that he could share witha tattooed dude who says, quote, ‘Hi, my name is Spike, honey.’
“That was May 22, 2001. That was the kind of stuff going on. Can you imagine what tempers were like? I know Mr. Lay. I’ve worked with Mr. Lay for a long time. Mr. Lay doesn’t deserve prison rape or the suggestion by the top law enforcement official in the state of California that he be raped in prison when he hadn’t been charged with anything and hadn’t been found guilty of any issue.”
Let’s get back to debunking this music video posing as a serious documentary.
Three minutes straight is dedicated to the rolling blackouts in California, images of streetlights not working, powergrids, images of substations.
Former Gov. Gray Davis gets in on the action by saying, “When I ran for governor in 1998 not one human being asked me about electricity.” 1998… was about the time Enron bought P&G and there was not a whisper of controversy? How can that be?
Joseph Dunn, state senator, says that “California was selected by Enron to experiment with this new concept of de-regulated electricity.” California had been deregulated since 1996.
Enron was involved in public debates in mid-1990s, and Jeff among others gave testimony before CA legislature and other such places, about the CA deregulation. Enron became opposed to the “deregulation” to be adopted as it became clear what was going to be adopted, and correctly predicted it would be a disaster, the primary concern being that prices to consumers weren’t to be deregulated. It was during one of the testimonials that this picture was snagged. Skilling is testifying that reducing energy costs is only one benefit from choice and competition. Note the big glasses. This means the conference happened at some point in the past, before things got bad in California, not on the precipice of disaster, as the video tries to imply.
The narrator then goes on to say that inside Enron, California was “little more than a joke”, whatever that means, and that “the joke would be on California.”
Bethany McLean’s voice comes over again and tells us that Tim Belden was the head of California’s energy desk. “Tim Belden was a believer in free markets,” McLean says (as she said about the traders in Houston, as well), and “he poured over documents about the energy industry looking for loopholes that Enron could exploit to make money.”
How she knows this is again a mystery. It is possible but unlikely that Belden spoke to her in the writing of her book, but she never indicates the source of this statement.
The narrator explains that after the bankruptcy, a memo surfaced which showed the names of some of Belden’s strategies. (Get Shorty, Death Star, Wheel Out, Fat Boy, Ricochet).
It should be noted that during his trial, Jeff called the names ‘unfortunate’. The names flash across the screen, appearing to drip blood, which is creative and might be appropriate if you’re making a specific point about the strategies themselves, but this video is approaching the audience as an objective arbiter of the truth.
Then the tapes. The tapes that everyone uses to pin a host of misdeeds on Enron, the tapes of activity that Jeff Skilling had no control over and was not part of, are all blamed on him. And the really strange thing is that they show no wrongdoing whatsoever. Not even Gibney or McLean could pinpoint a crime in the tapes. The image of a greedy corporate titan had already been created, so you’ll find nothing in this music video about what was wrong with anything said in the tape excerpts included.
Interestingly, McLean had written in a June 17 2004 column of hers in Fortune – well before the music video was released– that “Lots has been made of the newly released transcripts of Enron traders glorying in the millions they were making from California. Typical trader talk, mostly.” The mostly referred to something other than what is in the tapes shown here, and was wrong too by the way.
Again, what is so noteworthy about the names? CIA headquarters is called the Death Star by almost everyone in Washington. The term isn’t criminal, or even controversial, but Gibney makes a misstep here and assumes that the term would be offensive to his audience.
“The tapes revealed contempt for any values except one: making money,” the narrator says.
The trader identified as Tim Belden is speaking with an unidentified trader saying that he’s trying to “make money”.
The narrator then claims that traders began to export power out of the state. “When prices soared, they brought it back in.”
The implication is that moving power is a bad thing. The fact is, the Enron served the entire West Coast. Remember Portland General, for instance? Enron served the entire west coast, up into Canada. It’s true that power flowed in and out, but its true for anywhere. Power is not something that is a constant steady stream. Enron’s business model in California was the same as Enron’s gas bank which enabled a product (gas or electricity) to be produced and consumed in an efficient way.
The situation in California was worsened by the fact that even in its “deregulated” state, it was still a tightly controlled business environment. Producers were told by the state of California that they had to sell their electricity at a certain rate. Enron was not a producer. They were a marketer. (This puts them one step away from any scandal, but I’ll get to that in a minute.) If producers realized that they could get a better price for their product in, say, Oregon, or Washington, then they would push and/or displace the energy from California and put it elsewhere. Now, putting that together with the gas bank idea, you can see that if it’s winter, since California has mild winters but winter in Seattle and Portland and even in Reno can be brutal, you can understand why the producers would push their electricity to those places. In summer, California needs the energy more (i.e., Portland has very mild winters.) The fact that Enron transferred energy around is NOT indicative of illegality, impropriety, or even bad business judgment. It was exactly what they were being paid to do.
Sen. Barbara Boxer asks Jeff Skilling if he had anything to do with the rolling blackouts. Skilling defends himself. Boxer harangues him for a few minutes, and then Skilling sort of realizes that he’s never going to explain it to her and he dismissively smirks.
The narrator says – falsely – that Enron created “artificial shortages”. It was only artificial in the sense that some producers wanted to sell their product to another market and Enron facilitated that. The primary reason for “shortages” — which really wasn’t a shortage but was instead just increased demand while supplies decreased — was an absence of rainfall/snow in the west the previous winters and massive increase in demand in among other places the booming Silicon Valley. (Remember the dot-com craze?)
The scene then shifts to the infamous scenes of California wildfires. California always has wildfires. Where these caused by Enron? How so?
Nancy Rapoport, Dean of the University of Houston Law Center, appears to discuss the Milgram Experiment to “discover what characteristics were common in evil people”. The objective of the experiment was to determine the nature of obedience. But even established history is up for debate where Gibney is concerned. “Was there an evil strain,” Rapoport muses, “or could normal people be made to do really evil things?”
Who is she accusing of being evil? Jeff Skilling? The traders? Is evil really the appropriate descriptor of these people?
The video then shows some footage of the infamous experiment in which a subject is told to shock some other subjects with increasing voltage. A stern biology scholar dressed in a white technician’s lab coat instructs a volunteer to shock an unseen victim. The ‘victim’ was a volunteer who was part of the experiment and was not really being shocked. The men who participated in the experiment almost universally continued to shock the victim to death merely because the white-coat told them to.
The footage is spliced in with unidentified traders speaking. “This is the coolest thing I’ve ever done,” one says superimposed over images of a sign in a shop door that says NO POWER. There is no indication the traders are discussing the outages. And what does that have to do with the spliced-in Milgram footage? What is the connection Gibney is trying to make? There is no connection at all, but the jarring footage insinuates that Enron was in some way like the Milgram experiment, but the analogy is incredibly weak. Who is forcing whom to push buttons? Who is forcing whom to do bad things? It’s a ludicrous point, without even a wisp of reasoned thought.
Gibney shifts back to politics and says that Ken Lay met with Dick Cheney, encouraging the Vice President not to put federal price caps on the cost of electricity. Then Gray Davis is shown again with the outrageous statement, “At the time, Gray Davis was a likely candidate to run for President. Ken Lay knew that might give his friend George Bush a political reason to oppose California’s appeals for federal price controls.”
This is absolutely hilarious. The Ken Lay-Dick Cheney meeting occurred in April 17th, 2001. Assuming this is the same time period that Davis was pondering a run for president (and I admit, it is a reckless gamble to assume anything as far as Gibney’s chronology), then at the time, George Bush’s presidency would be three months old. At this point, no names for Presidential candidates had been offered for the 2004 election because the elected president Bush had only begun his term on January 21, 2001. Is this statement about a possible run on the Democrat ticket in 2004 some kind of flattery? Is it a thank-you to the governor for agreeing to appear in this propaganda video? Whatever else it might be, we can say with certainty that it’s false.
The narrator then asks, “Did Ken Lay and George Bush have a political agenda to blame the energy crisis on Gray Davis?”
Gray Davis responds like a fourteen year old girl and actually says, ‘Hell-o!’
The next scene says, “The state’s unpopular governor….” But wait! I thought this was the next Democrat candidate for president? But anyway: “Beset by an ailing economy and a thirty-eight billion dollar budget deficit, Gray faces possible recall. And rumored as a replacement, movie star Arnold Schwarzenegger.”
The special recall election took place on October 7, 2003 and the results were certified on November 14, 2003. By this time, Enron was two years gone. We appear to have a Gibney chronological problem again.
A man who isn’t identified in the movie says, “Could I have predicted an energy crisis because of deregulation? Yes. Could I have predicted Arnold Schwarzenegger would be governor because of it? No. It’s like a bad science fiction movie.”
No, Gibney’s music video is like bad science fiction.
To address the unidentified man directly, it’s true that the badly deregulated California energy crisis no doubt cost Gray support. But it’s absurd to suggest that Lay and Bush had a plan during the energy crisis that involved a recall election and Arnold winning the governorship.
A minister appears on screen to say that he heard rumors that things were ‘very difficult’ at Enron. Rumors! After spreading rumors, the holy man goes on to say that he talked to Someone (who gets around because that’s pretty much the only person quoted in this entire thing) who began to feel that their entire life was being ‘consumed by this company’. Again, that’s how aggressive companies are: they take a lot out of you, but they also replenish in the form of large salaries, bonuses, and benefits as well as intangibles like satisfaction, being part of something important and a sense of accomplishment.
The narrator comes back to say, “As doubts began to surface about the company and the erratic behavior of its CEO, Enron’s stock began to fall.” Then it shows Jeff Skilling looking pensive.
Amanda Martin, ESQ says, “I remember one of the most poignant meetings I ever had with Jeff. I had left Enron and had come over to discuss whether I would return to Enron. I said, ‘Jeff you’ve got a real problem. The traders, they will cut your throat if they think it will get them to the trough sooner.”
Again, I am perplexed at the power these 25 year old traders would have over the CEO of the company. In any case, the camera finally shows Amanda Martin speaking. “Jeff was silent,” she said, “And he looked out the window and he looked back at me and said, ‘you know Amanda, you’re most likely right.’” By the end, Martin continues, the traders ran Enron.
All through the summer, Max Eberts, former PR staff for EES, says the stock continued to decline. Eberts goes on to say that there was a buzz that changes in management were coming. “But we all thought it was Ken Lay who was leaving Enron and that he had been asked by the Bush administration to join his administration. But that wasn’t the case. It was Jeff Skilling. He was stepping down as CEO. That took everyone by surprise. No-one could believe that.”
But the truth isn’t quite as shocking. First of all, Ken Lay was planning on leaving before Jeff told him in July 2001 that he himself had decided to leave. Moreover, Jeff Skilling had been mulling his resignation for years. Jeff Skilling testified at trial:
A: I think by — by the summer of 2000 that at least — and it had been prior to that; but in the summer of 2000, it was coming to a head. I spent time — actually, some of the first time I really spent with my brother. He and I took a vacation with my son, went to Africa. It was the longest vacation I’d ever taken. I was gone for three weeks, and I didn’t want to come back. I was ready to move on. I was ready to do something else at that point. I got –
Q. When you came back from Africa in the summer of 2000 with thoughts about leaving, did you talk with Mr. Lay about that?
A. I — yes, I did. I talked briefly to Ken. I think — I remember looking — when I came back, I met with Ken. I think Ken was the first person I met with when I came back into the office, and he looked concerned because I think he could look in my eyes and tell me that there was — I was not happy to be back. And — and I said, “I really hate this job.” And I think Ken said, “Oh, no. Again?” Or something to that effect.
He had penned a resignation letter in April 2001 but had never submitted it. Then, on July 13, 2001, he had another discussion with Lay, this time telling him he would definitely be leaving.
Short-seller Chanos takes to the screen and says, “The architect of the disaster… the rat is leaving the sinking ship.”
Yet if Skilling was a rat leaving a sinking ship, he certainly didn’t act like it. He didn’t take or destroy any documents. He did not sell all his stock, or leave the country.
Analyst Carol Coale says, “Two days later I met with Jeff Skilling and Ken Lay. I was going to downgrade the stock on Skilling’s resignation. And I was concerned; are there any other shoes to drop about the energy crisis that was occurring in California. Skilling convinced me it was for personal reasons. I left the meeting concerned because of the emotion he seemed to feel over the relationship with his family. He appeared to be distraught. I remember telling an investor, if he’s not telling the truth, it’s a good thing he quit his day job because he needs to go to Hollywood.”
As stated previously, Jeff Skilling is a masterful businessman, a good hearted person, a jokester, a brother and a father – all kinds of things – but he isn’t an actor.
Jeff returns to the screen. “I left Enron on August 14, 2001 for personal reasons.”
Ken Lay gets a standing ovation as he explains that he’s taken over as CEO. “We are facing challenges, but indeed I think the worst is behind us. The business is doing great.” He explains that the problems in India and California are outstanding and depressing the stock price but once those get resolved, the stock will bounce.
“The day after Skilling resigned, Sharron Watkins sent a memo,” the voice says. The scene flashes to Watkins looking earnest and corn-fed, rigid with American righteousness as she prepares to testify. Ms. Watkins’ counsel takes the screen. “What Sharron was telling me was much more than accounting regularities, as such. It was a massive fraud of enormous proportions.” Which begs at least one question: if true why did Watkins participate for so long? Suffice it to say, Watkins was clear at the time she wrote her infamous memos that her concerns were not about fraud; they were based completely on rumors and were only about the ‘appearances’ of difficult to understand but legitimate structured finance transactions. It was only well after she wrote these memos and met with Ken Lay in August 2001 that she started modifying her story to fit and indeed shape some of the developing but erroneous myths about fraud and criminality at Enron. In any event, Watkins was ironically right that structured finance would be a tough sell to an unsophisticated public, or lynch mob, as structured finance has become every Enron bashers favorite cheap shot.
Watkins explains that while working directly for Mr. Fastow, she was put in charge of an asset list, about a dozen assets hedged with the Raptors. “And the math just didn’t add up,’ Watkins says. ‘It didn’t make sense to me. Accounting doesn’t get that creative.”
That’s a great line, but it’s not true. The business world is complex and rapidly changing, and accountants have to understand and keep up with all that using rules that often have become obsolete. Who owns those drilling platforms in the North Atlantic? How do you think oil gets from Saudi Arabia to the USA? Or how do movies get made, for that matter? It’s not a simple transaction, an exchange of goods for a check. Large, complex entities often require complex financial transactions in order to implement complex but beneficial plans and, thank goodness, hedge against risk. If companies were run like households, all anyone would have to know is addition and subtraction.
“Behind Fastow’s partnerships were enormous guarantees of Enron stock,” the narrator says. “Fastow had gambled Enron’s future on the hope that its stock would never fall.” That’s a bit dramatic, as I think all CFO’s would hope that their stock would never fall. But I’m not sure what this means, really. How is it gambling Enron’s future? Enron had thousands, if not hundreds of thousands, of investments in various enterprises. And since other enormous and respectable companies and banks, like Chanel and Citibank were likewise invested, were they also ‘gambling their future?’ Or was it like Skilling in an exasperated moment blurted out in court, “Are they part of this conspiracy too?”
Then it cuts to Skilling. ‘Ms. Watkins didn’t talk to me, Senator.’
Senator Wyden says, “Ms. Watkins says that Clifford Baxter told her that he met with you repeatedly to express his concerns.”
Skilling replies: “Cliff and Andy didn’t like each other. They had a very strained personal relationship and Cliff’s issue had nothing to do with the appropriateness or inappropriateness of the transactions.”
Cut to Ms. Watkins. She says she was talking to Cliff Baxter, and she told him that he was one of the good guys, that he was fighting this and it would be all right. Cliff, according to Ms. Watkins, replied, “Oh, I don’t think its going to be alright for any of us involved.” Might he have understood what the building witch hunt was all about?
Mimi Schwartz says, “When I started working on the book, I was interested in writing about a whistleblower. People don’t really appreciate what she did.” Notice that this the first time that it is identified as the co-author of a book written with Sharron Watkins. Previously, she was identified as the Executive Editor of Texas Monthly magazine. It is now 1:30:31 into the music video. Shouldn’t we have known her game from her first appearance? Or would she have lost credibility by being identified as Sharron Watkins co-author?
Watkins outrageously claims: “Mr. Fastow would not have put his hand in the candy jar without an explicit or implicit approval to do so by Mr. Skilling.” How does Ms. Watkins know what Mr. Fastow would do? And why not Ken Lay? Why go after Skilling in such a direct way?
Skilling replies: “I can’t for the life of me see what basis she would have for suggesting that I would know … I mean, how would she know that? And I don’t think it would be inconsistent that I wouldn’t know some things if somebody kept me from knowing some things.” It is possible that there was simply nothing or very much to know. But again, Gibney inserts a statement that could be construed a million different ways, but no doubt knowing how that audience would take it — that there was in fact a lot to know. There wasn’t.
Scenes of the terror attacks of September 11, 2001 play on the screen.
“Probably in more normal circumstances, I would have a lot more to say about September the eleventh,” Ken Lay says. “Just like America is under attack by terrorism, I think we’re under attack. And now, of course, we’ve got the SEC inquiry… an informal inquiry…”
The narrator says that analysts began to worry that billions in mark to marketing profits were really losses. Two quick points about this: most investors in Enron were enormous corporations and they did understand Enron’s use of mark to market accounting. The analysts understood Enron’s use of MTM, the markets understood it. And, in any event, I’ve looked at what was being said at this time and I’ve seen nothing about analysts or anyone else being worried about mark to market profits really being losses. What, pray tell, are Mclean & Co. referring to here? Artistic license, again, gone amuck?
October 23, 2001: Enron stock has dropped significantly. Ken Lay says, “As you can of course see, the underlying fundamentals of our businesses are very strong. Indeed the strongest they’ve ever been. But regrettably, that’s not what Wall Street is focusing on. And I doubt that’s what you’re focusing on.” Dr. Lay looks out to the Enron employees and continues: “This inquiry will take a lot of time on the part of our accountants, lawyers, and others. But it will finally put these issues to rest.”
The scene jumps to a shredding facility. It intones that on the very day, indeed the very hour that Dr. Lay was speaking, Arthur Andersen was busy shredding Enron files. “On October 23,” the narrator says, “Arthur Andersen shredded one ton of paper.”
Of course, the wrongful conviction of Arthur Andersen in June 2001 for obstruction of justice was subsequently reversed 9-0 by the U.S. Supreme Court in May 2005. And even jurors at the time of their wrongful conviction told the press they had concluded there had been no wrongful destruction of documents; their thinking, completely erroneous by the way, hinging on a single memo that had been changed at the suggestion by Nancy Temple, a lawyer with Arthur Andersen. She has never been indicted, and rightfully so because she didn’t do anything wrong. Unfortunately, being innocent hasn’t always been enough in this regard. Regardless, only the jury did something wrong, and the Enron Task Force who brought the case in the first place.
On Oct. 24, 2001, Andrew Fastow was fired after he admitted he had skimmed $30 million dollars from his LJM partnerships in addition to his regular Enron salary.
Rep. Jim Greenwood asks, “How could you believe that your actions were in any way consistent with your fiduciary duties to Enron and its shareholders or with commonsense notions of corporate ethics and propriety?”
Andrew Fastow opens his mouth to say exactly one thing: “Mr. Chairman, on the advice of my counsel, I respectfully decline to answer the questions, based on the protection afforded me under the United States Constitution.”
Ms. Watkins says, “Andy, in many ways, I think Andy was set up as the fall guy.”
Max Eberts, the former PR guy for EES says, “I’ve thought about this and thought about this. It just couldn’t have been a few executives who were involved. When you think about the banks – Chase, Morgan, Citibank – the billions in loans… Arthur Andersen… What about Vinson and Elkins? The lawyers that represented us. There had to have been complicity across the board.”
This is ridiculous. It is exactly the opposite. Why would Chase, JPMorgan, Bear Stearns, Lehman Brothers, Merrill Lynch, Credit Suisse, Deutche Bank, Citibank, Arthur Andersen, Vinson and Elkins – some of the most respected, revered companies in our society – commit fraud to cover for Enron? Why would they jeopardize their own well being for Enron? They wouldn’t. It wasn’t a matter of complicity across the board, it was a matter of the transactions being completely within standard business practices except for a few relatively minor transactions done off the radar by Fastow and Kopper that they nobody but them knew about. And who is this guy? He reveals he doesn’t have any thing more than speculation to add to the speculation to what this entire thing is based.
Ken Lay says, “Andy obviously didn’t share with me what he was doing.”
Of course, this doesn’t do justice to what Dr. Lay’s point was in this regard, which was that “what Fastow was doing” was limited to very few transactions — such as a tiny one called RADR– transactions that even the seriously truth-impaired Fastow admits he never told anyone about other his only partner in crime, Michael Kopper.
The Simpsons cartoon is inserted into the music video, only driving home the fact that this isn’t a documentary, it’s propaganda . Not even propaganda, but just a collage of sometimes pretty, sometimes silly, irreverent images. Which would be fine – sometimes art can be like that – except that this thing attacked real people, amazingly impressed a lot of folks out there, and no doubt contributed to several wrongful convictions.
“It is my belief that Enron’s failure was due to a classic run on the bank,” Skilling says.
And then Alex Gibney proves again my point above about art. He splices in this image of a ‘run on the bank’ to belittle what Skilling said, something with which even the apparently justice impaired Department of Justice’s Enron Task Force probably wouldn’t disagree.
December 2, 2001 Enron declared bankruptcy.
Images are shown of bewildered employees, newly let go from their jobs.
“Then all the sudden it was like a ghost town,” an analyst says. Images of empty offices and trading desks are shown, but who can say, based on just these images that they are actually Enron after the bankruptcy or if they are re-created, or if perhaps they’re of a different place altogether?
The video skips to Skilling testifying again. Sen. Barbara Boxer shows him the video of him and Cindy Olsen, when Olsen reads a question “Should we continue to invest all our money in Enron stock”, then she asks why Skilling mislead the shareholders. Skilling answers, “You can take the video to mean what you want it to mean. I was a supporter of Enron Corporation.”
Barbara Boxer points fingers, literally. “You know what happened to those people. They lost everything.” That is not true either. Most of the employees at Enron were young, aggressive people without families, which is what allowed them to stay late and be in the office by six. They were at the front end of the trajectory of their career. They were able to get new jobs. The ones I’ve spoken to have all recovered. Even several of the so-called victims who spoke at Jeff Skilling’s sentencing are doing just fine now.
Skilling replies, “I feel terrible about what happened to the employees.”
On January 25, 2002, seven weeks after the Enron collapse, Cliff Baxter committed suicide.
Andrew Fastow pleaded guilty to wire fraud. The video, created in 2005, says he will spend ten years behind bars. That number was reduced to six in 2006, after he told the Lay and Skilling jury – so that it would believe he had nothing to gain by lying – that he would definitely get ten. Guess there was something to gain.
Jeffrey K. Skilling was indicted for inside trading and conspiracy. He did his little perp walk.
Then Dr. Lay.
A reporter asks, “Do you have anything to say, Mr. Lay?” And Dr. Lay, who somehow looks relaxed and dignified even in handcuffs, replies, “Maybe a little later today.”
Bethany McLean summarizes by saying that “Like a lot of things that end badly, Enron didn’t start that way…. they became victims of their own hubris, their own greed.”
What greed? In this whole thing, I still haven’t heard one single allegation about Jeff Skilling and Ken Lay!
The film ends with some factoids about the amount of money lost and the number of people affected by the collapse. The emotional appeal is unmistakable. But like so much about this film, it gives absolutely no insight into what Jeff Skilling and Ken Lay may have done to contribute to the collapse. Like every Enron book before and after, Smartest Guys struggles to pin the blame of the collapse on these two men, but like every book before and after it, and every press conference and magazine article, every “insider interview”, it fails.
It fails because Dr. Lay and Jeff Skilling did nothing wrong.
There was no fraud or conspiracy at Enron.
Filed under Enron
Scott Yeager Continued
More impressions of the Scott Yeager oral arguments at the Supreme Court have come in. Basically the consensus seems to be that the Justices appeared to favor Yeager, which, of course, is great news.
The transcript of the argument can be found here.
While scanning the transcript, I could detect the “spaces” where Buffone could have made some great points – the same misses that my first spy found.
I’m wary of guessing what any Justice thinks – it’s impossible to know the minutia of how they arrive at their conclusions – but based on the news reports, the transcripts, and what my peeps are saying, I think Scott Yeager and Rex Shelby have a good chance (maybe, 70%?) of prevailing on Yeager’s collateral estoppel argument. If indeed they win on this, it means that Shelby will have to go through an appeals process to have the new or clarified law applied to his case.
And it also means the Broadband Two will have won, and the Government will once again be handed a big slice of Failure Pie.
Filed under Enron
Impressions Of The Scott Yeager SCOTUS Arguments
My spies at the Supreme Court have reported back. Though it’s always difficult to figure out what the Justices are thinking, the initial impression is that Scott Yeager’s attorney, Sam Buffone, gave a lackluster performance, missed several opportunities to make excellent points, and didn’t reply to several direct questions from the Justices.
Chron has a much more optimistic take, however. A quote from super liberal Justice Steven Breyer delivers the ray of hope that I was hoping for: “I can’t think of any reason for allowing the government a second bite at this apple,” Associate Justice Steven Breyer said during oral arguments in the case today.”
It’s my hope the article is closer to reality and that the Justices will rule that collateral estoppel must be applied in the case of Scott Yeager, and to Rex Shelby.
More as more details become available.
Filed under Enron
Who’s Who: The Scott Yeager Attorney Showdown
Scott Yeager’s Supreme Court oral arguments tomorrow will be conducted by Samuel Buffone. My personal opinion is that Yeager is in good hands on that score.
However, the more interesting aspect is who is fighting for the government to put Scott Yeager away – or at least send him back to trial. Mr. Michael Dreeben, Deputy Solicitor General, has a rather colorful history with Enron. He was the attorney who argued on behalf of the argument during the Supreme Court appeal with Arthur Andersen.
The government charged Arthur Andersen with violating a 1982 law, the Victim and Witness Protection Act, which makes it a crime for one person to “corruptly persuade” another to destroy documents in order to make them unavailable to the government. (Basically, since the government could not find anything really criminal, they accused a company of witness tampering. On the government’s theory, the violation occurred when Nancy Temple, an internal lawyer for Andersen who herself was not prosecuted, advised her colleagues to follow a policy of not retaining working papers and other audit material.)
At the Supreme Court, Dreeben claimed that Andersen had invoked its own document retention policy “as a pretext and cover to clean up and purge the files.” He added, “It was not because the company had suddenly become preoccupied with neatness.”
Yet the Supremes decided that whether or not Arthur Andersen was “preoccupied with neatness” was irrelevant; the jury had been improperly instructed, and thus, Arthur Andersen’s single conviction was overturned unanimously.
On the eve of this very important hearing, let us hope that Mr. Buffone and Scott Yeager soundly put this matter of collateral estoppel to bed once and for all with another victory for the Enron defendants – and hand Mr. Dreeben another SCOTUS defeat in an Enron skirmish… for the second time.
Filed under Enron
