All About Rex’s Community Service

Rex Shelby, the last man standing in the Enron cases, remains one of the most popular topics among readers of this blog. A previous post about Paris Hilton and Rex Shelby made me curious about what Rex did for his community service. So I did some investigating — what I discovered is amazing!

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

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

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

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

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

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

Prosecution Witnesses as Characters in a Horror Novel

I have written many times about a number of the prosecution witnesses in the Enron Broadband Services (EBS) trial. The more I delve into the emails from those witnesses, written while they worked at EBS, the lower my opinion of them sinks.

The personalities of those prosecution witnesses really begin to reveal themselves in their emails, particularly in the emails which they wrote to their buddies, emails which they never expected anyone else to ever read. In those emails, we get clear portraits of prosecution witnesses such as Shawna Meyer, the prima donna; Bill Collins, the loon; and John Bloomer, the back stabber. And those portraits are consistent with the descriptions given by co-workers that you can find in the notes of the interviews of those co-workers by various attorneys.

Strangely, those prosecution witnesses remind me of a group of characters in the horror novel, The Ruins, by Scott Smith. In that novel, a group of American tourists end up on a small hill in tropical Mexico with killer vines gradually closing in on them. In some ways, that novel is like an old-style Edgar Allan Poe tale, focusing on the psychological states of the characters and revealing how, even under extreme conditions, the characters are never able to rise above their basic human weaknesses. I remember, as I read that novel, I found myself frustrated by those characters. Why, I wondered, could they not, for once in their lives, rise above their weakest and lowest selves.

Well, that is how the EBS prosecution witnesses struck me as I read the trial transcripts. Their petty, coached lies during trial were often obvious, but they seemed unable to not lie, to simply do the right thing. I found this behavior maddening when I first read the trial transcripts. Now that I have read lots of emails from those witnesses, I see that their behavior at trial was completely consistent with their usual every-day behavior. Like those characters in The Ruins, the prosecution witnesses could not find a way to rise above their fundamental character flaws, even when the situation desperately called for it. They caved in to the intimidation of the federal prosecutors because they were too weak, too flawed, too scared to do otherwise.

Quite a while back, I asked one of the EBS defendants if he was angry at the prosecution witnesses. One of the things he said confused me then. He said, “No, I’m not angry at them. Mostly, I am just incredibly thankful that I’m not like them.”

At the time, that answer baffled me. Now, I understand it. And, I pray that if I ever find myself facing the situation that those prosecution witnesses did that I will not be as weak as they proved themselves to be. I don’t want to be like them either.

Enron Defendants and Double Jeopardy

Sheesh, what a lousy article!

First, the article is written as if the SEC’s accusations against Enron Broadband defendant, Kevin Howard, are factual. But Kevin did not agree that any of the accusations were true in his settlement with the SEC. This is a classic SEC agreement in which the defendant agrees to remain silent on the accusations, but certainly does not agree with them. The SEC seldom goes to trial — it simply extorts what money it can from a defendant and then moves on to the next victim, like a blood-sucking mosquito.

Second, Kevin Howard had already been cleared of exactly the same charges by the DOJ in his criminal case after two trials and the threat of a third one. The plea deal Kevin eventually agreed to in the criminal case was a bookkeeping irregularity unrelated to the accusations the author mentions in her article.

All the primary Enron defendants faced exactly the same charges from both the DOJ and the SEC. This is clearly double jeopardy as the definition was actually intended. The DOJ and the SEC are clearly part of the same organization — the federal government — they even bragged about working together on the Enron prosecutions. The fact that one brings a criminal indictment and the other brings a civil complaint does not cure the abuse of the intent of the double jeopardy protections when the accuser is the same entity. Just about every thinking attorney admits that this is a double jeopardy situation, but nobody is able to stand up to the Feds to get it corrected.

Look, the U.S. Federal Government should be considered one party. The DOJ and the SEC routinely share information on cases and work together. Indeed, the two agencies routinely use the multiple exposures of the defendant as leverage in plea deal negotiations — this is precisely what they did to Kevin Howard and other Enron defendants. The fact that prosecutors get multiple conviction attempts against a defendant is particularly unsavory given the massive advantage in resources which the government wields.

I wish we could get some journalists to cover that injustice instead of quoting SEC talking points!

Paris Hilton and Rex Shelby

I never thought I’d see former Enron Broadband executive Rex Shelby mentioned in the same breath as Paris Hilton – especially mentioned in an article about immigration – but I guess there is a first time for everything.

Via NY Daily News:

Thousands of sentences to community service are handed down every month in this country. Courts across the United States have imposed such sentences on celebrities (Lindsay Lohan, Paris Hilton) and professionals (former Enron executive Rex Shelby, Medicaid fraud doctors).

Paris Hilton has a way of making even Enron and community service seem seedy.

Ending Legal Impoverishment

In a previous post, I wrote about the shameful, but ubiquitous, use of impoverishment by the federal government in prosecuting people. It is one of several obviously harmful practices that have taken over the system of criminal justice in the USA. Let’s put this into perspective.

The U.S. federal government is the most powerful entity in the world. The resources of any individual are negligible compared to those of the federal government. In America, we should be most protective of our individual liberties when facing the situation of the federal government wielding its enormous powers against a private citizen.

So let’s start with the basic concept that, in the USA, an accused person is presumed innocent until proved guilty. Therefore, an accusation (meaning an indictment in criminal cases) is not proof of anything — it is merely an accusation, nothing more. An indicted person is completely innocent and should be so treated until the Feds prove their accusations at trial. An accused person should not be punished prior to trial or have his ability to defend himself impeded in any way.

So, here is my proposal:

1. Abolish the ability of the federal government to seize the assets of an accused person. An accusation is not proof of anything — the accused person is innocent — his assets belong to him unless/until the Feds win a conviction. An alternative solution, if it is impossible to achieve the complete elimination of asset seizure, is to make the Feds pay a penalty for seizure of assets when the defendant is acquitted — the penalty must be large — I propose that the Feds reimburse the acquitted defendant by paying a penalty equal to at least four times the value of the improperly seized assets.

2. Make the accuser, the federal government, bear the full cost of the defendant’s legal costs as they are incurred. Only if the Feds win a conviction against the defendant must the defendant reimburse the Feds for the legal costs of his defense, and then, only that portion of the costs associated with the convicted counts — a defendant does not reimburse the Feds for the legal costs associated with acquitted or hung counts. In addition, the government must pay a penalty on counts that are acquitted — again, the penalty must be large — I propose that the Feds pay the defendant at least four times the legal expenses associated with the defense against the acquitted counts. If a defendant is exonerated on all counts, I would add an additional penalty of substantial damages for false prosecution.

I am not proposing these steps for private suits (although that situation needs reform also) — I am dealing here only with the situation of the state prosecuting private citizens — this is the scenario in which we need to be most aggressive in defending the rights of the individual. The implementation of these reforms would begin to re-introduce balance into a criminal justice system that is now stacked in favor of federal prosecutors:

* It would finally begin to penalize the ubiquitous practice of over-charging in which the Feds heap counts on defendants at will in order to increase their plea bargaining and trial advantages.
* It would mean that Feds could not seize assets to deprive defendants of the ability to hire good lawyers and to rebut charges.
* It would decrease the overwhelming leverage that Feds have in coercing plea deals.
* It would encourage defendants to exercise their Constitutional right to defend themselves at trial rather than yield to plea bargaining pressure.
* It would mean that all defendants have the financial means to defend themselves and to go to trial.
* It would mean that defendants who win would not be financially impoverished by the false indictments.
* It would encourage prosecutors to be responsible and conscientious in their prosecution decisions.

No, I am not optimistic that these reforms will be adopted any time soon. We seem to live in a time of acceptance (even broad encouragement) of intrusive government. But I can always press for change and hope that the act of highlighting solutions, along with the problems, will help clarify the issues so that more people become informed and involved in pushing reforms.

Legal Impoverishment

The impoverishment of defendants is a basic strategy of federal prosecutors. Prosecutors use impoverishment as a means to cripple the ability of an accused person to defend himself. This, of course, gives the prosecutors a huge built-in advantage over the defendant in plea bargaining and in trial preparation.

First, the prosecutors seize as much of a defendant’s assets as they can get away with, including the defendant’s life savings — this is money not available to the defendant to fund his defense. Then, they force a defendant into the incredibly expensive task of trying to defend himself against the wealthiest entity in the world, the U.S. federal government. As one Enron defendant told me:

“Fighting the federal government cannot be done halfway. To have any chance at all of defending yourself, you must decide that you are willing to put everything on the line, including everything you have earned over your lifetime. You must do this because you know you are fighting an organization without a conscience which wants only to win, and it will do anything it can get away with to beat you. Guilt or innocence, right or wrong, justice, the facts … these are of no concern to federal prosecutors after an indictment has been brought — they only want your scalp.”

A defendant knows that, if he actually exercises his Constitutional right to defend himself, he is likely to lose most or all of his life savings — this is true whether the defendant wins or loses at trial or in the appeals court. As I wrote in an earlier post, “being a prosecutor means never having to say you’re sorry.”

Is it any wonder that trial by jury is so rare? It should be a national embarrassment that 97% of all federal cases pursued by the Department of Justice (DOJ) last year were resolved by guilty pleas, not by trials. In the American system of justice, a defendant must be bold, almost to the point of rashness, to try to defend himself at trial — just getting to trial is likely to impoverish his family. A plea bargain deal is simply good economics for most defendants — pleading guilty of some crime is usually the best practical decision for a defendant, even when he is innocent.

Let me give you three examples of the Feds’ use of impoverishment in the Enron Broadband Services (EBS) cases.

Michael Krautz, an accounting executive at EBS, was acquitted of all charges after two trials. Michael not only lost his savings, but he also went into debt defending himself — and when he was exonerated, he was still in debt.

Scott Yeager, a marketing executive, won acquittals at trial and then was re-indicted by the Feds and threatened with a second trial. Scott eventually had all charges dismissed based on an appeals victory at the Supreme Court. However, even in “victory”, Scott could not recover his life savings, most of which were lost in his defense.

Rex Shelby, a software engineering executive, also won acquittals at trial and then was re-indicted by the Feds and threatened with a second trial. Rex was ready and eager to go to trial, but exhausted all his life savings and could not afford the expense of a second trial. He entered into an obviously contrived plea deal — the deal itself was favorable to Rex. However, the tragedy of this example is that Rex wanted to go to trial to exonerate himself, but had been so impoverished by the Feds that he could not afford to do so.

These EBS examples are not rare — just about any attorney can give you lots of additional examples. Clearly, the strategy of impoverishment has served the federal government well, but has done so at the expense of justice and fairness.

Impoverishment is an extra-legal practice that needs to end. I will follow this post up with another post in which I propose some reforms for ending the practice of impoverishment.

The Enron Broadband Technology Concepts

My research on Enron Broadband Services (EBS) is bearing fruit. Rex Shelby ended up at EBS because his software company, Modulus Technologies, was acquired by EBS at the end of 1998. The key executives at Modulus were Rex Shelby, Larry Ciscon, and David Berberian — I call this group the “Modulus Three.”

The seminal document for the original EBS direction is a Modulus PowerPoint presentation, created by the Modulus Three, titled Changing the Rules of the Telecom Game, presented by the Modulus Three to EBS (then ECI) in June 1998. This was before Modulus was acquired by EBS — back then, Modulus assumed the deal with EBS would be an InterAgent licensing deal (InterAgent was Modulus’ commercial software product) rather than an acquisition.

That presentation analyzed the state of the communications industry, pointed out areas of opportunity for improvement, proposed a business model and technology for EBS, and put forth a list of 6-month and long-term business steps. It included the first presentation of the Broadband Operating System (BOS) idea to EBS — in that PowerPoint, it was referred to as a “WAN-OS”. It also set forth the basic concept of what an “intelligent network” meant.

The Enron Task Force (ETF) prosecutors and the Judge managed to keep that document out of evidence at the EBS trial. It exonerates Shelby and the other EBS defendants by showing that the definitions of technology terms that the ETF and their sorry witnesses tried to use at trial were not the definitions used by the people at EBS who actually created the concepts and built the technology. It also shows that the engineers at EBS accomplished exactly what they proposed in that presentation and that EBS public statements were utterly consistent with both the concept and the status of the BOS technology.

The seminal document on the Enron Intelligent Network (EIN) is a December 1998 white paper, authored by Ciscon and edited by Berberian and Shelby, titled The Enron Intelligent Network — Software Concepts. Again, everything in that document is completely consistent with what EBS actually developed and with what was said publicly about the technology.

There is also an excellent video of a presentation by Rex Shelby at a big EBS training meeting in August 1999. It explains the high points of the EBS business model and describes how the business model drove the technology approach. Scott Yeager talks right after Shelby at that meeting. It’s a pretty good primer, I think. And it was also kept out of evidence by the ETF and the Judge at the EBS trial.

These key documents were based on an even earlier presentation by the Modulus Three, titled Changing the Industry: It’s the Applications, Stupid. The modern concepts of services embedded in the network, cloud computing, “we have an app for that”, etc. are in those materials. What the Modulus Three wrote about back then is now the preferred architecture of today’s most successful technology companies!

Oh, and one other thing. EBS received a patent on the BOS. The primary patent author was Larry Ciscon — other contributing authors included Steven Reynolds (another Modulus guy) and Scott Yeager. The writing of the patent application was begun as soon as Modulus was acquired by EBS, and it was finalized in 2000 and submitted in 2001. Ironically, final approval of the BOS patent was granted in 2005, just a few months before the EBS trial began. Again, the BOS patent exonerates Shelby and the other EBS defendants by showing that the definitions of technology terms that the ETF tried to use at trial were not the definitions that EBS had documented in the BOS patent. The depth of the ETF’s incompetence (or misconduct) is seen in the fact that these definitions were submitted to the government in 2001 (years before the EBS indictments) and, yet, the ETF still insisted on using false definitions at the EBS trial.

The more I research EBS and the EBS indictments, the more angry I become. People may choose to quibble over the witch hunt aspects of the Skilling/Lay indictments, but the misconduct of the Feds in the EBS indictments is stark. And the tactics used by the ETF in the EBS case are essentially the same ones practiced by the ETF in the Skilling/Lay case. At a minimum, the obvious abuse in the EBS case should motivate people to examine all the Enron-related cases with a more objective and skeptical eye.

About Enron Broadband Services (From The EBS Website)

This is the text that was on the Enron Broadband Services website:

About Enron Broadband Services
Enron Broadband Services (EBS) delivers the intelligent platform for the emerging Net economy: the Enron Intelligent Network™, which is a Pure IP™ broadband overlay to the Internet. We also provide rich multimedia ePower™ application services that enhance online commerce and communications.

We offer ISPs and content providers a range of bandwidth transport solutions that enable businesses to scale capacity quickly to handle high traffic and high bit rate needs. A wholly-owned subsidiary of Enron Corp. (NYSE:ENE), Enron Broadband Services is headquartered in Portland, OR and has offices in Houston, New York and London.

Our vision is to create an intelligent network platform that is optimized to deliver high-bandwidth products and services quickly and effectively, enhancing the way people conduct business online. Optimized for data and with intelligence designed directly into the network layer, the Enron Intelligent Network extends beyond the classic definitions of a static infrastructure of fibers, switches and billing systems. The Enron Intelligent Network is a dynamic communications environment designed to optimize high-bandwidth ePower application services.

Together, the Enron Intelligent Network and the ePower™ application services it delivers will extend and redefine the capabilities of the public Internet. We’re revolutionizing the types of information that can be efficiently sent and received, enabling businesses to communicate and collaborate more efficiently and effectively online.

EBS also provides bandwidth transport solutions to enable businesses to scale quickly and easily to meet the demands of high traffic, high bandwidth communications. Our solutions include bandwidth on the commodity market, dark fiber sales, and strategically located windows of fiber, Advanced Fiber Transport Solutions. Enron Broadband Services is delivering the platform for the emerging Net economy. We are rapidly building our Enron Intelligent Network-a global fiber backbone and data network — and furnishing this network with advanced, ePower™ application services for sale via our channel partners. By the year 2000, our backbone will cover approximately 20,000 miles and will carry data, video and multimedia content at speeds up to 10 gigabits-per-second (OC-192).

We serve carriers like Inter Exchange Carriers (IXCs), Regional Bell Operating Companies (RBOCs), Local Exchange Carriers (LECs), wireless data network providers and Internet Service Providers (ISPs). Enron Broadband Services serves major content providers and end users who expect more from the Internet. Our ePower™ applications and services are delivered over the most flexible, high-speed, reliable and fault tolerant network available, our Enron Intelligent Network.

Who are the People at Enron Broadband Services?
Our seasoned team of telecommunications, internetworking, and Internet experts come to us from such organizations as MFS/WorldCom, MCI, GTE, Netscape Communications, UUNet, Tektronics, US West Enterprise and Electric Lightwave. We are continuing to add energetic, enthusiastic professionals in all areas of the organization, including network engineering, operations, marketing and sales.

When Is A Conspiracy Not A Conspiracy?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ten Years Later, Some Press A Different View of Enron

CNBC has a pretty good report on Enron with lots of Scott Yeager and Cindy Olson quotes. I love their willingness to speak out.

When Enron filed for bankruptcy on December 2, 2001—at the time the largest bankruptcy in U.S. history—the once high-flying energy company cemented its reputation as the very symbol of corporate fraud.

Its top executives, including Chairman Ken Lay, CEO Jeffrey Skilling and Chief Financial Officer Andy Fastow became household names, and the term “Enron accounting” joined the business and political lexicons.

Eventually, dozens of high-profile convictions and some tough corporate reforms later, the public moved on.

But on a sprawling, picturesque ranch here in the Texas hill country outside Austin, F. Scott Yeager can’t move on. Not yet.

“I try to put behind me, I try to go on with life,” Yeager said in an exclusive interview. “But the part that keeps taking me back, let’s call it, the injustice anger part.”

After years of silence, Yeager agreed to speak to CNBC in hopes of changing the widespread public perceptions about Enron and the sweeping federal investigation that followed. He was one of dozens of executives ensnared in that probe, but in 2009 became one of the only ones cleared of criminal charges, in a case that went all the way to the Supreme Court. He has left the bustle of Houston and moved to the ranch in Llano, where he does consulting.

But rather than be content having cleared his own name, he wants to clear Enron’s name as well.

“I think that the perception—and I’ll call it the Enron myth—is very solidified in the country,” he said. “And it is definitely incorrect and inaccurate.”

Yeager, 60, is one a small but increasingly vocal group of ex-Enron employees still trying to rewrite the legacy of Enron, ten years after the firm’s epic collapse.

He was a top executive at Enron Broadband Services (EBS)—a tiny division, but one that prosecutors claimed was a prime example Enron’s fraud. They accused executives of misleading investors by over-hyping the division’s prospects at the height of the technology bubble.

Yeager, who helped develop many of the unit’s products in the 1990s, was accused of conspiracy and insider trading for selling stock with the knowledge that the technology being touted to investors didn’t actually work.

“Yes, it did work,” he said. “In multiple ways.”

Prosecutors claimed Enron did not yet have the software it would need to run its broadband network, but Yeager said it did.

“I was in New York, and saw it work. I was in San Francisco and saw it work. I personally used streaming media. So I know it worked.”

He still holds onto hundreds of computer files and video demonstrations that he says are proof Enron was not a fraud, but a pioneer in many technologies that are commonplace today.

One demonstration from 1999 narrated by Yeager appears to show an early concept of cloud computing, in which a user could access online applications or “apps” through an Enron network.

“You would ride across the Enron ‘cloud’ all the way to the source of the content,” the video says.

“We drew everything as a cloud back then,” Yeager said. “We didn’t coin it. But the notion of cloud computing as a bunch of servers distributing inside of networks—the internet—and that you would get services from them close to where you are physically, we did come up with that idea.”

Another video from 2000 shows an early concept of video conferencing. “Enron Communications is changing how the world communicates,” the video says.

And yet another presentation from 2000 includes a demonstration of an on-demand movie service similar to those available on most cable TV systems today:

“Once the end user selects the movie, it takes just a second for the video stream to begin,” the demonstration says.

Enron had a deal with Blockbuster to provide movies on demand, but prosecutors claimed Enron over-hyped the prospects for the venture, and underplayed licensing issues with Hollywood studios.

Five Enron Broadband executives ultimately pleaded guilty to reduced charges, but Yeager says all were pressured by prosecutors.

“There were tens of thousands of really good employees, honest people, top people that were very proud to work for Enron that worked very hard on all kinds of innovative things of which EBS, our group, was just one of those,” Yeager said.

“It was a great company. It was an exciting company,” said Cindy Olson, Enron’s former Executive Vice President of Human Resources.

Olson instantly became part of Enron lore when investigators uncovered video of her answering questions at an employee meeting in 1999, the year before Enron’s stock price hit its peak.

“Should we invest all of our 401k in Enron stock? Absolutely,” Olson says, the room erupting in laughter as Jeff Skilling and Ken Lay look on.

“Everybody burst out laughing. I mean, it was a joke,” says Olson, now 59 and living in Colorado. “Never in a million years did I think that one little second of being humorous or flippant would turn into investment advice.”

Nonetheless, Olson found herself testifying before Congress and questioned by the Department of Labor about the 401k plan following Enron’s collapse. She also testified in defense of Chairman Ken Lay at his 2006 criminal trial.

“I was proud to work for Ken Lay,” she said. “You know, I dealt with a lot of CEOs in Houston, and Ken Lay was the best.”

Olson wrote a book about her experiences, The Whole Truth So Help Me God (Tate Publishing & Enterprises, 2008), that is being re-released this month to coincide with the tenth anniversary of Enron’s bankruptcy.

“I want to talk,” she said. “I want to talk about what a great company it was.”

She is not alone.

Olson is prominent in a web site, Ungagged.net, created by Houston video producer Beth Stier and purporting to tell “the other side of the Enron story.”

As an outside contractor who handled Enron’s corporate video production, Stier was the official custodian of thousands of hours of videotape. As a result, she found herself at the heart of the investigations of Enron, and, she says, under unrelenting pressure from federal prosecutors.

“Not one of the Enron defendants got a fair trial because of vicious and deliberate prosecutorial abuse,” she said. “During the Enron trials, I experienced it myself and I also saw it happen to many other people with my own eyes.”

Allegations of misconduct on the part of prosecutors have been raised in a number of Enron-related cases, some still pending. But officials have always insisted their actions were above board.

The site, which Stier calls a “webumentary,” includes dozens of interviews with former Enron employees, attorneys and legal experts detailing what it was like to be on the inside of the Enron scandal. Ironically, the site uses some of the internet video technology Enron helped develop.

“Politically, I knew the case was driven to indictment,” says Lay’s defense attorney Mike Ramsey in an interview on the site. “I think many of us who were reasonably sophisticated in the law knew that. Ken never was willing to believe that.”

Lay, the politically connected founder of Enron, was convicted on six securities fraud counts and four bank fraud counts in 2006, but the convictions were wiped out when Lay died before he was able to appeal.

A former assistant to Enron CEO Jeffrey Skilling says on the site that FBI agents tried to intimidate her colleagues.

“I mean, the FBI is acting like the KGB for heaven’s sake in this case,” says Sherri Sera. “And they were given carte blanche to do it.”

Skilling, now five years into a 24-year prison sentence for conspiracy, fraud and insider trading, is continuing to appeal his convictions, including a new petition to the Supreme Court just this week. Neither Skilling nor his legal team are involved in the “ungagged” web site.

Leslie Caldwell, the first director of the Justice Department’s Enron Task Force, discounts the web site’s central theme that the Enron prosecution was politically motivated and aimed at a solid company that had suffered a “run on the bank.”

“There was absolutely no political pressure to get indictments or to not get indictments,” said Caldwell, who left the task force following the 2004 indictment of Jeff Skilling, and is now a partner at Morgan Lewis in New York.

“There definitely was a lot of pressure, but the pressure that we felt as a team and as professional prosecutors really was let’s make sure we get this right.” Caldwell is confident they did.

“I know there were a lot of really good, solid, talented people who worked at Enron,” she said. “But it was not a run on the bank.”

The problems occurred, she said, when Enron decided to move beyond its roots as a pipeline company and expand into more risky ventures like energy trading. By the time investors and counterparties began abandoning the company in 2000, she says, the die was already cast.

“They were a company that was teetering and that was basically counting on its continued rise in its stock price for its survival.”

Even Cindy Olson, the former human resources chief who worked at Enron from the time it was founded in 1985, acknowledges that by the time Enron reached its peak, the company had somewhat lost its way.

“We didn’t require that some of the upper management people live the values of integrity, respect, communication,” she said. “And I think that’s what happened. I don’t think we were true to our values.”

Those values are laid out in a 1998 corporate video featuring Lay and Skilling entitled Enron Vision and Values. “There probably are times that there’s a desire to cut corners,” Skilling says. “We can’t have that at Enron.”

“Enron is a company that deals with everyone with absolute integrity,” Lay adds. “We play by all the rules.”

Brilliant, except I would like to point out that Leslie Caldwell is lying. On May 16, 2005 Leslie Caldwell gave the following remarks in a talk to the Association of Business Trial Lawyers in San Diego:

But we didn‟t have any of the people, we didn‟t have Osama Ken Layden. We didn‟t have Jeffrey Skilling. We didn‟t even have Andrew Fastow. So, by the summer of 2002, there was a lot of new pressure from Congress and from the press. This quote is just one of many uh similar quotes that were being uttered by members of Congress at the time, the summer of 2002, um, about how incompetent the Enron Task Force was and the general theme was, “Well, what did you expect? I mean, this is the Bush Justice Department. They can‟t possibly be expected to actually really thoroughly investigate Bush‟s cronies, Ken Lay and Company. So we really need, we needed something. We needed a special prosecutor, because Bush and Lay, it‟s obvious that Lay is being protected by Bush”. Meanwhile, little did they know that in the halls of the Justice Department, people were saying, “Can‟t you please indict somebody now? Anybody? Just indict Fastow.” People were saying, “Indict somebody before Congress comes back from their holiday”, which was after Labor Day.

That clearly spells out political pressure. Leslie Caldwell is arrogant for thinking she would get a pass on her lies. I suppose – as the CNBC article illustrates – she does get a pass from the mainstream media. That doesn’t make it right.

Seven Pivotal Events At Enron Broadband Services

1. Enron acquires PGE and (unknowingly) enters the communications business.

2. EBS acquires Modulus Technologies.

3. EBS announces the EIN.

4. EBS announces that Sun is licensing InterAgent.

5. Enron brings EBS into a “core” business and kills all hope of an EBS IPO.

6. Enron announces that it was proposing an open standard for bandwidth trading.

7. Enron formally announces the “BOS” name and delivers a BOS SDK.

Enron Year 2000 10-K Disclosure: Broadband

I found an interesting risk related disclosure in Enron’s Year 2000 10-K. It is regarding Broadband.

In 2001, Broadband Services expects to continue
to expand the commercial roll-out of its content service
offerings including video-on-demand.

There are literally hundreds of examples of statements like these (i.e., “forward looking statements”) spread through analyst conference books, financial disclosures, press releases and other media. Enron – and Jeff Skilling – were very clear about the status of Enron Broadband Services.

A version had been up and running since 1999. The company streamed the Country Music Awards, an Andre Agassi tennis match and a Drew Carey show. But like Rex Shelby said on the stand, “Software is not complete until it is obsolete.”

Yet prosecutors and even some ordinary folks still claim that the EIN was vaporware. It doesn’t make Enron look criminal; it makes the accusers look foolish.

ePower Online PowerPoint: Introduction To Enron Communications

This ECI PowerPoint presentation was created on September 7, 1999. It’s a clear, easy to understand sales and marketing document.

Dish Launches Blockbuster Movie Pass

A mention of Enron Broadband Services has made me aflutter with nostalgia:

Dish Networks announced today that it will use the Blockbuster name and Blockbuster’s large number of premium content rental agreements with major studios to launch what it calls “a stream come true” online streaming service.

Oh my God. My heart is breaking. Project Braveheart… anyone?

Those who’ve followed Blockbuster’s history ought to know this technical limitation well. Blockbuster famously attempted at the 1999 Streaming Media East show, to launch a major online movie delivery solution, bringing together its very strong brand with a not-yet-infamous name: Enron Broadband Services.

Blockbuster saw the potential for online delivery to be a differentiator from other brick-and-mortar movie rental stores, but was hindered by the broadband limitations of the day as well as a partner-Enron Broadband Services-that proved to be almost as much smoke and mirrors as its parent company, which famously imploded.

Looking back at documents from the initial foray, long before Netflix even existed, I was struck by how similar the “pitch” was in 1999 to this week’s set of events, so it’s up to Dish to solve the Blockbuster problem that it faces even before its new service launches. It will be interesting to hear what technical solutions Dish suggests to address the inconsistency of broadband experiences across the United States.

How grotesque. Enron Broadband Services should have survived; its technologies, patents and ideas are being proven every single day. I guess I’m just a little bitter that the right people aren’t getting credit for it.

Larry Ciscon Affidavit

Larry Ciscon is an incredibly brave man; though he was an “unindicted co-conspirator”, he dared to testify in favor of the Broadband Three during their trial. In this document, Ciscon forcefully denies that Rex Shelby, among others, lied about the EIN and BOS technologies.

Viva le Larry!