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.

United States Submission Concerning Reading Of Former Testimony

The DOJ was asking permission to read some testimony into the record from other trials, to whit Joe Hirko’s testimony, David Duncan’s, and Kristina Mordaunt’s testimony to the SEC in order to impeach those witnesses.

Government’s Submission Concerning Reading of Former Testimony

Joe Hirko and Rex Shelby’s Motion to Dismiss For Prosecutorial Misconduct

Shelby-Hirko_Prosecutorial_Misconduct_Motion

Amen, brothers.

The government’s reply:
Opposing Motion to Dismiss for Prosecutorial Conduct

Updated to add that Hirko and Shelby’s motion is a particularly good piece of legal writing. The motion includes mentions of the Skilling case as well as the Nigerian Barge defendants, showing a pattern, as Ed Tomko writes, of the ETF only partially meeting its Brady obligations (ie, turning over exculpatory material.) It is well worth the time it takes to read it.

Joe Hirko’s Motion For Pre-Trial Discovery

Supplemental MOTION for Discovery by Joseph Hirko (Joined by Rex Shelby)

Government’s reply:
OppMotion for Pretrial Discovery

Joe Hirko and Rex Shelby’s Motion For Bill of Particulars

MOTION Bill of Particulars with Legal Points

Government’s reply:
Opp to Hirko and Shelby BOP

Joe Hirko Memo In Support of Motion to Compel Brady-Jencks

MEMO Joseph Hirko MOTION to Compel Brady-Jencks

Government’s reply:
Opp Brady and Jencks Motion

Joe Hirko’s Memo in Support of Motion To Dismiss Wire Fraud Counts

MEMO by Joseph Hirko re 1413 MOTION to Dismiss Count(s) Wire Fraud

Government’s reply:

Government’s reply opposed to Hirko’s Motion to Dismiss Counts Three and Four (Wire fraud counts)

Rex Shelby and Joe Hirko’s Joint Motion To Dismiss Case On Destruction of Evidence

Joint Motion to Dismiss Case for Destruction of Evidence by Rex Shelby

Joe Hirko and Rex Shelby’s Motion To Change Venue

Joint Motion to Change Venue by Rex Shelby

Joe Hirko and Rex Shelby’s Proposed Amended Juror Questionnaire

Messrs. Hirko et Shelby wanted more questions about potential jurors’ experience with software, software companies, and start-ups.

Ammendments to Juror Questionnaire Hirko – Shelby

What Lying In A Press Release Looks Like

The other day I was researching a small oil and gas company. It issued a jubilant press release stating it had increased its reserves 93% year over year since Dec 2010 “through its oil well development program.” The press release also specifically states that it filed at Form 10-K with all the details. So I dug up the company’s 10-K.

I could not get the numbers provided in the Form 10-K to show a reserves growth of 93%. Thinking maybe my math was off, I called a friend who is a petroleum engineer and got him to look at the numbers with me. He could not make them flush either. So that was the first problem. The second problem was the claim that the reserves were at the drillbit. That was simply not true according to the SEC form. The 10-K says that the increase in reserves happened because the company purchased more leases.

These two problems angered me. Nobody is going to nail this company to the wall because they’re blatantly lying, and yet Joe Hirko went to prison for approving a press release that the government said wasn’t factual. How is this fair to Joe Hirko? How does the government justify going after a family man who was known as the most honest at Enron, and yet nobody will even wrinkle a brow at this obvious lying? The DOJ went after Joe not because of what he did but because of who he is.

The John Proctors of Enron

Today I found the Crucible on television – the relatively modern version starring a stony and pitch-perfect Joan Allen and Daniel Day-Lewis as John Proctor.

John Proctor was a good man whose wife was ill for a long time. A young nurse – played by Winona Ryder – tempted him and because there was tension in his house, and for all the usual reasons people are unfaithful, he committed adultery. When Abigail claimed that he and his wife Elizabeth were witches, they are arrested.

During a court hearing, John Proctor confesses to the adultery. His wife is then brought in, and is asked why she dismissed Abigail. She hedges and says that she believed her husband had taken a fancy to the young girl.
The judge then asks if, to her knowledge, her husband was unfaithful.

In order to protect her husband, whom she loves and has forgiven for his trespasses, she reluctantly lies and says that her husband was faithful.

John turns to her and cries, “Elizabeth, I confessed!”

And Elizabeth sees what she’s done. She’s become a liar and ruined her own credibility.

Later, some doubt about the witch story is beginning to creep into the system. But not quite enough. The judges offer John a deal: confess and it will spare both him and his wife the rope. The judges allow Elizabeth to speak with him privately, and he is wrenched with doubt and indecision – should he confess? Should he lie so that he can spare them both? Elizabeth is lovely – she gives him the freedom to make up his own mind.

He will confess.

He reluctantly signs a document that says he trafficked with the devil. But then the judge asks if the devil appeared with THIS person and he says no. What about THAT person? John says no. What about HIM or HER and HER and HIM? “None of them!” John says.

Then he grabs the document and says, “I’ve confessed, you don’t need to nail this to the church door.”

And the judge says no, he needs the document. He needs the whole town to see Proctor’s shame. And John Proctor says no, no, you heard me confess… And he is crying by now, perplexing the judge. The judge asks, “Why does it matter?”

Proctor sobs, “It is the only name I will ever have in my life. It is mine. It is my name.”

Ultimately its because he will not give the judge the document with his name – his honor – that he decides he can not confess at all.

The next morning, he is hung with two women, also accused of being witches.

This is the final frame of the movie:

By the time the credits rolled, the tears were falling freely down my cheeks. It is a great movie – but I was thinking of the modern witches. And specifically I was thinking of Joe Hirko.

Joe Hirko wouldn’t implicate anyone else in his witchcraft.

Rex Shelby will be sentenced this month, but he too refuses to implicate anyone else in his witchcraft.

I am so very, very proud of both of them.

John Bloomer Hates Rex

John Bloomer was one of Bill Collins’ email buddies (and Sherron Watkins! Just wait until I post those!) and he and Collins would conspire like Roman senators about how to get rid of Rex Shelby. They were constantly trying to eject him from EBS – it was a mission, just another task on his Things To Do list. Exhibit 1 is an email from Bloomer to Joe Hirko.

What If EBS Had Survived?

What If EBS had not been pulled down by the Enron bankruptcy?

There would have been a big clash between the bandwidth traders who thought that was the future and the apps over the Net group who believed that was the future — Kevin Hannon, the consummate trader, and Scott Yeager, the prime evangelist for apps over the Net, would be at each other’s throat. Rex Shelby would attend the meetings, suggest EBS spin the apps over the Net into a separate business unit (which he really did). When the traders refused, Rex would leave EBS (cordially and on good terms), contract to use the EIN to launch an apps over the Net business, and become disgustingly successful.

(Note: The Modulus people actually developed a presentation to ECI in 1998 [before the acquisition] titled “Changing the Rules of the Industry: It’s the Applications, Stupid!”. So my “what if” scenario for Rex is really not so far-fetched.)

John Bloomer would have gotten fired and then prosecuted for stealing EBS technology (which he actually tried to do). Bill Collins would have gotten fired and ended up in an asylum when EBS turned out so successful. Joe Hirko would have become the CFO when Johnathan Schwartz of Sun was offered the CEO job. Larry Ciscon would be offered the CTO job, but would leave to create an Android-like operating system for Rexoogle.

Rexoogle being the name of Rex Shelby’s venture.

David Berberian and Mark Palmer would launch Rexoogle smartphones long before the iPhone. Ellis Giles would work with Ciscon to create the first fully functional tablets, called the RexTab.

Rexoogle headquarters would be located outside Fredericksburg, TX along a large flowing creek. The office space would be a strange combination of the sublime and the bizarre. The employees have a lot of say in what goes on, so the interior is quite eclectic. The carpet in the huge open, meandering lobby (which has lots of places to sit and drink coffee) is a shade of blue so beautiful that people are starting to spend too much time there without consciously knowing why.

Larry has a huge photo of his souped-up Mini Cooper on his door. The car contains the slogan, “Rexdroid Operating System — Lean, Mean, and Blazing Fast!”

During the annual May Day party on the Rexoogle grounds, Rex is showing a visiting reporter the site of a famous Texas Ranger/Comanche battle on the banks of the creek. In his enthusiasm for the topic, Rex slips on an exposed tree root and tumbles head-first into the creek. He pulls himself out, with a big smile on his face. Unfortunately, the reporter snaps a photo which then makes it into newspapers all over the country with “clever” headlines such as:

“Is Rex Shelby Too Wet Behind the Ears to Lead Rexoogle To Industry Domination?”
“Is Rexoogle Swimming Against the Current with their ‘Apps over the Net’ Concept?”
“Can Rex Shelby Keep His Head Above Water as the Competition Lines Up Against Rexoogle?”

And, of course, the gossip blogs:

“Beautiful Reporter Pushes Software Playboy into the Creek!”
“Terrorist Reporter Tries to Drown Texas Entrepreneur!”

Bill Collins As Background

Bill Collins was becoming dangerously erratic. He was literally endangering Enron’s reputation by telling outrageous lies to Enron’s partners such as Microsoft and Sun. One of his bosses described him as the “highest maintenance employee ever”. And his relationship with Scott Yeager was just… it makes me feel sorry for Scott Yeager. Scott brought him on board because he had one pretty good idea, and then he quickly turned into a crazy person. He was alternately angry at Scott and trying to kiss up to him. One of the best exchanges during the Broadband trial was when the amazingly talented attorney Tony Canales had this exchange with Mr. Collins:

Q. Did you, sir, at any point in time describe your relationship to Mr. Yeager as a marriage without sex?

A. Yes.

Q. Now, was that ever a good marriage, by the way?

A. Indeed, it was.

Q. Did the marriage turn sour?

A. At times.

Q. Was the marriage confrontational?

A. Oftentimes.

Q. Were you the cause of the break up of that marriage?

A. I believe there’s two sides to every story.

Q. Yes. Do you agree, sir, that you are the kind of person that — at least you’ve described — have you ever described yourself as a person with a chip on his shoulder?

A. Yes.

Q. What does that mean?

A. It means I struggle emotionally with all kinds of things.

So you can see at the minimum he has no idea how he’s perceived by others.

This gem goes on to emphasize the point. It is a letter from Bill Collins. Backstory: at a meeting, Bill Collins threatened Joe Hirko. The thought of that alone cracks me up. I can just imagine Hirko sitting there in his calm composure and Bill Collins becoming every more insane by the second. Anyway, as a result of the threat, Scott Yeager dismissed him for a week. When he came back to work he had that little note prepared.

To my ear, these words sound so whiney and manipulative and passive-aggressive. He basically seems to be saying that “you’ve forced me to be quiet so please don’t punish me for being quiet, boo hoo.”

His next bullet point actually comes close to demonstrating that he has some perception of what he’s done wrong, but then he fumbles and it becomes pretty standard Bill Collins fare: whiney, manipulative, passive-aggressive:

Obviously he knows there’s something wrong with going over the heads of his managers, but he seems to think that if he is more collaborative, it’s all good. The problem was bigger than that. Bill Collins regularly took credit for other people’s work. He claimed to have invented InterAgent, the brainchild of Rex Shelby, Larry Ciscon, and David Berberian, and the cornerstone for their company, Modulus, which Enron acquired. In other words, Bill Collins wouldn’t know InterAgent if it punched him in the nose. Copypasting from this post about Bill Collins, here are more of his crazy lies:

Collins was impeached numerous times on the stand. But let’s remove that fact. Let’s just agree for a moment to conform to Bill Collins’ world where everything he says is true. These are some of Bill Collins’ claims:

He invented InterAgent.

He was going to start a company with Rex Shelby, David Berberian, Scott Smith, Scott Yeager, and some others (this one has a lot of tangents, so I will refer back to this.)

He was responsible for the idea to attend a trade show in Las Vegas. (This, incidentally might be true. What grates on my nerves about it is that he is bragging about it. He does that a lot. Everything is his idea.)

He was responsible for designing the trade show booth.

He was going to make $100 million “in the next few months”.

He also admits that “I was intolerant of opinions besides my own.” And in one of his many temper tantrums when he wanted to be made Vice President, he threatened Joe Hirko.

The big problem with Bill Collins is that he was a know-it-all and a man who just didn’t think it fair that he wasn’t getting what he deserved. He believed that because he had a journalism degree, he should be put in charge of all the press releases for Enron Communications. He believed that because he had written his stupid little plan, he should be Rex Shelby’s boss. Oh, and he hated Rex Shelby.

The fact that the DOJ manipulated him like a fine Italian puppet is shameful. Though I find his actions at Enron ridiculous, he is in fact a sad figure. He obviously had very real problems and the fact that the DOJ used him to attempt to impeach the Enron defendants speaks to the desperation of the prosecution’s case.

This is what you need to know before we discuss John Bloomer.

(Oh, and Bill never apologized to Joe Hirko for threatening him or anything else.)