The Strange Silence In The Natwest Three Case

[Again, it was written over a year ago.]

During the ordinary course of my Enron googlings, I found this Guardian article about the NatWest Three, dated Monday, August 6, 2007. The NatWest Three – David Bermingham, Giles Darby and Gary Mulgrew – are all former NatWest bankers who have been accused of doing a dirty deal with Enron, and profiting from that deal. In 2006, they were extradited to the US to face trial for illegally profiting to the tune of $7.3M. As usual, no evidence exists to prove that the three did anything wrong at all. And as the Guardian story recounts, the NatWest Three had great difficulty in getting any witnesses to speak on their behalf because the prosecutors were using the exact same strategy against them as they were against Jeff Skilling and Ken Lay. They silenced witnesses with threats of arrest (or indictment). And exactly like in the case of Skilling and Lay, virtually no witnesses were willing to step up and face that kind of pressure to defend their friends and coworkers.

The only defendants who have had any luck in witnesses defying the prosecution are the Broadband executives. In that case, five former executives were fortunate enough to have witnesses come forward, despite being labeled unindicted co-conspirators, and despite repeated threats from prosecutors not to testify on behalf of the five Broadband defendants. Several other also risked themselves, their families and their very freedom to tell the truth about Enron Broadband Services.

But, oddly, that was the only Enron trial where such courage was commonplace.

Again, the obvious question presents itself: is this the best path to justice? Is this a valid way to determine if something untoward or illegal really occurred? Silencing witnesses doesn’t sound like the most noble way of acquiring a conviction. But where Enron is concerned, nothing about the DOJ is noble.

The Natwest Three Bring The Hotnissssss

Yes, there are important things to discuss regarding the Natwest Three. Yes, they have been terribly victimised by the United States Government. Yes, their so-called ‘crimes’ are interesting and convoluted and we could spend days talking about them – and we will – but really, I just want to say: they’re hot. They bring the hotnissss.

It’s that kind of day.

Marketing Opportunities

Ex-Wife Of Jailed NatWest Banker Seeking 6 Million Compensation

From The Scotsman comes this tale of greed run amok:

THE former wife of jailed Scottish banker Gary Mulgrew claims her ex-husband “physically and mentally” tortured her, it was reported yesterday. Laura Murray is claiming more than £6 million compensation from Mulgrew, whom she described as a “pathological liar”. She also said she “lived in constant fear of him erupting into a violent tirade”.

Among the incidents inflicted upon her, Ms Murray claims Mulgrew punched her when she was pregnant and also tampered with the brake leads on her car.

Mulgrew was one of the so-called NatWest Three involved in the 2001 Enron scandal. He was extradited to America and convicted of plotting to defraud NatWest of £10 million.

Ms Murray is seeking £6 million from Mulgrew and Royal Bank of Scotland, whom she accuses of “intentionally concealing” Mulgrew’s assets during their divorce.

Yesterday, her lawyer Charles Camp, said: “We’re confident the claim we have against Gary Mulgrew is well founded.” Mulgrew is due to return to the UK later this month to serve the remaining 14 months of his sentence.

If memory serves, the former Mrs. Mulgrew is the same woman who denied her ex-husband child contact for over a year and now his daughter has been taken to Tunisia to live with her mother’s new boyfriend Abdul.

Sources close to the story describe Mrs. Mulgrew as a bitter woman hell-bent on making her ex-husband miserable and spreading lies about him. Her desperate lust for money in this suit speaks more about her than it does about her former husband.

Things I’ve Learned Since I Fell In Love With Enron

When Jeff Skilling told his Harvard admittance officer that he was fucking smart, he was being modest and understating.

Jeff Skilling is the hottest CEO of any large company. Seriously: he’s hot.

Andy Fastow was totally incompetent.

His underlings, however, were extremely bright.

There is no such thing as a conspiracy.

However, there is such a thing as a plot.

Understanding mark to marketing is not difficult. If you wanted to understand it, a half-day of study would bring you right up to speed.

Enron was never even accused of abusive marking to market – yet people think that there was something awry in the way Enron accounted for its assets. This is because people get sloppy in their rush to accuse.

Selling your own dark fiber is not a crime.

Selling your assets to a related partnership is not a crime. If you don’t believe me, google “Shell, LLC” and you’ll see about 13,000 of Shell Oil’s related parties. And that’s true for any company of size.

Selling your interest in Nigerian Barges on the eve of Christmas is not a crime.

Lying about bear hugs is a crime.

So is lying about other things.

But sometimes the lies stand, and nobody really cares enough to drill down into them. And they become preserved in amber, de facto truth.

Making money is not a crime. Yet.

Sometimes after a while, the fine print of a Form 10-K becomes poetry.

Wading through internal Enron documents is like walking backstage of the world’s most amazing production.

Rick Causey is one of the most straightforward guys you could ever hope to meet. Whatever else he believes in the privacy of his own conscience that he might have done wrong, he didn’t commit wire fraud on the Greyhawk transaction.

Sometimes the truly bad guys get away with real crimes – such as Sherron Watkins who admitted that she was guilty of insider trading.

And sometimes the good guys get punished – such as Jeff Skilling who gave his life’s work to the company.

Or like the NatWest Three: Gary Mulgrew, Giles Darby, David Bermingham.

Or the Broadband guys: Joe Hirko, Rex Shelby, and Scott Yeager.

Or the other Enron people who pleaded guilty to save themselves and their families from decades of prison.

Or the ones who were threatened and harassed mercilessly to keep silent, lest they too get indicted.

Sometimes you can do everything right, you can play the game better than anyone else, and you can still lose.

Life is not fair.

I’ve become more optimistic since studying Enron. All the Enron people I’ve spoken with are fucking smart. All of them are good people. It makes me feel good that these people are in companies now, working on the Next Big Thing.

Ask Why is still one of the best corporate tag lines ever.

Updated

(There were added in the comments section by Evan, and I thought I’d add them to the main list)

Witch hunts are alive and well in the 21st century.

Many federal prosecutors do not know what the “J” in DOJ stands for.

A “task force” will always find ways to justify its existence, even if it must make things up.

The penalty for defending oneself at trial in a federal case is draconian.

The strength of the government’s case is inversely proportional to the number of unindicted co-conspirators it names.

The strength of the government’s case is inversely proportional to the number of counts it heaps on a defendant.

An indictment is the government’s spin document — nothing in it can be trusted without verification.

If people are liars off the stand, then they will be liars on the stand.

It is not someone else’s fault when you don’t diversify.

Today In Enron History

Today in 2002, the NatWest Three were charged with wire fraud in a transaction involving Enron. The three former employees of National Westminster Bank (Gary Mulgrew, Giles Darby and David Bermingham) were accused of secretly investing in an Enron special purpose entity, Southampton, and siphoning off $7.3 that belonged to National Westminster Bank. The criminal complaint, filed in Houston Texas, alleged that Mulgrew, Darby and Bermingham recommended that an interest in an Enron-related partnership held by Nat West should be sold for $1 million at a time when the defendants were scheming with Enron executives to purchase that interest for themselves for only $250,000, and then liquidating it only weeks later for over $7.3 million. The complaint alleges that the defendants: (i) knew the details of Nat West’s interest because they helped structure it; (ii) were aware that the investment had a minimal value of between $7 million and $9 million in February 2000; (iii) represented to Nat West that $1 million was a fair price; (iv) secretly negotiated their own purchase of Nat West’s interest while still employed at Nat West; (v) along with Enron executives, set up a series of offshore entities to carry out their scheme; and (vi) all the while, were employees of Nat West that had fiduciary duties to Nat West and were subject to its compliance policies.

This was, of course, nonsense.

The NatWest bankers became aware through news reports that the transaction – one of Fastow’s deals – was being investigated for fraud. They did the only conscionable thing to do, and alerted the UK authorities. The UK authorities contacted the SEC, and before even a single US investigator had talked with them, they were named in a criminal complaint.

(If you ever wonder if you should speak up when you believe yourself to have been an unwitting partner in something nefarious, that is your answer.)

Tom Kirkendall has a succinct summary of the transaction:

the case against the NatWest Three is fairly straightforward, at least as Enron-related criminal cases go. The Task Force alleges that the three defrauded their former employer by conspiring with Fastow and Kopper to underpay NatWest for its interest in an entity named Swap Sub, an affiliate of LJM1, the Fastow/Kopper-managed special purpose entity that was created in 1999 to hedge Enron’s valuable but highly volatile interest in a technology company called Rhythms.

Fastow arranged to have an entity called Southhampton that was owned by his family, Kopper and several other Fastow underlings at Enron (including Ben Glisan) buy NatWest’s interest in Swap Sub in March, 2000 for $1 million, which was substantially more than NatWest had that interest valued at the time. After NatWest sold out, Fastow sold a portion of the old NatWest interest in Swap Sub through Southhampton to the three bankers personally for $250,000. About a month and a half later, Fastow and Kopper arranged to have Enron and Swap Sub unwind the hedge on the Rhythms stock, which resulted in Enron purchasing a large chunk of Enron stock from Swap Sub. The NatWest Three’s net share of the Enron stock sales proceeds was $7.3 million.

In short, the Task Force alleges that the NatWest Three’s making $7.3 million on an investment of $250,000 a month and a half earlier violates the “too good to be true” rule. Presumably, Fastow and Kopper are prepared to testify that the NatWest Three knew that Fastow and Kopper had arranged with Enron to unwind the hedge on Rhythms stock with Swap Sub, knew that such unwinding would make Swap Sub worth much more than NatWest had it valued at the time, and that neither Fastow nor the NatWest Three disclosed the situation to NatWest before the bank sold its interest in Swap Sub to Southhampton for a measly $1 million.

For their part, Bermingham, Mulgrew and Darby contend that they knew nothing about Fastow and Kopper’s plan to unwind the Rhythms hedge with Enron, that the $1 million price that Southhampton paid for NatWest’s interest in Swap Sub was substantially more than it was worth at the time, that the $250,000 price they paid for an interest in Swap Sub was similarly reasonable given the risk of the investment, and that they were as pleasantly surprised as anyone on the big return on their investment when Enron and Swap Sub unwound the hedge a month and a half later (remember, all this took place before the bursting of the stock market bubble on tech stocks). Interestingly, despite the fact that all of the foregoing information has been well-known to NatWest for several years now, the bank did not pursue either a civil case or criminal prosecution of the NatWest Three in the UK.

By the way, colorful Houston-based criminal defense attorney Dan Cogdell, who successfully defended former Enron in-house accountant Sheila Kahanek in the Nigerian Barge case, is defending Bermingham. Cogdell’s involvement ratchets up the entertainment value of any case, so stay tuned.

Today the NatWest Three are serving their sentences in prison. Gary Mulgrew is projected to be released on 01-02-2011, Giles Darby on 01-09-2011, and David Bermingham on 01-11-2011. However, with a 15% reduction for good behavior, we can expect them out in the summer of 2010.

Calendar Of Release Dates For Enron Defendants

Michael Kopper, Managing Director Global Equity Markets Group, 01/01/2009

Kenneth D. Rice, CEO Enron Broadband Services, 02/03/2009

Kevin Hannon, COO Enron Broadband Services, 04/20/2009

Gary Mulgrew, Managing Director of Greenwich NatWest, 01/02/2011

Giles Darby, managing director and oil and gas specialist at Greenwich NatWest, 01/09/2011

David Bermingham, Finance Specialist at Greenwich NatWest, 01/11/2011

Andrew Fastow, CFO, Enron Corp., 02/17/2011

Richard Causey, CAO Enron Corp., 10/16/2011

Jeffrey K. Skilling, CEO Enron Corp., 02/21/2028

Gary Mulgrew of the NatWest Three Reports To Prison

Gary Mulgrew, one of the “NatWest 3,” the British former bankers who pleaded guilty in a U.S. court to a $20 million Enron Corp.-related fraud, became the first of the men to enter a federal prison.

Mulgrew, 46, entered the Federal Correctional Institution in Big Spring this afternoon, according to his lawyer, Reid Figel.

“He reported in accordance with the court order,” said Figel, a lawyer based in Washington, who declined to comment further. He said he went to the prison today with his client.

Last week, U.S. District Judge Ewing Werlein in Houston ordered co-defendant Giles Darby, 45, to surrender at the Allenwood federal prison in White Deer, Pa., on May 7, and David Bermingham, 45, to enter a federal prison facility in Lompoc, Calif., on May 9.

NatWest Three To Report To Prison

Bloomberg reports that Giles Darby, David Bermingham and Gary Mulgrew, three British former bankers who pleaded guilty in a “$20 million Enron Corp.-related fraud” – were each ordered to surrender to prison during the next three weeks.

Those quotation marks are mine. It is not true that it was “Enron related” fraud – if there was any fraud, then Enron was the victim of the fraud. The allegation is that the NatWest Three conspired with Andy Fastow to skim millions from a deal with Enron.

Background on the alleged fraud

The deal with Enron which is in question involves Swap Sub – the hedging structure that was originally in place to protect Enron against a decline in Rhythms Net stock. Enron had an option to force Swap Sub to buy Enron’s investment in Rhythms for a predetermined amount (I believe it was $41 per share) in the year 2004.

In March 2000, Enron terminated the hedging arrangement with Swap Sub. As the hedge was being unwound, Andy Fastow offered to buy NatWest’s share of the investment (NatWest, Credit Suisse and Andy Fastow’s LJM were the investors.) Fastow created Southampton in order to buy the interest. After the NatWest interest was bought out, Andy Fastow then sold the bankers a personal put option on NatWest’s interest. One of the bankers exercised his option and made a profit of about 7 million dollars, which he split with the others.

Tom Kirkendall has a lavish and expansive NatWest Three archive for more details if you want them. One particulaly good synopsis of the events in question can be found here.

If there was a crime in all this, it wasn’t evidenced from their eventual plea agreement: one count of wire fraud. They were then sentenced to 37 months in prison.

The men will serve their time in different federal prisons, according to orders signed yesterday by U.S. District Judge Ewing Werlein in Houston. Gary Mulgrew was ordered to surrender to the facility in Big Spring, Texas, on April 30*; Giles Darby to the Allenwood facility in White Deer, Pennsylvania, on May 7; and David Bermingham to the prison in Lompoc, California, on May 9.

This is just absurd.

*Mr. Mulgrew will be housed in the same prison as Michael Kopper, Andy Fastow’s assistant and one of the people with whom the NatWest Three did the original Swap Sub deal.