Today In Enron History

Saturday, October 27, 2001

Chuck Watson met with Ken Lay at Lay’s family home. The two business leaders began to discuss the nuts and bolts of a potential merger. Dynegy didn’t want Enron’s international unit — except it would take the London trading operation. Everything else would strictly be in North America.

The company’s name? Ken Lay proposed “Enron-Dynegy”. Watson flatly refused, stating that the name Enron had become poison. If the merger would happen, it would just be Dynegy, and Watson would run it while Ken Lay would be a board member. And as for management, only Greg Whalley was welcome at Dynegy.

As for price, the opening salvo was for Dynegy to buy Enron at current market price with no added value for shareholders.

This took Ken Lay aback. The stock closed at $15.04 on Friday – and had been at over $90. Ken Lay stated that the reason the stock was zooming downward was because of short sellers and the media. The value was there – it just wasn’t being reflected in the share price.

But even if Watson wouldn’t go for it, Ken Lay knew that this had to happen fast. The company was evaporating before his very eyes. The power dynamic had shifted so dramatically. Just months ago, Enron was the biggest, baddest company in Houston. Now it was asking smaller companies for favors.

Later that day, Rick Causey met with some Anderson accountants at his office. David Duncan, Tom Bauer, and Deb Cash were given a quick presentation on Chewco. Causey described the issue with Michael Kopper’s lover, an issue that had arisen with Barclay’s (the company’s investment looked like a loan; it wasn’t, but it looked like it) and the fact that distributions were sent to Andy Fastow’s wife. Maybe troubling, but was it legal? There was still no dramatic conclusion.

And the lawyers arrived. Two partners from Weil, Gotshal’s Dallas office were shown around the trading floor. The trading guys, who were known for aggression, were determined to survive even if the rest of the company collapsed. They were not going down without a fight. Mark Haedicke, lawyer for the trading division, was the main contact for the Weil, Gotshal attorneys. Finally the went into a conference room to meet with Jeff McMahon, Greg Whalley, and some of the trading team. Ideas were tossed around. They could borrow against assets. But all the international assets were under water. They could get a private equity fund to throw some money at the trading division. They could borrow against the pipelines.

The beautiful, sleek, perfect pipelines. The assets at Enron’s foundation, the assets that brought in hundreds of millions of dollars every year. The core of Enron. Maybe, to the outside world, some value was still locked in those.

Today In Enron History

Friday, October 26, 2001.

The stock opened at $16 and would close at $15.40 – a loss of only 5.81% of its value. Nothing to cheer about, certainly, but when compared to the losses every day of the week, it was one of the better days.

The morning was surreal. Overnight there had been a terror threat on the Enron building so when workers got to 1400 Smith Street, they found the surrounding avenues blocked off and police everywhere. Of course, it was a false alarm but it certainly was an external representation of how everyone was feeling inside. Like things were about to go boom.

Ben Glisan was at his desk early, researching Chewco. After the WSJ published a lurid exposé the previous day, it was essential to get a handle on the deal.

From 10 to 11, Ken Lay was on the phone with Deloitte and Touche. At noon he attended an Enron board meeting, in which Glisan gave a presentation on everything he knew about Chewco.

One of the executives present at the meeting, Rodney Faldyn, didn’t like the sound of Chewco. He went to see Rick Causey and told him he felt like there might be a problem with it.

A few hours later, Faldyn and Ryan Siurek called Tom Bauer at Arthur Andersen and asked for clarification about the three percent rule. Bauer explained that three percent of an off the books partnership had to come from an independent investor in order for the partnership to be valid and comply with accounting rules.

Faldyn believed then that Chewco did not meet that standard.

Chewco had been used to buy Calper’s interest in JEDI. JEDI spun off a lot of cash – there had never been any question about the JEDI deals. But if Chewco wasn’t independent, that meant that JEDI wasn’t either, and all the income reported on every income statement, every balance sheet, every bit of information that had exited the Enron building would have been wrong, all the way back to 1997.

Ben Glisan, Rick Causey, and Rodney Faldyn met to discuss Chewco. And thus Enron was confronted with the strangest question ever to face any company anywhere: How do federal accounting laws view homosexuality?

(I need to interrupt myself to say I feel really weird talking about about Kopper’s sexuality. You don’t hear me talking about anyone else’s lover – just Kopper’s – and it’s because he’s gay. It shouldn’t be any big deal. So though I’m talking about Kopper’s love life [a place I have no business being] please know I’m really only trying to explain what was happening. I’m not singling him out or anything like that. I’m not going to discuss the sex lives on any other Enron execs. You can take that to the bank.)

If Kopper’s lover had been his lawfully wedded spouse, the whole deal would have violated accounting rules because the capital would not have come from an independent party. But Kopper wasn’t married. In the eyes of the state of Texas and the US Government, he was a single man, and his “friend” could invest whatever the heck he wanted. But he was Kopper’s live in lover. So was his investment independent or not?

Ken Lay must have felt a lead weight in his chest when he picked up the phone to call the Fed chairman, Alan Greenspan. High-flying Enron needed help, and Ken Lay probably never thought he’d see the day. He told Greenspan that Enron was having problems with its trading partners and cash was drying up. He did not ask for a bailout. He would have no doubt taken one, but he didn’t ask for one. Greenspan said he would monitor the situation. Ken Lay then put in a few other calls to his well-placed Washington friends.

After the call, he had a meeting with James Derrick (general counsel) and Rick Causey. Rick told him that they were still looking at Chewco, they hadn’t drawn any conclusions, but it looked like there might be a very serious problem with it.

That night the Enron 401(k) plan was locked down. After months of friendly reminders, Enron employees could not touch their accounts until November.

Today In Enron History

Tuesday, October 23, 2001.

The stock opened at $23.25, its high for the day.

Ken Lay convened a conference call with analysts to try and keep them apprised of what was happening ( Call transcript here ). The room at the Enron building was packed; Ron Astin, a V&E attorney, was present, as were Richard Causey, Ben Glisan, Greg Whalley, Mark Palmer, Andy Fastow. Tension zinged through the room. The only thing Whalley could say was that an SEC investigation had begun but he could give no other details, which was the only thing that the world wanted to know. Causey was uncomfortable; Fastow was angry.

Most of the analysts were polite, until Richard Grubman took the line. Only a few months earlier, Jeff Skilling had called the Highfields Capital short seller an asshole ( transcript here). Grubman asked a question about Azurix, saying that the water company would require a billion dollars of support from Enron, and had Enron taken reserves against that liability?

Causey answered that Azurix was well-positioned to handle all of its obligations. Grubman persisted, stating that the value just wasn’t there.

Ken Lay stepped in. “Richard… I know you want to drive the stock price down. And you’ve done a good job of doing that, but let’s move on to the next question.”

Lay and Grubman tangled for a few more moments.

Listening from home, Jeff Skilling must have been smugly satisfied. That guy was a pill, and it was difficult for even consummately professional Lay to gracefully handle him.

David Duncan had been watching the stock price during the conversation. It was chugging downward with every second.

An analyst from Goldman Sachs finally got to the question everyone wanted answered – whether there was more to come in terms of LJM. Ken Lay said that he couldn’t say much about LJM because of the SEC investigation.

Skilling thought this was exactly the wrong answer. This was what people wanted to know – the one question that had the potential to turn around the stock price and people’s perception of Enron, and Lay refused to answer it.

That was when Skilling called Enron. Lay was still on the call, but Skilling asked his secretary to have him call back asap.

When the call ended, the general feeling in the room was that they’d just created another disaster. A huge, ugly, nasty disaster.

Shutting off the webcast in his office, David Duncan reiterated the document policy and told his team to get in compliance with it.

When he was finished with the analyst call, Ken Lay called Skilling. Skilling asked to be brought back to Enron. He believed it would send a good signal to the street and help tourniquet the blood loss the company was experiencing. Ken Lay said he’d think about it.

A little while later, Ken Lay headed to the Imperial Ballroom of the Hyatt for an all-employee meeting ( Transcript here). The employees were worried about the stock price; many were angry. Ken Lay was calm and affable, as always, and assured them that the stock was way undervalued.

The employees had been asked to provide questions anonymously to Mr. Lay. Most of them were concerns about the stock price and what the company’s strategy would be going forward. Then he picked up a question written on a card and said, “A lot of these I think I’m going to have to handle, like this one.” He read: “I would like to know if you are on crack.”

The crowd laughed.

“If so,” he continued, “that would explain a lot. If not, you may want to start because it is going to be a long time before we can trust you again.”

The crowd laughed again. Even under attack, Dr. Lay looked relaxed and appeared to be enjoying himself, though we know that could not possibly be happening.

“I think that’s not a very happy employee,” Lay said. “I’m sure a lot of you have some hatred.” He paused. “No, I’m not on crack.”

The decision of the board to ask Andy Fastow how much he had earned with the LJM structures had been made last week. Today John Duncan and Mickey LaMaistre would ask. Jim Derrick, the firm’s general counsel, had composed a script (script here) to make sure they asked the right questions.

LaMaistre, who was in Colorado at the time, looked down at the script and began to read it.

“Andy, because of the current controversy surrounding LJM1 and LJM2, we believe it would be helpful for the board to have a general understanding of the amount of your investment and your return on investment in the LJM entities.” He asked four specific questions, which allowed for no wiggle room.

Fastow answered that he made twenty-three million on LJM1 and twenty-two million on LJM2. The actual number would be about fifteen million dollars higher — over sixty million dollars all told.

In Global Finance, two very bad things were happening. The first was that Enron’s short term loans in the commercial paper market weren’t rolling over. The second was that Ben Glisan was attempting to get some credit from bankers, to no avail. No bank wanted to do business with Enron as long as Fastow was still CFO. Thus Ben Glisan was put in the uncomfortable position of having to tell his boss that he was the corporate equivalent of anthrax.

Pug Winokur, a board member, and president Greg Whalley were at that moment fighting over whether Andy Fastow would stay as CFO. The board – and Pug – adored Andy. Whalley believed Fastow was poison.

Fastow and Glisan convened the finance team – including Rick Causey – trying to find a way out of the morass of problems that had been dumped on their laps. Whalley suggested they call Jeff McMahon.

McMahon and Glisan were not on good terms. Just three days earlier McMahon had tried to fire Glisan. But the Boy Scout had survived. So when Glisan told him that the company was unable to roll commercial paper, McMahon could only roll his eyes. Obviously Glisan was too stupid to even know the words he was using.

“Ben, obviously you didn’t mean you couldn’t roll it,” McMahon said. Probably what had happened was that he couldn’t issue as much as the company would like, which was not a surprise in this market.

Then Andy’s voice came on the line. “No, Jeff. Ben is right. We were unable to find any buyers for our commercial paper.”

McMahon was stunned. And sickened. Through the astonishment of the situation, only one solution presented itself. It was time to draw down the revolving credit lines that backed the commercial paper.

Getting off the phone with Glisan, Causey and Fastow, McMahon then called Whalley. “We have a major liquidity crisis,” he said.

The stock closed at $19.79, a loss of 4 percent of its value.

Today In Enron History

Monday, October 22, 2001.

The stock opened at the high it would reach for the day: $24.

The SEC alerted the company that it had begun an investigation; it was not entirely unexpected since the Wall Street Journal had spent almost the entire previous week raising questions and accusing Enron of covering up the $1.6 billion loss. Questions had begun to swirl, and accusations. So when it finally happened, there was something almost inevitable about it. ( Press release here).

At 8am Ken Lay convened a meeting of Enron’s executives in the Dogwood room of the Hyatt Regency across the street from the Enron towers. Absent was Andy Fastow, who was currently meeting with Jordan Mintz in Fastow’s office. Ken Lay had asked him not to attend.

There was a lot to discuss: LJM, the write-downs, the SEC inquiry, the sinking stock. Ken Lay’s hope was that by having a very frank discussion, he might calm the company – and possibly come up with a short-term strategy that would halt the kamikaze death spiral that Enron was in.

Almost immediately, the meeting was bedlam, a scene out of the English parliament with executives yelling in the middle of the other’s questions and comments. Some believed the company should apologize and vow to do a better job of disclosure. Others yelled back that was nonsense, that taking a defensive posture was absolutely the wrong thing to do.

Ken Lay reiterated his support (and the Board’s) for Andy Fastow. In the end, nothing was really solved by this meeting, but at least it must have been crystal clear to Ken Lay that with so many executives calling for Fastow’s neck, he could not remain CFO for long. In fact, he had two more days in that role.

At 10:30 Andy Fastow called Mike Edsall, an attorney at Kirkland & Ellis, LJM’s outside counsel. They spoke for half an hour.

From 12:30 to 2pm, he met with Houston attorney David Gerger- who would become his attorney through-out the Enron trials. One can speculate what was going on here, but I’ll just assume he was eager to catch up with an old friend. (Gerger was a friend of Lea Fastow).

At 3pm, Ken Lay hosted a special Board of Directors meeting, which Ken Lay again asked Andy Fastow not to attend. Ben Glisan made a presentation, noting that demand for the company’s bonds was soft, but restating that Enron had plenty of liquidity. After a brief discussion with Rick Causey about an arcane accounting structure of Azurix, Ken Lay asked if any of the Board members if they knew how much money Andy had made from the LJM structures. Nobody knew. The time had come to just ask him. Two directors, John Duncan and Mickey LeMaistre were appointed to call Fastow and ask him.

At 3:30pm Houston time, Enron stock closed at $20.65, having lost 20.7% of its value since Friday.

At 4pm, Fastow had another phone conversation with Mike Edsall lasting for one hour.

At 5pm, Fastow attended a strategy meeting to prepare for the next day’s special investor conference call. In attendance were Ken Lay, Greg Whalley, Mark Koenig, Rick Causey, Steve Kean, and Ben Glisan.

At 6pm, the meeting broke up and most of the executives left for the annual fundraiser at the Holocaust Museum, which was also an occasion to honor Jim Reilly of Salomon Smith Barney. Andy Fastow, having been offered a chance to speak about his contribution to the museum, took a special moment to acknowledge Ken and Linda Lay, saying that the couple were Lea and his own personal role models and paragons of community service. Though I do not know this, I think it is reasonable to assume that Andy knew at this point that the walls were closing in. He’d been locked out of two critical meetings that day. He was on the phone with lawyers. He wasn’t stupid. Putting those three factors together, it not difficult to arrive at the conclusion that he definitely knew something was very wrong. I believe his rather slobbery display over the Lays that evening was an attempt to charm and woo Ken back into his corner. Ken had always adored Andy — I think Andy was trying to remind him of that.

That night, about the time everyone was driving home from the gala, an automated email went out to all Enron employees reminding them that the Enron Savings Plan was moving to a new administrator, and that October 26 would be the last day they could touch their funds until November 20.

Rick Causey Used As A Pawn By Opportunistic Author

Some “whistleblower” has a new book to sell and is dropping Rick Causey’s name to get some attention:

Massie said he was partially inspired to make a stand by the downfall of one of his neighbors in The Woodlands, Richard Causey. Massie said Causey, former chief of accounting officer for Enron, was sentenced to five years in prison because of fraud related to the corporation’s collapse.

“His life was in shambles,” Massie said. “He lost his job and his reputation. He told me he didn’t believe he had done anything wrong.”

Massie said that while Causey did not contribute to the corruption at Enron, he was aware of it and decided to ignore the problem.

“In his mind, doing nothing to stop what was going on at Enron was the same as doing nothing wrong,” Massie said. “I disagree.”

This guy sounds like a jerk. First, he’s using his neighbor to burnish his cred. Secondly, he interjects himself into Causey’s mind and alleges that Causey “was aware of it and… ignored [it].” Really? How does he know this? He doesn’t.

Rick Causey has served time for a crime he didn’t commit, and I hope he is now on a beach somewhere with a margarita in one hand and a cigar in the other. He deserves better than to have people discussing him like he’s a monkey in a zoo just so they can make a profit on their nasty little tell-all.

Twenty-Second Joint Status Report Regarding State of Discovery in USA vs. Skilling

This is the twenty-second joint status report regarding the state of discovery.It is now six years after the fact of this document and it still has the power to make my blood boil. Everything that Skilling would claim in the coming years – that the prosecution withheld exculpatory evidence, that they refused him access to witnesses and material, that they were just being giant douches – is here. My heart breaks for him; he was trying very hard to stop it even then, and then, as now, he was ignored.

The Enron Task Force drones on and on about how well they provided Brady material to the EBS and Nigerian Barge defendants (which in itself is dismaying) but they acknowledge they would not give Skilling access to much of the LJM and/or Andy Fastow material – which would seem to be rather important considering the charges against him. It’s a fascinating and infuriating read, well worth your time.

Judge Sim Lake Denies Skilling & Causey’s Motion To Change Venue

Jeff Skilling and Rick Causey filed a joint motion to change the venue of the trial to Denver, Phoenix or Atlanta, all places they felt they might get a trial where the jurors weren’t wishing them dead. The motion was joined by Ken Lay. Judge Sim Lake denied the motion.

Rick Causey at Enron

Rick Causey

Since Rick Causey has been released to a halfway house (and I’m so happy for him and his family!) I figure now is a good time to talk a bit about him and what he did at Enron.

In The Org Chart

Causey held a CPA and MBA. He had a job with Arthur Andersen, where he eventually became the lead for Enron’s audits team. After a while, as was so typical of Enron, he eventually was brought over to Enron Capital and Trade – the heart of Enron, a unit that Ken Rice and Kevin Hannon had worked so hard on. He was eventually promoted to Chief Accounting Officer, counterpart and complementary to Andy Fastow’s role as Chief Financial Officer.

The Good Times

Rick Causey was universally liked at Enron. I’ve literally never talked to anyone who ever had a bad thing to say about him. He was viewed as competent, honest, and forthright. I’ve written before about how well he treated his people, how he was always looking out for them.

The Bad Times

On January 22, 2004, Causey was indicted with Ken Lay and Jeff Skilling. The DOJ alleged that he committed wire fraud and conspiracy. Oddly, prosecutors came up empty-handed when it came to actual proof that Mr. Causey had ever done anything that benefited himself. He did not steal money. He did not lie to auditors or analysts. The allegations against him were rather amorphous. Causey pleaded not guilty, along with Lay and Skilling.

Pressure and Plea Deals

On December 28, 2005 – basically the eve of trial – Rick Causey pleaded guilty to one count of securities fraud and agreed to serve five years in prison and help the prosecution in their case against Lay and Skilling.

Causey said that he knew Enron’s presentation about its new EBS business at the January 20, 2000 conference was designed to, and likely would, cause an immediate increase in Enron’s stock price, and thus he “devised a scheme” to allow Enron to report earnings from the increase in the stock price as earnings in the increased value of JEDI investments. This transaction was called Grayhawk.

The JEDI fund contained a large amount of Enron stock – but the value of the stock was locked in. A hedge was in place that prevented it from going up or down. But, the Department of Justice says, that’s not actually how it worked. Causey, with the help of Fastow, according to the DOJ, “replaced” the JEDI hedge with one that did not limit its upside (ie, the stock could gain value.) Then, again according to the DOJ, when the price did rise due to the January 20, 2000 analyst conference, Enron reportedly improperly recorded the gain as recurring operating income in its energy business.

In reality, the transaction was clean as a cowboy’s conscious. There was nothing illegal about that transaction – and Skilling’s lawyer, Dan Petrocelli, stated to the media that Causey was innocent and broke under the pressure. I always found it fascinating that many of these so-called crimes were committed by people who did not profit from them.

On January 2, 2007, Causey reported to the Federal Correctional Institution in Bastrop, Texas.

The Case Against Jeff Skilling and Ken Lay

Oddly, the prosecution never called Rick Causey to testify at the Skilling/Lay trial. I believe it is because they knew he would get up and tell the truth – or come just close enough to put some sort of doubt in juror’s minds about the guilt of the defendants. Say, maybe, “reasonable” doubt.

IRS Whistleblower: Bob Hermann

There is no confirmation from “official sources” but I am willing to bet $1 million that the recent “whistleblower” who scored a $1 million taxpayer payout is Bob Hermann. Bob Hermann headed the Tax division at Enron Corp., he lost $10 million when the company collapsed, and he was a total fucking lunatic even when the company was healthy.

Bob Hermann was a drunk and his addiction to alcohol made him erratic, capricious, and inept even in the good days. I know some people who worked in Tax and instead of going to their boss, Bob Hermann, they’d go to his boss, Rick Causey when they needed something because Bob was just not there – he didn’t have his head in the game. Causey, on the other hand, was a man’s man. He took care of whatever you needed – he loved his people and made sure they were happy and had whatever they needed.

When the company went bankrupt, Bob Hermann immediately began to blame his direct reports for a litany of fire-able offenses. Hermann asked one person (who is a lawyer) to write some memos about “what had happened.” The person said no and suggested that Enron’s general counsel and someone else, possibly Vinson & Elkins, should write the memos. This person conferred with General Counsel and V&E and both agreed that it was foolish to start creating new documents when the company is bankrupt. You just don’t do that. So this person continued to refuse to create these CYA documents for Bob Hermann, so Bob Hermann fired him. Then he accused him of shredding documents — a funny accusation since nobody at Enron was ever accused of wrongly shredding documents.

In summary, Bob Hermann had the means and the motive and this is something that fits his personality. My bet remains on the table.

Transcript of Rick Causey Sentencing

This is truly a fascinating document. While pleading guilty, Rick Causey’s attorney makes the point that Causey believed he was following GAAP and acting ethically. I support Rick Causey; he is not guilty. Not under any interpretation of the law, not of acting unethically, not of anything. He is a stand-up guy.

Download the transcript of Causey Sentencing and watch your understanding of the Skilling/Lay case explode into a million silvery shards.

Today In Enron History

December 28, 2005, Chief Accounting Officer Rick Causey pleaded guilty to securities fraud in exchange for a prison term of five years.

Causey said that he knew Enron’s presentation about its new EBS business at the January 20, 2000 conference was designed to, and likely would, cause an immediate increase in Enron’s stock price, and thus he devised a scheme to allow Enron to report earnings from the increase in the stock price as earnings in the increased value of JEDI investments. This transaction was called Grayhawk.

Rick Causey pleaded guilty because he, like many others, wanted to protect his family from a thirty year sentence with the promise of “only” five. Rick Causey is not guilty.

Rick Causey is a nice guy, the kind of down to earth guy you would love to have in your family. He’s laid back, sensible, a man of moderate temperament.

Causey was a great boss. He was always looking out for his people. He did not entertain office politics.

He was a sweet, decent man who had built himself a nice life. He simply did not want to risk losing everything, if he could lose only a little. And thus he pleaded guilty.

Madoff Pleads Guilty: Cara & Friend Discuss

On Tuesday, I received a flash-bang email from the NYT announcing that Madoff was about to plead guilty and would accept a life sentence. I forwarded it to a friend with a note:

If it’s a life sentence, why not go to trial? That way he at least has the hope of a few technicalities that might result in a lower sentence, or even acquittal (though that’s unlikely.)

My friend’s reply thrilled me:

Maybe Madoff is hoping that when he is sentenced, he will get less than the life sentence. Maybe the Feds agreed to recommend something less.

I don’t understand why the only punishment we seem to be able to come up with is prison. Why put non-violent white collar guys into prison? Why not simply make them get a regular job and pay a certain percentage of their earnings out as a penalty?

I have toyed with the idea of sending a proposal to Obama in which I say that I want to hire some white collar prisoners. I get to look at the resumes of all the business executives in all the prisons and choose the ones I want for my new business. I will pay them a market salary, and they must pay a certain percentage back to the government as a penalty. The government must release them from prison for this program. Not only would taxpayers not need to pay for their upkeep in prison, but they would actually be making money and paying taxes (and starting businesses to provide jobs to others). This idea is probably too rational for the Feds.

Wow! Brilliant.

I would like to suggest that our first hire should be Jeff Skilling. Second is the NatWest Three, the Merrill Bankers, Joe Hirko, Rick Causey…

I am completely serious when I say that I would trust any of those guys with my life savings before I would trust the government. Madoff, I’m not so sure – I don’t know the facts of his case – but I do know that my friend is right. There has to be a better solution than prison for white collar guys. They aren’t violent. They are generally well-educated, smart people. If they are guilty, then punish them appropriately. But don’t just throw them into the gulags and forget them.

The Global Galactic Agreement

While perusing the excellent Houston’s Clear Thinkers blog, I came across this post which asks the provocative question: did Andy Fastow forge Rick Causey’s initials on the Global Galactic agreement?

Using the testimony of an Arthur Andersen accountant, Skilling’s attorneys got the former partner to admit that the so-called Causey initials did not appear to be like other known Causey initials. The [Skilling] defense did not have a handwriting expert review the samples, but I found the testimony of the AA accountant compelling nonetheless.

But the relevance of this is pivotal to the question that led me to Kirkendall’s blog in the first place: why didn’t the prosecution put Causey on the stand? Had Causey testified it seems like he’d have been in a strong position to refute or confirm the controversial Global Galactic agreement.

The Task Force originally said that the Global Galactic agreement did not “relate to Skilling but implicated Causey and Fastow.” However, when on the eve of trial, Causey pleaded guilty to a single count unrelated to Global Galactic the Task Force shifted its allegation of Global Galactic conspiracy from Causey to Skilling.

I can not pretend to know the timeline or the inside story of Andy Fastow’s interrogation by the FBI – the interrogations that produced the Fastow Notes. However, I would not be at all surprised to see that Fastow did not recall meeting with Skilling about the Global Galactic agreement until Causey pleaded guilty; this sort of detail is exactly why it’s critical that the Fastow Notes are released to Skilling’s defense.

During the trial, the Task Force introduced a document that was supposedly written by Fastow in the Spring of 2001 which were talking points to discuss with Skilling. In the document it spells out, “Global Galactic.” Under oath, Fastow admitted he never gave or showed the document to Skilling.

This isn’t the only wonky document. During trial, the government introduced this masterpiece, “Additional Agreements Between Enron and LJM/AF”. It is dated “September 2000″. It’s best not to be too specific about these things after all, so just the month and date work beautifully for this purpose. This document has a very glamorous past. Fastow claimed he destroyed the original in the summer of 2001. What was happening in the summer of 2001? Not much. Skilling left the company that August but otherwise, money was being made, all was well; it seems a strange time to destroy the document.

Anyway, apparently a second copy (Rick Causey’s copy?) ended up in an envelope in a safe-deposit box that Fastow and his wife kept at a bank. Fastow said he had no idea how it ended up in a folder holding his Enron employment agreement.

Lea Fastow claimed to find the envelop in April 2004 when she checked the safe deposit box. That was the same month she pleaded guilty to a misdemeanor tax crime, ostensibly for helping launder the dirty Enron money, for which she would serve a year in the federal detention center in Houston, Texas. For her plea, the government dropped six felony counts pending against her.

Fastow said his wife put the envelope on his desk, but he didn’t look inside the folder until about a month later. He immediately gave it to his attorney, who gave it to the government. And then it ended up in court, sparkly clean and dazzling.

To me, it just seems a bit too convenient. My personal opinion is that he created the document when he needed something to show the feds in order to plea out.

Who knows. The whole Global Galactic story is just too ridiculous for words. The CFO is conspiring with the CEO, the CFO makes notes – two copies! – doesn’t actually show the notes to anyone, loses one copy, doesn’t know how the other ended up in a safe deposit box and it miraculously fingers the bad guy, while also saying – BEFORE THIS DOCUMENT SHOWED UP – that he had never talked to Jeff Skilling about the Global Galactic document.

Oh, and he’s committing several major felonies and writes it all down. And saves the paperwork. And initials it. And gets the Chief Accounting Officer to initial it too.

Honestly. If Andy Fastow were ten years old, telling you this story, you’d send him into time out and take away his television privileges for making up such a stupid, poorly-constructed lie.

In my opinion, the Global Galactic agreement never existed. It was just one more of Andy Fastow’s phony shell games.

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

August 11, 2001, Jeff Skilling spoke to Mark Palmer, the managing director of corporate communications, about a press release to announce his resignation. He was still a few days away from an official announcement but Ken Lay and a few others in the C-Suite knew that Jeff was leaving and the press release had to be written. In the end, this was the final version released to the media:

ENRON ANNOUNCES SKILLING RESIGNATION~ LAY ASSUMES PRESIDENT AND CEO DUTIES

COMPANY REITERATES STRONG EARNINGS OUTLOOK

FOR IMMEDIATE RELEASE: Tuesday. August 14, 2001

HOUSTON — Enron announced today that its Board of Directors has accepted the resignation of Jeffrey K. Skilling, Enron’s President and CEO. Kenneth L. Lay, currently Enron’s chairman of the board, will assume the additional responsibilities of president and CEO.

“I am leaving for personal and family reasons. I want to thank Ken Lay for his understanding of this purely personal decision and I want to thank the board and all of my colleagues at Enron,” said Skilling.

“We regret Jeff’s decision to leave Enron, as he has been a big part of our success for over eleven years,” said Lay. “But, we have the strongest and deepest talent we have ever had in the organization, our business is extremely strong, and our growth prospects have never been better.” Lay continued, “We remain confident that we will meet the recurring earnings estimates of $.44 and $1.81 per share, respectively, for both the third quarter and fill year 2001 and remain confident of our recent projected increased earnings for 2002 of $2.16 per share”

Lay served as Enron’s CEO from 1985 until Skilling’s election earlier this year. Lay transformed Enron from a regional natural gas pipeline company to one of the largest and most respected companies in the world. Over his fifteen years as CEO, Enron’s market capitalization increased from $2 billion to $70 billion and Enron’s shareholders received a total return three times that of the S&P 500.

Enron is one of the world’s leading electricity, natural gas and communications companies. The company, with revenues of $101 billion in 2000, markets electricity and natural gas, delivers physical commodities and financial andrisk management services to customers around the world, and has developed an intelligent network platform to facilitate online business. Fortune magazine has named Enron “America’s Most Innovative Company” for six consecutive years. Enron’s Internet address is http://www.enron.com. The stock is traded under the ticker symbol “ENE”.

At trial in 2006, Jeff Skilling was also found guilt on Count 34, false statements to auditors in quarterly representation letter (2000 2nd quarter 10Q statement to Arthur Andersen, which was filed on August 11, 2000.)

These are standard letters that set forth general representations requested by auditors: the financial statements were prepared in accordance with GAAP; all financial statements were true; there has been no material fraud; all guarantees, written or oral, have been properly recorded; all related party transactions have been properly recorded; and all financial records were made available to Andersen. Before these letters arrived on Skilling’s desk, they had a long journey: they were drafted by Andersen, sent to Enron, reviewed by Enron accountant Bob Butts. Butts initialed the letter and send it to Rick Causey. Rick Causey would signify his approval with his initials. Then an Enron securities lawyer, Rex Rogers, would sign it, and then Enron General Counsel, James Derrick. After being processed by all these other people, the letter would arrive upon Skilling’s desk for his initials.

At trial, Andersen auditor Tom Bauer testified that he presumed Skilling relied on these accounting and law experts – yet he was the only one held accountable for this count of the indictment.