Enron A Focus Of New Oil Inquiry

The company has been dead eight years but is still under suspicion for market manipulation.

Federal regulators investigating possible price manipulation of crude oil are probably looking at what role collapsed energy giant Enron may have played, a former government official said Friday.

On “American Morning,” Michael Greenberger, who once led the Commodity Futures Trading Commission’s Division of Trading & Markets, said, “almost certainly, what they’re looking at is as a result of Enron pushing for having energy futures contracts being done outside of the United States’ regulatory purview.

“There is a theory that has gained momentum among economists and market observers that the price of crude oil is being driven up not by supply/demand principles in whole but by speculators who are using what are called dark markets, markets that can’t be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction,” he said.

He added, “It would be as if you said you could trade stocks on the New York Stock Exchange, but you could also trade stocks somewhere where the Securities [and] Exchange Commission had no idea what was going on, and at the behest of Enron in late 2000 in a lame-duck Congress, this kind of unregulated trading was permitted.”

The Texas-based Enron collapsed in 2001 after revelations of fraudulent accounting practices. Several former executives were convicted and sentenced to prison terms on charges relating to the accounting scheme. The fall of the company cost 4,000 employees their jobs and many of them their life savings, and the collapse led to billions of dollars of losses for investors.

Greenberger is now director of the University of Maryland’s Center for Health and Homeland Security.

The Commodity Futures Trading Commission said Thursday that it is six months into a nationwide crude oil investigation, with a focus on possible price manipulation. The commission said it is publicizing the investigation because of “unprecedented market conditions.”

“In addition to the CFTC’s ongoing examination of the role of fundamental economic forces and new investors in the recent commodity market price increases, the agency continues to pursue one of its primary missions — to ‘deter, detect, and punish futures market manipulation,’ ” according to a written statement from the commission.

Sen. Maria Cantwell, D-Washington, said on CNN’s “Issue No. 1” Friday that she and other lawmakers sent a letter last week to the commission, pressing them to take action.

“There is more regulation on hamburger in America, trading on the futures cattle market, than there is oil, and yet oil is critical to our U.S. economy,” she said

One can not simply say whatever one wants about Enron. It is not a dumping ground for insults, speculation, and an example of corporate malfeasance. As the years go by, the allegations become increasingly preposterous. This lastest one is a backward-looking fantasy, an attempt to explain why gas is $4 a gallon.  Enron had absolutely nothing to do with the price of gasoline at the pump. 

In literal fact, Enron was a great company that succumbed to market forces beyond its control.  I’d love to see what sort of proof these clowns pull out of their assays.

Reasonable Profits: How Democrats Continue To Misunderstand Enron

The Tax Foundation has a post that is interesting for two reasons. The first is that it outlines the absurdity of certain Democrats’ ideas about the energy industry and the second is that it points out the shenanigans of (D-PA) Rep. Paul Kanjorski, a person who I believe was instrumental in sparking some of the myths about Enron. The post:

The current high price of gas has led to a lot of crazy proposals from gas tax holidays to creating a tax deduction based upon energy consumption. But Rep. Paul Kanjorski’s (D-PA) may top them all in terms of its stupidity. From the Times Leader, Kanjorski’s plan would do the following:

• H.R. 5800 would tax industries’ windfall profits.

• The bill would set up a Reasonable Profits Board to determine when these companies’ profits are in excess, and then tax them on those windfall profits.

• As oil and gas companies’ windfall profits increase, so would the tax rate for those companies.

• Kanjorski said his legislation will encourage oil companies to lower prices to prevent them from receiving higher tax rates.

While Hillary Clinton may have failed ECON 101 along with John McCain, it appears as if Kanjorski may been enrolled in Marxism 450 at the time. In all honesty, nationalization of the oil industry (i.e. Venezuela) may be better than Kanjorski’s ridiculous proposal.

One can make a case for taxing that portion of the return to capital that comes from economic rents, but Kanjorski has probably never even heard the term. An economist who backed such a tax would understand that such a tax is not going to lead to lower prices at the pump, just as economists are setting the record straight on the current gas tax holiday gimmick. Furthermore, the justification for taxing economic rents would apply to all sectors, not just petroleum.

This post gave me some much needed insight into the thinking of this man, though I don’t like what I see. His idea that some companies should have “reasonable profits” and that he’s just the man to decide what a “reasonable profit” might be is downright horrifying – it shows he’s a socialist. Then of course, he’d tax the overperformance of the company – which shows he has no idea how to run a lemonade stand, much less a complex corporation.

Marxism, thy name is Kanjorski.

But his wild ideas about the present energy situation isn’t the only reason to be suspicious of the Pennsylvania Democrat. His Enron connection suddenly makes much more sense. On the morning of December 12, just ten days after Enron filed bankruptcy, the first congressional hearing into Enron’s collapse began. Paul Kanjorski was one of the first to speak. “I would like to learn more about the serious financial harm done to thousands of Enron employees,” he said. He said there had been press reports that employees had been blocked from selling their shares in retirement plans as the company descended into bankruptcy. Kanjorski said, “Those hard working Americans had to watch helplessly while executives could apparently sell their stock and avoid financial pain.”

Whether he really saw it in press reports or he just assumed it, Kanjorski created one of the most controversial and pattently untrue myths about Enron.

As my link describes, the Enron retirement plan was changing administrators. Employees knew this. They had been prodded to make any changes since October of that year; this ‘lockout’ was planned, announced, expected, and understood by employees. Furthermore, Dr. Lay bought Enron stock during this time. [Jeff Skilling had already left the company.]   It is important to also note that employees were actually benefited during the Enron retirement plan lockout. The deal with Dynegy had been announced and the stock price more than doubled in those days.  When the time came to sell, many bought.

In light of Kanjorski’s generally anti-energy position it’s simple to see why he chose to misinterpret the events in those very turbulent days after the crash of Enron. Furthermore, those “hardworking people” who had to “watch helplessly” would, under his plan for the Reasonable Profits Board, be locked out of funds that would go to bonuses, higher salaries, or better insurance. Instead, he would be the “Enron player” in this scenario and the employees would still be shafted – only this time, its by the government (ie, Kanjorski) instead of by a corporation. Apparently employees losing money is not the problem. The problem is who is on the receiving end of that particular odious transaction.

The Enron Executives As Children: Sharron Watkins

Sharron Watkins checked under the stalls and, satisfied that she was alone in the girl’s restroom, checked her teeth in the mirror. For what she had in mind, she had to look her absolute best. Hair, teeth, skin were as straight and shiny as she’d ever get them. She wore a blue knee-grazing skirt, a white shirt with a blue and yellow tartan vest that had seemed like a good idea when she put it on this morning. Now it just made her look like a baby. She was not a baby. She was fourteen years old, a young woman. Her credentials in this regard were beyond reproach: bra, check; subscription to Teen Beat cancelled, check; babysitting duties approved by parents, check. She was practically an adult and she wanted Jeff Skilling to recognize that fact.

Jeff Skilling was older, sixteen, and every girl in school was already in love with him, as she was. He was smart, and handsome. He had the prettiest smile. Plus he was friendly; he talked to the nerds and the drama geeks, the outcasts, and even the regular folks like her. He had a personality that seemed to reach across clique lines. All the girls loved him, but Sharron had an advantage over them: she was smart.

She knew that she was smart because she’d earned all A’s since Gymboree; teachers loved her. Her parents told her she was smart. Everybody in the entire organization knew she was smart. The cheerleaders that Jeff seemed to favor looked like little skanks with their short skirts and big bouncy boobs and glossy hair, but they were all airheads. Jeff Skilling could not be satisfied with an airhead. Sharron Watkins was the opposite: she was smart. She was going to use her smarts for the ultimate payoff: Jeff would, on this day, notice her.

Sharron turned from the mirror, grabbed her books, and emerged into the flow of tenth graders jamming the halls. There, at the end of the long corridor, surrounded by girls, was Jeff Skilling. Even now, she felt that wild, tremulous energy as she looked at him. Though she was too far away to make out his features very clearly, she saw the impression of his smile and her heart fluttered like one of Keat’s birds.

She moved toward him in a casual way, reminding herself to keep her back very straight because on America’s Next Top Model, Tyra was always saying that if you keep your back straight and your boobs pointed straight out, parallel to the floor, you look confident. As she approached, one of his harem girls left and he glanced up, and saw her. They’d known each other since elementary school, though they’d never been really close. She saw the surprise in his face as she stopped right in front of him.

“Jeff Skilling, I would like a word with you,” she said.

The other girl, the one who had stayed to bask in his presence just a little longer before study hall, laughed nervously beside him.

“Sure Sharron,” he said, and turned to the little tart he was talking to. “I’ll catch ya later.”

She scampered away. The halls were clearing. Though there were still people flowing about, Sharron felt like the only person in the world. Jeff’s eyes were shockingly blue-green, and she felt like she were looking at the earth from a very high distance. Could she go through with this? Could she actually say the words to him?

“Yes?” he asked.

“I saw you cheating,” she announced. Suddenly she felt giddy, like she was on a sugar rush.

Surprise registered in his face. “What?”

“I saw you cheating. With some of the other boys. During lunch.”

He actually smiled, which made her want to slap him. Instead she kept her back straight, her posture confident.

“Sharron, I was tutoring those kids. They are having trouble in algebra.”

“That’s what you say, but I saw you passing papers back and forth.”

“Yeah. So?”

She saw this wasn’t working, and she felt the floor was moving very fast under her. She wanted to say something, to tell him that she loved him. That she wanted to move to Vermont and have a farm and raise cows, and they could make their own organic cheese and sell it on the internet, and at night they’d make sweet, sweet love while snow drifted down, and the fire would keep them warm, and then after they made love, they’d eat pizza and drink Mountain Dew until the sun came up. If only she could say this! If only she could make him see that she was perfect for him! Their future in Vermont, their cheese-making cows….

It was obvious that he had never thought of cheese-making cows with her. Because she saw that he wasn’t going to engage her in conversation, she said, “Okay, I’ll just go to the principal then.”

“Okay,” he said in a confused voice. For a moment, he looked genuinely hurt, and her heart broke. Was it possible he did want to raise dairy cows with her in Vermont; was he just now recognizing the possibility of what he’d lost? Could he give up the big life at Highbridge High School for the simpler life on the farm?

When he made no further attempt to talk to her, Sharron internally steeled herself, and walked away.

The next day, the principal received a letter printed on loose-leaf notebook paper.

Dear Principal,

Has Highbridge High School become a risky place to go to school? For those of us who have not yet graduated, can we afford to stay?

Jeff Skilling’s meteoric rise will raise suspicions that we have been less than honest in our standardized testing. Aggressive grading, artificial valuation – particularly in algebra – put us in a vulnerable position within the school district.

To the layman on the street it will look like teachers have over-graded Skilling, pulling all our grades up with him, and thereby securing greater federal funding for our school. Will any child be left behind? If it can be proved he cheated on the last algebra exam, would you care to know this? What do we do? Can you give me some assurance that you will sit down with the vice principal and review Skilling’s grades, indeed audit his entire school record? Furthermore, is there any way I can help conceal this from the PTA? If they discover this manipulation of grades, we won’t be able to keep it from the Highbridge Gazette.

Yours truly,
A concerned student

The next day, Sharron Watkins appeared in the principal’s office to confess that she wrote the anonymous memo. The principal was a busy man, but fair, and at her urging he contacted the superintendent to begin an audit of the record of grades for Skilling’s class, to see if there might be any abnormalities.

The superintendent called a meeting the next week to present the results of the investigation. There had been no cheating by Jeff Skilling, or in fact by anyone in Jeff Skilling’s class.

Sharron felt the last of her hopes for the cheese farm melt away like a fine camembert in the Vermont sunshine. Still, the lessons of Tyra were fresh in her head. She could not show any defeat. Indeed she had to project utter confidence. As the superintendent wrapped up his presentation, he asked if anyone had anything else to say.

Sharron raised her hand. “I believe something terrible has happened at Highbridge High School,” she announced. “And I plan to go directly to the Highbridge Gazette with my suspicions.”

In order to keep her quiet the superintendent and the principal quickly appeased her with monthly assemblies in the auditorium where Sharron Watkins would talk about the duty to be a responsible, ethical student.

Every Friday when she gave her little talks on ethics, she would look out from the stage, and see Jeff Skilling, his astonishing blue eyes the little beacons that kept pulling her emotionally to him.

His presence at the assembly was mandatory, and he clearly did not like her anymore. But at last she had accomplished her mission: Jeff Skilling had finally, finally, noticed her.

The Enron Executives As Children: Andy Fastow

Sundays were the worst. Andy Fastow was Jewish, and all the other kids on Elm Court were Christian so none of them were available to play until at least noon, usually more like one or two o’clock. He couldn’t understand it. What the hell were they doing for so long? Didn’t they realize that life was out here, in the streets and the swimming pools, the softball diamonds, the playground? Why did their rituals take all damn afternoon?

While he waited for his friends to get back from Mass, he liked to play XBox. XBox was awesome, totally awesome, but rumors had been floating around the blacktop at school that a new game was coming out – a game he was positive his parents would not let him have. Too violent, too sexual, too everything; his parents never let him have anything good. Fuck that. Fuck them and their old ideas of morality, fuck them. He wanted the goddamn game. And he was going to need it since every damn Sunday, all his friends were at church. He needed the game. It was all he could think about. The XBox game would make him happy, and did he not deserve happiness? At the age of ten, had he not accomplished enough to merit the XBox game? Since he knew his parents wouldn’t buy it for him, he had to procure it himself, and he knew just how to go about it.

It was nearly two, and Mike still hadn’t called yet. Andy pushed aside his snack, he couldn’t stand this anymore, he had to take matters into his own hands. He slapped on his velcro shoes, brushed his hair, and set off down Elm Court to Mike’s tudor-style home. They had a nice house, Andy liked it. Maybe one day he’d have a nice big house like that, damn that would be nice. As he approached, Mike’s mom’s SUV came around the corner and pulled into the driveway. As Mike emerged from the back of the car, Andy waved. Mike was still dressed in his Sunday finest, ridiculous tie and all. “Come on,” Mike said, and Andy followed him into the house.

Mike was rich. Mike had a newspaper delivery route since he was seven, and he’d saved up all the proceeds in a juicy little Money Market account that Andy knew contained the princely sum of $97. He saved his money, never spending it, and his bedroom showed it; it was decorated as his parents saw fit. Man, that $97 must be earning a bitchin rate of interest; Andy imagined one day Mike would cash out and buy Ironman bedding, Ironman curtains, Ironman nightlights to beat the band. That would be sweet. Andy liked Ironman; he’d talked his mom into an Ironman comforter, but so far, nothing else. Didn’t seem like Mike even tried to talk his parents into it; he just stayed quiet and let the money market account get bigger and bigger with every passing annual accrual. That was one smart bastard.

Mike stood before his closet and took off his necktie. “What’s up, Fastow? I haven’t seen you looking this disturbed since Susan kicked you in the shins when you asked if her Hello Kitty purse was a knock-off or the real thing.”

“Susan’s a bitch. It’s a knock off. She gets them cheap at the mall.”

“Yeah, well, you didn’t have to say so to her face. Women, they like to feel special and admired. You can’t go around telling them their stuff is fake.”

“Guess not.”

Mike disappeared into his closet for a moment to change into his shorts and a Batman t-shirt. He came out and laid himself across the plain blue comforter, next to Fastow.

“So what’s the problem, sport?”

“I got a problem all right. But I also got a solution. I’d like to invite you to invest in a company I’m setting up, by the name of LJM. Stands for Lemonade, Juice, and Milk. Full service drink company.”

“Drink company? How’s it work?”

“Well, that’s the thing. That’s the thing, Mike. I don’t have the liquidity to make it work the way it should. We need a pool of private funding. I’m thinking you get your paper route buddies in on this, we get maybe…three…four hundred, and we have ourselves a sweet lemonade, juice and milk stand. We set up outside the pool area, catch the whole freaking neighborhood when they’re nice and thirsty. You think they wanna go all the way home for a drink? Why go home? We charge em a buck fifty for a drink, they’re happy, we’re happy, we make tons of cash. Then divide the proceeds among the investors. I would, of course, require just a bit more for managing this private equity fund.”

Mike whistled. “Three or four hundred though? That’s a lot of cash, right there.”

“Yeah, it is. But we can raise it through private funding. No need to go to the parents.” Fastow thought for sure if his parents would kill him if they found out he was trying to raise money for the XBox game. No, this shit had to be kept secret.

Mike nodded. “Okay. Let’s set up some meetings with the Maple Lane kids and see what we can come up with.”

 

 

“I don’t get this. I really don’t get this, Pete.” Dakota ripped open a bag of M&Ms and popped a handful in his mouth.

“Oh yeah?” Pete asked.

“I can’t understand how we’re sitting out here in the scalding goddamn heat, mixing this delicious lemonade, and we can’t seem to find one customer to sample our wares.”

“We gotta find customers.”

“You think I’m not looking? You think I didn’t scout the park, the playground, the skate park for customers?”

Pete put his hands up, as if fending off his friend. “Just sayin’, dude. We gotta find customers to sell our delicious lemonade.”

Dakota was about to say something else when he saw two kids on bikes turning left into Maple Lane. Customers? Dakota said, “Hey, look.”

“I can see. I’m thinking we sell them some lemonade.”

“You bet your ass.”

It was Andy and Mike. Pete and Andy had recess at the same time last year, and he knew Kyle from homeroom. Easy customers. First law of salesmanship: sell to your friends.

The two Elm Court boys dismounted their bikes. Andy Fastow smiled and said, “You boys don’t seem to have any customers for your delicious lemonade today.”

Pete shrugged. Dakota said, “You’re the first.”

Andy laughed. “I’m not here to buy your lemonade, gentlemen. I am here to make you up to a hundred dollars in cold, hard cash.”

Pete and Dakota looked at each other. “We’re listening,” Dakota said.

They used Mike’s Money Market fund to hedge the price of lemonade, juice, and milk by investing heavily in cookies and candy – particularly the tart candies: Dots, Sweetarts, and Mentos which they sold at inflated prices right next to the cold drinks. By the end of the summer, they’d made more than any kid in the neighborhood had ever seen. Mike got one hundred fifty, plus the value of the original investment – which he sold to Fastow for cash while retaining an interest in a sub that was set up in another hedging vehicle. Pete and Dakota got a hundred bucks. Andy kept the rest, as payment for managing the equity fund.

A week from the first day of school, Andy biked to the mall and bought himself the XBox game. But he got weak. He got sloppy. His dad had gone out to pick up dinner, and his mom was in her office. He heard the clackity-clack of her computer keys, and figured she’d never know. He revved up the game and was in the middle of a play when suddenly she appeared before him, her arms crossed over her chest. “What is this, Andrew Stuart Fastow?”

“It’s just a game,” he said meekly.

Then she grounded him for six months for going behind her back and doing something unethical. Though because he was willing to explain everything to her, and even turn in Mike and Pete and Dakota, she allowed that he may be released in as early as three months. Ironically, Mike and Pete and Dakota were all punished much more severely – each got six months grounding and three more on probation.

As of this writing, all four are still grounded.

Today In Enron History

Today in 2006, after five days of deliberations, a Houston jury returned guilty verdicts against Jeff Skilling and Dr. Ken Lay.

Jeff Skilling was found guilty on one count of conspiracy, one count of insider trading, five counts of making false statements to auditors, and twelve counts of securities fraud. He was found not guilty on nine counts of insider trading.

Dr. Lay was found guilty on six counts of conspiracy and fraud. In a separate bench trial, Judge Sim Lake ruled he was guilty on four counts of fraud and false statements.

After court, Dr. Lay emerged from the court house with his wife by his side. He uttered a few words to the throngs of reporters. He said he was surprised at the verdicts. He said he firmly believes he is innocent of the charges against him, as he had proclaimed “from day one.” He went on to say that “despite what happened today, I am still a very blessed man.” He included his family, and his friends, and his dear wife as evidence of his blessed life, and added that the Lord works out all things for good.

Jeff Skilling’s statements were also poignant. He thanked his family and Dan Petrocelli for their support. Unlike Dr. Lay, Jeff Skilling allowed a few questions from the media. One reporter said, “Jeff, do you think you’ll ever be able to admit to yourself that you may have committed crimes at Enron?”

“No,” Skilling replied with a little shake of his head.

“Why not?”

“Cause I didn’t.” A small, sad, confident little smile came to sis lips. He continued, “We fought the good fight. Some things work and some things don’t.” That line, to me, is one of the most heartbreaking statements ever uttered before a microphone. It was the ultimate statement of accountability – the ultimate way of saying he is did what he thought was right and he accepts whatever consequences might befall him, no matter how egregiously wrong.

If you can believe it, both Dr. Lay and Jeff Skilling had the grace and presence of mind to actually thank the media for being “very pleasant” and easy to deal with!

It is important to understand that since the verdicts were returned, new information has revealed evidence of prosecutorial misconduct, including coercion of witnesses, concealment of exonerating statements and insistence on an unfair venue. Skilling’s appeal is presently being considered by the 5th Circuit, and many experts believe he has an excellent basis for every one of his convictions to be overturned.

The erroneous theory underlying every one of the convictions is the so-called “Honest Services” fraud. However, in 2006, the 5th Circuit issued an opinion (US. v. Brown) which held that a company employee does not does not unlawfully deprive his employer of his honest services when the employee’s conduct was carried out in pursuit of the employer’s goals. (This was the basis for several overturned Enron convictions.)

At the appeal in New Orleans on April 2, US. Attorney Douglas Wilson (San Francisco) told the judges that Brown did not taint the jury’s verdict at the Skilling trial. He said that even if Brown taints the conspiracy charge that Skilling was found guilty of, the error is harmless. This is absolutely ridiculolus on its face; the error is harmless if a jury convicts based on an erroneous legal theory? Secondly, as Petrocelli pointed out at the same hearing, if they wanted to convict Skilling of “classic securities fraud”, they should have tried this as a “classic securities fraud” case.  They didn’t. Instead, they chose to construct their case around this piece of crap law that is vague, meaningless, and now legally irrelevant.

Also, Petrocelli argues that jury instructions were wrong, regarding several key theories, the two most powerful (in my opinion) being “deliberate ignorance” and “materiality”. The deliberate ignorance instruction said that the jury could infer guilt if they believed Skilling deliberately contrived to make himself ignorant of conduct he strongly suspected to be criminal. This instruction may only be given when the record supports an inference that the defendant both suspected criminal wrong doing and acted wrongfully to avoid confirming his suspicions. The record showed neither, so this instruction was illegal.

Materiality is more interesting because it cuts to the very heart of the case: the theory of “secret oral side deals.” The theory is as follows: Andrew Fastow, the former CFO of the company, had several conversations with Richard Causey, Chief Accounting Officer, and a few with Jeff Skilling concerning financial transactions between Enron and a private equity fund, LJM, which Fastow managed. Fastow claimed that Skilling gave him secret oral side deals, insuring that Fastow would never lose money on the transactions between Enron and LJM. The jury was never asked to determine if such deals actually existed, and if they did exist, whether they had any operative adverse effects on Enron’s financial statements.

Furthermore, Petrocelli argued at that by refusing a change of venue, the court was essentially condemning Skilling to a bad outcome. The reasoning was obvious: not only Enron employees and families were shocked by the collapse of the company, the entire city of Houston was shamedbecause of it. Virtually every person in the city had a connection to Enron, and with the constant negative publicity, it was impossible for Jeff Skilling or Dr. Lay to find twelve honest, unbiased jurors. As Petrocelli documents in the Skilling appeal brief, jurors were hungry to convict the former executives. Potential jurors called the courthouse asking how they could serve because they wanted to convict.

Relatedly, the Voir Dire was truncated. The court declared that it would not last more than one day, depriving Skilling of having an honest chance at ferreting out jurors who did have the bias that was so prevalent in Houston at the time.  Furthermore, often the biases were obvious.  Several potential jurors said they believed that Skilling and Lay were guilty and they wanted to convict.   After some coaching, these jurors softened their answers, and eventually these jurors were seated. 

Since the convictions, two important things have come to light.  The first is the Fastow Notes.  They incontrovertibly show that Andy Fastow was lying when he testified against Jeff Skilling.  The second is the collapse of Bear Stearns, which is an almost photographic demonstration of the market forces that tore apart Enron, exactly as Jeff Skilling had been saying for years.

Today in Enron history, bad law, a bad jury pool, bad publicity, and bad faith came together to create one of the greatest judicial mistakes in our Republic’s history.  Jeff Skilling’s and Dr. Lay’s convictions should horrify us all. 

I Ask Why

Wishing does not make it so.
So I ask. At least that way I have a chance.
I ask anybody. I ask everybody. I ask God.
I ask for help, for forgiveness, for a break.
Usually I ask for more.
I ask for silence. For a loan. For more time.
When I can’t ask, I ask myself why its so hard to ask.
I ask to be excused. Ask to be exempt.
Ask for a miracle. Ask for agreement. Ask for acknowledgement.
I ask why.
I ask why it’s hard to remember to ask why.
Why?

Today In Enron History

Today in Enron history, in 2001, Enron completed its one millionth transaction on EnronOnline. 

EnronOnline was the first global online system that allowed traders to transact commodity products in real time.   It went live on November 29, 1999.

Until that date, a trader who wanted to sell an energy contract would  have to speak to a person who wanted to buy a contract and then agree to terms.   EnronOnline allowed both parties to see prices, like a stock market ticker, thereby introducing simplicity into a process that, as Jeff Skilling said during an EnronOnline ad, had been “dark and blind”.   EnronOnline offered natural gas contracts, as well as electricity, credit, bankruptcy, weather derivatives, lumber, paper, metals, steel, frieght, broadband and TV commercial time, as well as many other commodities.

EnronOnline was not Jeff Skilling’sinvention.  An enterprising young woman named Louise Kitchen and her boss, John Sheriff worked on the project at night at the London office on servers that had not yet been set up.  One day Sheriff flew to Houston to meet with Skilling.  He presented the project and Skilling was slowly won over.  After he got his approval, Sheriff grinned and said, “Great, because it goes live in six weeks.”

It was an instant success.  Money was made hand over fist. 

A particular element of symmetry: EnronOnline closed down for online trading on the morning of November 28, 2001,  exactly two years after it went live, and only six months after it reached the one-millionth transaction milestone.

  Click here to see a video created to celebrate the 1,000,000th transaction. A party for Enron employees was given for the occasion. 

Today EnronOnline is owned by UBS Warburg, where Louise Kitchen is employed.  The system is presently implemented under UBS’s proprietary name, but make no mistake: it is an Enron system. 

Full Disclosure

I have re-read Enron’s 2000 10-K, published smack in the middle of the so-called ‘conspiracy period’ and I am struck, again, at how clear it is. The first time I read it was about a year ago, before I got my bearings and yet, I could understand what I was reading. All I had heard until this point was how obfuscated the reports were, but I didn’t find that to be true at all. The disclosures are actually extremely clear on the points of Enron’s debt and the partnerships that Enron used for various deals. Fortunewriter and Enron Task Force prosecutor Sean Berkowitz’s wifey, Bethany McLean admitted that Enron’s partnerships and Special Purpose Entities were “all there” for those who could wade through the impentatrable muck. I disagree with Bethany McLean on everything, including the color blue. However, I refuse to believe she’s too dim to understand Enron’s 10-K and 10-Q.

This paragraph, for instance, is pasted directly from 2000 10-K, Section 9: Unconsolidated Equity Affiliates.

In 2000 and 1999, Enron sold approximately $632 million and $192 million, respectively, of merchant investments and other assets to Whitewing. Enron recognized no gains or losses in connection with these transactions. Additionally, in 2000, ECT Merchant Investments Corp., a wholly-owned Enron subsidiary, contributed two pools of merchant investments to a limited partnership that is a subsidiary of Enron. Subsequent to the contributions, the partnership issued partnership interests representing 100% of the beneficial, economic interests in two asset pools, and such interests were sold for a total of $545 million to a limited liability company that is a subsidiary of Whitewing. See Note 3. These entities are separate legal entities from Enron and have separate assets and liabilities. In 2000 and 1999, the Related Party, as described in Note 16, contributed $33 million and $15 million, respectively, of equity to Whitewing. In 2000, Whitewing contributed $7.1 million to a partnership formed by Enron, Whitewing and a third party. Subsequently, Enron sold a portion of its interest in the partnership through a securitization. See Note 3. 

How is this difficult to understand? It talks about the transactions to partnerships very clearly. In the same part of the document is this note:

In 2000, The New Power Company sold warrants convertible into common stock of The New Power Company for $50 million to the Related Party (described in Note 16).

The subject of New Power is still fresh in my mind because recently I finished re-reading the cross examination of Jeff Skilling – and this was a topic that was covered and deeply distorted by Sean Berkowitz at trial:

To whit:

Q. These are the earnings figures … showing a steady progression, Mr. Skilling, of profits in Wholesale toward the end of 2000, correct?

A. In Retail, yes.

Q. Correct. And with respect to those, much of that, or at least a portion of that, was relationed to the monetization of the New Power warrants, correct, Mr. Skilling?

A. Some portion of it, yes.

[Berkowitz introduces into evidence the third quarter earnings release.]

Q. Okay. And there is no disclosure in there that the New Power warrant sales contributed to 60 to 70 percent of the income for the quarter, correct?

A. That’s correct.

[Berkowitz introduces Government Exhibit 5010, which is the third quarter 10-Q.]

Q. Some questioning as to whether the New Power warrants were disclosed fully in the 10-Q when Mr. Petrocelli was questioning you.

A. Okay.

Q. And if you would read along with me, on Page 25, shows the $30 million figure, and above that, it’s “Other Income Net”; correct?

A. That’s right.

Q. And that includes New Power monetezations; correct?

A. Yes, it does.

Q. Okay, let’s take a look, if we can, at the text underneath that… Included in Other Income, net in third quarter 2000 were gains associated with the securitization of nonmerchant equity instruments. Do you see that?

A. Yes, that’s right.

Q. And equity and earnings reflects equity losses in Enron’s investment in the New Power Company, correct?

A. Yes, sir. That should be offset against that to come to the New Power impact on PM.

Q. Correct. Although there is no reference in the income to the New Power warrant. It only refers to nonmerchant equity investments, correct?

A. Yes, but I think investors recognize —

Q. Sir

A. – was monitzation minus the —

Q. Sir, I’m asking you what’s in the document.

A. Yes, that’s correct.

Q. There’s no reference, at least with respect to the income, for New Power warrant monitzations, correct?

A. Well there is a reference. It talks about gains associated with the securitization of nonmerchant equity instruments.

Q. And nonmerchant equity instruments, I think we can both agree, does not say New Power warrant monetizations, correct?

A. That’s correct.

So it’s true the New Power warrants weren’t spelled out in the quarterly document, but in the 10-K, the annual document, the monitzation is spelled out. Any analyst who is studying the health of a company would have both quarterly and annual documents to refer to, and with documents like these, the financial position of Enron was crystal clear. It’s apparent that Jeff Skilling was correct: Enron was in a strong financial position until he left. It becomes clearer with every passing day that Enron succumbed to the negative market forces that we’ve seen recently (vis a vis Bear Stearns). There were other factors as well: post-bubble pressures, deliberate attacks on the stock by Jim Chanos’s short-seller group, a series of scathing articles published in the Wall Street Journal. But none of that had anything to do with the actual guts of Enron.

Dr. Ken Lay did the best he could in those final months and weeks. It is my dearest hope that history vindicates both Dr. Lay and Jeff Skilling. At this point, any objective view of the facts and the documents in question will show that neither Skilling nor Dr. Lay lied or mislead or decieved when they said Enron was financially sound.  Sadly, even asking the critics to review these documents seems too much to ask of otherwise fair-minded people.

Today In Enron History

Today in Enron history, in the year 2001, Jeff Skilling said the words, “They’re on to us” at a meeting.  On May 21, 2001,  between 8am and 1pm, Enron executives conducted their monthly Policy Committee Meeting in the Fannin Room of the Doubletree Hotel.   Dr. Lay, Jeff Skilling, Greg Whalley, Kevin Hannon, and others were present.   The discussion turned to a critical analysis done by Off Wall Street.  The analysis valued Enron stock at $27 a share — about half what it was selling for at the time — showed “the market was starting to understand how Enron was making money,” according to Kevin Hannon.

At that point, Jeff Skilling said, “They’re on to us.”

Jeff Skilling was clearly joking.  I have written previously about the context of this comment. Instead of reinventing the wheel, I’ll just copy-and-paste:

The comment was made in response to a report by Off Wall Street Consulting, Inc. which stated Enron’s stock was overpriced. The comment was touched upon at trial while Skilling was being questioned by his attorney, Dan Petrocelli:

A. I may have said that
Q. And if you said that, Mr. Skilling, were you meaning to imply there was something sinister or evil?
A. No.

Petrocelli asked whether Skilling liked to make jokes, and the former CEO said he did. Such japing is well and widely documented, thanks to the Smartest Guys In The Room which used internal Enron video to show Skilling spoofing himself and suggesting “HFV”, hypothetical future value accounting. It also showed him making cracks about leaving whip marks on the shoulders of employees, and let’s not forget his famous bad joke that came back to haunt him:

Q. What’s the difference between California and the Titanic?
A. At least when the Titanic went down, the lights were on.

Baddabing!

Skilling’s a funny guy – and when he said “They’re on to us,” he was, as he explained, doing his Mr. Bill impression. He even went so far as to do it in front of the jury – and the jury laughed.

But Hannon testified that he understood the comment to be nefarious in some way. I’ve often wondered about that. Jeff Skilling was, as he said and everyone agreed with “fucking smart.” So why would such a smart guy, who is busy spooling out these nefarious plots, actually say something like “they’re on to us”, in a room full of people who were ostensibly not in on the scams? He wouldn’t. It was a ridiculous issue, and proves just how desperately the prosecution was dredging for anything to make Skilling and Lay appear guilty.

One of the saddest things about the Enron case is how these innocent remarks are twisted and contorted to imply a criminal mind. It is almost enough to make one paranoid. In Jeff’s case he was too good natured – and innocent – to be cautious.

So much for having a sense of humor.

Police Plant Evidence, Cover Up Shooting Death

For anyone who doubts that the prosecution is less than squeaky clean in the Enron case, please direct your browsers here. This case isn’t about Enron, or corporate crime at all. It’s about a 92 year old woman who was shot to death in a botched police raid.

Police officer Arthur Tesler, who was in the back yard during the raid, testified that an officer lied to a judge to get a warrant, then planted drugs in the woman’s basement to back up his story. His attorney alleges that police “routinely” planted drugs and lied to obtain search warrants.

Let me be clear: I am very much pro-law enforcement. I wrote a novel extolling the virtues and difficulties of being a good FBI agent. My creds in this regard are lily-white. But the FBI I so loved enough to write about is not the same breed of law enforcement that plants drugs, pressures and threatens witnesses, and silences others with their mysterious “un-indicted co-conspirators” lists.

It is because I love law enforcement that I am so sickened by their behavior when they do something reprehensible like this. Whether its Jeff Skilling or a 92-year old woman awakened in the middle of the night by a no-knock raid, we need to give each defendant a fighting chance to defend him or herself.

Today In Enron History

Today in 2004, Enron corporate secretary Paula Rieker pleaded guilty to one count of insider trading after accusing herself of selling stock upon knowledge that Enron’s broadband unit lost more money than publicly claimed. She was sentenced to two year’s probation for insider trading. Prosecutors had asked she be given a reduced sentence because she helped authorities in their investigation. [Her sentence was the second in as many weeks to be shockingly light: Former chief financial officer Andrew Fastow drew six year sentence, reduced from ten.]

Her primary purpose in the Enron show-trials seems to be that, like Ken Rice and Kevin Hannon, she provided “powerful and credible testimony” against Dr. Lay and Jeffrey Skilling.

“As one example, she provided a credible and corroborated account of an effort by Skilling and others to manufacture an extra penny of earnings at the end of a reporting quarter,” prosecutors Sean Berkowitz and John Hueston said in a court filing.

At the trial of Lay and Skilling, Rieker told jurors that Skilling twice ordered that the company boost its reported earnings-per-share figures to meet or beat Wall Street expectations and support its stock.

However, it was also demonstrated at trial that Jeff Skilling was not even in the country when the challenged figures were collated or published. Furthermore, when the challenged figures were published, they did not change the stock price an iota.

The extra penny controversy was as contrived as Ms. Rieker’s testimony of the subject.

Former Enron Employees Keep Fraudulent Money

Former Enron employees were accidentally given enormous payouts, and Enron wants its money back. Naturally, some blogs, notably Loren Steffy’s, are up in arms over the gall of Enron asking for its money back. Commentators base their opinion on the assumption that Enron did something wrong or criminal, so perhaps its not shocking that they’re outraged. But the fact remains, if these employees keep their dirty dollars, they’re committing fraud, exactly as they accuse Enron. In fact, in their case its even more egregious because they know that it’s a clear cut case of fraud. There’s no gray area, no byzantine accounting rules to follow. They are stealing – and they’re indignant about their stealing.

Thanks, Enron Employees, for showing the world where Enron’s reputation for corruption really comes from.

The Iconic E Sold To Buyer In NY

Two of the iconic “E” logos of the Enron Corporation have been sold to an anonymous buyer in New York.

Lou Congelio, an advertising executive in Houston, bought the iconic letters in 2002 at Enron’s bankruptcy auction. He sold them to the anomymous buyer in New York for an undisclosed sum.

And my heart just broke again.

Andrew Weissmann Talks For Money

Andrew Weissmann is discussing Enron today at Manhattanville College. Something called “The Center for Ethics at Manhattanville” is presenting the speech. The cost is $35.

A speech on ethics…by this guy? By the man who is widely acknowledged, even by the Houston Chronicle, to have been guilty of egregious prosecutorial misconduct?

My prediction is that these sorts of talks will eventually diminish as Enron executives begin emerging from prison and going on their own speaking tours and some of the truth about the prosecutions emerge. I am looking forward to Andy Fastow’s and Ken Rice’s for instance. But I think the willingness for people to listen to Weissmann, Berkowitz, Hueston, and the rest is will expire as more questions arise about the conduct of the Enron prosecution.

Broadband Three Headed Back To Trial

Three former Enron broadband division executives will again stand trial late this year.

U.S. District Judge Vanessa Gilmore ruled yesterday that former division CEO Joe Hirko and software executive Rex Shelby will be retried Nov. 3, followed by former top broadband strategist Scott Yeager in mid-January.

“Back-to-back _ finish one and start the other one,” Gilmore said.

The trio was first tried in 2005 in a three-month case that ended with jurors acquitting each of a handful of counts, and hung on dozens more.

The government later filed new, shorter indictments that still allege they overstated the broadband division’s capabilities to please Wall Street and enrich themselves from selling stock inflated by the hype. The defendants maintain the technology that fueled Enron’s broadband network worked, though it was being implemented in phases.

In March all three men learned they lost their appeals to the 5th U.S. Circuit Court of Appeals to throw out all or most remaining charges against them. Their lawyers appeared before Gilmore today to schedule the retrials.

Defense attorneys said today that all three defendants will appeal the 5th Circuit ruling to the U.S. Supreme Court. If granted a hearing, they will ask Gilmore to put the retrials on hold pending that outcome.