Enron

  • 18 Jun 2008 at 4:06 PM
  • Enron

The Enron Enforcers: Where Are They Now?

Enron Task Force.gifIt’s been 600 days since the Enron Task Force disbanded after former Enron CEO Jeff Skilling received his sentence of 24 years in prison. As part of the wider commemorations of the anniversary, it was thought timely to check “Where Are They Now?” for a group characterized as a “huge success” and whom even the Coolidge Republicans of the Bancroft-era Wall Street Journal editorial pages said had “a good record overall.”
The Justice Department’s massive effort resulted in several dozen convictions or plea bargains, most of which have been upheld, and its breadth included Arthur Andersen and the London bankers known as the NatWest Three. In the light of unclear GAAP rules on Enron, the Task Force achieved regulation by prosecutorial deterrence.
More after the jump.

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Energy Traders Haunted By Enron Memories

We contacted the DealBreaker energy trading desk this afternoon for a report on the state of the market, but the celtic tigers who are supposed to watch that market for us were already out getting drunk for Saint Patrick’s Day.
We rifled through the desk anyway, and came up with a few notes on what we think was supposed to be a report on the state of the market today. “Still haunted by the sudden loss of liquidity when Enron collpased, the nation’s energy markets remained stable with normal volumes Monday but traders admitted they are waiting for bad news from the financial sector which rescued it post-Enron,” the note said. At least that’s what we think it said. It was hard to tell because the page was stained with beer.
When we checked the screens we saw that April NYMEX gas futures contract had dropped like a rock. We called up and asked about it.
“Is this related to Bear Stearns? Is it because they’re selling off their energy portfolio?” we shouted trying to make ourselves heard above the din of the midtown dive.
“Get a life Carney. Not everything that happens today has to be because of Bear Stearns! Nobody thinks the price drops are related to BSC. When are you coming out and getting drunk?” our covert energy reporter said.
Soon, we answered. But the phone had already gone dead. And then we decided we’d attach a Bear Stearns tag to this post anyway.

Shareholders in Bear Stearns have been all but wiped out despite the rescue bid from the Federal Reserve and JP Morgan Chase, prompting comparisons to the collapse of Enron. CNBC has been airing videos of old interviews with former Enron CEO Ken Lay, which fell apart almost seven years ago destroying a great deal of shareholder value. Far more shareholder value, in fact, than at Bear Stearns.
Those comparisons are apt, Tom Kirkendall points out, but not for the reasons many would suspect. There’s a tendency among some—especially plaintiff lawyers and some in the media—to suspect criminal wrong-doing when a company collapses. How could so much value be destroyed without serious wrong-doing? But these suspicions are often wrong-headed, and may even be counter-productive if they encourage shareholders and regulators to concentrate on investigations or misguided regulations.
Kirkendall says that the risk of collapse from a loss of investor and customer confidence is inherent in the kind of businesses that both Enron and Bear Stearns ran.

The fact of the matter is that Enron was — and Bear Stearns and AIG are — trust-based businesses that fundamentally depend on the trust of the markets to sustain their value. Once that trust is lost, such companies lose value quickly and dramatically (a case in point — JP Morgan Chase’s proposed $236 million purchase price for Bear Stearns comes just hours after Bear’s market cap was $3.5 billion this past Friday and $20 billion as of January, 2007) Although unfortunate for the owners of such companies, such a dramatic loss of wealth does not necessarily mean that any criminal conduct caused or was even involved in the loss. Rather, such loss is simply one of the risks of investing in a company based on a trust-based business model. The sooner we all recognize and understand this risk — and avoid the mainstream media’s promotion of myths about them — the quicker we can put a stop to injustices such as this while advancing the discussion of how best to hedge the risk of such potential losses.

That pesky trust-based business model [Houston’s Real Clear Thinkers via Ideoblog]

skilling.jpgFormer Enron chief executive-cum-Bubba’s bitch Jeffrey K. Skilling today appealed the criminal convictions (19 charges of fraud, conspiracy, insider trading and misleading auditors) that got him 24 years in prison, and sought a new trial, on the grounds that the government’s case had “profound, inherent weaknesses.” Besides the vague (i.e. golden) argument that there were “serious frailties in the legal theory that federal prosecutors employed to convict Skilling,” the defense team from O’Melveny & Myers also claim that the length of their client’s sentence is unfair (it is four times longer than those of the other Enron execs, six years longer than the average federal sentence for murder). But O’M and M’s pièce de résistance—in our humble opinion—is the argument that it isn’t right to send someone to jail for 24 years just because he/she just happened to draw the shortest straw.
“Someone would have to pay for Enron’s failure,” defense lawyers said. “That someone was Jeff Skilling—the last man standing when the court meted out its punishment.” (“As you well know, Lay dodged that ‘last man standing gets the worst prison sentence’ bullet, but it could’ve just as easily been him. Are you going to penalize our client for not having the foresight to die first? That’s just bad business, gentlemen.”)
The Justice Department will respond with its own filing possibly as early as next month.
Jim Chanos’s take? “Maybe Jeff just misses the scandal limelight. After all, the Enron Boys were a lot more interesting than SIV-lites, “Tier 3″ derivative accounting, and missing assets at money-market funds!” (And also, we imagine but cannot say for sure, because this was all over e-mail: unadulterated maniacal laughter.)
Former Enron Chief Appeals Conviction [Washington Post]
Skilling Appeal [CNBC]

  • 03 Apr 2007 at 4:29 PM
  • Enron

The Least Guilty Guys In the Room

enronrusting.jpgThe Enron legal case continues to unwind. A federal judge in Texas just allowed former Enron executive Christopher Calger to withdrawn his guilty plea to wire fraud charges. Calgar had been accused of fraud in connection with a 1999-2000 asset sale that prosecutors claimed violated a “theft of honest services” statute—a theory that’s been in question ever since the Fifth Circuit started vacating sentences in both the Merrill Lynch and broadband cases.

U.S. District Judge Lee Rosenthal approved ex-Enron executive Christopher Calger’s request to withdraw his 2005 guilty plea to wire fraud in connection with an asset sale in 1999 and 2000.
Calger was the last of a string of former Enron executives to plead guilty to crimes. Former Arthur Andersen auditor David Duncan who handled Enron’s books, withdrew his guilty plea to obstruction of justice in 2005.

But not to worry. Prosecutors apparently have a never ending supply of possible Enron defendants to chase after.
Withdrawal of guilty plea allowed [Houston Chronicle via The Conglomerate]

  • 30 Mar 2007 at 9:04 AM
  • Banks

Judge Nixes Enron Suit Against JPMorgan Chase

One of the more creative Enron lawsuits was dismissed by a Manhattan federal judge yesterday. The plaintiffs were shareholders of JPMorgan Chase who said they bought the stock because of the company’s reputation for integrity and financial discipline but had been deceived because JPMorgan Chase was helping Enron, a major client. You can see how free-wheeling this kind of liability could get–and how it would really amount to a requirement that banks police all their clients for fraud.
Ever wonder how those science fiction worlds where the banks run their own police forces get started? Well, now we know. And we’re glad we don’t yet have to welcome our new banking police masters. Yet.
We will admit that there is some evil part of our brains that is sorry to see this lawsuit go. It’s the part that is going to miss the spectacle of JPMorgan arguing that it had not overstated its own reputation for integrity. They could have done this in two ways. First, by arguing that they fully deserved a high reputation, but our lawyer friends tell us that this would have been almost impossible to prove. Second, by arguing that their reputation wasn’t really all that. You know, the “look, bitch, you knew I was a snake when you picked me up” defense. This also might not have been the way JP Morgan wanted to go, either. But it sure would have been fun to watch them squirm between the unprovable and the unpalatable.
Enron Class-Action Suit Is Dismissed
[Reuters in NYT]

250px-Rolltop_desk.JPGIkea just isn’t what it used to be, you know? Once a cool, hip, Swedey design company, it’s basically devolved into just a run of the mill furniture store whose difficulty to get to is rivaled only by the fact that it charges over a hundred dollars to deliver something worth less than forty, playing on the fact that some of us out there can’t fathom carrying a table up five flights of steps. But there’s hope yet! Saving Animals Across Borders is auctioning off the desks of former Enron employees Ken Lay, Jeffrey Skilling and Richard Kinder! Each one has a minimum bid of $25,000 and is made with “an elegant Makore Pommelle veneer,” to say nothing of the vintage edition copies of “Heart of Darkness” and “How To Win Friends and Influence People” (for those saracstic afternoons) in each top drawer. Personally, we’re saving our money for the shredder auction, but you should feel free to bid on these pieces of history today—you’ve got ‘til Sunday!

Ken Lay’s desk goes up for grabs
[CNN Money]

enron.jpgU.S. District Judge Melinda Harmon has denied the pleas of Merrill Lynch, CSFB and Barclays PLC to delay a $40 billion lawsuit by former Enron shareholders and investors against them; the suit will now go to trial April 9. In their argument for a delay, defense for the banks—accused of playing a key role in the company’s collapse—argued that they should wait for a pending decision from the 5th U.S. Circuit Court of Appeals. In a motion, attorneys offered:

There is nothing sinister about the suggestion that since the Fifth Circuit will be ruling on that appeal, the court and the parties should take the time to apply the Fifth Circuit’s guidance to the class definition, the parties, the claims and the defenses before sending class notice and embarking on a jury trial estimated to last many months.

.
While sinister may not be the right word to describe it—we’re a bit more partial to ‘underhanded,’ ‘conniving,’ ‘in line with the nature of unmitigated pricks’ [Ed.’s note: some around here think that last one was too mean, and prefer, ‘in line with the schemes of evil genius lawyers‘]—, the desire to wait on the Fifth circuit would certainly be in the best interest of the banks, as the Fifth is the very same one that said there was trouble with Skilling’s convictions and seems to be very skeptical about the Enron case in general. In other news, we received a tip late last night that Ken Lay was spotted on line at the UWS Gray’s Papya. Anyone got confirmation?
Judge denies motion to delay Enron suit [AP via DealBook]