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“The bestest company evah!”

Ah, the memories that this must bring back.

Watching a video shot five years ago this month, defendants Ken Lay and Jeff Skilling looked up on a big screen in court Wednesday and saw themselves predict that by now Enron would be “the world’s leading company.”

In the celebratory video, Skilling and Lay stood onstage at a February 2001 employees meeting. Lay then pulled a cord to reveal a sign with their new vision for Enron.

“We want to move from being ‘the world’s leading energy company’ to be ‘the world’s leading company,’ ” then-CEO Skilling said to applause from employees. He noted he would change his vanity license plate from “WLEC” to “WLC.”

“Five years from now I think there’s a good chance we could be the leading company in the world.”

Funny how things turn out, isn’t it? I’m pretty sure a clip from this video is in “Enron: The Smartest Guys In The Room”. It’s hard to consider such a thing without thinking of the old newsreels from the 50s and 60s that projected a now-hilarious vision of what the world would be like in the future.

Not a whole lot else of interest going on in the trial. Skilling defense attorney Dan Petrocelli got prosecution witness Mark Koenig to admit to some errors in his testimony. Loren Steffy thinks they were glancing blows and not direct hits on him, while Tom thinks it’s the prosecution that swung and missed. How much more fun do you think the jury room would be if these two guys were to be in it?

Next up, former Enron Broadband CEO Ken Rice, who didn’t exactly cover himself in glory during that trial. That cross-examination ought to wake people up a bit. And finally, Tory has a Wall Street Journal story about “Houston’s still-conflicted feelings about Enron and its former executives” that’s thankfully short on the angst. Whether or not this city has “moved on” regarding Enron’s collapse and its supposed effect on our psyche, at least the media seems to have mostly gotten bored with thumbsucker stories about it. For that, I’m grateful.

Enron trial: It’s time to play Impeach The Witness!

The defense got its first crack at a prosecution witness yesterday, and it went about as you might expect.

Daniel Petrocelli, lead defense lawyer for former Enron CEO Jeff Skilling, repeatedly asked [Mark] Koenig about his plea agreement with the government and if he ever confronted anyone else at the company about lies he earlier testified were told during analyst meetings and conference calls.

“You never said, ‘Mr. Skilling, why are you spearheading a criminal conspiracy,’ did you?” Petrocelli asked.

“No,” Koenig replied.

“And you never saw a single e-mail or memo that said Mr. Skilling broke the law? Or Mr. Lay?” Petrocelli asked, referring to former Enron chairman Ken Lay, who is also on trial.

Koenig said he never read such a document and didn’t know if one existed.

“You’re still in a mode of trying to protect yourself, aren’t you?” Petrocelli asked.

“I don’t feel in the last three days I’ve protected myself,” Koenig said, noting that he is still subject to shareholder lawsuits and will probably lose the $5 million in assets he still owns. He forfeited $1.5 million to the government last year.

Admit it: You could imagine this exact dialogue on almost any episode of Law & Order. The names and crimes may change, but the dynamic – “Why should we believe you when you’ve already told us you’re a crook and you took a deal to save your sorry hide?” – is the same.

I think in the end, all the mind-numbing technical details aside, that’s what this case will come down to. Who will the jurors believe, Koenig, Rice, Causey, and Fastow, or Skilling and Lay? Fastow is a huge wild card here. He has the potential to say the most damaging things, but he’s also clearly the least honest person involved. As I said before, I think that’s where this trial will get interesting. If the jurors can stay awake that long, we may be able to get a feel for how they’re leaning after Fastow finishes.

That appears to be the view of Samuel Buell, a former Task Force member who’s now joining in the Legal Commentary blog, and it’s noted in this story about media indifference as well. Even we bloggers are apparently falling down on the job:

The much-ballyhooed blogosphere has barely weighed in on the opening of the trial.

The Truth Laid Bear, a Web log monitor, confirms that Enron cannot qualify as anything close to a hot topic, notwithstanding periodic mention by local blogs such as blogHouston, Houston’s Clear Thinkers and Slampo’s Place, the latter of which offered readers what may prove to be an appropriate invocation to a trial struggling to make its mark in the competitive world of current events:

“Friends, as we gather here today to pass judgment on these two once-glib sons of the Great Midwest, let us resolve to never, ever forget the bitter lesson of Enron. And the lesson of Enron is, of course … is … um wait, it’ll come to us … the lesson was … hold on … lessee … lesson … Enron … uh … .”

I guess my mentions weren’t periodic enough. Well, I knew the risks when I went out of town this past weekend.

And finally, Tom gives a little context to Jeff Skilling’s famous “asshole” comment. As always, it’s good stuff.

Enron trial: One thing to keep in mind

We’re on day two of the prosecution’s case, and if we’ve learned anything from yesterday’s testimony by Mark Koenig, it’s that this trial is going to be wicked long. Basically, the Princess Bride/Good Parts Version of the story will begin when Fast Andy Fastow takes his nothing-but-the-truth vow. Tom Kirkendall explains why this may be a problem for the Feds.

If you read one thing related to the Enron trial today, I recommend it be this blog post by defense attorney/color commentator Kent Schaffer about those who pled out and will testify for the state. I don’t doubt for a minute that many bad things happened at Enron. I think the defense “run on the bank” strategy is hooey; plenty of companies overstate earnings or understate losses and get their stock hammered as a result but stay in business. I don’t think anyone questions Fastow’s criminality, and whether or not Skilling or Lay knew about it they damn well should have. They, their cronies, and if there’s any justice in this world the entire Board of Directors should spend the rest of their lives fending off civil judgments because of their venality, greed, and incompetence.

But that doesn’t mean that Skilling and Lay broke the law. Maybe that’s an indictment of the law, but it concerns me when I see progressives leading a pitchfork and torch brigade to a courthouse. I’m sure I’ve been guilty of this myself. It’s easy to get caught up in that in a case like this. Still, Skilling and Lay may be reprehensible people, but that doesn’t lower the government’s burden of proof and it doesn’t mean the government might not have strongarmed a few confessions from risk-averse or financially strapped Enronites. As with all defendants, I want these guys to get a fair, thorough, and by-the-book trial so that when the verdict is read, we can all feel confident in whatever it is. And I want Fastow’s testimony to come sooner rather than later. Too bad I can’t TiVo this thing and skip forward to it.

Enron trial: And they’re off!

Gads. I can tell that it’s going to be impossible to keep up with all the Skilling/Lay trial happenings. Opening arguments are already over, and the first prosecution witness is testifying as I blog. Just subscribe to the feeds for the two Enron blogs plus Loren Steffy’s Full Disclosure and you’ll be in good shape.

Well, okay, you’ll also need to follow Tom Kirkendall’s analyses. Here’s his pregame review, and here’s his recap of the opening arguments. The defense team is talented and aggressive, and he thinks they did pretty well yesterday. One place where I think they may have stumbled a bit is captured in this Trail Watch post, from the opening statements by Skilling’s lawyer Daniel Petrocelli.

“What is Jeff Skilling’s motive?”, asked Petrocelli. The indictment said he committed crimes for money and prestige. “In 1999 he had more money than he ever dreamed of having,” Petrocelli said. He said he already had plenty of prestige.

For what it’s worth, that’s an argument that would cut no ice with me. It’s called “greed”, and even though Attorney Petrocelli also said that Skilling wasn’t greedy, the question I’d have for him is if Skilling had all the money and prestige he ever needed, why didn’t he quit in 1999? Especialy if he was (as you also claim) “uncomfortable” running Enron? Lou Pai, the former Enron exec whom the “Smartest Guys In the Room” film fingered as the reason why Enron and strippers went hand in hand, retired with his millions (and as I recall, a stripper girlfriend) to Hawaii a couple of years before the implosion. That’s what someone who has “more money than he ever dreamed of having” does. Why didn’t Skilling take his fortune and disappear into the sunset? One might say that as long as he was doing a CEO’s job and getting a CEO’s lavish pay, he still had room in his heart for more money and prestige.

Just my opinion. I’ll close here with Dwight’s behind-the-scenes look at the logistics of blogging a big trial. And Dwight, in the event that Judge Lake does shut down the courthouse’s WiFi network, there are alternate technologies available to your blogging crew.

Kenny Boy on trial: And so it begins

Jury selection for the trials of Kenny Boy Lay and Jeff Skilling is underway, and if Judge Sim Lake has his way, it’ll be all over today as well. Here‘s some background on the process.

The Chron is gearing up its blog machinery for the event. There’s an Enron Trial Watch blog, which is mostly being written by reporter Mary Flood and which seems to be staging ground for some stuff that will wind up in news stories. There’s a lawyer-written group blog called Enron Legal Commentary that appears to be serving the Tim McCarver role to the Trial Watch’s Joe Buck. And of course Loren Steffy is there, too.

I have no idea how this trial will resolve itself. After the prosecution’s fumble in the Enron Broadband case, I’d have to make the defense a slight favorite, their whines about biased jurors notwithstanding. (They can renew their change-of-venue motion after jury selection is complete, as my dad the former judge reminded me this weekend.) One thing I do feel confident about is that no matter what does happen, Kenny Boy will not reclaim his reputation. How could he? Even if the defense proves that everything he did was legal, in the end his company wound up in a ditch, and it happened on his watch. At the very least, no one is ever going to think of him as a dynamic CEO any more. And if he wants to be thought of as a great philanthropist/humanitarian again, I say actions will speak louder than words. Let him donate a big chunk of whatever wealth he’s got left to charity, and find himself a project that he can dedicate himself and his time to, like Jimmy Carter and Habitat for Humanity. That’s how you fix a broken reputation: Penance.

Keep that trial right here

The Skilling/Lay trial will stay right here in Houston.

As expected, U.S. District Judge Sim Lake ordered late Monday that the request from ex-Enron chairman Ken Lay and ex-CEO Jeff Skilling to move the case be denied.

The pair face charges of conspiracy and fraud.

Lake said in this week’s order that in 2005 he set out the law regarding moving trials and why he thought there were not sufficient grounds to undergo the cost of moving this case when so many people around the country also knew a lot about Enron.


Lake sent out 400 questionnaires to potential jurors asking what they knew about the case, how they felt about Enron and the defendants and what contact they’ve had with legal and financial matters.

Upon receiving responses from the vast majority of the 400, the judge then dropped some potential jurors for hardship. Then the lawyers agreed to drop another 109 people who appeared too biased. The lawyers also agreed to drop additional possible jurors for more hardship problems — like being in college or taking care of a child or sick relative.

About 150 people were left in the pool after all the cutting and they been called to appear in court Monday.

The defendants have acknowledged that about 70 of those have said nothing that could even suggest any bias or feelings about Enron. But the defendants worry there could be hidden bias.

I never doubted this trial could be held here. Let’s get it on already.

Enron employee ambivalence

From the Sunday Chron: Mixed feelings from former Enron employees regarding the upcoming trials of Jeff Skilling and Kenny Boy Lay.

Some former employees harbor more sympathy for Lay, who was widely regarded as a fatherly figure in Enron’s halcyon days, than for Skilling, the whip-smart and hard-charging Harvard MBA.

Tracey Michel spent six years in Enron’s information-technology department and has always seen Lay as undeserving of the charges the federal government brought against him, though she adds that “might be naive.”

“But if they do find them guilty, I hope they serve time,” she said of both men.

Michel, though, keeps in touch with a number of former colleagues and said many remain bitter.

“The majority feeling is they’re guilty and they’re going to get them, especially with Rick Causey now folding,” she said of Enron’s former accounting chief who recently reached a plea deal. “Plus, just the plea bargain with (former chief financial officer) Andy Fastow, they must have some information — definitely something for Skilling, if not Ken Lay.”

Skilling still does have fans, although some don’t feel they can be public about it.

One former Enron employee questions what standard is being used to call Skilling “one of the bad guys.”

“Where’s the $6,000 shower curtain? Where’s the $15,000 umbrella stand? This wasn’t Tyco. These guys didn’t enrich themselves in that way,” the ex-worker said of Lay and Skilling.

Fastow, he said, was enriching himself on the side, “but he gets a deal.”

Rod Jordan, who founded the Severed Enron Employee Coalition to support employees and retirees in efforts to recover money they lost, said he talks to former workers often. Their feelings on the upcoming trial vary.

“There’s a few that I’ve talked to before that are still very interested, and there’s some that don’t want to hear about it,” Jordan said. “They’re more interested in, ‘Are we going to get any money out of the class actions?’ ”

Meanwhile Tom highlights what the Skilling/Lay defense will look like.

Four years of investigations and intense news coverage have made Enron a synonym for fraud and sleaze. But when the trial of former top executives Jeffrey Skilling and Kenneth Lay begins Jan. 30, defense lawyers will make a bold argument: Everything their company did was legal.

That ought to at least keep things interesting, unlike the techno-snoozefest that was the Broadband trial. We’ll see how it plays out.

“The Smartest Guys In The Room” on DVD

The movie Enron: The Smartest Guys In The Room, based on the book by the same name, is now out on DVD for your home viewing enjoyment. Good timing for them, what with the Lay/Skilling trial fixing to get underway and all.

A darkly comic dig into one of America’s biggest corporate scandals, the film earned $4 million in theaters.

Smartest Guys was also a huge hit with critics, scoring 97 percent favorable reviews on review tracking site It’s also on the short list of documentaries vying for an Academy Award nomination Jan. 31.

[Director Alex] Gibney has moved on to other projects, including a documentary on gonzo journalist Hunter S. Thompson. But he also helped hone Smartest Guys‘ DVD, whose extras include his commentary track, a making-of featurette, deleted scenes, a look at Enron’s in-house skits and a “Where Are They Now?” update on major players.

He and some colleagues even have “kind of an Enron self-help group. We get together and talk about how we can’t get this story out of our heads. It’s the story that will not die.”

I’ve already got a screener DVD of the movie (my review is here, if you’re interested), but the “Where Are They Now?” update might be enough to entice me to get the real thing.

I like Gibney’s take on the topic of the jury pool, which was in the news again today.

“I’ve always thought you’re supposed to be tried by a jury of your peers,” Gibney said. “Ken Lay has a Ph.D in economics, so you’d presume his peers would be very intelligent people, and why can’t they find them in Houston as well as anywhere?”

As Lair notes, there are other options as well.

Anyway. As noted in my review, I enjoyed the movie. It’s worth putting on your Netflix queue if you haven’t seen it yet.

Can Kenny Boy get a fair trial in Houston?

With jury selection in the Lay/Skilling trial imminent, the Chron asks will they get the presumption of innocence?

“As a practical matter, we all do have opinions of whether someone famous has done something wrong or not,” University of Houston Law Center professor Robert Schuwerk said. “But presumption of innocence has nothing to do with what goes on outside the courtroom.”

Lawyers for defendants Lay and Skilling are deeply concerned that come Jan. 30 when 100 potential jurors are seated in a federal courtroom, the presumption of innocence might not be there with them. Several outside observers also share this worry.


U.S. District Judge Sim Lake and Enron Task Force prosecutors are confident an unbiased jury can be sworn in in Houston. The judge says it can be done in one day.

Schuwerk is one of those who believes a fair jury can be found in this case or just about any case that comes through our judicial system.

“I don’t think the presumption of innocence is dead or that it will be hard to find people who will indulge the defendants in this case,” Schuwerk said.

There is a big difference between the snap decisions people make day to day and what jurors do when they take a solemn vow to consider only the evidence in court, he said.

”I think people who end up sitting on juries can do it. Lots can’t; that’s why they have (jury selection),” Schuwerk said.

But Steve Sheppard, a University of Arkansas School of Law professor who has written on the presumption of innocence, thinks pre-trial media coverage makes finding open-minded jurors increasingly difficult.

”One of the most fundamental problems is that though the law demands the presumption of innocence, the culture generally presumes” otherwise, Sheppard said.

”A lot of people are working hard to create presuppositions; the jurors may not even be aware of it,” he said. ”All the media attention in the Enron case makes this one harder still.”

For what it’s worth: I think Lay and Skilling bear a lot of responsibility for the collapse of Enron. Not all of it – certainly Andy Fastow had a big role to play, and so did the Board of Directors for their clearly shoddy oversight. Others had a hand as well. The question is whether or not their actions or lack of same is a violation of criminal laws, and whether or not it can be proven sufficiently. That, I have no real idea about, and can’t know until I see all the evidence. I think I could judge them fairly, and would say so in voir dire if I’d been called to be on the panel. I think enough people will hold similar views to get a jury empanelled.

This won’t be an easy case to prove, and the Idiot Defense will be compelling. Whatever happens, don’t be too surprised. Link via Tom.

Causey’s plea

And the deal for Rick Causey is five to seven years in the clink in return for “cooperation” against Skilling and Kenny Boy.

Causey pleaded guilty to securities fraud during a re-arraignment hearing before Judge Sim Lake today. The plea deal calls for a sentence of seven years in prison that could be reduced to five years if he cooperates “fully” with the government. He also agreed to forfeit $1.25 million.

Such cooperation includes debriefing prosecutors on events that led to the company’s collapse.

The charge Causey pleaded guilty to normally carries a sentence of up to 10 years. Causey’s attorney said he was also working on a settlement agreement with the Securities and Exchange Commission. April 21 was set as a tentative sentencing date for Causey.


Lay and Skilling weren’t in the courtroom for the proceedings but their attorneys were present. Judge Lake agreed to delay the start of the Skilling-Lay trial; jury selection will begin at 9 a.m. on Jan. 30.

Daniel Petrocelli, an attorney for Skilling, said today that Causey pleaded guilty “for one reason and and one reason only,” to protect his family.

That’s all the reaction so far from the Skilling and Lay defense teams. I’m sure there will be more soon. For now, this is a big win for the prosecution. I’ll wait to see what they do with it before I have any further thoughts.

Causey to take plea agreement

At 2 PM today, former Enron chief accountant Rick Causey will take a plea rather than go to trial.

It wasn’t known what the exact terms will be but the deal includes cooperating with the government — which may include testifying in trial — in exchange for the chance at a lesser jail sentence.

Causey was scheduled to go to trial Jan. 17 along with former Chairman Ken Lay and former CEO Jeff Skilling. All three men previously have pleaded not guilty to charges ranging from fraud to conspiracy related to schemes that led to the company’s 2001 bankruptcy.

The former chief accounting officer lacked the status and salaries of his two co-defendants, but a plea deal will likely make him the government’s new star witness.

Like former Chief Financial Officer Andrew Fastow, who agreed to cooperate with the government in 2004, he has intimate knowledge of the company, particularly in its last days before it filed for bankruptcy.

Causey was responsible for the company’s public accounting statements, reported directly to Skilling for years and took part in conference calls with Lay in fall 2001 as Enron fell from being one of the world’s largest companies to one of the country’s largest bankruptcies.

Unlike Fastow, however, Causey doesn’t have the taint of having tried to personally enrich himself through side deals, as Fastow admitted in his plea agreement.

“To have another high ranking officer who knows the numbers but who hasn’t been demonized the same way Fastow has serves the government’s case very well,” said Robert Mintz, a New Jersey-based legal expert who follows the case. “From the standpoint of wanting to go into the trial from a position of strength, this is not what Skilling and Lay were hoping for on the eve of trial.”

All of this certainly looks good for the Enron Task Force, and as Tom notes in his overview of Causey’s situation, he had more to worry about than Skilling or Kenny Boy due to his closer connections to Fastow and his side agreements. It’s a little early to celebrate, though, if you’re on the prosecution team. Remember the Enron Broadband trial, and how that was supposed to be an easy win for them? This case is certainly no less complex than that one, and there’s the specter of Causey pleading out because he had no choice financially, thus making him less effective on the stand than one might hope:

David Berg, a Houston defense attorney who has followed the case, said the Lay and Skilling teams may try and compare Causey to David Duncan, the former Arthur Andersen executive who pleaded guilty in connection to the 2002 document shredding case. The U.S. Supreme Court overturned a guilty verdict against the accounting firm and Duncan’s guilty plea was withdrawn.

“Duncan pled guilty, but when he got on the stand it was pretty clear he was innocent,” Berg said, referring to testimony Duncan gave under cross examination. “I think the main hope of the defense will be to make the case that Causey cratered under pressure, that he just pled so he could avoid a long jail sentence.”

Tom notes the same thing in this WaPo piece:

For friends of Causey, including his next-door neighbor Steve Huey, word of the advanced plea negotiations is bittersweet. They say Causey is devoted to his three children, the youngest of whom is in eighth grade, and is a devout Catholic who helped raise funds for a new church in the Woodlands, an upscale suburb of Houston.

“I don’t think Rick has ever believed he did anything wrong,” said Huey, who shared a Christmas Eve dinner with Causey and his wife, Elizabeth. “I think that Rick’s concern is over the family and what the eventual outcome will be for the family. As you get closer to trial, you start to weigh the options and weigh the odds and the resources the federal government has.”

With all due respect, the jails are full of people who don’t believe they did anything wrong. That by itself means nothing. I certainly hope that what we’ve got here is the feds using one guilty person to put the screws to two others, but we’ll have a better idea of that soon. What we probably won’t have soon is the start of this trial, as I’m sure the defense will renew motions to move the proceedings elsewhere. Stay tuned.

A plea for Causey?

Hope everyone who celebrated Christmas yesterday had a good one. The one piece of news from the day was this story about former Enron chief accounting officer Rick Causey talking to the feds about possibly taking a plea.

Causey has been in plea talks in the past, so it would not be a surprise to anyone should he reach an agreement with the government, said Kent Schaffer, a Houston defense attorney who has followed the case. A plea deal is unlikely to postpone the trial.

“Typically a defendant pleading out won’t be grounds for other defendants to delay the trial, especially in a case like this where it was no secret negotiations would go on intermittently,” Schaffer said.


“I’ve talked to Rick Causey myself, and I don’t believe he willfully did anything wrong,” said Mike Ramsey, lead attorney for Lay. “I don’t believe he would agree to plead guilty to a crime when he didn’t commit one.”

Skilling attorney Daniel Petrocelli also cast doubt on a Causey plea.

“Over the past year, I’ve spent a lot of time with Rick Causey. He is an honest man and consummate professional, who worked his heart out for Enron,” Petrocelli said. “He never — let me repeat — never committed any fraud or criminal conduct of any kind. He knows it, and the government knows it.”

Causey’s name is first on the indictment at the center of next month’s trial but last on the minds of most people. As chief accounting officer he lacked the status — and the salary — of former CEO Skilling or former Chairman Lay.

But he is an essential link between the government’s likely star witness, former chief financial officer Andrew Fastow, and the other two executives.

Causey and Fastow worked closely together, dividing between them the oversight of key financial and accounting operations at the energy giant.

As he has done all along, Tom Kirkendall provides a counterweight to stories about the Enron Task Force and its prosecutions. His thoughts on the possible Causey plea and how a Wall Street Journal reporter who is covering this case may be a little too vested in a particular outcome are here and here.

Kenny Boy previews his defense

Kenny Boy Lay gives full embrace to the Idiot Defense in a speech to the Houston Forum.

Just a month before his Jan. 17 federal trial on seven conspiracy and fraud charges, the former Enron chairman drew polite applause with his luncheon address titled “Guilty, until proven innocent,” in part a call to arms to Enron employees to defend the honor of the company and Lay himself.

Lay quoted Winston Churchill, saying, “Truth is the great rock,” and in his case, prosecutors have submerged it in a “wave of terror.”

Lay promised he’ll testify and asked other Enron employees to join him in creating a “wave of truth.”

“Enron employees really have only two choices. Either we stand up now – and prove that Enron was a real company, a substantial company, an honest company, a company that had a vision and values … or we will leave this horrific legacy shaped by others,” he said.


Lay’s talk to the Galleria-area crowd foreshadowed the defense he and his co-defendants will put forth, attacking both Andrew Fastow, Enron’s former chief financial officer, and the Enron Task Force.

The former chairman of Enron told the sold-out crowd of about 500 at the Houston Forum that Enron was a great company and would still be great if not for the illegal conduct of a few – namely Fastow and his protege, Michael Kopper, who Lay said committed “despicable and criminal deeds.”

“We did trust Andy Fastow, and sadly, tragically, that trust turned out to be fatally misplaced,” he said. Lay said it was the misdeeds of Fastow and cohorts, hidden from Lay, that led to the company’s 2001 bankruptcy and the dissolved dreams of thousands of employees.

Lay said most of what has been reported about Enron has been false or distorted, and attributed its collapse to the financial community and Enron’s trading partners losing confidence in the company. He clearly signaled they will use the “run on the bank” argument Skilling made to Congress.

There’s more, including attacks against the prosecution, all of which you can read here. I call this the Idiot Defense because his basic thesis is going to be that he had No Idea Whatsoever that Fastow and Kopper were stealing everyone blind. You could’ve paid me an awful lot less to be that incompetent as a CEO.

In both blog and column, the Chron’s Loren Steffy is unimpressed. Tom Kirkendall, who’s been a consistent critic of the Enron Task Force, thinks it’s not so simple:

Mr. Steffy’s skeptical reaction to Mr. Lay’s proclamation of innocence is quite common, but misses the difference between being held responsible in civil context as opposed to a criminal one. Few people — probably not even Mr. Lay — would contend that Mr. Lay should not share at least some responsibilty in a civil lawsuit for Enron’s demise. However, absent the state making a clear presentation of an alleged criminal act, the responsibility for Enron’s descent into insolvency should be sorted out among all responsible parties in a civil lawsuit, not a criminal case against a few of the more prominent responsible parties. In that regard, the Enron Task Force’s indictment (download pdf here) and current statement of its criminal case against Mr. Lay and his co-defendants (download pdf here) reveals that the Task Force’s presentation of criminal charges against Mr. Lay is anything but clear. Indeed, a lack of coherence in the presentation of criminal charges against Enron-related defendants has been a recurring problem for the Enron Task Force.

In theory, I think Tom is right, but in practice, I’m not at all convinced that the civil justice system will mete out sufficient retribution for those who caused so many people to lose so much. Has anyone sued the Enron Board of Directors, who (as The Smartest Guys In The Room made clear) knew about and approved of many of Fastow’s shady deals? Even if all the right people get served, I’m not convinced they’ll be made to pay. It’s too easy to shelter assets from judgment – OJ Simpson still has a mansion in Florida, after all. I share some of Tom’s concerns about prosecutorial overreach and criminalizing normal behaviors, but I’m left wondering what else there is to do.

Anyway. I’m more than a little fascinated by Lay’s call to arms of ex-Enron employees. If the comments in Steffy’s blog post are any indicator, that won’t go over very well. It’s an interesting move, and I suppose it won’t cost Lay anything if it flops, but I still think he’s a little deluded to make it.

Motion to dismiss charges against Kenny Boy

Missed this earlier in the week, but as always Tom was on top of it: The defense team for Jeff Skilling, Rick Causey, and Kenny Boy Lay have filed a motion to dismiss all charges on grounds of prosecutorial intimidation of defense witnesses.

Actions of the Enron Task Force have deprived Lay, Skilling and Causey “of their constitutional rights both to secure and confront witnesses, thereby stripping defendants of their ability fully and fairly to prepare for and defend themselves at trial. Put simply, witnesses are afraid to talk to us,” the request stated.

A redacted version of the request made of U.S. District Judge Sim Lake was made public today, though the lawyers filed the originally sealed motion last week. Some of the key evidence cited in this motion has not been made public.

The motion refers to an e-mail from a task force member telling a lawyer for a cooperating government witness to stop talking to Skilling’s lawyer or “get rid” of him. The judge has viewed that e-mail and has so far barred the lawyers from revealing its full content.


According to the motion, those attorney affidavits state the lawyers or their clients were told by the government that Skilling’s and Lay’s lawyers were “bad news,” and their clients would “pay” or the government would “go after” them if they cooperated with the defendants.

One lawyer allegedly says the Enron Task Force made a “veiled threat” to an attorney about it being “dangerous” for his client to help Enron defendants. Prosecutorial misconduct has been a common complaint from the defense lawyers in this case.

Prosecutors are not allowed to comment on the case while it’s ongoing.

Lake said last week that he thinks there is a problem that many witnesses in the case at least perceive a threat from the government’s Enron Task Force. But the judge said he had “not made any finding that the government has engaged in any illegal activity.”

Lake last week asked the lawyers to agree on a way he could counsel witnesses that they are free to aid the defendants should they wish to do so.

He said he would be willing to have them come to court and hear it from the judge himself.

Towards that end, Judge Lake sent a letter to 38 defense witnesses telling them they have nothing to fear and inviting them to come talk to him. This solution was suggested by the Enron Task Force, so it’s not quite what the defense had in mind.

Tom has provided a copy of the motion to dismiss for anyone who might like to download and read it. There’s more in his post and in his followup on the Lake Letters, and also in this WaPo story. Finally, Stace weighs in as well.

Managing the Enron media

I’m still puzzling through this story from yesterday.

It’s not the Super Bowl or the All-Star Game.

But the big Enron trial coming up in January featuring former head honchos Ken Lay, Jeff Skilling and Rick Causey as defendants will draw scads of media attention, and Houston’s civic leaders want to make sure the city comes off looking good.

Earlier this month, Houston’s image makers from the Greater Houston Partnership, Greater Houston Convention and Visitors Bureau, City Hall and county government met to begin forming a strategy to “tell the other side of the story,” according to minutes of the meeting.


Frank Michel, City Hall’s communications director, said the meeting was a brainstorming session that included some wild ideas that were thrown out pretty quickly.

He quickly dismissed as “ridiculous” the idea of tracking down reporters and TV crews, he said.

“I said we weren’t going to stalk the media,” Michel said Thursday.

He added that whatever approach is taken, it won’t be a heavy-handed public relations operation to combat any ugly impressions. Instead, he said, the group will focus on how to help the media do their job.

That includes making parking available — but not free — for those covering the trial, setting up a tent near the federal courthouse so the media don’t have to stand out in the rain, and meeting with TV stations to find out what sort of technical help they may need.

If that’s what this is about, then I’m OK with it. These trials are going to take weeks, and there will be lulls with not much new to report. It’s almost a certainty that there will be a few background/overview type stories filed at those times, where the whole Enron-as-microcosm-of-Houston thing will get rehashed. If the goal is to make sure the writers of those tales are in a decent frame of mind because they haven’t gotten continually lost driving around or had to park a mile away from the courthouse, I guess it can’t hurt.

As long as it’s not so obvious that the attempt itself is a story.

On its face, there’s nothing wrong with city leaders and civic boosters being logistically prepared, said Scott Libin, a faculty member at journalism’s Poynter Institute in St. Petersburg, Fla. And he was glad to hear that the committee noted in the minutes that there is a “fine line” between hospitality and undue influence.

But, he said, he hoped local leaders aren’t trying to turn every restaurant server into a goodwill ambassador for the city. Local leaders shouldn’t fall for the false dichotomy of “positive” or “negative” stories, because good stories are much more complex than that.

Just make it a little easier for a bunch of cranky, homesick people to do their job, and get out of the way. If that’s all it is, then it’s all right. I just hope that’s all it is.

Another view of the EBS trial

Via Banjo, local blogger Slampo relates his experience as a juror in a mock trial for Enron Broadband a couple of years ago. There’s quite a bit of grist for the mill there, but his discussion of former EBS CEO Ken Rice leaves me wondering if he’s kicking himself nowadays for copping a plea. That’s the risk of being risk averse, I suppose. Anyway, some interesting reading there, so check it out.

There’s also this Q&A with outgoing Enron Task Force chief Andrew Weissmann, but it was done before the verdicts were returned. Still worth a read, though.

UPDATE: Tom comments on the Q&A with Weissmann.

No convictions in Enron Broadband trials

Holy crap. I did not expect this.

Three months after the Enron Internet fraud trial began, prosecutors failed Wednesday to win a single conviction against any of the five defendants.

After deliberating less than 24 hours over four days, a Houston federal court jury acquitted three of the men on some charges and deadlocked on most of the Enron Broadband Services case.

With all the things that went on during this trial, I figured there’d be some acquittals. I never thought the prosecution would get completely skunked, though. What am embarrassment. Sort of makes you wonder how much Andrew Weissman knew as he was leaving.

“This verdict is a reflection of the complexity of this pro- secution,” said Robert Mintz, a New Jersey-based legal expert who follows the cases. “It spells trouble for the government trying to convince jurors in this case and others in the future.”

He and other legal experts said the acquittals and mistrial can only bode well for ex-Enron executives Ken Lay, Jeff Skilling and Rick Causey, who face off with the humbled prosecutors next January.

But Mintz also said the judge was “quick on the trigger for a mistrial” noting that “in cases this complex jurors sometimes go weeks and say they are deadlocked and judges send them back and they finally reach a verdict.”

That happened most recently in the Richard Scrushy case. The former chief executive of HealthSouth Corp., was acquitted of fraud after 21 days of jury deliberations including a period when jurors said they were deadlocked.

After being told by each juror that they were hopelessly deadlocked, Judge Gilmore made the jury deliberate for a little more than another hour.

She asked them to reconsider and break the deadlocks because so much time went into the case and another jury would just have to start over again. But the jurors insisted there was no hope.

After that the judge accepted the not guilty verdicts on 24 counts, leaving no defendant completely exonerated.

This seems like an awfully short timespan to pull the plug on deliberations to me, too. I don’t even know how you can reasonably discuss 164 charges against five men over two months of testimony in only 24 hours, let alone decide that there’s no way you can come to an agreement about them. Maybe Judge Gilmore had had enough, I don’t know.

As for the potential effects on the Skilling/Lay/Causey trial, this certainly knocks a lot of wind out of the prosecution’s sails. Obviously, those charges have to stand or fall on their own, but you’d think at the very least there’d be a psychological effect. If this were a sports story, there’d be a whole grab bag of cliches we could reach for, about things like “chemistry” and “momentum” and stuff like that. It would be mostly hot air, of course, but it would sound good.

As always, Tom has some sharp analysis of what happened. Former EBS workers react to the verdicts here.

Weissman resigns from Enron prosecution team

The timing of this is rather curious.

The Enron Task Force, which has filed 34 criminal charges against ex-Enron employees and their associates at other businesses since its inception in January 2002, has just gotten its third director.

Sean Berkowitz joined the Enron Task Force in December 2003 after working in the criminal division of the Chicago U.S. Attorneys Office for the Northern District of Illinois. In his five years there, his work ranged from the securities fraud prosecution of officers at Anicom Inc. to a capital murder case involving the death of a federal witness.

He was assigned to be a prosecutor in the upcoming case against former Enron Chairman Ken Lay, former CEO Jeff Skilling and former Chief Accounting Officer Rick Causey.

Berkowitz is a Harvard Law School graduate who graduated first in his undergraduate class in 1989 at Tulane University.

Berkowitz replaces Andrew Weissmann, who’s served on the task force from its beginning. Weissmann was assistant director under Leslie Caldwell and then took over as director himself in March 2004.


Weissmann is expected to stay with the Justice Department for some weeks or months, as Caldwell did before him. Typically prosecutors enter private legal practice or academia when they leave the government, but not all do that.

Why leave now, when one trial is in jury deliberations and another will be gearing up shortly? Tom thinks it’s due to the recent setbacks the Task Force has suffered. I’m no expert in these matters, but I have to agree that it’s odd that this couldn’t have waited a couple more days, until after a verdict was returned in the Broadband trial. Read Tom’s post and judge for yourself.

Who’s zooming who?

Enron prosecutors tells the jury they saw what the defendants were really doing behind the scenes.

Final arguments began Tuesday in the Enron Broadband Services trial, with the prosecution telling jurors they got to see behind the scenes and under the rocks at Enron — a view carefully hidden from investors.

“You learned the inside story never matched up to the outside story,” prosecutor Ben Campbell told the jury in U.S. District Judge Vanessa Gilmore’s court.

On trial for the past 13 weeks are five former Enron Broadband Services executives accused of conspiracy and fraud in two schemes to fool investors and Wall Street about Enron’s earning and technological capabilities. All five defendants testified that they did nothing wrong.

“We all know that money can corrupt people,” Campbell said. “These five men lied for personal profit and professional advancement.”

He said the simple motive was greed.

The defense attorneys tell the jury not to take the prosecutors’ word for events.

Tony Canales, lawyer for Scott Yeager, said the prosecution has presented witness testimony from cooperators and witnesses with immunity who’ve tailored their message to what the government wanted to hear rather than to the truth.

Lawyers for Kevin Howard said that the key witness against him probably bent her testimony to please the government for fear she would be charged or deported.

And Barry Pollack, attorney for Michael Krautz, said the power of suggestion obviously altered the memory of government witnesses such as ex-Enron Broadband Services CEO Ken Rice, who recalled his reaction at a 2000 conference to seeing a video that wasn’t actually shown there.

Over to you, jurors. Tom has his usual nice summary of it all. Any guesses as to how long they take before there’s a verdict?

Enron Broadband trial testimony ends

The defense rested on Thursday in the Enron Broadband trial, and the prosecution put on its brief rebuttal case on Friday, meaning that closing arguments (Tuesday) and jury deliberations are up next. Tom notes that there was some drama on Friday which didn’t get any play in the Chron story.

Judge [Vanessa] Gilmore harshly rebuked Enron Task Force prosecutor Cliff Stricklan for asking a question on cross-examination of defendant Kevin Howard that, if not in direct violation of a limine order (i.e., a pre-trial order directing attorneys not to refer to certain subjects during the trial), at least violated the judge’s prior instructions to the Enron Task Force prosecutors.

The rebuke came at the end of cross-examination of Mr. Howard when Mr. Stricklan asked a question about Canadian Imperial Bank of Commerce (“CIBC”), one of the bank’s that provided financing for the Enron Broadband unit. CIBC entered into this deferred prosecution agreement with the Enron Task Force back in December, 2003 and Judge Gilmore had apparently at least instructed Enron Task Force prosecutors not to ask any questions on that agreement during the Enron Broadband trial. The following is the exchange that occurred:

Mr. Stricklan: In fact, Enron went to CIBC often to fund such deals, isn’t that correct?

Mr. Howard: We had set up a very large investment to fund with a number of banks.

Mr. Stricklan: Including CIBC, is that true?

Mr. Howard: Yes, sir.

Mr. Stricklan: And are you aware that [CIBC has] entered into a deferred prosecution agreement with the Department of Justice . . .

Mr. Howard’s defense attorney: Objection, your Honor!

Judge Gilmore: Stop! Mr. Stricklan, just stop it right now! Have a seat! That’s the end of the questions!

With that, a clearly angered Judge Gilmore — standing in front of her seat on the bench — terminated any further questioning of Mr. Howard by Enron Task Force prosecutors and excused Mr. Howard as a witness. Taking advantage of Judge Gilmore’s reprimand of Mr. Stricklan for emphasis, each of the attorneys for the five Enron defendants promptly announced that each of the defendants had completed putting on their defense.

Amazing. Like Tom, I figured this trial would be a slamdunk for the feds, and like Tom, I’m just flabbergasted that they’ve now screwed up three times (see his post for details on the earlier mishaps), making this seem a lot more doubtful now. If they can’t do this one right, how are they going to handle the Big Three? Could we even see some charges dropped in those cases if they don’t get across-the-board convictions here? Stay tuned, we’re finally nearing the finish line on this sucker.

Lea Fastow released

As of Friday morning, Lea Fastow is a free woman after departing the halfway house she’d been in for the past month.

Lea Fastow, a daughter of the prominent Weingarten real estate and retail family, will now be on one year of federal supervision. That means she will have to report regularly to what is essentially a parole officer and her travel and living conditions can be monitored.

The former stay-at-home mom plans to go to nursing school.

Well, mostly free, anyway. Now hubby Andy can go to jail (after testifying in the upcoming Lay/Skilling/Causey trial, of course) while Lea takes care of their kids, which was what they wanted in their deals with the prosecutors.

Trouble for prosecutors in Kenny Boy case?

I scanned this story yesterday but didn’t have much time to think about it.

In an unusual move, a federal judge Thursday let lawyers for former Enron executives Ken Lay and Jeff Skilling ask the attorneys for the 15 people who’ve pleaded guilty in Enron cases to provide the judge with certain communications from prosecutors.

U.S. District Judge Sim Lake ordered lawyers for Lay, Skilling and co-defendant Rick Causey to draw up a subpoena for 19 defense attorneys who represent the 15 people.

They will ask for all written material, including e-mails, on the topic of trying to keep cooperating defendants from talking to the trio awaiting trial.

Defense attorneys in this case and other Enron-related cases have complained before that not just the cooperating defendants but the more than 100 unindicted co-conspirators have become afraid to speak to defendants.

Lake said he reviewed some sealed material from Lay, Skilling and Causey, and it was enough for him to address the concern “about possible efforts” of the Enron Task Force to inhibit the 15 guilty pleaders from responding to Lay, Skilling and Causey.

Tom was at the courthouse when all this was happening. He’s got a good explanation of what it’s all about and a theory as to what led Judge Lake to take this unusual step. Check it out.

Oh, yeah, that Enron Broadband trial

I confess, I’ve sort of lost touch with the ongoing Enron Broadband trial. Like Tom, who provides us with a nice update on the case, I thought it would be closer to finished by now. Those poor jurors – I just hope they can get a few minutes of fame out of this when it’s all said and done. Anyway, Tom says things aren’t going as well as you might have thought for the prosecution. If they can’t bring this one home, what does that say about the upcoming Skilling/Causey/Lay trial?

Lea Fastow gets out of jail

Lea Fastow has Left the pokey, but she still has five weeks in a halfway house to go.

Hand-in-hand with her soon-to-be-imprisoned husband, Lea Fastow walked out of a downtown Houston prison before dawn today, then took a short ride to the downtown halfway house where she’ll serve out the last five weeks of her one-year sentence for lying on her taxes about income from an Enron venture.

The 43-year-old wife of former Enron CFO Andrew Fastow looked healthy in a white polo shirt and jeans, with a pink sweater folded over her arm, as she emerged from the Federal Dentention Center moments before 4 a.m., just as sprinklers started up.

She stopped briefly on the sidewalk at 1200 Texas Avenue to speak to a reporter and photographers before being whisked away in a private car to the halfway house where she’ll stay until July 10.

“It’s been a tough year, but it’s supposed to be a tough year,” said Fastow, a stay-at-home mom before going to prison. “I am going home to my family soon. That’s exactly what I’m looking forward to.”


Although the federal halfway house she’s settling into allows for varying levels of restrictions, Lea Fastow is likely to be confined to the facility for the remainder of her sentence, possibly allowed to visit an outside doctor.

At the Liedel Sanction Center, known as a “federal community corrections center,” the idea is to let prisoners near release stay in a “structured, supervised environment” that has counseling, job placement, and other services to help the inmates rebuild their community ties and readjust to freedom.

Somewhat more hospitable than a prison and offering more privacy, the Commerce Street halfway house is less than a mile from the federal detention center in a semi-industrial part of downtown. A guard was at the door Monday morning.

I guess that’s one chapter of this saga that’s about to end. She got a harsher sentence than she originally bargained for, but in the end she’ll be back home before Andy Fastow heads off to the big house, and that was what they both ultimately wanted.

Anderson verdict overturned

The US Supreme Court has unanimously overturned the conviction against accounting firm Arthur Andersen for shredding documents related to the Enron investigation.

The high court found that the trial judge’s 2002 jury instructions were so vague that jurors could have convicted the company of obstruction of justice for innocently destroying documents related to the Enron investigation.

The case was sent back to Houston for a possible new trial.


It took the high court only a month to come to the decision Chief Justice William Rehnquist wrote it in an unusually short 11 pages. He said Houston U.S. District Judge Melinda Harmon erred when she told jurors they could convict Enron’s accountants even if people at the company didn’t know what they did was illegal.

The opinion focused mostly on the question of whether Arthur Andersen employees were “knowingly” and “corruptly” persuaded to destroy documents. Rehnquist wrote that jurors were not required to find that wrongdoers had “the requisite consciousness of wrongdoing. Indeed, it is striking how little culpability the instructions required.” He noted jurors were instructed they could convict even if Andersen “honestly and sincerely believed its conduct was lawful.”

During the trial, Arthur Andersen argued workers followed company policy for throwing away notes and drafts of documents. The firm maintained it never intended to obstruct a Securities and Exchange Commission probe.

I have no quarrel with the SCOTUS ruling. Jury instructions are critical, and the ones here were awfully broad. If this puts a crimp in the plans of the federal task force, then so be it. If they need friendly jury instructions to win, they should reassess what they’re doing.

Tom, who’s a longtime critic of the Enron Task Force, is happy if a bit bitter with this ruling. I can accept what he’s saying and what the others he’s linked to are saying, but there’s something that’s bugging me in all this. Nobody disputes that Andersen shredded documents that may have been material to the Enron criminal investigations. The argument, as far as I can tell, is over what an appropriate remedy for that should be. Loren Steffy puts his finger on what’s bothering me.

It might be useful, in sorting out the court’s decision, to remind ourselves of what jury foreman Oscar Criner said after convicting Andersen. The jury instructions, he said, didn’t matter. It was [Andersen lawyer Nancy] Temple’s memo [which “reminded” Arthur Andersen’s audit team in Houston to shred Enron-related documents ahead of a government investigation the firm knew was coming] that convinced jurors that Andersen’s leaders knew they were destroying evidence.

It would be useful, too, to recall that Criner said the government used Andersen’s abysmal track record of blown audits to show that its recidivist history motivated Temple in urging her colleagues to shred with gusto. More specifically, her mention of Enron in the memo sealed the firm’s fate, Criner told the Chronicle at the time.

It’s also useful to remember what Michael Odom, an Andersen partner, told 89 employees about the firm’s document retention policy at a training meeting on Oct. 10, 2001:

“If it’s destroyed in the course of normal policy, and litigation is filed the next day, that’s great. … We’ve followed our own policy, and whatever there was that might have been of interest to somebody is gone and irretrievable.”

It might be useful to remind the IRS of that the next time you’re audited. Then again, maybe not.

If we were talking about Arthur Andersen, sole proprietor and private citizen, who had shredded these documents, he’d have been busted for obstructing justice, and no one would argue the point. Instead, we’re talking about a corporation, which had a perfectly reasonable but in this instance highly self-serving policy to shred this sort of document. If the former is criminal activity, then why isn’t the other? And if it isn’t, then what if any remedy should exist? Jumping around this blog, the answer given seems to be civil law and contract enforcement. Maybe that is a more efficient (in the economic sense) solution – I’m no expert in these matters, so I can’t say with any authority. What I am saying, from my layman’s perspective, is that it’s not clear to me that the Task Force was wrong to try to make a criminal case out of Andersen’s actions.

Prosecution rests in Enron Broadband trial

The prosecution took longer than they thought they would to put on their case, a development which almost led to a juror revolt and which did lead to the defense making the slightly bizarre offer to help pay their salaries, a suggestion the judge nixed. Today, after five long weeks of often dull testimony, including recent allegations of just a joke video skits, purchase backdating, verbal pacts, and suspicious trading activity, the prosecution has finally rested its case.

The prosecution rested today in the Enron Internet division criminal trial and the five men accused of putting a profitable face on the company’s failing business will begin presenting their witnesses next week, with some or all of the defendants likely to testify.

The Enron Task Force prosecutors will argue they have proved that three of the men lied to analysts and investors about the technological capabilities of Enron Broadband Services and then sold their own stock, pocketing millions of dollars on insider information.

Prosecutor Cliff Stricklin questioned a finance specialist who the government paid more than $500,000 to trace the stock sale proceeds and show they were moved to different accounts, to prove up money laundering charges against former EBS co-CEO Joe Hirko and high-level technology execs Rex Shelby and Scott Yeager.


Defense lawyers are expected to argue that Yeager, Hirko and Shelby didn’t lie about technology, but were projecting a plan for the future. They will also say the trades were not based on insider information but made because stock options would expire, the price was up and the men wanted to diversify.

The other two men on trial, midlevel finance and accounting workers Kevin Howard and Michael Krautz, are accused of arranging a fake sale of Enron’s future profits off a video-on-demand deal. Prosecutors charge they faked the accounting so it looked like income to Enron rather than the loan the government says it really was.

Their defense is likely to be that there was that the deal was above board, the purchaser nCube was really at risk and really lost money in the deal.

They’re adjourned for the holiday weekend, then the defense will start calling its witnesses. The story suggests the trial may last another four weeks, though Tom thinks it may wrap up more quickly than that. I have a feeling this phase is where the action will be. No reason, just a feeling. Stay tuned.

Enron Broadband trial: Bored now

You may think that any trial which features mixed-up videotapes would be a generally exciting one, but the Enron Broadband trial appears to have bogged down in a bunch of boring technobabble. Tom points to this Chron story from last week in which even the reporters are having a hard time maintaining interest.

On the stand Tuesday was jargon-dependent computer specialist John Bloomer. It was his third day of testimony, and for most of morning he was questioned by Enron Task Force prosecutor Ben Campbell.

Campbell took Bloomer through statement after statement made at a critical January 2000 Enron conference for stock analysts to ask about the truth of what was said.

It was no more exciting in the afternoon when defense attorney Per Ramfjord took over. Ramfjord is so well-versed in technology that the courtroom can become Silicon Valley when he gets going with a geeky witness. Bloomer sometimes answered enthusiastically with something like: “We were late. Whether it be MPLS over ATM, whether it be precedent bit over IP.” Don’t ask.

So the jurors and alternates, if they’ve stayed fully awake, know what a hop and a POP are in the tech world, may know the difference between quality of service and quality of stream delivery, and likely know what media cast and media transport are.

That’s a real quote. Probably not what the prosecution had in mind, but that’s the way it goes. And as Tom noted later, even the judge is bored senseless. Let’s all be thankful we don’t have to be there but can read about it afterwards instead.

Enron Broadband: The technology fell short

The prosecution is still presenting its case in the Enron Broadband trial. Their last witness for the week was a techie who testified that EBS was going to have to rely on other companies’ networks to deliver what it was promising.

John Bloomer, a computer expert hired in 1999, said the idea was approved about two weeks before a Jan. 20, 2000, stock analyst conference where prosecutors maintain Enron Broadband Services executives lied about the capabilities of their network.

“We were looking at a year-plus before we would be able to carry media transport on our network,” Bloomer explained Friday under questioning from U.S. Attorney Ben Campbell.

Enron’s network, at the time, could not direct “traffic” or track customers because it did not have the necessary software, Bloomer said in his second day of testimony.

The idea was to use a vendor’s network to capitalize on a lucrative market for transmitting video for news organizations between Chicago, Denver, New York and Washington, D.C.

Deep-pocketed network television organizations frequently feed videotape along these routes and pay premium prices to do so. Enron, he said, would sell the service, while a vendor would be the sole network operator.

The Enron Task Force maintains such a plan was never mentioned at the January 2000 conference and executives told stock analysts they had their own network with a proprietary network control software.

The defense argues that the EBS vision was a work in progress and that no one misrepresented it. They say the network was being deployed in phases.

I’ll come back to that last point in a minute. Bloomer’s earlier testimony was that EBS was in disarray when he arrived.

[Bloomer] said he left GE to go to Enron Broadband Services in 1999 “to turn it into an honest to goodness business.”

Responding to prosecutor Ben Campbell, he said his first job at the unit was to locate the problems. He found poor morale, holes in the underlying infrastructure and products that were not ready to be marketed.

He said what was called “Enron’s Intelligent Network” actually lacked intelligence, or the ability to control the hardware, and that he experienced internal resistance when he set up teams to address the problems.

Bloomer told jurors in U.S. District Judge Vanessa Gilmore’s court that he was attracted to Enron’s technology business and “believed with Enron’s support and capital, this kind of thing could generally change the industry.”

But Bloomer said when he got there in October 1999, there was disarray.

Bloomer, who wound up leaving Enron in 2000, titled one section of his report “How did we get to this broken state.” He said it was going to take an infusion of people, cash and focus to get EBS on the right track.

Remember that the stock conference at which the EBS executives are charged with making false statements occurred in January of 2000, so a state of disarray in October of 1999 is a big deal.

Getting back to the defense strategy for a moment, if the plan is to convince the jury that EBS was fundamentally able to do what it was touted to be able to do, and that what the executives all said was maybe a bit of puffery but not fraudulent, then I would guess that the little videotape snafu won’t be a big part of their case. If what Rex Shelby was saying was basically true, then it doesn’t really matter all that much if he was in the tape the prosecution presented or added later on. I don’t know how strong the defense thinks its claims are, but since they couldn’t have known about this gaffe beforehand, they must have some faith in them. If so, changing their emphasis may just serve to confuse the jury. I’m sure they’ll refer to the tape, mostly as a way of tarnishing the image of the prosecution, but I’ll be surprised if they suddenly make it their smoking gun.

Now of course, I’m not a lawyer, I’m not in the courtroom, and I’m basing this on my one experience as a criminal juror – it was a DUI case, in which the defense attorney threw out a lot of claims about the police and the prosecution, none of which were ever fully developed as a recognizable rebuttal to the charges and none of which made any headway on knocking down the piece of evidence that led to us convicting his client (a videotape at the station house in which he still looked drunk, a good hour and a half after having been pulled over). All I’m saying is that the defense needs to keep its eye on the ball. From my perspective at home on the couch, if they make a big deal out of the tape, they probably don’t think they were going to win with their original plan.

The tale of the tape

Having been caught with the wrong tape during Ken Rice’s testimony in the Enron Broadband trial, the prosecution has to explain the error while underscoring the fact that the bit they cared about, in which EBS honcho Rex Shelby made false statements about the company, did exist and was intended to have been shown to investors. To do this, they’ve trotted out former Enron employee and video collector Beth Stier.

Beth Stier, who made and kept a multitude of videos for Enron and who is now working for Skilling’s defense, was called by prosecutors to testify in U.S. District Judge Vanessa Gilmore’s court. Videotapes she made have become an issue in the third week of the trial of five former Enron Broadband Services executives.

It was Stier’s company, which once depended on Enron for most of its revenue, that taped the January 2000 conference that’s key to the government’s case.


Stier testified Tuesday she taped the segment with Shelby and was irritated when it wasn’t used. She said she inserted it into the final edited version of the conference at the request of Enron’s investor relations department.

She said she gave the government the edited tape it used in court and the raw footage that caused the defendants to discover the Shelby segment was added after the fact.

But she said she never gave prosecutors another tape showing only the PowerPoint slides used at the conference. The government received that tape through the defendants.

OK, so an outside expert screwed up. These things happen, you just can’t get good help these days, etc etc etc. So far so good.

Prosecutor Cliff Stricklin asked if Stier lied to prosecutors when called to their courthouse offices Sunday night to discuss the tapes.

She said she “hedged” when asked about her relationship with Skilling’s lawyer Daniel Petrocelli, whose law firm has paid her more than $150,000 for work related to Enron’s library of videotapes she maintains.

Skilling is scheduled to be tried in January and is also accused of lying about the value of the Internet division.

Stier said she was vague with prosecutors. She said she apologized for the “hedging.”

“You guys scare me to death. I do not want to lie to you,” Stier told Stricklin.

Tom thinks this is the wrong approach by the prosecution.

As noted in this earlier post, the damage from the prosecution’s use of the wrong video on Mr. Rice’s direct examination could have been limited by the prosecution’s forthright admission of its mistake. However, from the report of today’s proceedings, the prosecution not only failed to adopt that approach, but inexplicably compounded the damage from its previous error by attempting to shift the blame to a frightened woman on the witness stand before a predominantly male jury. Such a major tactical blunder is a clear sign of a panicked prosecution.

I’m not so sure that I agree with this. One could interpret this exchange as the prosecution reassuring the jury that they have high standards for truth and accuracy, that they expect the same from everyone else, and that they take transgressions seriously. Ms. Stier therefore should have a little fear of God in her for her sins. Not being in the courtroom, of course, I can’t judge how the jury may have reacted to all this, but I can see what the prosecution may have been going for, and if I’m right it’s sensible enough. We’ll know soon enough.

Oh, *that* video

Remember that defense claim from Friday in the Enron Broadband trial that a videotape shown by the prosecution was never shown to stock analysts? Well, it turns out the defense was right.

Watching two videotapes simultaneously today, jurors in the Enron Internet trial learned that prosecutors previously presented an inaccurate version of a stock-analyst conference that’s key to the government’s case.

While ex-CEO Jeff Skilling could be seen talking in unedited raw video from the actual January 2000 conference that’s at the heart of the criminal accusations, next to it the government’s edited evidence tape instead cut from Skilling to show one of the defendants addressing the conference.

The prosecution’s star witness, Ken Rice, testified today that he now realizes the government showed him something other than the actual conference tape. The former CEO of Enron Broadband Services said that led him to incorrectly testify that the controversial segment from defendant Rex Shelby was shown to analysts at the conference.

Prosecutors had introduced the video, with the brief Shelby segment included, to support their claims that executives lied to analysts about the capabilities of EBS’ technology at the conference to inflate the company’s worth. The stock price rose within a day of the conference from $54 a share to $72 a share.

Rice said he’d seen the government’s video before testifying. When prosecutor Ben Campbell showed it to him in court Tuesday, Rice testified then that he was surprised that Shelby was talking about the network operating system as up and running when it wasn’t.


In questioning from defense attorney Tony Canales, Rice said he knew Shelby had taped the segment in question and that it was slated to be shown to the analysts.

Rice told Canales he thought about this a lot of over the weekend and even talked to his Washington, D.C.-based lawyer about whether he’d been shown the wrong tape and convinced himself he did see the Shelby segment shown at the analyst conference.


“It’s very serious when the government offered something in evidence that turns out to be phony,” said Mike Ramsey, the lawyer for ex-Chairman Ken Lay. Ramsey and Skilling’s lawyer Daniel Petrocelli have been in court watching the Rice testimony, which could be repeated in their clients’ trial next year.

Ramsey said the government has all the raw footage of the conference and it “knew or should have known that their edited version didn’t match reality.”

Prosecutors haven’t yet explained how the false information got before the jury. They are expected to call a witness to the stand who supplied the edited tape to the government with the Shelby segment in it.

Well, now. As far as I can tell, this is the first major screwup that the Enron Task Force has committed. It’s understandable that things can slip through with all the mounds of evidence to examine, but this is one of those Things Which Should Not Happen.

Tom has this story as well, and he thinks the prosecution can clean things up on redirect by admitting they goofed and getting witness Rice to reaffirm what he’d said before. Nobody’s perfect, and there’s plenty of other evidence to go around, right? I’m sure that’s approximately what they’re hoping. I’ll be very interested to see how it plays out. Stay tuned.

Cuban on “The Smartest Guys”

I had forgotten that Mark Cuban was the Executive Director Producer of Enron: The Smartest Guys In the Room. I remember noticing it in the credits when I watched it, then promptly forgot about it. Anyway, the flick has been racking up good reviews, and Cuban is pretty justifiably pleased about that. (He can now add Roger Ebert’s thumbs-up to go with the one they got from Richard Roeper, by the way.)

Anyone else seen this yet? What did you think about it?

UPDATE: Oops. Fixed what Mark Cuban actually did for this movie. Thanks, Dwight!

Video? What video?

Defense attorneys in the Enron Broadband trial are claiming that a video which shows one former EBS executiva making false claims about the company’s capabilities, was never shown to stock analysts, contrary to prosecution claims.

Defense attorney Tony Canales on Friday showed jurors video production records of a 2000 analyst meeting that did not reference the taped presentation that was shown to the jury on Tuesday.

He also introduced into evidence raw video footage taken of the entire Jan. 20, 2000, conference in Houston that he says proves the tape was never shown there.

But U.S. District Judge Vanessa Gilmore ruled that the raw video could not be shown to jurors until Monday, after the prosecution team had a chance to review it.

The Enron Task Force has said it will not comment while the trial is ongoing.

Throughout the 2000 presentation, video speeches of company technology experts were played to explain to analysts the capabilities and business plans of Enron Broadband Services.

Jurors on Tuesday saw two brief video segments that featured Rex Shelby, the former senior vice president of engineering and operations for EBS, who is one of the five executives currently on trial.

The first segment focused on the Enron broadband network, which had some technical capabilities. The second was of Shelby touting current capabilities of operating-system software that prosecutors maintain never worked.

Canales, who represents Scott Yeager, a former vice president of the Internet division, claims the latter segment was inserted sometime after the conference.


Under questioning Friday, Ken Rice, the former co-CEO of EBS, maintained the tape was indeed shown to analysts at the conference.

Rice, who is cooperating with the government as part of a plea agreement, told jurors Tuesday he had seen the Shelby video at the conference and at the time was “surprised that it was so consistently present … because I knew we hadn’t created that.”

That’s a pretty big claim by the defense. If they can back it up, it’ll blow a huge hole in the prosecution’s case. There’s a risk here, though, which is that I think juries are pretty skeptical of claims about evidence being tampered with. If the jury doesn’t buy the defense’s claim, I think they’ll be much more likely to convict. Stay tuned.

Catching up on the Enron broadband trial

Former Enron Broadband Services CEO Ken Rice, who has already pled guilty to a charge of fraud for his role in the EBS flimflammery, has been testifying busily for the past couple of days in the trial of five other ex-EBS execs. This is from his early testimony:

“I lied about the status of Enron Broadband Services,” said Rice, who appeared nervous at the start of his one-hour testimony near the end of proceedings on Friday.

“Did you do this alone?” asked U.S. Attorney Ben Campbell.

“No,” Rice replied.

He then named [Jeff] Skilling, who is not being tried in this proceeding, and four of the five former EBS executives who are currently on trial as accomplices in making analysts, investors and the public believe that Enron’s Internet business had more capabilities — and in turn more value — than were true.


Prosecutors showed jurors video clips of a Jan. 20, 2000, analyst meeting in Houston and had Rice respond to statements made by some of the executives.

In one clip, [Joe Hirko, the former co-chief executive of EBS and the highest-ranking executive now on trial], standing beside Rice, touts the capabilities of EBS’s software capabilities, which Rice then told the court did not work at the time. He said it was a lie designed to bolster Enron’s stock value.

At another point in the video, a smiling Hirko motions to Rice and asks him in the style of a showman if the capabilities of the broadband network were “a pipe dream” or even years away from being developed.

“No,” answered Rice “This is something that exists today.”

Prosecutors turned off the video and asked Rice if that was a true statement.

He replied the statement was also a lie.

Prosecutors also showed a clip of [Rex Shelby, the former senior vice president of engineering and operations for EBS] touting the software that Rice again testified was untrue.

Prosecutors said they would be showing the jury more clips of the analyst meeting as well as the video in its entirety.

Rice testified that the lies were to puff up Enron’s profit.

“The purpose in telling the lies was to make Enron Broadband Services look better than it was,” Rice said, adding that in turn, Enron’s stock would rise.

The Jan. 20, 2000, meeting is widely seen as the catalyst for a huge increase in Enron’s stock price in the following year.

Enron’s stock climbed 25 percent that day and began its gallop up to a record high of $90.56 that August.

Earlier testimony from techie types was about how the software Enron purportedly had to manage excess broadband capacity was “pixie dust” and how a demo for NBC executives was faked. A lot of this was covered in the Smartest Guys In The Room movie. Maybe it’s easier now to see what a dumb idea this was, but it’s still amazing how thoroughly the stock analysts got duped on this one.

I kind of hope that the trial examines the ill-fated deal EBS had with Blockbuster to deliver video on demand, because I never really understood how that was supposed to work. Was the idea really to pipe movies to people’s computers? I have a much nicer computer now than I did in 1999, with a much nicer monitor, but I’d still never choose to watch a movie on my PC instead of my television. Did they believe enough people would do so? If that wasn’t the idea, didn’t they also need to have deals in place with cable companies so that there’d be a channel on which the movies could be viewed and controlled? Was anyone asking these questions at the time, or was it all just hype?

And it wouldn’t be an Enron trial without a sideshow diversion, in this case Jeff Skilling being asked to leave the courtroom because he’s a potential witness in the case. Tom thinks he got a bum ruling, however.

Reviews for “The Smartest Guys”

Lots of review for Enron: The Smartest Guys In the Room today. Greg got to see it at the official opening and has some interesting reports from the Q&A session that followed. Ted gives his perspective as a former Enron employee. Both the Chron and the Press give it good reviews, with the Chron throwing in a comparison to the wonderful 1983 film Local Hero.

One thing from the Chron review: In the print edition, the review notes that the movie is unrated and “contains no objectionable material”. Either they cut out the five-minute stripper montage from the screener DVD, or someone has an interesting definition of “objectionable”.