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February 4th, 2003:

Kenny Boy gets sued

Ken and Linda Lay have been sued by Enron’s creditors, who allege that they still owe money for loans that they paid back in Enron stock. They were doing this up into November of 2001, just before the Dynegy deal fell through and Enron declared bankruptcy. They’re looking to collect over $80 million.

Between May 1999 and November 2001, Lay used company stock to repay more than $94 million in loans from Enron. Under the arrangement, Lay could sell stock — in the form of options awarded to him as part of his compensation — to the company without having to report it publicly for up to a year afterward. At the time, most stock sales by insiders had to be disclosed by the 10th day of the following month. A new federal law now requires disclosure within two business days for nearly all transactions.

Creditors say Lay, as company chairman and chief executive officer, knew the stock was essentially worthless and should be forced to repay the company.

“The tendering of Enron’s own stock to repay loans taken in cash was not a fair exchange for Enron,” says the lawsuit, signed by creditors committee lawyer Susheel Kirpalani.

This suit, it seems to me, has the potential to bolster a criminal case against Lay.

The creditors will have to prove Lay was aware of the stock’s value and had reason to believe the price would drop considerably in the future, said Nancy Rapoport, dean of the University of Houston Law Center and a bankruptcy expert.

The creditors argue that Lay must have known the currency he was using to repay Enron was “overvalued.”

On Aug. 14, 2001, he replaced Jeff Skilling as CEO, adding that title to his role as chairman. A day later he received an anonymous memo from vice president Sherron Watkins suggesting the company could “implode in a wave of accounting scandals.”

By September, accounting firm Arthur Andersen revealed in an internal memo that it now believed Enron’s value was overstated by $999 million in the first half of 2001.

At the time, Lay was continuing to use the open loan agreement. In October, he repaid the company with Enron shares valued then at $2.8 million. And in November, he received cash advances totaling $2.5 million, according to the lawsuit.

At the very least, this will dredge up a lot of unpleasant facts about the President’s former bestest buddy. Get some popcorn, this should be fun.

No state income tax – no surprise

State House Speaker Tom Craddick says there will be no state income tax adopted this year.

“I would not think that there’s any chance we’ll pass an income tax,” said Craddick, noting that a provision in the Texas Constitution requires voters to ratify an income tax. “I just don’t see that happening.”

Imagine my surprise.

[Rep. Kent Grusendorf, R-Arlington] created a stir in the House after the Associated Press reported Monday that he said a state property tax and state income tax are among options lawmakers might consider to replace the system that relies heavily on local property taxes.

Grusendorf said later that he didn’t highlight those options but just said that “everything should be on the table.”

“Most experts have concluded we cannot get a permanent solution without some type of tax restructuring,” said Grusendorf. “Everything should be on the table, and we should have an intellectual debate about the issues.”

Gov. Rick Perry and Lt. Gov. David Dewhurst have repeatedly said that they would not look to replace local property taxes with an income tax.

He’s referring to the so-called “Robin Hood” system of school financing, which is based on local property taxes and which transfers funds from rich districts to poorer ones. It was adopted in the early 90s when Ann Richards was governor, and though it’s better than what we had before, it’s never been a good solution or a popular one.

I give Grusendorf credit for wanting to take a serious look at all plausible options. Whether or not a state income or property tax would ever be a likely solution, a reasoned discussion of their pros and cons could only help. Too bad Perry and Dewhurst don’t agree.

UPDATE: Just saw this story about a study that concludes that Texas’ tax system is hopelessly outmoded and should be completely revamped:

Most state tax codes need substantial revision, and tax laws in 11 states — including Texas, California and Florida — are so outmoded and inefficient they need to be scrapped and replaced, according to the study released Monday by Governing magazine.

Although Texas is one of only a few states without a state personal income tax and has a per capita tax load smaller than many other states, Texans consider themselves “overtaxed” because of high sales and property taxes, the magazine reported.

Despite a $9.9 billion revenue shortfall facing lawmakers, Gov. Rick Perry and legislative leaders insist they can balance a new state budget without raising taxes. They vow to limit spending, reorganize priorities and renew efforts to root out governmental waste.

They already have asked state agencies to cut spending by 7 percent and to freeze hiring and lay off workers, if necessary.

But Governing said its yearlong, national study concluded that there isn’t enough fat in most state budgets to cure revenue shortfalls. And, the magazine warned, most citizens won’t tolerate losing services they think are important.

[…]

One problem with tax overhauls, Governing admitted, is that “virtually every tax reform means shifting burdens.” The study pointed out that the sales tax — Texas’ main source of state revenue — isn’t keeping up with the changing economy because Texas and most states aren’t sufficiently taxing services.

The study concluded that an ideal revenue base would be a “balance” among the four primary sources of state revenue — sales taxes, personal income taxes, property taxes and corporate taxes.

Here’s the whole report. I hope to give it a thorough read in the next few days.

The pope approves of Harry Potter

From the news wires:

The Vatican is giving two thumbs up to the Harry Potter series.

The good vs. evil plot lines of the best-selling books are imbued with Christian morals, the Rev. Don Peter Fleetwood told a Vatican news conference Monday.

“I don’t see any, any problems in the Harry Potter series,” Fleetwood said.

He was responding to questions following the release of a new Vatican document on the New Age phenomenon, which he helped draft as a member of the Pontifical Council for Culture.

Fleetwood was asked whether the magic embraced by Harry Potter and his pals at the Hogwarts School of Witchcraft and Wizardry was problematic for the Roman Catholic Church. Some evangelical groups have condemned the series for glamorizing magic and the occult.

“I don’t think there’s anyone in this room who grew up without fairies, magic and angels in their imaginary world,” said Fleetwood, who is British. “They aren’t bad. They aren’t serving as a banner for an anti-Christian ideology.

“If I have understood well the intentions of Harry Potter’s author, they help children to see the difference between good and evil,” said Fleetwood. “And she is very clear on this.”

He said British author J.K. Rowling was “Christian by conviction, is Christian in her mode of living, even in her way of writing.”

Not that anyone is likely to change their mind by any of this, but here’s a useful overview of the pro- and anti-Harry Potter arguments anyway. If you’ll excuse me, I need to pre-order a copy of the new book.