Official Enron (Ken Lay) Trial Thread

specious_reasons said:
(Salacious detail alert!)

The initial investments were made by Michael Kopper's gay lover. Kopper wasn't an executive officer, and since he had no legal relationship with the person in question, that satified the "arms length" legal requirement.

Except for the fact that the money he used was laundered from Fastow and Kopper.

One of the internal complaints about Fastow's SPE is that Kopper was both an Enron and LJM employee. At some point in time, Fastow defused this by assigning Kopper (and the LJM team) full-time to LJM. However, he didn't move them out of Enron's office, and Fastow himself sat on both sides of the deal. He was supposed to move the LJM people out of Enron entirely, but that never really seemed to happen....
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ever see Wag the Dog? Remember the part where Dustin Hoffman's character is watching the news wherein they are reporting on the President screwing a "Firefly" Girl? Hoffman's line was classic and appropos:

"Oooooheee, he's F'ed"

Not with malice or glee, just a statement of fact.

I concur.
 
Ed said:
Couple of things. First, I was under the impression that 14% ownership of an entity was the magic number for reporting to the FTC.

Second thing is that if these SPEs were owned by employees (even if Enron put up the cash) they, in effect, were getting a business funded by Enron. That sounds pretty shady even though there could be some hocus pocus with options and grants and the like.

I cannot imagine a jury looking very kindly on this stuff, particularly given the outcome.
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Luke T. said:
Now if an ignoramus like me can figure this crap out, for the most part, how the hell can Ken Lay plead ignorance?
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Dunno about the varying percentages for varying things -- they keep shifting, and are different for different circumstances.

As for Lay's defense, it'll turn on a couple of things. First, he'll have to claim that either he didn't know that Fastow was parceling out the equity pieces to insiders (including himself) except when it was disclosed (which in a couple of instances it was, IIRC) or that he never wondered since the amounts were so small. Second, his defense will depend on the risk that Enron would have to pony up a lot of money if the SPE's failed. It'll turn on the likelihood of having to do so and amounts involved. Let's go back to our Amalgamated Widget receivables SPE. Some of them are non-recourse -- the lenders to the SPE don't have recourse to AW no matter what, barring fraud. Others have a mechanism where AW guarantees the receivables in case the high-quality lenders go bankrupt. That's discloseable. But SPE accounting may still be used if the likelihood of ever having to pay is very slight (i.e., geez, it's GE, here, a AAA-rated kind of guy) or if the amounts are not material to the company. Lay will probably argue that at the then-current stock price, the amounts were small relative to the size of the company (which for each transaction they were at the time) and the liklihood of so many of them going sour was extremely low (oops).
 
manny said:
Dunno about the varying percentages for varying things -- they keep shifting, and are different for different circumstances.

not material to the company. Lay will probably argue that at the then-current stock price, the amounts were small relative to the size of the company (which for each transaction they were at the time) and the liklihood of so many of them going sour was extremely low (oops).
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I understand. Once again let me paraphrase the inimitable Mallory Knox

"He shoulda' known"

You get the big bucks to anticipate and correct problems exactly like this. If he gets the bok thrown at him, it won't be for breaking the law, per se. It will be for dereliction of duty. The jury will adjust the "reasonable doubt" requirement to "absolute, unequivical doubt". But, it won't be the charges that he will be convicted of.
 
manny said:
Dunno about the varying percentages for varying things -- they keep shifting, and are different for different circumstances.

As for Lay's defense, it'll turn on a couple of things. First, he'll have to claim that either he didn't know that Fastow was parceling out the equity pieces to insiders (including himself) except when it was disclosed (which in a couple of instances it was, IIRC) or that he never wondered since the amounts were so small. Second, his defense will depend on the risk that Enron would have to pony up a lot of money if the SPE's failed. It'll turn on the likelihood of having to do so and amounts involved. Let's go back to our Amalgamated Widget receivables SPE. Some of them are non-recourse -- the lenders to the SPE don't have recourse to AW no matter what, barring fraud. Others have a mechanism where AW guarantees the receivables in case the high-quality lenders go bankrupt. That's discloseable. But SPE accounting may still be used if the likelihood of ever having to pay is very slight (i.e., geez, it's GE, here, a AAA-rated kind of guy) or if the amounts are not material to the company. Lay will probably argue that at the then-current stock price, the amounts were small relative to the size of the company (which for each transaction they were at the time) and the liklihood of so many of them going sour was extremely low (oops).
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Except before Lay replaced Skilling:

In March, Enron and Blockbuster announced the cancellation of their video-on-demand deal. By that time, the stock had fallen to the mid-$60’s. Throughout the spring and summer, risky deals Enron had made in under-performing investments of various kinds began to unravel, causing them to suffer a huge cash shortfall. Senior management, who had been voting with their feet since August of 2000, selling their stock into Enron’s bull market, continued to exit, collectively hundreds of millions of dollars richer for the experience. On August 14, just six months after being named CEO, Skilling himself resigned, citing “personal reasons.” The stock price slipped below $40 that week and, except for a brief recovery in early October after the sale of Portland General, continued its slide to below $30 a share.
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Cached internet article
 
Here in Houston, it is very odd. Of course the newspapers have the story on page one every day, but the strange thing is that there are a lot of people in town lining up to defend Lay and (to a lesser extent) Skilling. Some of those are current or ex Enron employees who still hold a genuine fondness for that time gone by when they lived in a magical world at the cutting edge. The cognitive dissonance is positively deafening.
 
Natural Gas, wholesale electricity, and then when they had those markets cornered they tried to conquer "video on demand". Aside from any wrongdoing, thats just retarded. I mean Time-Warner/AOL retarded. Jeez.
 
Well, looks like the judge did it. They selected a jury in one day.

Amazing. And probably the first excuse for an appeal should Lay/Skilling be found guilty. From what I gather, the judge did all the voir dire and didn't allow the lawyers to do any. And some of the prospective jurors were biased against the defendents in their questionaires.

The lawyers defending Mr. Lay and Mr. Skilling have contended for months that finding impartial jurors in Houston would be difficult, if not impossible. But the judge has rejected two requests to move the trial outside of Houston, where Enron was based, and has repeatedly denied pleas by the defense lawyers to allow them to question individual jurors during the final selection process, called voir dire.
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Edward J. Bronson, a jury consultant from California who was hired by the defense to study the potential juror responses, noted that among 280 questionnaires, "greed" appeared 272 times and "crook" appeared 55 times.
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NY Times
 
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Tricky said:
Here in Houston, it is very odd. Of course the newspapers have the story on page one every day, but the strange thing is that there are a lot of people in town lining up to defend Lay and (to a lesser extent) Skilling. Some of those are current or ex Enron employees who still hold a genuine fondness for that time gone by when they lived in a magical world at the cutting edge. The cognitive dissonance is positively deafening.
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I don't see how Lay and Skilling can't turn on each other. If Lay is going to plead ignorance, the only way he can do that is to blame Skilling.

ETA: Cognitive dissonance -
Skilling made no comment but one of his lawyers, Daniel Petrocelli, said he was pleased with the jurors, who will spend about four months listening to testimony.
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The Age
 
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corplinx said:
Natural Gas, wholesale electricity, and then when they had those markets cornered they tried to conquer "video on demand". Aside from any wrongdoing, thats just retarded. I mean Time-Warner/AOL retarded. Jeez.
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Enron was teaming up with Blockbuster. You probably would have found a video rental coupon on your gas bill.
 
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I spent some time last night re-reading parts of The Smartest Guys in the Room. This is probably the book to read if you want to know why Enron failed. What interesting is, of all the SPEs and other financial shenanigans, what really killed Enron was lack of cash flow. You see, even though profits were high, actual income wasn't meeting the company's cash needs.

At the most basic level, Fastow's deals didn't kill the company. He just wasn't a very good CFO - and no one noticed until it was too late.

It's interesting, after reading two books, each one paints a different picture. A Conspiracy of Fools pretty much marks Fastow as the source of all of Enron's trouble, but Smartest Guys sets its sights a little higher.

To constrast, there was a process at Enron called the Performance Review Committee. Its job was to rank employees with a 1 to 5 rating, 1 being best. As you can imagine, at Enron this process became dominated by gamesmanship. Conspiracy shows an instance where Fastow manipulates the PRC and gets 1s for his favored employees and leaves the others to pick up the scraps. However, according to Smartest the PRC was Skilling's idea, something he implemented as he moved up in Enron's ranks. Skilling thought the process worked, but everyone else knew it was broken.

The inconvenient truth that Skilling and Lay created the environment for Fastow to game the system (in more ways than one) is glossed over in Conspiracy, not so in Smartest Guys. I think that's why I'd recommend it over Conspiracy.
 
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specious_reasons said:
I spent some time last night re-reading parts of The Smartest Guys in the Room. This is probably the book to read if you want to know why Enron failed. What interesting is, of all the SPEs and other financial shenanigans, what really killed Enron was lack of cash flow. You see, even though profits were high, actual income wasn't meeting the company's cash needs.

At the most basic level, Fastow's deals didn't kill the company. He just wasn't a very good CFO - and no one noticed until it was too late.

It's interesting, after reading two books, each one paints a different picture. A Conspiracy of Fools pretty much marks Fastow as the source of all of Enron's trouble, but Smartest Guys sets its sights a little higher.

To constrast, there was a process at Enron called the Performance Review Committee. Its job was to rank employees with a 1 to 5 rating, 1 being best. As you can imagine, at Enron, this process became dominated by gamesmanship. Conspiracy shows an instance where Fastow manipulates the PRC and gets 1s for his favored employees and leaves the others to pick up the scraps. However, according to Smartest the PRC was Skilling's idea, something he implemented as he moved up in Enron's ranks. Skilling thought the process worked, but everyone else knew it was broken.

The inconvenient truth that Skilling and Lay created the environment for Fastow to game the system (in more ways than one) is glossed over in Conspiracy, not so in Smartest Guys. I think that's why I'd recommend it over the Conspiracy.
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If you don't want to read a whole book, the cached internet article I linked above also discusses some of this, including the 1 to 5 ranking system. :)

Here is is again: Cached internet article
 
January 1, 2002:


Enron CEO Kenneth Lay exemplified the company's philanthropy, endowing several professorships at the University of Houston and Rice University, while the company itself was known for its generous gifts to arts groups, scholarship funds, and the Texas Medical Center.

"Their philanthropy will certainly be missed," said Toby Mattox, executive director of Houston's Society for the Performing Arts, which received $25,000 a year from Enron and used the company's offices for a time after its own were damaged by floods last year.

New York City nonprofits institutions were among those that benefited from the wealth the company helped generate. For example, longtime New York philanthropists Robert and Renee Belfer, who at one time owned Enron stock valued at some $2 billion, gave generously to a variety of New York City cultural and educational institutions, including an estimated $6 million to the Metropolitan Museum of Art for the Robert and Renée Belfer Court for early Greek art as well as sizable amounts to Memorial Sloan-Kettering Cancer Center and Yeshiva University. But Belfer, an Enron director, refused to sell his holdings in the company as the stock began to slide in October, and many now fear that the subsequent hit to his portfolio will force the Belfers' to curtail their philanthropic activities.
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Enron's Philanthropy Will Be Missed, Even in New York
 
Luke T. said:
Amazing. And probably the first excuse for an appeal should Lay/Skilling be found guilty. From what I gather, the judge did all the voir dire and didn't allow the lawyers to do any. And some of the prospective jurors were biased against the defendents in their questionaires.
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If biased, the only appeal point would be the failure to be excused on a showing of actual bias, rather than inferences from answers on their jury questionnaires. While it is (theoretically) possible to win an appeal on the basis of an iudadequate voir dire, it is regularly done by the courts at the federal level and will not be sufficient, without more, to affect their chances.

Oh, and for Ed: "should have known" is usually not enough to convict. In this case, though, the prosecutors will be arguing that it is actually "no way they could have *not* known and still been able chew their own food."
 
NoZed Avenger said:
If biased, the only appeal point would be the failure to be excused on a showing of actual bias, rather than inferences from answers on their jury questionnaires. While it is (theoretically) possible to win an appeal on the basis of an iudadequate voir dire, it is regularly done by the courts at the federal level and will not be sufficient, without more, to affect their chances.
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Yeah. Headscratcher talked above about jurors having an opinion on guilt, but being able to set it aside and be objective.

The judge could have betrayed a bias of his own in the way he phrased questions to the prospective members, though.

And I'd say "snake in the grass" and "the devil" are pretty strong indications of bias that would be hard to set aside. :)

"no way they could have *not* known and still been able chew their own food."
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:D That's a good one.
 
From: cnn.com yesterday
"This is not a case of hear-no-evil, see-no-evil," Petrocelli [Skilling's lawyer] said, at times animatedly jabbing his finger at the jury. "This is a case of there was no evil."
Directly countering four years of negative publicity that turned the very name Enron into a symbol of accounting chicanery, Petrocelli said, "There's no evidence any books were cooked at Enron."
[...]
When Skilling resigned as Enron CEO in August 2001, turning the reins over to Lay, "He left a sound, vibrant and wonderful company," the defense lawyer said.
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So, Lay and Skilling aren't just pretending they didn't know about wrongdoing, they're going for an insanity plea.

Honestly, if they insist on this being the defense, they're going to get a guilty verdict. Only a few of Enron's numerous businesses were profitable at the time of its collapse, and their most profitable business was energy trading, which was inherently risky.

On a side note, Enron (Skilling in particular) tried to pretend that trading wasn't the core of its business, because that would lower the valuation of Enron's stock.
 
corplinx said:
Ken Lay will never be indicted or tried. He's one of the corporate bigwigs who have bought off the GOP. The government is beholden to the corporate sector who owns everything and the media.

Wait, you mean all the crap isn't true?
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There comes a time when some liabilities need to be dumped.
 
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