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Today In Enron History

On April 18, 2005, the first Enron Broadband Services (EBS) trial began. I have written about this trial many times before, for example, here. I think what I need to do today is put it in historical perspective.

John Kroger was the federal prosecutor who wrote the original EBS indictment, as well as five of the incredible eight superseding versions of the indictment. Yes, you read that correctly — the government had such trouble coming up with a description of a “crime” at EBS that they wrote an unbelievable nine version of the indictment! According to Kroger’s own words, he rushed to write the EBS indictments because his huge ego made him want to beat the other prosecutors in getting an indictment “on the boards”. Thus, Kroger is the main villain in the EBS prosecution tale — he is the guy who wasted taxpayer money and tormented the families of innocent men, all to serve his own ego which had been bruised when his girlfriend left him for another attorney.

At the time of the EBS trial, Houston, and the entire country, were at the height of the anti-Enron hysteria. The government, even though they had no factual case, was confident that the EBS trial would be a “slam dunk” for the prosecution because of the solid jury bias against Enron. The government was certain that the convictions they believed they would get at this trial would be a perfect segue to the future trial of Ken Lay and Jeff Skilling. The government had reason to be cocky — polls showed that about 90% of the jury pool believed that any Enron executive who was indicted was automatically guilty and should be convicted immediately. In addition, Ken Rice and Kevin Hannon, EBS’s CEO and COO, had given up their defense and entered into plea deals with the government because they believed that the anti-Enron bias was too great to overcome at trial. So the EBS defendants who were bold enough to actually defend themselves, Joe Hirko, Scott Yeager, Rex Shelby, Kevin Howard, and Michael Krautz, faced incredibly long odds at trial.

However, the shallowness of the government’s case became apparent with their first witness. Shawna Meyer, a journalist major, was the lead prosecution witness — the government tried to use her to explain technology to the jury — she attempted to define terms such as “router”, “server”, “network”, etc. As I read the transcript of her comments, they are just laughable. And all the rest of the government’s witnesses had similar issues — they are like a rogues gallery of the EBS rejects: John Bloomer, a guy who tried to steal EBS technology and was fired; Bill Collins, an unbalanced liar who accomplished nothing at EBS but wanted a raise anyway and who was fired; David Reece, a guy who commented on technology but then admitted he had no actual technology role at EBS and was fired.

And then the defense witnesses spoke out: Larry Ciscon, the Rice University PhD software engineer who created the EBS technology in question and had authored a patent on it; Mark Palmer, the head of application development at EBS who was intimately familiar with the technology; Ellis Giles, the software engineer who actually wrote the software code which the government claimed did not exist; David Leatherwood, the engineer who headed the construction of the physical EBS network and facilities; etc. Even the most biased of jurors surely could see the obvious distinction between the credibility of the prosecution and defense witnesses.

But the coup d’etat for the defense was the defendants themselves — they turned out to be compelling witnesses in their own defense. Rex Shelby went first, a brilliant move by the defense team because it set a good tone for the entire trial. People tell me that Rex was eager to take the stand and that he was relaxed, natural, and totally un-intimidated by lead prosecutor, Ben Campbell, who cross-examined him on the stand. I am told Rex’s performance emboldened the other defendants and set the pattern for their testimony.

The trial lasted until mid-July when the jury returned from their deliberations with zero convictions, a number of acquittals, and many hung counts. I hear through the grapevine that the jury was very close to complete acquittals of the three technology defendants, Hirko, Yeager, and Shelby. So the trial was an unmitigated disaster for the government. So spooked was the government by the EBS experience that the it stipulated before the Lay/Skilling trial that it would not even get into the subject matter of the EBS case at the Lay/Skilling trial!

There are so many stunning moments in the EBS trial that I suspect that we will be hearing a lot about it, and the EBS case in general, over the next couple years. The EBS tale would make a great film. With a movie version of “Atlas Shrugged” about to be released, maybe it is time for a film about real businessmen being hounded by the an incompetent and arrogant government!

Incidentally, today is also the anniversary of the daring bomber raid by Doolittle’s pilots on Tokyo in 1942 during WWII. It is like the anniversary of the Enron Broadband trial in this way:

The Japanese Imperial Army thought they had the war sown up and that Tokyo was untouchable by American aircraft. The Enron Task Force thought convictions against the Enron Broadband defendants would be a “slam dunk”.

Both the Japanese Imperial Army in 1942 and the Enron Task Force in 2005 were wrong.

Cara Ellison

2 Comments

  1. Love the Doolittle Analogy as the Doolittle team trained in Pendleton, Oregon for their raid on Tokyo. My run in with Kroger was also in Pendleton Oregon, and he was unprepared for for the fight, just like the Japanese….
    Kroger tries his cases in the media first, before he even has the facts. Sometimes that doesn’t work out when the facts aren’t there, but in the end the sheeple read it in the media so it must be true…..

  2. Mr. Lucas you are a hero if you fought Kroger. He should not be allowed to abuse power for his own interest and to feed his ego but he keeps getting the right to because the public does not believe that a public prosecutor could be so self serving and so willing to break the law that they would do anything to win including put innocent people in prison.

    Cara, this was an excellent summary of the EBS case. I hope more people read this and see how wrong Kroger and the DOJ were in their indictment.

    One more example of major abuse was that Kroger and Campbell allowed the evidence of the actual network and software to be sold off. This is a clear form of obstruction of justice. Nothing happened to them. See the Shelby Spoliation filing for details.

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