When Is A Conspiracy Not A Conspiracy?

It is usually counter-productive for me to check out the HuffPo because I fundamentally disagree with just about every sentiment expressed in that liberal fever swamp. Today was par for the course, but Enron was mentioned. I had to chime in.

At HuffPo, a writer is screaming for more regulation and wondering why more bankers are not in prison for the 2008 financial meltdown. The reason is simple: the bankers were making home loans available to anyone regardless of whether they would be paid back – as was dictated under the Community Reinvestment Act. The people who enacted that are in congress and congress will not indict themselves.

So the writer quotes – of all people – Loren Steffy, who has made a career out of hating business and Enron in particular:

Three years ago, I asked Sam Buell, the former federal prosecutor in the government’s effort to indict Enron’s Jeff Skilling, the question of whether we’d see widespread prosecutions from the financial crisis. His prediction: Don’t count on it. As I wrote at the time:

In the current crisis, few people understood the complex debt instruments that had become common on Wall Street and therefore the firms failed to make good risk assessments. But what they were doing — such as packaging dodgy mortgages into investment pools that were supposed to minimize risk — was widely known.

“It’s not a conspiracy if everybody’s in on it,” Buell said. “In order to have a fraud conspiracy you’ve got to have some effort by one group to deceived another group.”

But what about the fact that America as whole seems deceived by what happened? Doesn’t matter, Buell argues. Just because Main Street didn’t understand what was happening doesn’t make it a fraud. Those who are stand-ins for investor interest — regulators, brokers, credit agencies — “seem to have known what was going on,” he said.

Sometimes I am actually embarrassed for Loren Steffy. I have said stupid things too, but usually I try to keep them to a minimum. Steffy, on the other hand, proudly flaunts his stupidity like a badge of honor.
That question: “what about the fact that America as a whole seems deceived by what happened?” is just embarrassingly inane.

If that were the standard, incidentally, we would not have a federal government, particularly a Department of Defense. The ignorance of the general populous does not create the legal grounds for conspiracy – not even for the much-despised Enron.

Buell is right, of course. There was no group of people inside Enron who were trying to deceive anyone else. I’ve always marveled that according to the naysayers, Enron managed to hire people from the mailroom to the C-Suite who were criminals. Oh, and they also did business with criminals: NatWest, Merrill Lynch, Vinson & Elkins, Arthur Andersen, Citigroup and McKinsey. And Ken Rice was actually involved in two conspiracies! One in Corporate and one at EBS. And Scott Yeager was so deceptive that he not only fooled everyone at EBS, he managed to fool Jeff Skilling too! And Jeff Skilling was also involved in a conspiracy!

How exactly is this supposed to work? How was Enron able to not only hire a statistically impossible number of criminals, but also just happen to find all the other criminals in its partner organizations? Only five people went to prison for the Watergate scandal (seven were indicted). And yet, eighteen went to prison for Enron – 36 were indicted. Was Enron really that much larger than Watergate? How was it that all these smaller conspiracies were taking place inside this much larger conspiracy? The EBS conspiracy is just ridiculous. Rex Shelby, Joe Hirko and Scott Yeager didn’t know each other outside of work. Rex and Scott had worked on one project before. But why would they agree to conspire illegally with Joe Hirko, who neither one knew? And why would Joe Hirko, who is known as a gentle, kind man decide to start fucking over Enron?

At Corporate, the conspiracies are just absurd. Jeff Skilling supposedly took reserves and added it to the earnings – while at the same time hiding earnings from wholesale. Why? If Enron was in trouble, there were thousands of things he could do to fix it. Such as start cutting costs. But during that time, Enron was buying new jets. If there was a problem, they could have delayed delivery. Jeff could have written a check for millions and laundered it through Andy Fastow and his SPEs, since that’s what the DOJ says happened at Southampton with Ben Glisan, Kristina Mordaunt, and the NatWest bankers. If he and Andy Fastow were already committing multiple felonies every day, what is one more? Why not just make up the loss with a personal check? Or he could have even done it openly and bought some of Enron’s art*. Yet the man who supposedly thought up all kinds of crazy scams just didn’t bother to anything wacky to fix this supposed earnings gap, other than take reserves which was possibly the sloppiest method known to mankind.

The idea that a bunch of smart guys who were already multimillionaires got together and then started conspiring to commit fraud is just laughable. It makes no sense at all. There was no fraud or conspiracy at Enron Corporation.

*There was a story in, I think, 2007 or 2008 where a company declared in its 10-K that the CEO had bought some art from the company and had paid something like $5 million for it. I wish I could find the details, but it was on footnoted.com, which has become a Morningstar company and I can no longer find it.

Stupidity Run Amok: Ken Rice and Kevin Hannon Slandered In Crazy Book

The other day I was waxing poetic about how awesome it would be for James Spader to play Jeff Skilling in a movie about Enron. I actually got the idea from watching the trailer for Brian Cruver’s “Enron: The Unshredded Truth”, which was just fantastical and crazy. It was like Corporate America on peyote. Just so outrageous. Here’s the trailer:

Cruver’s book and movie didn’t even touch Enron. It was way too crazy to be believed, and even those who wanted to believe it didn’t – it just didn’t line up with the facts.

So tonight I was googling for something unrelated and came across some more crazysauce in the vein of Cruver’s book. I actually owned the book Broadbandits at one time but I never got around to read it, which was probably a good thing. Check out the crazy here:

I’ve spoken to people who know Ken Rice, and I can assure you, they do not think of him as a six year old in a forty-year old’s body. He is as self-possessed as the moon. Secondly, he watched cartoons during meetings? Nobody has ever mentioned this to me before, and let’s face it, if it were true, that would be awesome and thus, I’d have heard about it by now. Third, I’m not sure what’s wrong with wearing jeans and cowboy boots if that’s what the man wants to wear. Is this person appalled that Ken Rice wasn’t in a tux? That he dressed like a farmer? What? What’s the problem here? Fourth, it is true he went to work whenever he felt like it. He had been there for twenty years and had made Enron a ton of money. He was a little burned out, and wanted to play. Can’t blame him for that. Fifth, he did not marry Amanda Martin. Sixth, I hate this subject; it is so not our business. And by the way, I am sure he is the only person in the whole history of corporate America to fall for a coworker. Anyone who mentions this is just being a lascivious fucktard. Seventh, Kevin Hannon by all accounts is a very smart guy. I have no idea if he’s a know-it-all (I don’t think so, I’ve never heard that accusation before) but what bugs me is that every conversation about “know it alls” requires someone to NOT know it all. And that is usually the person making the accusation. Just saying. Eighth, I’m not sure how this moron can make the argument that Ken Rice and Kevin Hannon’s presence at Broadband would ensure it was a colossal mess because when they were in Wholesale, it was on fire. Both their careers had been one success after another. So maybe if you publish a book with real people in it – people with families and children and peers – you might want to be a little more careful about throwing around careless accusations. Ninth, the motorcycles. Lord have mercy. Why people get their panties in a twist about the motorcycles I will never know. First of all, the architect who built out the space suggested a metaphor for speed, thus the motorcycles were bought. Ken Rice did not buy them on his AmEx, the way some people have suggested. The architect did and Enron reimbursed them with a check. They cost $20,000 which was far less than other departments were spending on art. And tenth, that stuff about his cars just reeks of class envy. What business is it of anyone’s if he liked Ferraris? It always amuses me that people who don’t have money always think they would have spent someone else’s money better. No Ferraris! Just nice sensible Buicks. Whatever, dickface. This whole passage is just garbage — class envy, lies, and stuff that is none of your beeswax.

But the truth isn’t even relevant in this book. They’re on the warpath to create a narrative about Enron. Ken Rice is supposed to be a certain way, and if in real life he isn’t that way, well who’s gonna know about it, right?


Omigod, y’all, it gets even more ridiculous. Check this:

His Asian connections? I have no doubt that Ken Rice knows people all over the freaking world, but “his Asian connections”? Where would he have Asian connections? His whole life was spent at Enron in the Wholesale division. There weren’t any great big Asian assets – even Dahbol was in India and he had nothing to do with that. His Asian connections? This was really driving me nuts. Plus “SynerG” doesn’t sound like Ken Rice. I don’t know why but that just doesn’t seem right. He’s the dude who named “Enron Broadband Services”. He’d spell it out at least, and I don’t think he’d use the word “synergy” – a vague word – in the name of a new company.

So I googled.

Of course, Ken Rice is not using his vast “Asian connections”. This kindly looking gentleman from Minnesota who shares the name “Ken Rice” is President/CEO of “International SynerG Communications”.

That’s how awesome this book is. LinkedIn has busted him. Oh my god, I’m having so much fun with this, I might just keep reading and correcting that freaking book of lies all night.

Update 2
The Ken Rice from Minnesota has been president/CEO of the SynerG company since 1994. DO THE MATH. I’m enjoying this way too much.

Enron Executives Were Underpaid

The (Canadian) Globe and Mail launches a screed about executive pay thusly:

Bosses – are they worth it? A series of corporate-world disasters over the past decade – the internet bubble, Enron, banks – suggests that a lot of executives are overrated.

Enron is never mentioned again in the article so we don’t know what proof she has to support her position that Enron’s compensation was proof that executives are overpaid. However, I’ll take a stab at talking about Enron executives’ pay.

First, if you have a problem with executives’ compensation, take it up with Towers Pirren, a consulting firm with whom Enron devised its pay packages. Like everything Enron did, auditors and lawyers were circling like hawks. Enron, in its zeal to be transparent, loved to spend money on outsiders and advisers. McKinsey, Arthur Andersen, and Vinson and Elkins all advised Enron. Of course the company would outsource the pay packages.

In a 1999 proxy statement, Enron’s board said its goal was to set executive pay in the 75th percentile of its peer group. It’s not completely clear whom the board included among its peers. It did not expressly list its peers, but did compare itself to Duke Energy, Dynegy and PG&E to assess overall corporate performance.

Thus it is difficult to know if Enron executives were objectively overpaid. Were I to design a study on the situation, I would define Enron’s peers as those alike in market cap, number of employees, and income, then try and figure out what they were paying. The companies listed above were smaller than Enron; I would not be surprised to learn Enron paid more than them because Enron was not a peer.

In its proxy statements, Enron’s board said its “key performance criteria” for executive compensation included, “funds flow, return on equity, debt reduction, earnings per share improvements and other relevant factors.”

By these benchmarks, Enron’s executives did well. Between 1996 and 2000, revenue increased to $100.8 billion from $13.3 billion. Enron’s earnings per share grew to $1.22 from $1.12. Reported earnings climbed to $979 million from $584 million.

The compensation of the top-earning five Enron executives (Ken Lay, Jeff Skilling, Stanley Horton, Mark Frevert, Ken Rice) was inexorably tied to the health of the company. See for yourself:

Year 1996 1997 1998 1999 2000
Top Five Executive Salaries $3.04 $3.13 $3.62 $3.80 $3.61
Top Five Bonus Payments 4.70 1.85 9.46 11.30 17.55
Top Five Stock Grants 29.71 62.51 54.74 81.40 85.61
Top Five Total Compensation 37.46 67.48 67.82 96.50 107.67

Eighty percent of their compensation was stock. Their livelihoods depended on that stock. The best interest of the company was their own best interest – which is how it should work. Compensating executives with stock is supposed to cement allegiance to the company, keeping them there for a long time (thus the vesting scheme) and doing their best to keep the stock price high.

Between 1996 and 2000, the average chief executive salary and bonus increased by 24% to $1.72 million, according to a Forbes study. Total CEO compensation, including stock options and restricted stock grants, grew 166% to an average of $7.43 million. But look what the top five Enron execs were making.

Their salaries grew only 2.6% from 1996 to 2000. Their bonus payments grew 16.55% from 1996 to 2000. These two figures are well below their peers’ compensation. Their stock grants grew by 85.51% in the same time period – again, below their peers’ 166% figure. At the same time, Enron’s reported earrings grew 97% and revenue increased 99.8%.

That is what you call an argument that Enron’s execs were underpaid.

A Trivial Observation About Enron Execs

* I was reviewing some handwritten notes from various Enron executives this evening and was struck at the absolute lack of doodles, particularly hearts. I don’t think I’ve taken a page of notes in my entire life that wasn’t covered in hearts, squiggles, squares, 3-D squares, flowers, and stars. I think the lack of doodles indicates a mind that is so focused on what is going on that they don’t doodle.

* This got me thinking. I looked up some writings from Ben Glisan, Michael Kopper, Ken Rice, Jeff Skilling and Rex Shelby. In none of the samples did any of them scratch out anything. I think this is because they think in full, clear paragraphs. Or maybe the sample was so small it was irrelevant. Still, I find it interesting.

* Clear thinking equals clear writing.


* I also noticed that all of them have very similar handwriting. It is slashing with no curves (Rex does have some curves on his Ys but no other letters) and invariably written in black ink.


Best handwriting sample I’ve ever seen:

Ken Rice & Ping Pong, Part Two

Last year on this day, I wrote a silly post titled Was Ken Rice Playing Ping Pong?

I found the photo that Big said looked like Ken Rice. So I’ll just repost the whole ridiculous thing here including the photo:

Me: Brokers “working”:

Big: Hey, the guy with his back to the camera looks a bit like Ken Rice!

Me: What??

Sent from my iPhone

Me: (one minute later): They’re playing ping pong, not working!

Sent from my iPhone

Big: Yes, I see that. Check out the guy with his back to the camera. He has Rice’s profile!

Rice had a reputation of not working a lot either, BTW. : )

Don’t look at your damn iPhone while you are driving, nutso!

Me: Be there in 10 mins!!!!

Sent from my iPhone

For the record, that does not look anything like Ken Rice, in my opinion. But I thought the exchange was funny anyway.

The Ken Rice Mystery Deepens

I think this is my favorite picture of Ken Rice. And there are some good ones. But this one is much more awesome. In fact, this might be my favorite picture of ANY Enron executive ANYWHERE.

First, Ken Rice looks so young here. Second, Stormtroopers. Really, Ken? Stormtroopers. My head is just exploding with the wonderfulness of it all.

Chronology of Ken Rice’s Ferrari 2001 – 2005

Ken Rice was the first owner of the 2001 360 Challenge Ferrari.

June 8-10, 2001 – raced at the Canadian Grand Prix with Ken Rice under the Ferrari of Houston banner. Finished 34th.

Sept. 28-30, 2001 – raced at the US Grand Prix with Ken Rice under the Ferrari of Houston banner. Finished 6th.

January 21, 2003 – sold to Page Stevens who never raced or tracked the car.

March 2, 2004 – sold by Page Stevens to current owner (currently in California).

March 23, 2004 – raced at Infineon Raceway with Robert Canepa under the Ferrari of San Francisco banner with Giuseppe DiGennaro doing any needed work on the car. First race 9th, second race 7th.

August 19, 2004 – raced at Laguna Seca with Robert Canepa under the Ferrari of San Francisco banner with Giuseppe DiGennaro doing any needed work on the car. Finished 9th.

June 10-12, 2005 – raced at Canadian Grand Prix with Robert Canepa with Kerry Agapiou as team manager under the LA Auto Gallery banner. Finished 9th.

August 13, 2005- shown at the Diablo Club Auto Show

August 19, 2005 – shown at Concorso Italiano.

October 16, 2005- shown at the Danville d’Elegance 2005.

November 19-27, 2005 – shown at the San Francisco International Auto Show.

My Urban Art Stencil

I have a few of these, including Jeff Skilling and Scott Yeager, but this is the only one I can find right now. It’s Ken Rice. I plan to make stickers and post them all over the city, then blow them up three stories high and plaster it to walls and over stop signs.

Or not. But that would be some really cool urban art, I think. At the very least, it would confuse people.

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!

Today In Enron History

February 14, 2006, Ken Rice, CEO of Enron Broadband Services, testified against Jeff Skilling.

Here is his testimony:
Feb 14
Feb 15
Feb 16 – Part 1
Feb 16 – Part 2

It is curious that the premature ejaculator Sean Berkowitz starts out questioning Rice about EBS. It is true that CEO of Broadband was the last position Rice held at Enron, but this was the SKILLING trial. The federal prosecutors were so gun shy after their failure with the EBS trial that the Skilling attorneys actually got the prosecutors to stipulate that nothing about the actual EBS technology in 1999 and 2000 would be talked about by them at Skilling’s trial. So Berkowitz launches, first thing, into the technology – against the agreement. This was something he did routinely. The reason of why Jeff Skilling resigned on August 14 was also known to the prosecution. They stipulated that they wouldn’t ask about his motivation at trial, and yet as soon as the agreement was reached, the ETF breeched it.

My Enron Movie, Part One

A certain someone and I have been playing a game for almost three years now. Ever so often, we think about who we would cast to play various people in a limitless-budget production of the real Enron story.

Today, I’m coming clean with some of my choices (and his).

Ken Lay should be played by Jeff Bridges.

Jeff Skilling is a little more difficult to cast, but I think I’ve settled on Sean Penn. Sean Penn doesn’t have Jeff’s build, which bothers me because Jeff actually has a lot of physical presence, but Penn is a magnificent actor and I think he’d capture Jeff’s crystal-bright intelligence, and the hidden sadness. It should be noted that I chose an unconventional picture of Jeff Skilling. I could have found one of him smiling and non-threatening, but I like this one because it’s unguarded. He’s angry and sad as he leaves the court house — exactly as any reasonable person would be.

For Andy Fastow, Kevin Spacey. Kevin Spacey is edgy, I can’t get comfortable watching Kevin Spacey, he’s strange and unknowable, and I think he could bring that to a portrayal of Andy Fastow. I have never seen Kevin Spacey clown around in a movie and I think it would be vital to show that silly side of Andy. But I think Kevin Spacey can handle it.

Ben Glisan is the easiest one of all the Enron execs to cast. He shall be played by Ben Affleck. I decree it, thus it shall be so! They have more than just a passing resemblance, and I think Ben Affleck could capture Ben perfectly.

Ken Rice has to be played by Gerard Butler. They have the same physique and their faces have a passing resemblance, but more importantly and I think Gerard Butler can capture Ken’s coolness and complexity. We must work on getting rid of that Scottish accent, however.

These graphic things take forever to make so I’ll have to get to part two tomorrow.

McKinsey’s Valuation of Enron Broadband Services

I am not sure I ever knew this, but apparently McKinsey valued EBS at $30 billion. I’m reading Ken Rice’s 302 notes and found this:

It seems to me that those who were actually elbows-deep in EBS, including analysts, consultants, and the executives themselves, valued EBS much more than the lawyers after the collapse of Enron. Just an observation.

Scott Yeager & Ken Rice Discuss Yeager’s Title

I like this interaction because of what it isn’t. It isn’t Scott whining that he wants to be Sr. this or that (unlike Bill Collins and his desperate pleading for a better title.)

I also like it because Scott was too busy working on stuff to care what his title was. He was a man who knew his worth, and left it for others to discover it for themselves without relying on his title to command respect. Incidentally I also like Rice’s answer here. It’s thoughtful – (ie, the stuff about Europe and Asia).

It all began because Scott needed new business cards:

Ken Rice and Rex Shelby Discuss The Country Music Awards

Guess what Enron did. They broadcast a program over the interwebnets on September 23, 1999. This was a huge accomplishment, made even more remarkable because customers were able to select the quality of service they received. This was an email discussion regarding that event – which the DOJ knows happened but is a subject they would really rather avoid.