Tuesday, January 31, 2006

Opening the Enron Trial: Never Mind The Quacking, There Is No Duck

by Tom Bozzo

Over at Conglomerate, where much Enron trial blogging is sure to be forthcoming, Christine Hurt suggested the following opening for the defense to try to define the terms of the trial:
"Ladies and Gentlemen, this is a story about numbers and a story about trust. My client, Ken Lay, has spent his life thinking about numbers. He believed in numbers. And he trusted the men that showed him the numbers."
I couldn't help but note in the comments over there that such an approach might work better for a client who wasn't an economics PhD (and thus might be expected to do more than trust the numbers guys). Evidently, it was too defensive for the defense team, who reportedly took the classic "deny everything" approach instead (Real media video at the 2nd link). Kenny Boy's lawyer called the company "one of the finest free-market institutions the world has ever seen." Evidently, they've taken the same temperature of Houston as Prof. Hurt, though a possible implication is that the defense hopes Houstonians will let themselves be swindled by The Man #1 to stick it to The Man #2.

The catch with that approach is that it's not hard to disprove the claim that Enron was a New Economy miracle laid low by bad publicity and overzealous prosecutors. Indeed, in the space of a long paragraph one of "Oscar Madison"'s commenters clearly explains how the deals padded Enron's current profits and/or pumped debt off its balance sheet without materially reducing Enron's responsibility for the debt. Needless to say, that's led Lay and Skilling to pin the entirety of the purportedly nonexistent blame Andrew Fastow early, too, which is tantamount to playing the "how could you expect us to be worth the hundreds of millions of dollars we were paid" defense. Recall, that worked really well for L. Dennis Kozlowski.

Good luck to the Feds.

(Note: Edited a bit on 2/1/06. Another Enron-related post is here.)
I'm not a lawyer, but I got taken to the cleaners by the west coast energy crisis.

Anyway, the most interesting legalisms in this (to me, at least) is in Snohomish County P.U.D.'s filing before the bankruptcy court. The PUD signed a contract with Enron for, like $12 million in electricity, and refused to pay a cent. The bankruptcy judge is, like, we're going to collect every bit of the the accounts recievable and determine what's left for the creditors. The PUD says the contract was criminal, and therefore unenforcable.

Judge says, interesting arguement, show me some proof. PUD transcribes first 10, then 20 hours of energy trader logs, and alleges 1700 separate violations.

The end result is that Snohomish PUD has to pay nothing, and, flying in the wake of this, the ratepayers of WA, OR, CA, and maybe some other states are classified as unsecured creditors of Enron (a moral victory of sorts, since the unsecured creditors will see nothing).
Thanks, Anonymous. There's some interesting stuff at the PUD's site that's inspired a follow-up post for this evening.
Nice comment about the opening. It will be a hard sell to turn Ken Lay into Bernie Ebbers.
Thanks, Oscar. I'm totally stealing the Ebbers line.
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