the CAMP ENRON Report

... gateway to the next Progressive Era?

Some say it's nothing but a train wreck ... roll in the big cranes, clear the track, see what the crew's been smoking. If I thought so, I'd not be writing this ... and if they thought so, they'd not be drumming so hard.

For a brief orientation, see this
Welcome to Camp Enron

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Camp Enron Archives
01/01/2002 - 02/01/2002 02/01/2002 - 03/01/2002 03/01/2002 - 04/01/2002 04/01/2002 - 05/01/2002 05/01/2002 - 06/01/2002 06/01/2002 - 07/01/2002 07/01/2002 - 08/01/2002 08/01/2002 - 09/01/2002 06/01/2003 - 07/01/2003

(2) All "major" articles of older material have now been imported, some with updates worth perusing. We'll keep it all on the main page for a while, will add a few loose pieces of history, will trim the main page and index the archives for convenience later.


free agent, loose cannon, pointy stick ... taking an imposing analytic toolkit out of the box, over the wall and into the street ... with callous disregard for accepted wisdom and standard English

reading the tea leaves from original angles, we've led with uncannily prescient takes on the federal surplus, the dotcom crash, the "Energy Crisis", the Afghan campaign, the federal deficit.

More where those came from ... stay tuned.

For brief orientation, see this
Welcome to CP

... gateway to the next Progressive Era?

For a brief orientation, see this
Welcome to Camp Enron

Many thanks to Tony Adragna and Will Vehrs, still shouting 'cross the Potomac at QuasiPundit. Early Camp Enron material can be found in QP's Dispatches department.
Sunday, April 28, 2002

--- Camp Enron Court Report ---

This week, like every other week, the chorus of Endarkened Self-Interest declares "the Enron Story is Dead". Maybe they're right, after all. Not much happened this week except ...

Opposing advocates faced off in a pre-trial hearing, where Houston US District Judge Melinda Harmon heard Andersen's request to postpone the criminal trial for obstruction of justice. "Denied." (Chron)

Trial opens May 6 ... same day as the Baptist Foundation fraud case in Arizona. Andersen initially mounted a high-profile national PR campaign proclaiming their innocence, and crowed about sticking it to DOJ by asserting their speedy trial rights. Now they want more time. "Denied."

Given an extra six weeks, they might conceivably settle civil claims, which would relieve obstacles to a deferred prosecution bargain with DOJ ... they might keep more clients on board ... they might sustain noncompete provisions long enough to sell off chunks of the firm ... they might even see a turnaround in current sentiment on the jury pool (1/3 say "string 'em up" now). In a few extra weeks ... "I may die, or the King may die, or the horse may die ... or the horse may talk". By my read, the Court is not amused.

Hopes fade but efforts continue to revive settlement talks over Andersen's share of liability in a brace of Enron-related civil actions. At stake is not how much Andersen should pay (all they can), but who should get what (creditors vs shareholders) and what precedent this might set re proportional responsibility of other secondary/tertiary defendants. (Enron's got no money, Andersen's got no money ... "So, who's got my money?")

WSJ published juicy details from a Grand Jury declaration, inadvertently released. Andersen employees in Portland, Oregon apparently challenged and then disregarded orders to destroy documents. Andersen attorney Nancy Temple may face perjury charges related to her congressional testimony. (At the time, informed observers mocked Temple's performance as the work of a bad lawyer acting on bad advice from bad lawyers.) DOJ is pursuing wider criminal securities fraud and perjury raps implicating both Enron and Andersen.

[Certain pundits were surprised Andersen could face criminal indictments above and beyond obstruction of justice. Certain pundits suggested there was nothing to DOJ's case but trumped-up technicalities. Certain pundits have not a clue.]

The current federal case -- obstruction of justice -- is really a freak accident, a head-on collision on the way to Andersen's funeral. It embarrasses Andersen, distracts DOJ, complicates life for the civil plaintiffs, and drains potential recoverable assets. It's a "chef special" appetizer ... not the main course.

Meanwhile in federal bankruptcy court, Judge Gonzalez appointed a panel to review Enron's legal fees -- mounting to the tune of perhaps $20m a month.

Earlier, Gonzalez granted a motion to remove pension funds from Enron control. Labor Department's Eugene Scalia alleges Enron contrived "to deceive the government by entering an agreement that it had no intention of honoring." Enron responds "Um, yeah ... so?".

The Connecticut waste disposal fiasco (public money channeled into bad loans, disguised as steam power swaps) may be headed for the Grand Jury, with locally intense political implications "Two of the officials who lost their jobs in the CRRA controversy were [Governor] Rowland's former co-chiefs of staff" ( Hartford Courant )

California renegotiated roughly $15B of its $43B in forward energy contracts -- shortening some, repricing others -- to obtain concessions worth $3.5B. This is roughly half of the premium above current market rates, suggesting California's claims (that the contracts were signed under the duress of manipulated energy markets) had substantial chance of success in protracted legal proceedings. It'll be interesting to see what happens to the other $28B in contracts outstanding, and what effect this has on similar claims by other western states.

As part of the agreement, California waives its rights to pursue further claims on these particular contracts. FERC is reluctant to grant any such claims. Among other things, this would imply that FERC -- in its eagerness to boost deregulation -- fell down (or rolled over) on the job, let the bandits run amok, and let applicable statutes of limitation expire on billions in otherwise valid claims.

On the flip side of this coin, Sierra Nevada (Nevada Public Power) failed to obtain similar relief and suffered credit rating downgrades, possibly triggering a death spiral. In my neck of the woods, Seattle City Light went thousands in debt -- per customer. Among major regional utilities (all suffered to some extent), City Light placed the clearest nonspeculative bets on a rational market and a responsible FERC ... and lost the most. Now the second-guessers are having a field day.

Day after day, NY A.G. Eliot Spitzer drew intense flak from the Geniuses of Capitalism and Defenders of Free Enterprise (you know who you are) over his move to nail the big boys for security analyst conflict-of-interest (starting with Merrill Lynch). But by the end of the week
a number of other state A.G.'s rallied to enlist in Spitzer's Army.

Chair Harvey Pitt announced the SEC would join Spitzer in a formal inquiry. It's unusual for SEC to comment on ongoing investigations, but events threatened to run away without the commission (which is supposed to lead parades like these). [Merrill was a major client of Pitt's, back in the day ... but who wasn't? WSJ reports SEC enforcement staff were eager to get into the matter, but Pitt had assigned it to another division. ]

Merrill Lynch CEO David Komansky issued an unusual public apology ... but stopped well short of any blanket admission of systemic misconduct. Much like the Vatican, Komansky blamed the bad apples, not the system, and promised more diligent enforcement of existing strictures.
This puts the securities industry in a bind similar to Andersen ... any negotiated admission of wrongdoing hoists an invitation to private individual and class-action litigation, and routine technical investigations may lead to evidence of additional conduct too serious to keep out of criminal cour ... but stonewalling just ticks off the regulators and criminal justice system. Sleepless nights ahead for four high-profile securities analysts who testified "no flies on our shit" in early congressional hearings.

We learn this week that Merrill had enlisted gun-for-hire Rudy Giuliani on their side of the argument. Bad move for Rudy, getting caught on the wrong side and the losing side of his first high-visibility engagement. Spitzer, for his part, lets it be known he is looking for structural reforms, not takedowns (though a $100M slap on the wrist for Merrill might reinforce the object lesson) ... and he is definitely looking at firms other than Merrill (batting next, Salomon Smith Barney, whose Jack Grubman helped pump up the telecom bubble?).

All this sniffing around has turned up the heat on additional sniffing around. NASD has noticed several firms, inviting them to show why they should not be charged in illegal IPO schemes (including soliciting buyers to engage in kickbacks and "laddering" -- bidding up first-day open market prices -- as a condition of participating in the offerings). Front and center on the griddle are FleetBoston's Robertson Stevens unit, and JP Morgan Chase's Hambrecht & Quist. CSFB got off earlier with a $100M penalty and no criminal prosecution ... how many times will the authorites "send a message" before they "go for blood"?

Florida Gov. Jeb Bush decided to initiate settlement negotiations before filing suit against Alliance Capital Management over some $300M in Enron-related claims. Florida pension fund's outside lawyers think they will bring suit eventually.

John Hancock and subsidiaries are suing over $215 in nonpublicly traded securities issued or secured by Enron and affiliates.

Adding to the paper pile, investors filed suit against Enron (and Enron executives, subsidiaries, Andersen, nine banks or security firms, and two law firms) over manipulative accounting for development expenses on overseas projects. Allegedly, out-of-pocket costs in excess of $100M were neither expensed as incurred nor written off when projects were discontinued.

Farther from the tilted-E, things are heating up (federal grand jury and probable board-chartered independent inquiry) at ULLICO, a union-controlled financial enterprise where insiders gained on inside trades as ULLICO stock gyrated in tune with that of Global Crossing.

Dynegy affirms SEC inquiries into "Project Alpha" -- a complex piece of financial engineering using gas trades to manipulate reported earnings, cash low and tax liability -- and agrees to reclassify certain reported results. Moody's has Dynegy on credit review ... another possible death spiral. The Alpha scheme itself may be legal, but it sure ain't right. (As Kinsley observes, "the real scandal is what's legal" ... but the rest of that story belongs under our "accounting scandal" heading, not "day in court".) Look for Citigroup to be drawn into the inquiry for its role in engineering and enabling the scheme.

Williams Cos. continues to suffer the lingering effects of Enronitis in both energy and bandwidth trading. An earlier spin-off (Williams Communications, now in Ch. 11) looks like it may not quite achieve escape velocity, and could bring a rack of liability bombs crashing back onto the mother ship's balance sheet. Various Williams stakeholders -- backed up by mallet-holders, pitchfork-holders, and torch-holders -- are lining up for "constructive dialogue".

That about covers the Law and Justice segment of this week's Camp Enron Report. We'll be back later with a recap of developments on the reform front, and a tracking report on accounting meta-scandals and Enronitis in the financial markets. By all means, tune in next week for an update on the "Enron Story is Dead" story!