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Introduction Greetings loyal readers! Since 29 members of the Bush Administration are former Enron employees, the stench of corruption spreading throughout Washington D.C. may be enough to topple not only George Bush, but also much of the Republican party. It is amusing to watch George W., the man who was wont to refer to Ken Lay as “Kenny Boy,” suddenly forget that he ever had a friendship with the Enron CEO. This is interesting in light of the fact that Ken Lay was not only the largest single contributor to W’s election campaign, but Enron was one of the biggest corporate contributors to the entire Republican party. How Could This Have Happened? The great Harry Shearer recently quipped that we now know where Dick Cheney was back in October – he was helping Arthur Anderson destroy Enron records. When asked where he thinks Cheney is now, Shearer responded that cardiac intensive care units are good places to hide out. The Vice President’s continued absence from the public eye and the media is an ongoing puzzle. It has been reported in the CIA-sanctioned and approved mainstream media that Bush and Cheney are never going to appear in the same city together, in order to preserve the chain of command in the event something happens to the Resident. (The Government’s contingency plan for dealing with stray pretzels has not been revealed.) The average person wants to know how a multi-billion dollar company such as Enron, the seventh largest corporation in the US and the darling of Wall Street only a few months ago, could have crashed and burned into bankruptcy in such a short period of time. The answer is simple. Enron used its Republican party connections and cash to buy enough federal congress people and regulators at the CFTC (Commodity Futures Trading Commission) to change the rules to deregulate and eliminate oversight of all of Enron’s activities so that no one in the federal government would ever be aware of how much money it was making (or losing) and how it was making this money. Had the former regulations been in force, Enron’s collapse could never have happened. It turns out that Wendy Gramm, the wife of right-wing sociopath and Texas Republican senator Phil Gramm, was a huge Enron stockholder before being appointed to her position as head of the CFTC by W’s father. She duly divested her Enron stock after taking the position (a few hundred thousand dollars worth – chump change to big-time criminals like the Gramms). Then Bill Clinton got elected, meaning Ms. Gramm was going to be out of a job. Just before she left, she rammed through a radical provision basically exempting Enron and its ilk from any and all federal reporting responsibility. She gave them free reign to do whatever they wanted. Shortly after leaving the CFTC, Wendy Gramm joined Enron’s board. Oh yeah, and Enron just happened to be a huge contributor to Wendy’s husband’s senate campaign. (It doesn’t pass the smell test, does it?) It is important to keep in mind that Enron’s position in the electricity business was quite unique. Enron did not operate any power plants. What it did was to speculate on options to buy electricity. It did so in such a way that it was able to manipulate the electricity market in California, to artificially inflate electricity prices for California residents and engineer rolling blackouts. I guess the folks at Enron just “forgot” that it is illegal to control and manipulate a commodity in this manner. The fact that said commodity is vital to the survival of most Americans simply illustrates the magnitude of Enron’s chutzpah. The good news is that the Justice Department has launched a probe into Enron. Or is this really good news? Attorney General John Ashcroft owns a not insubstantial amount of Enron stock, so he has recused himself from the investigation. Of course, he didn’t do it on his own initiative – he had to be shamed into it by Democrats. But the reason I question the beneficence of the news is that Ashcroft has created a task force within the Justice Department. Big freaking deal! Enron’s senior management is guilty of serious criminal misconduct through manipulating markets, misleading investors, hiding billions of dollars in losses by cooking their books, conspiring with a corrupt accounting firm (Arthur Anderson) to hide and destroy evidence, and screwing their employees royally. For those of you who may not have heard, Enron senior management looted $600 million from the company during the last four years by exercising their stock options and selling their stock, while Enron employees were forbidden from selling the Enron stock in their 401(k)s. What this means is that thousands of Enron employees have lost their entire retirement savings, because they were prevented from selling their Enron stock when it was worth enough to yield some income. According to the New York Times “…the Enron insiders became rich indeed. Thanks largely to munificent stock option grants, which they turned into shares, they sold $1.1 billion worth of stock from 1999 to mid-2001.” Instead of creating a task force, the US Attorney General should have empanelled a criminal grand jury capable of rendering indictments. But that would mean the Bush Administration’s buddies would all go to jail, thus depriving Bush and his fellow Republicans of massive sums in campaign contributions from former Enron executives. Because said executives would not only face time in prison, but they would be subjected to millions of dollars in fines. And if they spend all their money on fines and legal, there won’t be enough left over to buy pardons, will there? Enron and Me Interestingly enough, I had a little Enron adventure of my own last spring. I was working at an ISP, which I shall refrain from naming, as they are now in Chapter 11 reorganization and facing a class action securities lawsuit for misleading investors. (Needless to say, when I realized how corrupt and dishonest this company’s management was, I was hardly upset about being laid off in a budget cut after only six months on the job – even though I had to suffer the indignity of the CEO’s quotes in the press saying there had been no layoffs because the people who got fired were deadwood, and anyway they had the same number of employees as when they started the quarter so how could anyone say there were layoffs? This CEO has a serious problem with recognizing and disseminating the truth – then he wonders why virtually everyone who has ever done business with him hates his guts.) One of the junior salespeople showed up in my cube one day with a one-inch thick standard form contract from Enron. She was all excited and told me this contract was going to make “lots of money.” In addition to speculating on electricity, Enron was also involved in trading bandwidth futures. This consists of speculating on bandwidth prices and operating a business-to-business exchange for bandwidth very similar to the one they were operating with electricity prices. This salesperson was sweet, bright, articulate and delightful. However, she was also very young and completely clueless about the nature of the deal she was handing me. The salesperson (let’s call her Jane, which is not her name) was very excited about the Enron deal and bubbled about how we were going to make so much money. I asked her some basic questions about the deal, all of which she was unable to answer. Jane’s management sent Jane down with the deal, because they considered themselves too high and mighty to actually deal with their lawyer directly, so they sent an underling. I told Jane I would review the contract and get back to her. After reading the contract, I called Jane back immediately and explained to her that what she brought me was an option contract. I asked her if she knew what options were and she said no. I explained that an option is the right to buy a certain amount of some commodity at some point in the future at a given price. I then explained that options are the riskiest form of investment, because market prices are subject to great fluctuation. So if you buy an option and by the time the option matures the market price for the commodity is higher than your option price, you make money. However, if the market price for commodity is lower than your option price, you have just lost money. I spent five years on Wall Street working in some of the world’s largest financial services houses and know that some of these companies can make or lose as much as $20 million a day in their foreign exchange businesses alone, because currency trading is a form of options trading. So I explained to Jane that there was much more to this Enron deal than her management had led her to believe, and that there were serious risks involved. I explained that it was obvious why Enron would want to do the deal with us, because they wanted access to our robust global network. However, since Enron invented this particular brand of financial shenanigans, I was very concerned that if we entered into an option agreement with Enron they would eat our lunch. I told Jane I would be happy to read her agreement, but since I am not a commodities lawyer if the company was serious about doing this deal with Enron it would be a good idea to hire a consultant with a great deal of expertise in this area to advise us on what we might be getting into. She just smiled and went back to her office. I walked over to one of the senior finance people, showed him the agreement and asked him to kill the deal. This person (who owed me a lot of favors, since his cube was in the same row of the farm as mine and he was always coming over to me and asking me to drop whatever I was doing to look at his stuff right away), agreed that we would need to hire a consultant in order to do the deal, but that killing it would be a much better idea. Realizing that killing this deal would take some time, and not wanting my client to know I was trying to kill her deal or have her think I was ignoring her work, I read Enron’s standard contract. The first section contained definitions. While most defined terms in a contract are basically meaningless, the wording of a definition can have a significant outcome on the deal, so being a competent lawyer I read the definitions carefully. I came across one definition that did not make sense in English. Since most legal documents are not typed by the folks who write them, sometimes a few words or even a line or two will be omitted during the typing process. Usually I can figure out what the missing words are from the context, but this Enron definition had me completely stumped. I called Jane and told her I needed to speak with the Enron salesperson to get clarification of the definition. Since Jane had been ordered by her management to be protective of their (marketing’s) relationship with Enron, she did not want me to speak directly with the Enron representative. Instead she said she would take my question to her Enron contact. Okay, fine. The next day Jane called to say she had spoken with the Enron salesperson and he had provided her with a paraphrase of the meaning of the definition in question. I explained that I was not having a problem understanding the concept covered by the definition in question, I was having a problem with the language Enron had used to express the concept. After a few harangues back and forth, Jane finally agreed to let me speak directly with the Enron salesperson. Being trained for a programmed response, the Enron salesman politely reiterated the earlier paraphrase that had been delivered through Jane. I then explained to him that I was not having a problem understanding the concept contained in the offending definition, I was having a problem with the language used in the Enron contract to express it. He responded by telling me the document was their standard form contract. I told him I understood that, but this was no excuse for a defined term to be expressed in non-intelligible language. It took three or four more go-arounds for him to understand the question, but he finally read the language himself and realized that it did not make sense in English. I felt that I had finally gotten somewhere. However, my joy and sense of accomplishment turned out to be premature, because the Enron person was unable to tell me what the missing words should be or how the definition should read. He repeated his earlier statement that this was their form contract, and mentioned that no other attorney had ever had a problem with it. This suggests to me that part of the Enron problem is the fact that Enron’s business partners were as foolish as they were, at least in the bandwidth business. Or perhaps they were just blinded by greed, as my clients were in this deal. Copyright 2002 Marcy J. Gordon. All rights reserved. The author wants you to know you are free to copy and distribute this article for noncommercial purposes, provided you reproduce it in its entirety and credit the author. For quotation permission, please contact the author at mgordon@pipeline.com. |