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Robert Sterling
Editor, The Konformist
http://www.konformist.com
Enron-gate
Molly Ivins - Creators Syndicate
12.06.01 - AUSTIN -- Hail and farewell, o Enron! What a flameout. The
Establishment media, sucking its collective thumb with unwonted
solemnity, is treating us to meditations on two themes: "How the
mighty have fallen," and, "Who would have thunk it?" Pardon me while
I snort, in lieu of ruder noises, and offer two themes of my
own: "What took so long?" and, "Anyone with an ounce of common
sense."
If you want to know what this story is about, pretend Bill Clinton is
still president. Pretend Clinton's long-time, all-time biggest
campaign contributor, a guy for whom Clinton has carried water for
over the years, a guy with unparalleled "access," a shaper of policy,
a man with a veto on regulatory appointments affecting his business,
with connections at every level of the administration, a political
fixer beyond the wildest dreams of James Riady -- imagine that this
guy's worldwide empire has tumbled into bankruptcy in just three
months amid cascading reports of lies, monumental accounting errors,
evasions, iffy financial statements, insider deals, a board of
directors rife with conflicts of interest, top executives bailing out
with millions while regular employees see their life savings shrink
to nothing -- imagine all this back in the day of Bill Clinton.
Holy moley, we'd have four congressional investigations, three
special prosecutors, two impeachment inquiries and a partridge in a
pear tree by now. The Republicans would all be drumming their heels
on the floor in full tantrum.
But this is not President Clinton, it is President Bush -- so of
course different standards must apply. The fact that Ken Lay, Enron's
chairman, has been Bush's chief money man and key backer since he
first went into politics is mentioned only in passing. The media
don't want to be impolite. They have been credulously swallowing
Enron's p.r. and overlooking the obvious for years.
The main problem with Enron is that it has never produced much of
anything in the way of either goods or services; it has not added a
single widget to the world widget supply. Enron was in the business
of "financializing," making markets, trading in wholesale
electricity, water, data storage, fiber-optics, just about anything.
One Enron executive told The New York Times the company's achievement
was to create "a regulatory black hole" to suit its "core management
philosophy, which was to be the first mover into a market and to make
money in the initial chaos and lack of transparency."
Enron started as a gas pipeline company that went into trading
natural gas, and even then the company's critics claimed Enron was
making profits by stoking volatility in gas prices. The same charge
showed up again in spades with the newly deregulated electricity
markets. Enron had lobbied for utility deregulation relentlessly,
formidably and very expensively at both the state and national
levels. The company seemed to spend more time influencing government
than doing business. Like Long Term Capital Management, the hedge
fund that went awry, it seemed to have only a parasitic relationship
to actual economic activity. The problem with deregulating utilities
is the reason they were regulated in the first place -- monopoly
power and the threat of market manipulation are a set-up for unholy
price-gouging. How many times do we have to re-learn that lesson?
Just a few spiffy eye-openers on Enron's connections:
Lay and Enron together donated $2 million to George W. Bush. In 2000,
a company memo that was an open strong-arm recommended employees give
campaign checks for Bush to the political action committee: low-level
managers were urged to contribute $500 and senior executives at least
$5,000. Another $1 million was given to mostly Republican
congressional candidates. It gave more money last cycle than any
other energy company.
Lawrence B. Lindsey, Bush's top economic adviser, got $50,000 from
Enron in 2000 for consulting, presumably giving the company the same
excellent economic advice now proving so healthy for the nation's
economy.
Karl Rove, Bush's top political strategist, sold between $100,000 and
$250,000 worth of Enron stock earlier this year, after being
criticized for conflict of interest.
The California Legislature passed a contempt motion against Enron for
failure to respond to a June 11 subpoena. The legislature is
investigating whether power generating companies willfully
manipulated electricity supply in order to drive up prices last year.
Lay was the only energy executive to meet alone with Vice President
Dick Cheney while Cheney was drawing up a new national energy policy
in secret.
Enron influenced public policy time and again while Bush was governor
here, including the infamous "grandfathered plants" deal. In 1997,
Lay asked Bush to contact every member of the Texas delegation to
explain how "export credit agencies of the United States are critical
to U.S. developers like Enron, pursuing international projects in
developing countries." These agencies provide political risk coverage
and financial support to U.S. companies abroad. It's called corporate
welfare.
In Texas, Enron was a major player during the utilities deregulation
debate, for which Bush lobbied actively, and, of course, in "tort
reform," making it harder to sue corporations for the damage they do.
© 2001 Creators Syndicate
*****
Enron Execs Earned $600 Million From Stock In Last Four Years
By Nelson Antosh and Tom Fowler
Copyright 2001
HoustonChronicle.com
12-9-1
Enron Corp. executives and directors earned nearly $600 million from
selling company stock over the past four years, with many individuals
topping $12 million in the past year alone, according to trading
data.
The players Chart: Biggest bankruptcies
The profits from those stock sales are at the heart of a lawsuit
filed earlier this week against 29 Enron current and former
executives and directors.
The plaintiff, New York-based Amalgamated Bank, alleges that the
executives and directors knew the value of Enron's stock was
overinflated and would eventually fall but did not share that
information publicly with other shareholders.
The union-owned Amalgamated Bank manages pension funds that hold
Enron stock.
Bill Lerach, of the law firm Milberg Weiss Bershad Haynes & Lerach,
and the lead attorney, suggested Friday during a hearing on the
lawsuit in Houston federal court that the defendants could flee the
country with their millions of dollars in stock sale profits.
He also called flight risk a "more than academic possibility" and
asked the court to freeze the defendants' assets.
According to trading data provided by Thomson Financial/First Call:
* Lou Pai, the former chairman of Enron Energy Services, netted the
most from his stock sales so far this year, earning $33.6 million by
selling more than 911,000 shares.
* Chairman and Chief Executive Officer Ken Lay ranked second for the
2001 stock sales earnings, with $16.1 million from 491,000 shares
sold.
* Former CEO Jeff Skilling earned $15.5 million by selling 240,000
shares.
* Ken Rice, the former head of Enron Broadband, earned $14.7 million
from selling 656,000 shares.
* Andy Fastow, the former CFO many have blamed for the complicated
financial partnership that led to the current troubles, didn't sell
any shares of stock this year and was the only company insider to buy
Enron stock on the open market in 2001. On Aug. 16, he purchased
10,000 shares at $36.98, a transaction that cost him $369,800.
U.S. District Judge Lee Rosenthal questioned whether her court had
the authority to freeze the funds, however, and gave attorneys from
both sides until Dec. 19 to file their arguments.
Though the lawsuit is trying to raise an issue about the stock sales,
it is normal for executives to regularly sell company stock given as
part of their compensation package, said John Coffee, a securities
law professor at Columbia Law School.
It becomes questionable, however, when executives sell off the
majority of their shares in a short period of time, what Coffee calls
a "bailout."
Attorneys for the defendants say the stock sales are not the smoking
gun the plaintiff's claim. If they were true bailouts, the executives
would have sold all their stock before it became worthless, the
attorneys said.
Lay, for instance, sold only 24 percent of his shares, hanging onto
the rest far after the company's stock fell below a price he could
have profitably sold them for, his attorney said during the hearing.
Typically, executives are limited to selling their shares only during
specific times, usually in a short window between earnings
announcements.
But since last November, a number of Enron executives took advantage
of a new rule that allows one to sell shares on a regular basis all
year, as long as it is on a plan approved by securities regulators.
For instance, Lay used a plan where almost every day he would
exercise rights to purchase a fixed number of shares of stock at a
given price and sell that stock on the open market.
>From Nov. 1 until early February 2001, Lay's daily transactions
included about 4,000 shares per day, while from February to April
that amount dropped to about 3,000.
Between May 1 and Aug. 21, the last day there is record of Lay
selling shares, he exercised and sold 3,500 shares per day.
Rice sold 1,000 shares per day on the market until June of this year.
After that, he sold a large number of shares on July 13, about
385,000 shares, for a little over $9 million. Rice left the company
in late August.
Skilling regularly sold 10,000 shares a week.
Enron stock sales in the past year have not been completely worry-
free, some analysts said.
For Paul Elliott, a senior analyst with Thomson Financial/First Call,
the first red flag came early this year, when Enron insiders
continued to sell their stock at the same, steady rate as the per-
share value started to fall.
"Selling your stock into a powerful climb in price makes sense, but
when they're still selling it when it goes lower and lower, you start
to get nervous," Elliott said. "It makes you wonder if they knew that
after they hit the peak that the stock was already expensive and
wasn't going to go back up."
While the data for 2001 only goes through the end of August, it is
unlikely the net value of insider stock sales this year would top
those for 2000. Executives and others sold 8.5 million shares last
year with a net value of $416.6 million. In 1999, 4.6 million shares
were sold with a net value of $37 million.
Before the late 1990s, it was rare for energy companies to give stock
options -- the right to purchase a stock at a fixed price, usually
below the market price -- to their executives, Elliott said.
But as energy markets started to become deregulated and integrated
companies like Enron, Dynegy and Calpine grew, stock options became a
larger part of the executive compensation package.
"They started acting like tech companies, handing out the stock
options, and the executives started acting like tech executives,
cashing them in once they became vested," Elliott said.
At first, the money made from cashing in the options was staggering.
But with so many companies seeing their stocks climb throughout the
late 1990s, analysts and investors stopped being surprised and paid
less attention. Henry Hu, a law professor at the University of Texas,
notes that while U.S. laws take insider trading very seriously and
impose stiff fines -- including 10 years in jail and fines up to
three times the profits made on such trades -- plaintiff attorneys
have a heavy burden of proof.
"Courts that are asked to grant this kind of injunctive relief tend
to be skeptical unless you can show a really good reason for doing
it," Hu said. "But if they don't freeze the assets, that doesn't mean
the plaintiffs will lose their case, either."
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