16 February 2008

Revisiting the Enron Docket

Everyone who cares, knows: Ken Lay, the long-time chairman and some time chief executive of defunct energy trading concern Enron, was found guilty of securities fraud and related matters in May 2006, but died before he could be sentenced.

Jeffrey Skilling, the long-time chief operating officer and some time chief executive of the same company, was also convicted. He was sentenced that autumn, and is now serving time in a federal facility in Minnesota.

Criminal litigation continues in regard to less well known figures in the Enron matter. In the matter of Kevin Howard, for example, the prosecutors have recently received a setback at the hands of the fifth circuit court of appeals.

Here, too, it is possible that everyone who cares (a much smaller circle) already knows. Still, I'll bend your cyber-ear about it, because it is possible that prosecutors over-reached.

Kevin Howard was the CFO of an Enron subsidiary, Enron Broadband Services (EBS).

EBS' mission, in partnership with Blockbuster (which had by the late 1990s figured out that the brick-and-mortar model of movie rentals itself would become obsolete in due course) had a plan to stream movies into the desktop computers of Blockbuster customers.

Enron, though, wasn't all that interested in actual execution on such a plan. Their modus vivendi by that time had become: draw up an ambitious plan, book it as if the dream had come true and all the revenue was on the books, let somebody else (like the folks at Blockbuster) sweat the details and move on to something else. Clearly, not a great attitude, but the flaws in such a business model don't by themselves make the case that Mr. Howard should be in prison.

The gist of the criminal case is the government's contention that EBS, inclusive of Mr. Howard, lied to Enron's outside accountant in order to try to book these unrealized profits.

I'm trying not to get bogged down in details here, so simply take my word for it that the "honest services" theory was one of five counts of the indictment against Howard, and the only one to survive previous rounds of appeal-court inquiry. The notion is that if you've been hired to do a job, you've been hired to give your empoyer (Enron's investors in this case) the benefit of your honest services. That "honest service," is , then, one of the forms of value of which you can be found to have fraudulently deprived them.

The problem is that the "honest services" charge would have to stand on its own. The jury was instructed on conspiracyt theories (related to other counts) and the usual instruction is that if Howard was part of a conspiracy then he is responsible for what everybody else who was part of it did. So if any of them deprived Enron of THEIR honest services, and he conspired with them, the jury might well have found h im guilty of the fifth count onthat basis.

Yet with the other counts vacated, the honest services count now has to be understood to require that Howard stole the value of HIS OWN honest services. There's no reason to believe the jury found that. Given the way the prosecution phrased its summation, it didn't clearly ask them to find that.

Here is a link to the write-up on the White Collar Crime blog. From there, you can follow another prominent link to get to the opinion itself.

So Howard will either walk free, or the government will re-try him on count five.

I'm hoping he walks free, so he can direct a movie about the whole ordeal. Assuming he's related in some way to Ron Howard.

Maybe not.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.