Lay, Day Four: Up a Creek Without a Laptop
So there I was in the lobby of the federal courthouse, sitting on the marble floor, with my computer to my left (refusing to turn on) and my colleague Carrie Johnson's computer to my right (refusing to log on to the network). Smashing start to the day, which began a half-hour early, anyway, as Judge Simeon T. Lake III has decided to speed up this trial a bit, which just finished its 13th week.
Why was I in the lobby? Because telephone use is not allowed in the Overflow Press Room (OPR) -- because it's a converted courtroom and phones are not allowed in federal courtrooms. Is it being used as a courtroom now? No. But just try arguing that with the guards at the door. Rather, don't try arguing that. You won't be allowed to bring in your diet Coke anymore, either, because the guards will have had enough of you.
But I digress from my digression.
That's how the day began. It is ending as I'm typing this, around midnight CT Friday, standing up in the lobby of my hotel, using the house computer. A new laptop is on its way from D.C. but won't arrive until the morning. I'm quite aware, thank you, that my day in the field does not compare to the travails of my colleagues who have had to file from Bosnia, Tanzania, Afghanistan and Iraq. After all, no one's shooting at me. So things are good, but the Internet file is not what it should have been today. So, apologies.
Today in court, the prosecution hinted it might wrap up the cross-examination of Kenneth L. Lay on Monday, or perhaps early Tuesday. After that come some character witnesses for Lay; among those expected are Drayton McLean, owner of the Houston Astros and good buddy of Lay. Lay led the referendum to build the Astros new ballpark a few years back, which was for a time named Enron Field. Last time I was here, they were taking the letters off the ballpark. I bought a handful of Enron Field postcards.
After the character witnesses, there are some technical witnesses scheduled to talk about, well, technical issues raised during the trial. Then the goverment gets a rebuttal, which it said today should last two or three days. There will be instructions to the jury (a half-day) and closing arguments (probably one full day for each side).
Then, it's time for the deliberations. As Lake said today, "I think this jury is eager to get the case." I think this jury is eager to finish the case. Thirteen weeks is a long time and they've got two more weeks staring them in the face.
Lay's time on the stand today can be split into the three parts:
a) the docile morning section
b) the suddenly testy apres-lunch section
c) the 2 1/2-hour section that ended the day talking about goodwill writedown for Enron's British water company.
Even judge Lake was making jokes about c) after court ended, as it was a mind-numbing, painfully slow descent into a tar pit. Slowly, slowly you get pulled down. Don't struggle -- it only makes you sink faster. So you resolve yourself to your fate and, just as you go under and the pitch begins flowing into your nose and ears, someone yanks you back out! It's Judge Lake! He's saying the magical words: We're gonna cut it a little short today.
The British water company is a key point for the prosecution, so I'll try to sum it up in a pithy and witty way. First, goodwill writedown is the difference between the value of the hard assets of something you bought and what you actually paid for it.
So let's say you've got a bottle of water in England. You thought this was a good bottle of water when you bought it, but, after a few years, it turns out ... not so much. There's algae in the water. Its value has gone down. It's going to cost a lot more money to make this a good bottle of water than is worth putting into it. And if you try to sell it, you're going to take a (figurative) bath. You are facing a goodwill writedown of nearly $1 on the bottle of water. UNLESS you say you're going to invest money in it to fix it up.
With me so far?
So, come fall 2001, Enron's getting a lot of bad publicity. The third-quarter earnings report, with a writedown for this bottle of water, looms. The company's got a credit review coming up and it's worried that any more bad news will cause a downgrade in its credit rating, which means it won't be able to borrow more money to stay afloat.
Now, from here on, please understand this is the prosecution's version of the story. Lay denied it from the stand today.
You -- Enron and Ken Lay -- know you're going to have to take a writedown on your earnings report for the crap bottle of water. A $1 writedown, say. You've got the bottle of water valued at about $2. But come the earnings report, it's suddenly valued at $3. How? You claim all sorts of growth opportunities for this bottle of water you know to be untrue. It'll get bigger, tastier! You'll sink money into it! You don't take a writedown, your credit is judged and you keep your rating. You are not downgraded. A few days later, when you face the bankers and have to tell the truth about the bottle of water, suddenly it's worth $2 again.
That's the story of Enron's British water company, as told by the prosecution. It's part of their overall strategy to prove that Lay and Jeffrey K. Skilling hid bad news from investors and lied about losses.
So far, prosecutor John Hueston has gone through Lay's sale of his stock, the goodwill non-writedown, the Sherron Watkins "whistleblower" letter, the hiding-losses issue and a number of other points, leaving reporters to wonder what Hueston has in store for Lay on Monday.
Whatever it is, I hope I'm there to hear it and not back on the marble floor of the lobby talking to tech support.
By Frank Ahrens |
April 28, 2006; 6:50 AM ET
| Category:
Dispatches
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Posted by: Judith Anthony | April 28, 2006 09:45 AM
Enron trial is quite interesting. How well it will go with the jury when defendents call all the prosecution witnesses as liars and made up the stories as the primary reason they are here in the court room? Defendents are the same people that spend more time with them than at home can suddenly turn against them.
Posted by: Sharad Wavde | April 28, 2006 09:59 AM
As a Tanzanian, I have to object to your characterization of my country. You have about as much chance of being shot at in Tanzania as you do in Texas, unless you are travelling with Dick Cheney!
Posted by: John Mzungu | April 28, 2006 10:40 AM
Many apologies, Mr. Mzungu: I was thinking about foreign correspondents in perilous situations and one of the first that came to mind was my buddy, Karl Vick, one of our reporters abroad. Karl hit the ground in Africa right after the embassy bombings in Tanzania. I did not intend to draw a broad swath of your country, only to list some spots on the globe were our people have really struggled to file excellent copy amid tough and dangerous situations.
Also: Thanks for reading!
Posted by: Frank Ahrens | April 28, 2006 11:57 AM
I've been following the reportage. Unable to discern smoking gun that points to Skilling/Lay. I do know, from two personal experiences, that a crooked CFO can cause havoc: irrespective of CEO. Question: has any "reporter" pointed out that the CFO job is quasi idependent inasmuch the CFO, though, nominally subordinate to the CEO, is subject to oversight by outside auditors, and, has direct reporting responsibility to corporate board? Has any reporter bothered to compare to, say, the GE reporting/oversight structure? Or, the GAO? Unlike majority of readers & pundits I don't deem myself competent to judge, or, opine, regarding the defendant's culpablity. I do know that in a company of that size it is absurd to expect the CEO to do double duty as CFO.
Posted by: Janette Gleason | April 28, 2006 05:09 PM
As a former CEO of six public companies over a span of forty plus years, none of which were more than a small version of Enron, I always said that if my CFO chose to do so he could completely hide problems from me for at least a full year or more yet I considered myself fairly informed on accounting issues and definitely was a "hands on" CEO. It seems obvious that the general public, the Congress, and the media covering Enron cannot comprehend the fact that a CEO of a diverse, multi-faceted company with lots of subsidiaries and foreign operations by necessity must be totally dependent upon his CFO as well as other officers and in particular his outside attorneys and accountants for their specific guidance when formulating his disclosures or when he responded to press inquiries. From my own experience, government regulatory lawyers can create and flesh out a believable but factually incorrect story from the same info principally because they have never run a business of any such magnitude and would be ill equipped to do so if it were suddenly thrust upon them. Accordingly, they are never impeded when they concoct their own version of what led to certain business decisions and/or disclosures without ever bothering about it being plausible. I feel this is precisely the situation Ken Lay is facing in court. He would have to have had specific knowledge upon his return in August that there had been some intervening violations by the CFO of what had initially been blessed by outside lawyers and accountants as a legitimate use of acquisition vehicles under the accounting rules. Therefore he had no obligation not to totally rely on outside invesitigators to confirm that what had been ok originally under the accounting rules were still ok. This is true despite warnings from an individual employee who might have some hidden agenda of their own which produced the whistle.
Posted by: Harry A Trueblood Jr | April 28, 2006 11:22 PM
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No computer, marble floor-sitting, hotel lobby standing -- Frank Ahrens could explain the theory of relativity with a piece of chalk and a slate! Best explanation of Enron's British water debacle ever written. If professors could professerize the way Ahrens writes, we'd have a country full of educated graduates.