Indictment tells the truth behind Enron fiction

The Enron Corp. reorganization plan confirmed Thursday should be distributed to creditors with an attachment, a copy of the grand jury indictment unsealed July 7 charging Kenneth Lay, Richard Skilling and Richard Causey with 53 counts of conspiracy, fraud, insider trading and false statements.

All, of course, are innocent until proven guilty.

That disclaimer out of the way, this threesome and the gang they led — the indictment names only a few of “numerous conspirators” — committed treacheries that victimized tens of millions from India to Inchelium. If 19 cents on the dollar was not so pathetic a return, the 20,000-odd creditors who will get a piece of Enron’s $12 billion carcass might well consider themselves members of a privileged caste.

Lay was Enron’s chairman and chief executive officer for 15 years. Skilling held a number of executive positions culminating in a six-month stint as CEO. His surprise resignation in August 2001 was the tipoff Enron was a company on the brink. Causey was the chief accounting officer.

During Enron’s last three-and-a-half years, the three pocketed a total $348 million in salaries and profits from the sale of company stock. Talk about privilege. Yet that hardly seems like enough given the misdirection and sleight of hand necessary to conceal the magnitude of their financial fakery.

The examples included in the indictment sound like something out of Hollywood; the Nigerian Barges, Cuiaba, Project Grayhawk, Global Galactic. The last encompassed the strange two-part transaction through which Avista acquired the Coyote Springs II generating project from Enron in mid-2000. If the Spokane energy company appears at minimum naïve about Enron’s reasons for structuring that deal they way it did — and some accuse Avista of conspiracy — the indictment indicates that Lay may have been genuinely in the dark on such matters as well. The indictment does not cite any acts he committed before September 2001 as violations of law related to his conduct at the company. Before that, his only alleged wrongdoing was lying to his bank about his use of loans to buy Enron stock.

Skilling, Causey and former chief financial officer Andrew Fastow apparently were the chief architects of the phony partnerships and other deceits used to confound accountants, analysts and regulators who should have smelled something.

Ironically, Enron Energy Services (EES), the company’s energy trading operation, was an albatross despite its success gouging consumers from Mexico to Canada. All the games Enron and other energy companies played to extract more money from electricity-starved California were self-defeating. Enron piled up huge paper profits from energy sales in the Golden State but as the indictment says Skilling and Causey knew, “By late January 2001, California utilities owed hundreds of millions of dollars that EES could not collect, and Enron personnel had concealed large reserves that Enron was forced to use to offset those uncollectible receivables.”

Strange, too, was the fact Enron had to hide those reserves because, if disclosed, observers would have realized the magnitude of the company’s speculative trading. Speculation entails risk, and Enron might have been valued at far less in the stock market if investors had been fully aware of what was going on. As long as executives could keep the price of the company’s stock inflated, they could maintain the deception Enron was a thriving business. When the price began to weaken in the spring of 2001, the party was over.

The reorganization plan closing Enron’s bankruptcy is, like so much of the company’s once fabulous finances, something of a fiction. The assets will be sold off, and the company continue to exist only as a legal entity pursuing claims for as much as $18 billion from the investment banks that abetted Enron’s crooked executives.

A troubling chapter in U.S. financial history will be closed, although the pain for electricity consumers in much of the West goes on.

Counts 12 and 13 in the indictment, which charge Lay with wire fraud, contain a phrase unusual for a legal document. Lay allegedly deceived investors during a Sept. 26, 2001 online forum, and employees during a teleconference Oct. 23. His misrepresentations, the indictment says, had the effect of “depriving Enron and its shareholders of the intangible right of honest services.”

How much of the grief that has beset investors the last few years could have been avoided if corporate leaders had provided honest services? It’s a crime so many did not.