Cara v Wall Street Journal

Over the weekend, I commented on an article at the WSJ about shareholder lawsuits after one person fawned all over the dubious accomplishments of Bill Lerach who net $7 billion for Enron investors. (Lerach, by the way, is still in prison for his kickback scheme.) The response was incredible; the other commentators immediately attacked me for everything from “getting wet” for Jeff Skilling to my writing, to proclaiming that I should talk to Cliff Baxter’s widow about how innocent Enron and Ken Lay are. I pointed out that Mrs. Baxter testified for the defense during the Lay/Skilling trial – but I don’t expect anyone there to actually open their freaking ears and listen.

Incidentally, somebody there commented under the name “Observer”. I am 100% positive that is not the same Observer who comments here. Their opinions could not be more different.

I am commenting on this today because this is the kind of crazy outrage that is still free-floating among the general public some eight years after the collapse of the company. People who know nothing other than what they read in Conspiracy of Fools or Smartest Guys In The Room believe they have a handle on the whole truth of Enron. In the first place there is so much information that even someone like me, who researches this stuff for a living, can never acquire it all. Like Jeff Skilling, it is impossible to know everything that happened in every office, in every cubicle, every single day. Some things are going to get lost. But the truth, in my hands, will not. In the second place, somebody who is a casual observer and guzzles down whatever news they hear from Tom Brokaw is just going to be ignorant; I must face this fact. No amount of proof is going to sway them. All I can do is keep writing and hope those whose minds are not glued shut by the mainstream media will be willing to listen a little deeper.

The truth doesn’t need consensus. But it would be awfully nice if those who believe they own the truth about Enron would actually look into Enron.

The Government's Enron Party

On September 12, 2006, a gala ceremony was held at Constitution Hall in Washington, DC. In attendance were, among many others, the a thirty-six person contingent of the Enron Task Force who were awarded the Attorney General’s Award for Exceptional Service (the highest Justice Department honor) for their work on the Enron cases. (Interestingly, John Kroger is omitted from the list of recipients. Perhaps his self-proclaimed important work of deciding to indict Ken Rice, Kevin Hannon, Rex Shelby, Joe Hirko, Scott Yeager, Kevin Howard and Michael Krautz is somehow under-appreciated by the government. How deliciously ironic.)

Consider this for a moment.

The President of the United States orders the formation of a task force whose raison d’être is to find and punish crime within a single company. This itself was unprecedented, and possibly unconstitutional. But who cares, it’s just a bunch of criminals. So the Task Force, armed with the infinite resources of the government, pursued thirty-six defendants out of a company of thousands. The thirty-six defendants had an average net worth of $7 million. Quite a lot of money, no doubt, but nothing at all compared to the government’s resources. The defendants hired attorneys, and the attorneys had staffs – paralegals, assistants – as well as costs such as travel, copying, and the costs of their own investigations. So no matter what, the cost of defending themselves was going to be steep. In one case, a man who was later acquitted took a job at a dry cleaners to make ends meet; this is an educated man, an accountant. But his defense cost him everything he had.

The financial strain was obvious – but the emotional strain was perhaps not as quickly identifiable. One person committed suicide. One person broke up with his girlfriend to focus entirely on his indictment. Several began drinking. Over time, the strain became even worse, and many defendants finally gave in and accepted plea deals to spare themselves the mental torture.

The government lawyers were permitted to tag out whenever they wanted, but there was no such thing for the defendants. The government could spend fortunes that even the wealthiest defendants could not even begin to compete with. The government could also threaten witnesses – and did. One unindicted co-conspirator was called every day by Andrew Weissman and told, “Tomorrow you’re going to be indicted. I wouldn’t advise speaking to Skilling’s and Lay’s attorneys.” One witness was called and told plainly that if they did not cooperate with the government, they would be indicted. One witness was interviewed so often that she finally threatened to plead the Fifth if they didn’t give her a break.

The defendants had no control over the witnesses this way. All they could do was ask to speak to the witness and if the witness said no, case closed [later legal arguments about witnesses "belonging" to either the government or defense not withstanding, they did seem in practice to belong to the government.] Defendants could not (and wouldn’t have anyway) threaten indictment. As private citizens they had no ability to coerce anyone into anything.

The government, on a mission to justify their existence, ran roughshod through Houston and Portland, indictments in hand, threats at the ready, immunizing their own witnesses but refusing to immunize defense witnesses, and largely were successful in getting what they wanted: recognition for “cracking down on white-collar crime.”

Forget the fact that any crime was demonstrably localized to a tiny group of people in LJM – a company that was not part of Enron; Enron was the victim of LJM’s shenanigans. There was no fraud at all anywhere in Broadband. The Nigerian Barge case is a shameful chapter of American jurisprudence, as is the Natwest Three case. Yet the government successfully brought indictments, plea deals, and prison time for those unlucky enough to be swept up in their pursuit for fame and a cushy high-paying job in the private sector.

The final scorecard does not reflect huge legal successes for the government. They received two jury convictions: Ken Lay and Jeff Skilling. Dr. Lay passed away and never served a second of prison time, so basically they got Jeff Skilling. Convictions against Kevin Howard and William Fuhs were tossed out. They did manage to finagle many plea deals, but even some of the plea deals were thrown out – Christopher Calger, for instance, pleaded guilty to something that wasn’t even a crime and David Duncan successfully withdrew his plea and the charges were dropped.

The government’s cases have been plagued by overturning, dropped charges, lots of probation and not very much prison time (the average prison sentence for an Enron defendant – excluding Jeff Skilling – is 2.5 years; if these were really bad guys, why are they going away for decades?) And yet on that September in 2006, the government awarded itself a prize for its outstanding achievement. Strange, since the Broadband case and the Nigerian Barge cases were still in full swing – it seems a little immodest to throw yourself a party before your mission is complete, but this is the government and they are not bound by normal rules of etiquette or law.

I wonder how much it cost us taxpayers to prosecute these men. Men like Jeff Skilling who gave away untold fortunes in acts of kindness the likes of which most of us can not imagine. Men like Joe Hirko, who was as normal and kind as your own father. Men like Scott Yeager, whose integrity has never been questioned. Men like Kevin Howard, who was known as an unassuming straight-shooter. Men like Gary Mulgrew and Giles Darby and David Bermingham, British citizens who loved America for its opportunity, until they ended up in prison for a deal that was by British law and United States law completely aboveboard. How much did it cost us? And how much did the ceremony in DC cost us, the one that venerated the prosecutors who pursued these men to the ends of the earth? How much did we spend on champagne for Kathy Ruemmler and Sean Berkowitz while Jeff Skilling struggles to pay his attorneys fees? How much did we spend for Ben Campbell and repugnant human beings like Cliff Stricklin to pursue the Broadband Three? Those “infinite resources” come from our pockets. We pay for our justice system – even when it is grotesquely wrong. But I think what bothers me so much is that after all these hundreds of millions of dollars spent on trying to put these men away, it wasn’t enough. They had to give themselves a party too, a party to celebrate and assure themselves they had done the right thing. A party that “honored their service”.

These people are terrifying. They stalk, pursue, lie, freeze, threaten, and manipulate witnesses that would give them their little victories. These are not honorable people. I certainly hope they are not representative of all DOJ employees. But something tells me that anytime the government is giving itself a party to celebrate the prosecution of any citizen – guilty or not – we have bigger problems than we realize. There is nothing to celebrate when a man is prosecuted. Even if he is guilty, even if it was the right thing to do. There is no need at all for the government to gloat and show its muscle that way. It’s just disgraceful. And when that man in prison is innocent, it is particularly disgraceful.

EBS Clips

These are clips of Enron’s 2000 Analyst Conference. Some Jeff Skilling, lots of Ken Rice and Joe Hirko. The guy at the far right (camera right) is Scott McNealy, CEO of Sun. There are some distant shots around 3:40. In the front row, on the left (camera left) is a tall guy – that’s Scott Yeager. Scott Yeager answered one question at the end of the presentation and otherwise had no role at all in the conference.

Also notice at 4:37, Jeff Skilling says again that they are continuing to add on to the functionality of the BOS. He makes it clear that the BOS is not completed.

Shawna Meyer Video

In December 1999, liar liar Shawna Meyer made a video tape to be shown at the January 20, 2000 analyst conference. This is part one of that video. Part two, the transcripts, and some analysis including contradictions to her trial testimony are in queue.

Ramfjord Gets The Truth About Press Releases

I thought it relevant to revisit some of the Broadband trial testimony about the Warpspeed press release and I found some great testimony during Ramfjord’s redirect of Claudia Johnson, the PR professional, about the press releases.

Q. Now, Mr. Campbell showed you a lot of e-mails and documents this morning. Do you recall any of those documents saying that the language in any press releases that were issued was false or misleading in any way?

A. No.

Later, directly about the Warpspeed press release:

Q. And yesterday did you testify that Mr. Griebling also approved the final version of this press release?

A. Yes, he did.

Q. And that final version included the section on “about Enron Broadband Services,” correct?

A. Yes, it did.

Q. And just so we’re clear, the other press releases that Mr. Campbell showed you — the PR124 on the VoD network solutions, the PR116 on Atomfilms and PR118 on WarpSpeed — all included the business model language. Is that right?

A. That’s right.

Q. And what did you intend to convey with that business model language in those press releases?

A. What I’ve been saying, that it was a business model. It was a plan, a strategy.

Now I’m switching witnesses here. This is Kris Caldwell, another PR specialist at Enron Broadband Services. This is Caldwell on direct by Ramfjord.

Q. Now, we heard a lot of testimony about press releases before you got here. And I’m not going to go through all the press releases, but I do want to ask you about one. Were you involved in preparing and obtaining approvals for a press release involving WarpSpeed Communications in May of 2000?

A. Yes, I was.

Q. What generally did you do in connection with that press release?

A. With that press release, I probably assisted in gathering some of the background about WarpSpeed and perhaps contributed to certain, you know, written portions of that press release. In addition, I assisted with the approval process and the review process of that press release.

Q. And I’d like to talk a little bit about the approval and review process of that press release. And to do that, I’m going to show you what has been marked as JH2388. [View exhibit: JH2398]

A. Okay.

Q. And if you’d confirm that I got that number right — 98, I believe.

A. It is 98.

Q. Ninety-eight. Okay. What is that document?

A. Basically this is an e-mail that was asking a variety of individuals to review that press release for its accuracy.

Q. Did you — were you one of the recipients of that e-mail?

A. I was.

MR. RAMFJORD: I would like to move to introduce this e-mail again for the process, not for the truth of the matter asserted.

MR. STRICKLIN: Well, your Honor, I think it’s hearsay; but in the interest of time, I don’t object to JH2398 being admitted in evidence as long as it’s not for the truth. [Comment: WTF? In the interest of time? This testimony was offered on June 3, 2003. The trial had commenced in April. What is this sudden concern with time? If it's hearsay, it's hearsay and shouldn't be permitted. This statement baffles me - but I'm glad that the defense got the exhibit in.]

THE COURT: All right.

MR. RAMFJORD: You can show that document now.

THE COURT: Hold it. Defendant’s Exhibit JH2398 is admitted.

BY MR. RAMFJORD:

Q. And, again, if you could describe this. Who is this document from — or this e-mail from?

A. The document is from Shelly Mansfield, who at that time was my supervisor and who I reported to directly within the public relations department.

Q. And it’s copied to a large number of people, including Mr. Hirko. Is that right?

A. Yes, it is right.

Q. And is it also copied to Mr. Griebling?

A. Yes, it is.

Q. Who was Mr. Griebling?

A. John Griebling was a vice-president, specifically in the area of engineering and was the technical kind of — the technical person who really was closest to this particular acquisition.

Q. What’s your understanding as to why he was copied on this press release?

A. He was copied as part of the overall kind of 360-degree review process.

Q. And is there an attachment to this e-mail?

A. There is.

Q. What is that attachment?

A. It is a draft of the written press release, WarpSpeed.

Q. And if we could just turn to that to show the draft.

MR. RAMFJORD: Whoops. That’s the final. Here we go. What’s the title of this?

A. The title is “Enron Acquires WarpSpeed Communications.”

Q. And it’s got a “Draft” mark up in the upper left-hand corner?

A. Yes, it does.

MR. RAMFJORD: Now, I’d like to look at the second paragraph of this press release and blow that up.
The language here states, “This acquisition accelerates the development of Enron’s Broadband Operating System, BOS, the software intelligence and controls that currently reside on Enron’s fiberoptic network. The BOS provides the basis for ubiquitous delivery of high QoS broadband content and bandwidth trading. Enron will incorporate Enron — or WarpSpeed’s MetaRouter software into the BOS to quickly and efficiently provision circuits. This will allow for real-time bandwidth trading in scalable increments and for dynamically adjusting the underlying bandwidth capacity to support broadband content delivery.” Do you see that language?

A. I do.

Q. Does that language say the BOS was done?

A. No.

Q. Why not?

A. It says that the acquisition accelerates the development of the Enron Broadband Operating System, which would suggest that it’s in development as kind of a work in progress.

Q. Is there any future tense language in there?

A. There is.

Q. Where?

A. It says in — oh, it changed color. It says, “Enron will incorporate” — let’s see — “WarpSpeed’s MetaRouter software.” I’m sorry. It’s the “this will allow for real-time bandwidth trading” as opposed to “this allows” or “enables real-time” — “the real-time bandwidth trading.” So, that would be a future tense.

Q. Okay. Now, I’d like to turn to a second e-mail relating to this press release, which is JH2406. I’m going to hand you a copy of that and ask you if you recognize that. [See exhibit here: JH2406]

A. I recognize it.

Q. And what is that?

A. This is a — an e-mail string, if you will, that transpired after the document was shared with a larger body of individuals who were involved in the approval process. And in this case it was — this is probably a second draft of that press release that was sent to a smaller group of individuals for kind of final approval.
Specifically –

Q. Before you go any further, did you receive a copy of this? Are you involved in this e-mail exchange?

A. Yes.

MR. RAMFJORD: Again, we’d just move to admit it for the limited purpose of showing process, your Honor.

MR. STRICKLIN: Your Honor, I object based on hearsay. And it’s clearly being offered for the truth of the matter asserted. There’s no other way to look at it. If you’re saying it’s just to show the process, well, that’s the truth of the matter asserted in the e-mail. There’s — there’s no other — [Comment: What? No concern for time??]

THE COURT: Hold on. Let me just take a look at it. It’s 2406?

MR. RAMFJORD: Yes. And I actually handed a copy of the exhibits up to the Court in a brown folder.

THE COURT: Oh, okay. Well, somebody has already put it up here, I think. Let me see. Well, I mean, yeah, it would be hearsay. But it’s not being offered for the truth. It’s being offered to show why this witness took whatever steps he took in relation to having received this information. It would still be admissible, though.

MR. STRICKLIN: Well, the specific part is the middle — the middle part, for Mr. Griebling, there’s no other way to suggest that that should come into evidence unless it’s being offered for the truth.

MR. RAMFJORD: Your Honor, it’s being –

THE COURT: He’s saying what he would have done next in relation — in response to having received this e-mail.

MR. RAMFJORD: Right.

THE COURT: Or what steps he would have taken next inresponse to having received this e-mail. Objection overruled. Defendants’ Exhibit JH2406 is admitted.

BY MR. RAMFJORD: Now, I’d like to start at the bottom of this document, Mr. Caldwell. What is the — The very bottom, actually. Oops. There we go. What is — what is this portion of the document?

A. I’m sorry. Can you repeat the question?

Q. What is this portion of the document?

A. It’s the list of individuals that would have received the e-mail.

Q. All right. And who is sending this e-mail?

A. Shelly Mansfield.

Q. And what is the caption of the e-mail?

A. “New Draft, WarpSpeed Announcement.”

Q. And are you among the recipients?

A. Yes.

Q. Is Mr. Hirko one of the recipients?

A. No.

Q. And does this e-mail, in effect, attach a draft — if you want to look at the paper copy in front of you — of the WarpSpeed announcement? Does it attach a draft of the WarpSpeed announcement?

A. Yes.

Q. Okay. Can we just show the next page to confirm that? And if we can go on to the — yeah — there we go. Is this the draft that’s attached?

A. Yes, it is.

MR. RAMFJORD: Okay. Now, I’d like to go back — oh, actually, while we’re on this page, let’s look at the second paragraph, if we could blow it up. This — the first sentence of this paragraph does not have the word “development” in it, does it?

A. No, it doesn’t.

Q. Do you know whether Mr. Hirko took that language out?

A. I don’t know.

Q. Do you have any reason to believe that Mr. Hirko knew about that language coming out?

MR. STRICKLIN: Objection to form, your Honor.

THE COURT: Objection sustained.

BY MR. RAMFJORD:

Q. What, if any, reason do you have to believe that Mr. Hirko was aware of that change?

A. I’m sorry. Could you repeat?

Q. What, if any, reason do you have to believe that Mr. Hirko was aware of that change?

MR. STRICKLIN: That’s leading and assumes facts that have not yet been testified to, your Honor.

THE COURT: Well, objection sustained.

BY MR. RAMFJORD:

Q. Let’s go up — let’s go back to the e-mail. Above the e-mail we just looked at, is there an e-mail from you to someone else?

A. Yes.

Q. What is that e-mail?

A. It’s a message to John Griebling to review the press release.

Q. And the caption, again, is?

A. “Important WarpSpeed announcement, please return with feedback today.”

Q. And what do you say in the text of the document?

A. “John, as discussed, the release is attached for your review. Please return by 2:30 today, Pacific time, with feedback. Thanks.”

Q. And let’s go back to the text and see what the next e-mail in the chain is. What is this?

A. This is a reply from John Griebling.

Q. And what does Mr. Griebling say?

A. “Chris, I have read and am fine with this.”

Q. And what did you do after you received this e-mail from Mr. Griebling?

A. I informed my supervisor, Shelly Mansfield, that John had approved the e-mail — I mean, the press release.

Q. And was the press release issued after that?

A. Yes.

Q. And just so we’re clear, I’d like to put on the screen PR118. Is this the WarpSpeed press release, the final version of the press release?

A. It looks like it.

MR. RAMFJORD: One moment.

(Sotto voce discussion at counsel table)

MR. RAMFJORD: Nothing further, your Honor.

So what we can determine based on the record is that the press release was drafted by at least three people: Claudia Johnson, Kris Caldwell, and John Griebling. Joe Hirko signed off on it but didn’t write it. And as we’ve seen, it contained nothing controversial at all. It was future-looking. It did not say that BOS was up and running. It didn’t say that EBS was going to make a trillion dollars that quarter. All it said was the facts: EBS had acquired Warpspeed for their intermediation business.

Joe Hirko must not go to prison based on this press release.

My Predictions For The Broadband Three

Here are my predictions about what will happen to the Broadband Three.

Joseph Hirko

What I Hope Happens:

Judge Gilmore will throw out Hirko’s plea. He will be bounced back to the 5th to continue his appeals. With collateral estoppel newly defined, the government will be banned from ever trying him again. He will live happily ever after.

What I Think Will Happen:

Judge Gilmore will not accept Joe’s plea. She has moments of absolute lucidity and correctness (see the postponement of Shelby’s second trial. She granted a delay based on the outcome of Yeager v USA. She wouldn’t have done that if she intended to completely disregard Yeager v USA.) I believe she will take into consideration Yeager v USA, as well as the fact that the SCOTUS originally remanded Hirko to the 5th. The case has already been sent from the 5th back to Gilmore, but I think once Hirko is in her court room, she’s going to do the right thing and punt it back to the 5th. The 5th will look at Yeager v USA and throw the case out.

Rex Shelby

What I Hope Happens:

Presently, Judge Gilmore is considering Shelby’s Motion To Dismiss. I hope she grants it. The government will appeal to the 5th Circuit. The 5th Circuit will rule in Shelby’s favor and the government will be barred from ever trying him again.

What I Think Will Happen:

Gilmore will grant Shelby’s Motion to Dismiss. The government will appeal to the 5th. The 5th will rule in Shelby’s favor and the government will be barred from ever trying him again. And he’ll live happily ever after.

Scott Yeager

What I Hope Happens:

The 5th Circuit, where his case is now, declines to revisit the issue of whether Yeager possessed insider information or withheld it from the public. Case closed. Government can not retry him again. Game over.

What I Think Will Happen:

I think the 5th Circuit will decline to revisit the issue. They’ve already determined the fact that he did NOT have insider information. The Supreme Court did not order them to revisit the issue, but said they could if they wanted to. I do not believe they want to. I think they’re eager to get the Enron cases out of their courtrooms. When they decline to revisit, the government will have no further recourse. They can not try him again. Yeager walks free (and lives happily ever after.)

2000 Analyst Conference — Skilling

Jeff Skilling uses forward looking statements and future-tenses for verbs, such as “announcing”, “would develop” and so on. This is after the metrics and valuations methods of EBS. It is not part of the valuation of EBS. It is clear that this is all brand new.

Let me just get to one last thing and then we’ll be finished here. Last thing is the BOS. The BOS is the Broadband Operating System. When Rex was talking about the software that we have, there are lots of additional applications of the software. We have the software currently to operate our own network. We believe that there is an opportunity to set up a standardized protocol for the industry that uses some of
those same components that are in our network operating system. So we are proposing the development of a broadband operating system. That’s a proposed standard protocol for accessing real time bandwidth. It is desperately needed in the industry so that people can get quickly on a real time basis, access to bandwidth.

What this thing is is a single operating system paradigm, which ties together, as Rex mentioned, all the network resources: switches, routers, servers and applications. It would be the first direct software link between the applications and the network resources. And if you have an application software, it’s running,
it knows it needs bandwidth, it would be able to reference the bandwidth operating system, figure out how you actually schedule to nominate that bandwidth, get access to it, provision it, ensure it’s at an adequate quality of service and then that software can call in that bandwidth and when its done with it, it can send
it back and that would be a real service to the applications development business. The protocol that we envisage (ENVISION?)is consistent with the Enron Intelligent Network and with Enron’s bandwidth provisioning architecture, and it would be made available to all software developers through published application programming interfaces, so that we would set up a basically a set of interfaces that would allow
an application developer to take that application programming interface, to stick it in their system or whatever their programming. And it would access the operating system to provide them real time bandwidth, as necessary, within their application. Just graphically, it would look something like this, where you’ve got a bunch of third-party software that’s being developed, they use an API which ties into a standardized method for developing the software, or developing the bandwidth or make available the bandwidth and
11 then that would be able to access the network. This is important because this, I think, can supercharge the development of our business. And the reason it can supercharge the development of the business is everyone would be using that same protocol. Now the reason I’m talking about this, you’re probably sitting there going, “What the hell is he talking about?” but this is important and as a part of the discussion today, I’d like to make an announcement related to the development of this software platform and this capability to access, on a real-time basis, broadband services. We are announcing today an agreement with Sun Microsystems that’s intended to accelerate the adoption of broadband Internet services as we have been describing today. Under the agreement, Sun is going to help Enron build out the footprint for the next generation broadband infrastructure, the Enron Intelligent Network which is based, as we talked about on
the fiber, servers, pooling points and our operating system which is described here. Enron and Sun will also collaborate to optimize the Enron Intelligent Network for use with the Sun platform, which will lead to
accelerated deployment of this type and philosophy of operating system in the industry and Enron, and Sun will engage in joint marketing efforts to promote the EIN services as a way to address the needs of enterprises, software developers and service providers for the delivery of broadband applications at guaranteed service levels. Specifically, what we’re talking about is jointly developing some APIs, application
programming interfaces, to embed the EIN model into a broad base of applications when people are developing software. So we’re announcing that.

2000 Analyst Conference — BOS Is Still Being Developed

One analyst clearly understands some of the BOS, like the Pooling Points which did use InterAgent to control them and were bandwidth on demand and did allow QoS per circuit to be defined, was still under development and was not the same thing as a finished, completed BOS. So this is direct proof that the Analysts were not confused by minor terms or slides like Network Control Software or any of the other stuff the DOJ presented during trial.

Joe Hirko makes it clear that BOS is not an OS like Sun Solaris and implied like Windows OS. So when Witness Bill Collins uttered that ridiculous “lipstick on a pig” statement, it was clearly and totally unconnected to what was actually said to the analysts and to what they understood based on this question and the answer by Joe Hirko:

MALE VOICE [analyst]: My understanding is that the Lucent BandWidth Manager and the InterAgent software is something that’s up and running and is for your intermediation business, but you now talk about the broadband operating system. Is that essentially taking those pieces and trying to develop this as an industry standard, and who else has competing standards, what’s the process and timeline for getting this up and developed and [unintelligible]?

MALE VOICE: (Video Shows this is Hirko) Let me start with an answer and then Scott can really answer the question. But if you look at it, we started with a concept of calling this a broadband operating system as a
way to explain to people what we were talking about. What we are really doing is enhancing the capabilities of Solaris by adding wide area network functionality that’s necessary to move broadband data across multiple networks. It’s not truly an operating system from a traditional definition. It’s an operating system from the standpoint that it operates multiple wide area networks and the devices within those networks to deliver a broadband experience from end to end. So, as we look at that kind of concept, the relationship with Sun is to develop standard APIs that would enable software developers, application service providers, to gain that
functionality for their applications on a plug and it works basis and to make that a standard approach for the industry. We would fully assume that there will be others that will write in essence operation systems that also take advantage of those APIs.But we would have a first mover advantage and would be focused on the broadband content delivery over multiple networks.

MR. MCNEILLY: I don’t know any other effort of this scale with the kind of partnerships we’re putting together here to go put this API together, it’s a new idea, it’s a new requirement that all the hubs, routers and switches and teleco equipment and the clients and all the other components that are on the
network as well as the applications and content have a common way of doing the metering and the
quality of service reservations and guarantees and billing and all of the other pieces that you need. It just hasn’t been done before, because it hasn’t been an issue. Because when you ran Microsoft Office onyour PC you were guaranteed to get a slow response with full absolute control over your personal computer. Now we’re talking about going out over the network. I can’t help myself, even when I’m not feeling well. And so
09 this is the right strategy and we’re doing it using Java and the Java community process, which is an open process on strategy. Jonathan would you like to add to that?

2000 Analyst Conference — Scott McNealy

The thing that excited both Rex Shelby and Scott Yeager about working for EBS was the fact that Enron was going to support a completely new idea. Shelby, Yeager, and Hirko each possessed part of an idea that would become whole when they came together. The idea of bandwidth intensive applications having its own separate network was brand new at the time, and though video and high bandwidth is ubiquitous now, in the late 1990s and early 2000s, it was the zenith of technical and ideological accomplishment.

Scott McNealy, CEO of Sun, demonstrates with perfect clarity that EBS was a new effort. He likes the novelty of offering applications on a fat-pipe network and is excited the concept of the BOS being open — not closed like Microsoft. He also shows that Enron was not thought of as criminal but innovative. He makes it clear he is at the conference because Enron committed to buy 18,000 servers. McNealy says that twice; the Analysts could have discounted everything he said because he was an impartial observer. Yet he admitted up front, full disclosure, that he was there because Enron/EBS is a customer first.

At no point does Scott McNealy say that the Broadband Operating System is complete. He say it is going to be developed jointly and these two great companies – Enron and Sun – are going to make it a reality.
Did he say it was a reality? No. This is not confusing. How can the DOJ miss this?

MR. SCOTT MCNEILLY: Actually, I’m feeling pretty good. 18,000 servers tend to snap me right out of it. I even put a jacket on for this even; I almost went out and rented a tux.

This is a pretty interesting opportunity and I think we see lots of different people actually going after this, trying to figure out how to make the world wide wait, I mean, the world wide web, turn into something that’s actually useful and can be mission critical and can actually start delivering entertainment and mission critical kinds of services. We’ve obviously built Sun from day one with the strategy and the basic assumption that every man, woman and child will be connected to a high speed broadband network no matter where they are all times. Obviously, that’s a dumb assumption. I mean half the world dies without ever making or receiving a phone call. But, it’s becoming a less dumber assumption every day.

And building the design center for all that we do, <font color="red"the products, technologies, APIs and partnerships, assuming that will happen, I think it’s paid off for our shareholders, and I think it will pay off for Enron’s shareholders, because that assumption is basically the one the two companies together are partnering to make a reality. And this is a huge step forward in that direction.

The other reason I am here besides 18,000 servers is – did I say that already – is that I think the philosophies here are very similar between Enron and Sun and for a father who named his first son Maverick, I think Enron makes a very interesting partner in their rule breaking kinds of strategies about opening markets up, driving the Darwinian market economy into what would have been previously closed proprietarian sometimes monopoly dominated, at least that’s what we have in our industry, a monopoly dominated situation.

And the way you beat them is to open interfaces, provide plug and, oh we don’t call it plug and play, that’s what Microsoft says, we call it plug and pay when they do it. We just call plug and work, where you just kind of plug in and everything works together in one seamless fabric. So the architectural philosophy strategies between Enron and Sun are in the same way this broadband effort is similar to their energy utility model, well their whole approach and strategy of opening the interfaces and driving APIs is completely analogous to what we have done to the Internet and we now have become the number one platform on the Internet.

UPDATED

Another passage relevant to this subject:

His opinion here is that EBS has the right DNA to make this broadband idea happen, and Enron has the right partners, software partners like Inktomie, and of course Sun, to make it happen.

I think the background skills, expertise and just sheer legacy DNA in terms of how to operate in this open market environment is going to do very, very well by Enron as they go forward, plus they have the ability to make the capital investments, and the list of partners they have there, that’s right on the button, Inktomi and Lucent and others are right on the button in terms of the kind of partners you need to go make this happen. So with that, I guess we’llturn it over to Q&A. Not done yet.

2000 Analyst Conference Transcript — In Depth

I posted the transcript of the 2000 analyst conference earlier this week but thought it could use some context and analysis.

This excerpt from the transcript is from the end of the regular presentation before the BOS presentation, which was separate after the financial section which included the metrics the analysts should use to measure the success of EBS. Important things to notice: how long they say it will take for EBS to be profitable, that EBS will burn $3 billion, and that the metrics have nothing to do with the BOS. The analysts were not even told the value EBS or the BOS. This means the entire indictment is completely bogus. The indictment misrepresents what executives claimed the value of EBS would be, the metrics used to measure success, and what the burn rate would be. Everything the government says about the 2000 Analyst Conference is wrong. That is very unfortunate since so many counts were thrown against the executives who attended.

Skilling mentions DS3 Month for the bandwidth intermediation business and Total Contract Value spread over the number of years of all the contracts.

Bandwidth Intermediation:

The first performance metric is intermediation volume. This is the index that we will be using. This is the denomination or metric that we will be using for that. We are using DS3 months delivered. So that is a unit of through put and we will be calculating and publishing for you the DS3 months delivered which is similar to the
23 volume that we have…. These are targets.

Broadband Services

For the bandwidth services or broadband services business, we will be publishing for you a total contract value. This will be similar to a T-statistic where we go out to a broadband content provider, sign a contract, coverage of a certain amount of through put and we’ll tell what the contract is.

This is the exact language. There is not a word about BOS, Network Control, ToS bit Priority set by the routers to provided Tiered QoS or any of the other silly things the DOJ says the Analyst were told to focus on or heard during the presentation. How about reading the real transcript and seeing what was really said? To quote the formidable Tony Canales, is there an I in FBI?

Doesn’t appear to be.

But the cash flow model assumes 2008 revenues of $11 billion to $12 billion [Comment: 2008 is it is 8 years away so clearly this is a long term business plan]. On operating margin on this business which tends to be consulting or service oriented of about 30%. 20 tice [phonetic] multiple, that’s the Enron multiple again, gets you $70 billion. Then you discount it back, and we’re using a discount rate here of 17% to take it from 2008 back to the year 2000. So that’s the models, the bandwidth intermediation we think is worth $14 billion,
$15 billion. Content services $18 billion. There is a burn rate associated with this business. It’s similar to the burn rate that we had in the retail business.Discount that back and that’s about a $3 billion deduct from us, so

Here, Jeff Skilling is clearly saying that the retail business took years to develop and Enron lost a lot of money getting it going. He is comparing EBS to the Retail business, so this is another example of it taking time and money to get to EBS to become a money making business. The government kept stating that the business never made money like that’s a crime; this meme was repeated endlessly through the media. In Bethany McLean’s corporate snuff film, she says that Enron Broadband Services “tried every trick in the bag” to look profitable but it just wasn’t.

No kidding. Exactly. Jeff Skilling stated plainly that EBS would not make money for a while and it would take time and money. Skilling said the burn rate is $3 billion, not just the $60 million loss in 2000 that is predicted, but $3 Billion. The market was told this is the predicted loss, this is the burn rate, in the financial section of the presentation. So how can the entire false earning part of the Blockbuster/Braveheart part of the case matter at all and how can Joseph Hirko, Scott Yeager or Rex Shelby have any responsibility to believe the company is lying when they say it will take 8 years and burn $3 billion?

The 2000 analyst conference is the a carnival of government distortion. This is only the tip of the iceburg.