A showdown is brewing in a Houston federal district court that makes most classic western face-offs look like kindergarten pillow fights.
On one side huddle 29 top Enron executives and board members who unloaded stock worth $1.1 billion over the last three years — a period during which, we now know, Enron was grossly misstating its true revenue and profit figures in its publicly available financial filings.
On the other side swagger a gaggle of class action lawyers doing their best Clint Eastwood “hang ‘em high” imitations, hired by Amalgamated Bank of Chicago — “A Union Bank for Unions and Union Members,” no less! — on behalf of pension funds and other shareholders who lost hundreds of millions of dollars when Enron collapsed. Their immediate goal: to freeze the bank accounts of those 29 Enron honchos while they go about their business convincing the judge of their mildly worded claim that “Enron is a grotesque fraud — a financial monstrosity of manipulation and falsification.”
Does class warfare get any better than this?
OK, even with the union angle, it’s a stretch to cast a bunch of big pension funds and other institutional investors in the role of the little guy who has nothing to lose but his chains. But there’s still something about this particular tussle that gets the proletarian-rage juices flowing. Treasury Secretary Paul O’Neill says that Enron’s collapse is the free market in action, evidence of the “genius of capitalism.” But in an age where the workers’ paradise of communism is remembered about as well as Herman’s Hermits, the lords of Enron somehow managed to pull off a feat so stunning one can only gape: They made capitalism look bad.
For starters, the $1.1 billion in stock gains by Enron insiders is just a conservative estimate based on what the execs were legally required to report. There are plenty of ways to get around such requirements, if you’re willing to operate in the higher altitudes of imaginative stock manipulation — a nether region where people actually understand what “zero cost collar” deals and “equity swaps” mean.
And if there’s one thing we can say with confidence about Enron executives, it’s that they weren’t afraid of such heights: If there was a dodgy, cutting-edge, “innovative” way to get around the spirit and letter of the law to be found, they were looking for it. This is a company, after all, that, in order to avoid paying federal income taxes, set up more than 800 subsidiaries in the Cayman Islands alone.
Ouch! Hanging’s too good for the likes of these rascals. In their greed to cash in, Enron’s executives didn’t just screw their own employees, shareholders, and bankers (not to mention American taxpayers); they discredited the whole system. One wonders who would be more delighted to see Ken Lay, Jeff Skilling, Andrew Fastow and the rest of these bunglers locked up in a stockade — the investors who had no idea of the extent of Enron’s shell game, or the Enron bosses’ counterparts at other “innovative” corporations, who are shuddering at the thought that their books might now get a thorough going-over by the IRS, the SEC and a legion of securities analysts. Who knows — Lay might even go down in history as the man who broke Wall Street!
Well, that’s probably not too likely. But at least we can be confident of one thing: Enron managers such as Fastow, who appears to have been the mastermind of the “special purpose entities” through which Enron hid so much of its debt and fueled so much of its growth, are going to have a hard time doing more damage over the next decade or so — they’ll be too busy defending themselves from the cascading flood of class action suits and criminal investigations bound to dog them for years to come. But is that enough of a punishment?
Drastic measures are clearly called for, if only to prevent the working people of this country from rising up in a tidal wave of wrath and swamping brokerages everywhere. After all, when one hears Robert Bennett, Lay’s lawyer, brazenly declare, “I am unaware of any evidence that supports the allegation there was improper selling by members of the board or senior management,” who wouldn’t be hard pressed not to run screaming around the streets with a hammer and sickle looking for something, anything, to expropriate?
The evidence is rapidly piling up that Enron’s executives sold stock when they already knew hard times were coming, that they lied about the financial health of their company to their employees, their shareholders and the analysts responsible for covering them and that they ignored the entreaties of some of their own in-house colleagues who begged them to clean up the mess before it was too late. When a senior staff attorney goes to the extraordinary lengths of secretly hiring outside counsel to determine whether Enron’s accounting practices are legal, you know things are pretty rotten.
If ever there was a case where a class action suit appeared to have a slam dunk chance of success, this would be the one. It’s also inconceivable that there won’t be substantive changes to accounting regulations and SEC reporting requirements as a result of the Enron implosion. But what about the 29 executives and board members (who, by the way, include Wendy Gramm, Sen. Phil Gramm’s wife): Will they serve jail time? Will they be forced to pay fines that make any kind of dent in the millions they’ve socked away? Will their lives be ruined, like the thousands of their employees who’ve lost their jobs and life savings?
Or do they already have enough cash to keep them safe from harm, no matter what happens? The Aspen Times reported on Tuesday that Ken Lay has put two of his three Aspen homes, as well as an empty lot, up for sale — for a total asking price of $16 million. But he’s still keeping one — his personal residence. Yup, he’s really feeling the pinch.
It’s going to be a fun time in that Houston courtroom this spring and summer, as the more than 60 class action suits already filed join together, and congressional inquiries continue to heat up. At the very least, one hopes that the Enron 29 will start to sweat.