April 30, 2005
A big part of my law practice is writing briefs, so lawyers often ask my advice on how to write a good brief. I always pass along three key rules:
1. Read the court's rules for brief writing and then follow them.
2. Tell a good story in your brief.
3. Don't use footnotes.
If you violate rules 1 and 3, then this is what could happen.
Hat tip to Appellate Law and Practice blog for the link.
In a surprising development, Houstonian Eric Andell, a former deputy undersecretary under fellow Houstonian Rod Paige at the Education Department, a former Harris County district and appellate court judge, and probably the most popular Democrat in local political circles, pleaded guilty to charging the federal government about $9,000 for personal travel in which he conducted personal business and worked as a visiting judge while still employed in Washington. He faces up to one year in prison and has agreed to reimburse the federal government for the improper charges. Mr. Andell will be sentenced July 29 in Washington.
April 29, 2005
Former Tyco International CEO, Dennis Kozlowski, is on trial for a second time in New York City for allegedly looting Tyco. Mr. Kozlowski's first trial, in which he did not testify, ended in a hung jury.
In the second trial, Mr. Kozlowski has decided to testify. According to this NY Times article, the following is a part of the cross-examination of Mr. Kozlowski about conversations he had with a now-deceased former director whom Mr. Kozlowski said approved a $25 million bonus that was missing from his 1999 tax returns:
"You did not notice $25 million was missing from your W-2?" asked [prosecutor] Ms. [Ann] Donnelly in an incredulous manner.
"That is absolutely correct," Mr. Kozlowski replied. "I did not."
Don't miss this interesting Wall Street Journal ($) article on the extraction of natural gas from the Barnett Shale formation, which contains 27 trillion cubic feet of natural gas (enough to supply all gas-heated homes in the U.S. for more than five years) and happens to be located directly underneath Fort Worth.
Drillers hide the unsightly drilling equipment from homeowners by using horizontal drilling techniques, which drill straight down before gradually bending and running parallel to the surface. So, often a well that is drilling a productive zone under a piece of propery is located over a mile away from the property. The article reports that there are now over 90 rigs drilling natural gas wells around the Fort Worth metropolitan area.
Following on this progression of damaging public disclosures over the past several months, American International Group Inc. announced yesterday, as this NY Times article reports, that the company has decided to delay for a third time the publication of its annual report. The cause for the delay is that AIG management and nervous PriceWaterhouseCoopers LLP auditors continue to wrangle over the financial implications of accounting errors that now are expected to reduce AIG's net worth by over $2.5 billion, which is about 3% of the company's net worth. That's about a billion more in losses than previously predicted.
As one would expect, there appears to be a fair amount of disagreement over what accounting issues should be acknowledged in the annual report between AIG and its longtime auditor PricewaterhouseCoopers, which is already girding for the inevitable lawsuits from AIG investors over its failure to uncover the improper accounting and the company's allegedly defective internal controls. Since the Sarbanes-Oxley legislation was passed in 2002, auditors and management are required to sign off on the adequacy of a company's internal controls, the lack of which at least partly contributed to the accounting scandals that led to the demise of Enron Corp. and WorldCom Inc.
Although the incessantly bad public disclosures are troubling for AIG long term, the market appears to have stabilized for the time being with regard to AIG's stock price. Although AIG's stock price has fallen almost 30% since February 14 (it opened at $72 on that date), the price has been meandering around $51 since mid-April. The price was was down $.71 in yesterday's trading.
Meanwhile, the Lord of Regulation is moving on to another scene in his vast landscape of business corruption as several financial institutions confirmed that they have received letters from the Lord's office in connection with an investigation into mortgage-lending practices. The Lord's civil-rights division is in the early stages of an investigation into possible discriminatory practices in determining interest rates and fees charged on mortgage loans, which was prompted by recent public disclosures showing that certain minorities are more likely than are whites to be given high-cost sub-prime loans. Lenders say that the difference in interest rates reflects underwriting factors, such as income and credit records.
April 28, 2005
Recently, my wife pulled me to the new Farrelly Brothers' (Dumb and Dumber, Kingpin and There's Something About Mary) movie, Fever Pitch, which billed itself as a chick flick disguised as a sports movie. Or, as ESPN's Bill Simmons explains in this absolutely hilarious article on the movie, a "Spork Flick."
Mr. Simmons recently attended Fever Pitch with his father because the film was billed as a funny spork flick, but he realized after enduring the movie that it was really just a straightforward chick flick:
Here's the plot for "Fever Pitch" in one sentence: Guy loves the Red Sox, meets Drew Barrymore, tries to love them both, nearly loses her because of the Sox, decides to give up his season tickets next to the Red Sox dugout because he loves her, she stops him just in time, and they get back together and end up making out on the field after the first Red Sox championship in 86 years. The end.
Mr. Simmons goes on compare the movie with other chick flicks (don't miss his analysis of My Best Friend's Wedding), and then reveals that the key to success of a chick flick is hitting on the top ten generic themes of chick flicks, a couple of which are the following:
4. If you're dating someone who is passionate about something, he will absolutely give that up for you because all men change once they fall in love. Especially if you have a nice apartment.
5. You can have only three friends: A smart friend who's pretty in a quirky way, a calculating beauty who's morally corrupt and an overweight girl who doesn't say much. You can only hang out with these people all at once. If there's anyone in your life who doesn't fit one of those three categories, get rid of them.
These days, it seems as if a new interesting revelation from one of the big U.S. accounting firms occurs every few hours or so.
This CBS Marketwatch snippet reports this morning that KPMG LLP fired Richard Smith, a senior executive who had headed its tax-services division as it promoted questionable tax shelters over the past decade, and also canned two partners -- David Brockway of Washington, D.C. and Michael Burke of Los Angeles -- who had sat on the firm's 15-member board. As these previous posts over the past year reflect, KPMG is enduring some serious heat in various governmental investigations of its involvement in the tax shelter sales effort.
Until the tax shelter probes, Mr. Smith had been a rising star at KPMG. He became a partner at KPMG in 1995 and was named the chief of the firm's tax-services unit in 2002. However, as the tax shelter probes came to light in February, 2004, KPMG had said Mr. Smith was being reassigned to take on the dreaded "different practice responsibilities."
Such purges usually indicate that indictments in such cases are on their way. Stay tuned.
April 27, 2005
I'm as much of a baseball stathead as the next guy, but I must admit that it never occurred to me to compile the creative statistics that are featured on this imaginative new blog -- Plunk Biggio.
The blog is "dedicated to Craig Biggio and his (probably unintentional) Quest to break the all time major league career record for getting hit by pitches."
Hat tip to the always alert Charles Kuffner for the link.
Although such matters are notoriously unpredictable, the SCOTUS blog -- the premier U.S. Supreme Court blog -- reports that observors of the oral argument earlier today on Arthur Andersen's appeal to the Supreme Court of its witness tampering conviction unanimously reported that the Justices appeared to favor Andersen's side of the argument strongly. In particular, Justice Scalia expressed incredulity at the government's position:
"You want criminal liability to attach to that?" Justice Scalia asked, referring to Andersen in-house lawyer Nancy Temple's email. "You want somebody to go to jail?"
Here is the Washington Post report on the argument.
As noted earlier here and here, there are several characteristics of the structure of American International Group Inc. that are similar to the structure of Enron Corp. In particular, both companies' business is largely dependent on its customers' trust and, as Enron showed us in dramatic fashion, once that trust is lost, a company structured in such a manner can literally collapse in a very short period of time.
On face value, this report from yesterday regarding the Lord of Regulation's investigation into whether AIG wrongly pocketed tens of millions of dollars in insurance premiums that should have gone to the New York state workers' compensation fund is probably not any more damaging to the public's trust in AIG's finances than any of the dozens of other revelations that have occurred in regard to AIG and Berkshire Hathaway in connection with that investigation over the past couple of months.
However, in what can only be described as an astounding revelation in this morning's Wall Street Journal ($) article, AIG's general counsel in 1992, E. Michael Joye, informed AIG's senior management -- including former CEO Maurice "Hank" Greenberg -- that the company's accounting treatment with regard to the insurance premiums was illegal. Even more interestingly, Mr. Joye resigned from AIG (or was forced out) later that same year over problems relating to accounting issues.
To top it all off, according to the WSJ article, Mr. Joye provided to the Lord of Regulation a copy of his memo to AIG management about the insurance accounting issue, and then AIG waived its attorney-client privilege regarding Mr. Joye's memo and the accounting issue to allow Mr. Spitzer's office to proceed with its investigation into the issue. AIG's board is allowing this highly unusual level of cooperation with the Lord of Regulation because of its realization that the Lord has the board over a barrel: if the AIG board were to assert such basic rights as the attorney-client privilege, then the Lord of Regulation would almost surely issue an indictment that would have a potentially cataclysmic effect on AIG's various insurance licenses.
On the other hand, if AIG's senior management forced Mr. Joye out because of his calling out of questionable or illegal accounting practices, then that would reflect a serious defect in AIG's internal controls in that an advocate of adhering to legal requirements was canned rather than rewarded. Inasmuch as a similar defect in internal controls allowed Enron's Andrew Fastow to profit wildly from Enron's apecial purpose entities while serving as Enron's CFO, this latest revelation about AIG sure is starting to sound familiar, isn't it?
By the way, the WSJ's ($) article on AIG's ultra-exclusive New York area golf club -- Morefar -- makes it sound as if getting an invitation to play Augusta National is easy in comparison to getting one to play Morefar.
Deloitte & Touche LLP announced yesterday that it will pay a $50 million fine to settle Securities and Exchange Commission civil charges that it failed to prevent massive fraud at bankrupt cable company Adelphia Communications Corp.
And, just to add insult to injury, the SEC took issue with with Deloitte's press release regarding the settlement, in which Deloitte blamed Adelphia by saying the company and some executives "deliberately misled" Deloitte's auditors. Under terms of its settlement agreement with the SEC, Deloitte was required neither to admit nor deny the SEC's charges. Inasmuch as the Deloitte statement at least implied that Deloitte was denying liability, the SEC took the unusual step of forcing Deloitte to rescind the public statement (WSJ $). It's bad enough blowing the audits, but blowing the press release on the settlement really gets the SEC's blood boiling:
"Deloitte's characterization of the case is simply wrong. Deloitte was not deceived," said Mark K. Schonfeld, director of the SEC's Northeast Regional Office. "They didn't just miss red flags, they pulled the flag over their head and then claimed they couldn't see."
The SEC's Litigation Release over the settlement explains the problems with Deloitte's audit of Adelphia:
The Commission's complaint against Deloitte alleges that, during Deloitte's audit of Adelphia's financial statements for the year ended December 31, 2000, Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia and failed to implement audit procedures designed to identify material related party transactions or related party transactions otherwise requiring disclosure. Among other things, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 million, improperly netted related party receivables and payables between Adelphia and related parties, and failed to disclose the extent of related party transactions.
Finally, in what amounts to a settlement of a "slip and fall" case for an auditing firm these days, Deloitte agreed to pay $375,000 in a separate matter to settle SEC charges that it failed to uncover accounting fraud in its 1998 audit of the sports retailer, Just for Feet, which ended up filing bankruptcy shortly thereafter. As a part of that settlement, a couple of Deloitte partners on that audit agreed to bans of at least a year in practicing as an auditor before the SEC. Here is the SEC order instituting administrative proceedings in that matter.
The University of Nebraska's storied football program has fallen on hard times recently, and it seems like forever since the Huskers were even competitive in a football game against their arch-rival, Oklahoma. And the program hasn't fared very well in the courtroom, either.
Following on the incident reported in this post from last fall, this CBS Sportsline article reports jury selection in Cleveland County, Oklahoma District Court for the former Nebraska offensive lineman who is charged with aggravated assault for ramming a University of Oklahoma's spirit squad member into the brick wall that surrounds OU's Owen Field prior to the most recent Nebraska v. OU football game last November. The Nebraska lineman faces up to five years in the slammer if convicted on the charge.
Given the home court advantage, the prosecution is favored. ;^)
April 26, 2005
This Washington Post article reports on the trial that is cranking up this week in New York City as New York AG ("Attorney General" or "Aspiring Governor," take your pick) Eliot Spitzer's prepares to prosecute former Bank of America securities broker Theodore C. Sihpol III in connection with an alleged crime uncovered during Mr. Spitzer's wide-ranging investigation of the financial services industry over the past three years. Here is a sampling of posts regarding the Lord of Regulation's investigations over the past year and a half.
While more than a dozen brokerage firms and fund companies have rolled over and paid $3 billion in fines, restitution and promised fee reductions (i.e., ransom) to settle Mr. Spitzer's investigations, Mr. Sihpol has refused to give in to Mr. Spitzer's public relations machine. Mr. Sihpol contends that the trades that are at the heart of the criminal case against him were not illegal and that Mr. Sihpol did not have criminal intent to commit larceny, fraud and alteration of business records.
The case revolves around whether the 37 year old Mr. Sihpol knew his clients were breaking the law by putting in same-day orders after 4 p.m. In his usual public relations blitz on such cases, Mr. Spitzer has compared the the trades to betting on a horse race after it was over because the late trades allowed Mr. Sihpol's clients to profit from news announced after the markets closed. However, the Securities and Exchange Commission regulation in place at the time of the trades did not use the words "4 p.m." Rather, the reg simply stated that all mutual fund orders placed after a fund has computed its daily price must get the next day's price. Inasmuch as many funds do not calculate their daily price until nearly 5:30 p.m., Mr. Siphol contends that the trades were in compliance with the regulation. In fact, an SEC survey done shortly after the scandal broke found that a quarter of brokerage firms had helped clients trade after the 4 p.m. close. New SEC rules proposed after Mr. Spitzer's investigations into trading abuses state specifically that the trades must be placed before 4 p.m.
The risk of loss is so high that it is understandable that companies and individuals under Mr. Spitzer's relentless public relations campaigns roll over and settle without so much as a whimper. Nevertheless, it is refreshing when an individual stands up and requires Mr. Spitzer actually to prove what he enjoys preaching about on television talk shows. Here's hoping that the jury is not swayed by Mr. Spitzer's glitz and examines carefully whether Mr. Spitzer's criminalization of merely questionable business transactions is an appropriate form of business regulation.
As noted in this previous post, the reason that Enron crashed was that its business model required that its customers rely on the company's financial integrity and not necessarily on the company's net worth. Accordingly, when Enron's financial integrity came into question over a slew of questionable transactions with some equity funds run by Enron's CFO, Andrew Fastow, Enron melted faster than an ice cream cone in a Texas summer.
Unfortunately for American International Group Inc., its business model is built upon the same sense of trust, and this latest public revelation is not going to help the company maintain that trust. Here is a sampling of earlier posts on AIG's developing problems, including the questionable transactions between AIG and Berkshire Hathaway.
The report referred to in the NY Times article was prepared by two outside law firms -- Simpson Thacher & Bartlett and Paul, Weiss, Rifkind, Wharton & Garrison -- who are working for AIG's board. According to the Times article, the report raises serious questions about the integrity of AIG's financial-reporting systems. The report contends that recently retired AIG chairman and CEO Maurice R. "Hank" Greenberg and fired CFO Howard I. Smith controlled critical aspects of the company's financial reporting without appropriste financial and accounting controls in place to oversee that control. The report's conclusions sound remarkably similar to those contained in the Powers Report, which was the similar report that the Enron board commissioned when Enron's questionable transactions with Mr. Fastow's partnerships came to light.
Is AIG is headed for an Enronesque meltdown? My sense is that markets that have been seared by Enron, WorldCom and other big business meltdowns of the past five years will probably not flee AIG's nest without more damaging revelations. AIG reported net income of over $11 billion on revenue of about $98.5 billion in 2004, so the accounting problems identified to date probably will not deplete shareholders' equity by more than about 2%, which would leave the company's net worth above $80 billion.
But as we saw with Enron, a company's net worth will not always sustain investor trust in the face of damaging information regarding the integrity of the company's financial statements. AIG faces precisely the same problem, and it is not clear by any means that it can succeed where Enron failed.
The last defendant standing in the WorldCom securities fraud litigation stood down on Monday as Arthur Andersen announced that it had settled with the WorldCom class for $65 million. The settlement occurred at the beginning of the fifth week of what amounted to an auditing malpractice case against Andersen.
The settlement was apparently reached after Andersen disclosed its limited financial resources to the WorldCom plaintiffs, which should not have been any surprise to the plaintiffs. After having been convicted of witness tampering in a dubious government prosecution in connection with the Enron scandal, Andersen collapsed as a going concern and is now merely a liquidating trust for its former partners. Andersen is still contending with similar civil litigation in connection with its audits of Qwest Communications International Inc., Global Crossing Ltd., and the Big Kahuna, Enron.
As noted in these previous posts over the past year, Andersen was the last of more than two dozen defendants who agreed to pay a total of $6 billion to settle securities fraud claims in connection with WorldCom's collapse into bankruptcy in 2002. That total amount is a record recovery in a securities class action in the United States, but that record is probably short-lived. The aggregate settlements in the similar class action in the Enron case projects to lap the WorldCom record by several billion.
April 25, 2005
Take a spin sightseeing throught the United States on this interesting page that links to Google satellite images of various American attractions.
That's Houston's Reliant Park in the picture on the left. As one would expect, the satellite images of Alaska, Colorado and California attactions are particularly spectacular.
By the way, in case you haven't used it yet, the related Google map website is the best mapping website available on the Web.
On the heels of the U.S. Supreme Court's decision last week in Dura Pharmaceuticals v. Broudo in which the Court rejected the price inflation theory of causation in securities fraud cases, the Fifth Circuit Court of Appeals issued its decision in Plotkin v. IP Axess late last week in which Judge Edith Jones lays out with specificity the precise pleading requirements for both the representations and scienter elements of a securities fraud claim. This is an excellent opinion to read before either preparing a fraud or securities fraud complaint or in preparing a motion to dismiss a complaint for not adequately pleading fraud or securities fraud. Hat tip to the Appellate Law & Practice blog for the link to this helpful opinion.
San Antonio-based Valero Energy Corporation announced early today that it would acquire refiner Premcor Inc. for $6.9 billion in cash and stock plus the assumption of about $1.8 billion of debt, which will the San Antonio company the largest refiner of crude oil in North America.
The deal -- which is subject to regulatory approval in the already heavily consolidated refining industry -- would give Valero total refining capacity of 3.3 million barrels a day, making Valero's refining capacity more than that of Exxon Mobil Corp. in North America. The deal gives Premcor shareholders an initial premium of about 20% based on the recent 30-day trading range of Premcor's stock price.
Valero has been on an refinery acquisition initiative for almost a decade. Beginning in 1997 when it owned only one refinery, Valero has made seven acquisitions and, if the Premcor deal is approved, will have 19 refineries. Valero already became the largest independent refiner in North America in 2001 when it bought Ultramar Diamond Shamrock Corp. for $4.03 billion plus the assumption of $2.1 billion in debt, and the 5,000 retail gasoline outlets involved in that acquisition gave Valero a large retail presence. The Premcor purchase would give Valero four additional U.S. refineries and bring its annual revenue to about $70 billion.
The deal highlights a startling turnaround that has occurred in the refining industry over the past several years. Since the big shakeout in the oil and gas industry that occurred in the mid-1980's, the refining industry struggled for over a decade. Investment in new refineries slowed to a trickle for a combination of reasons, including overcapacity, inadequate return on investment, oppressive environmental regulations and local political opposition to new and more efficient facilities. As a result, most people do not realize that the last new plant to be built in the U.S. was in 1976, that the number of refineries in the U.S. has declined to 150 at present from 325 in 1981, or that refining capacity for crude oil has declined from about 18.5 million barrels a day to about 17 million barrels per day over the past five years.
Accordingly, while worldwide demand for gasoline has been rising dramatically over the past several years and refiners have struggled to keep pace with increasing demand, the refiners' limited capacity and low inventories have resulted in substantially improved margins, which is the difference between the price that the refiners' receive for their product and the price that they pay for crude oil.
Thus, when you hear complaints about high gasoline prices, recognize that the relatively high price of oil is only one component of the problem. Lack of refining capacity is at least as big a reason for the problem, and making it difficult to construct new refineries only ensures continued high gasoline prices.
April 24, 2005
Vijay Singh took advantage of long John Daly's hooked drive into the water on the first playoff hole to win his second straight Shell Houston Open golf tournament on Sunday afternoon. Singh and Daly tied at 13 under par after 72 holes, and Singh won the playoff with a par on the first playoff hole, which was the 18th at Redstone Golf Club.
Although the Houston Open is one of those relatively insignificant golf tournaments that take place in the dreaded "down" period between The Masters and the U.S. Open, the entertaining final round probably garnered its share of television viewers who chose it over meaningless first round NBA playoff games and early season baseball games. Daly shot a 5 under 67 on Sunday, including birdies on the difficult 17th and 18th holes to catch Singh, who misread a 5 foot birdie putt on the 18th hole that would have won him the tournament in regulation. Unfortunately, Daly consumed too much caffeine in chugging Diet Cokes while waiting for Singh to finish his round, so he promptly pull-hooked his 3 metal into the water hazard on the left side of the first playoff hole.
As usual, CBS commentator Gary McCord had the crack of the weekend on Sunday. McCord and the other CBS announcers were discussing "golf demons," those devilish quirks that always seem to torment golfers in the heat of competition. Suddenly, during this "golf demon" discussion, the television screen showed Daly's haggard face as he prepared to take a shot. Without mentioning any of Daly's well-chronicled bouts with alcohol abuse, smoking, multiple wives (the latest of which ended up in prison) and overeating, McCord declared:
"Now there is the Mothership of demons!"
So, the Houston Open ends its three year run at the Jacobsen-Hardy Course at Redstone Golf Club and moves across the street next year to the new Rees Jones Course at Redstone that has been specially designed and constructed to host the tournament. The Houston Golf Association is placing its bets that the new course will reach a stature similar to Champions Golf Club's Cypress Creek Course among the top PGA Tour members, who will then make an effort to come and elevate the Houston Open to the elite level of non-major PGA Tour golf tournaments. As noted earlier here, I'm not convinced that this is a sound strategy, but I hope that I am wrong. The HGA does a great job of running the tournament, Shell is a fine title sponsor, and the tournament is already among the top PGA Tour events in terms of raising money for charity. Consequently, the tournament definitely has some things going for it, and perhaps a great new course will be answer to the problem of being an afterthought on the PGA Tour.
April 23, 2005
On Wednesday of next week, the U.S. Supreme Court will hear arguments over the meaning of the law under which now defunct accounting giant Arthur Andersen was prosecuted and convicted. Previous posts are here, here, here, here, and here about this case, which corporate legal departments and corporate lawyers are following closely.
The main reason that the Andersen appeal is being followed closely is that it began with an e-mail that any in-house counsel could have written -- that is, a reminder to colleagues about the company's document retention policy. "It will be helpful to make sure that we have complied with the policy," wrote Nancy Temple, the in-house lawyer for Andersen in the October 2001 as Enron was spiraling toward bankruptcy. Andersen's policy called for destroying documents when they were "no longer useful" for an audit. The timing of the email eventually led to the criminal prosecution and conviction of Andersen for destroying thousands of Enron-related documents. The prosecution and conviction doomed Andersen as a going concern and a once-proud company that employed almost 30,000 employees in the U.S. Andersen has withered into what is now essentially a self-liquidating litigation defense fund with fewer than 200 employees.
As a result of what happened to Andersen, numerous professional organizations such as the National Association of Criminal Defense Lawyers and the American Institute of Certified Public Accountants have filed amicus curie briefs that urge the Supreme Court to interpret the law under which Andersen was prosecuted narrowly so as not to criminalize routine legal and professional advice. In particular, the NACDL brief asserts that the Andersen lower court decisions place "lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs," and contends that those decisions improperly chill attorneys from lawfully advising their clients not to volunteer information to a grand jury or not to include unnecessary information in responding to the Securities and Exchange Commission.
For its part, the government claims in its brief that Andersen was well aware that an SEC investigation was likely at least a month before Ms. Temple sent her e-mail, noting that the accounting firm had assembled an Enron crisis-response team in September, 2001 as public revelations mounted regarding Enron's questionable accounting.
Nevertheless, the government's prosecution of Andersen was required to place a square peg in a round hole in that its indictment asserted only a form of witness tampering that occurs when one "corruptly persuades" others to destroy documents in order to make them unavailable for an official proceeding. What is often overlooked in the aftermath of the demise of both Enron and Andersen is that no Andersen official has ever been charged criminally or even cited by the SEC for violating securities laws in connection with Andersen's work for Enron.
The narrow issue that is before the Supreme Court is whether U.S. District Judge Melinda Harmon properly instructed the jury in the Andersen trial on the meaning of "corruptly persuades." The dispute is essentially over whether "corruptly" should be given a transitive or intransitive meaning. The Andersen side of the argument embraces the the transitive -- i.e., in order to to prove the crime, the government would have to show that the persuading was done by corrupt or improper means. Under such an interpretation, Ms. Temple's e-mail would not constitute a crime.
On the other hand, during the trial, Judge Harmon adopted the government's jury instruction based on the intransitive meaning -- i.e., that the government merely had to establish that Andersen had some improper intent of impeding an official proceeding regardless of whether Andersen believed its actions were lawful. Judge Harmon ruled that, so long as Andersen's intentions were improper, the government did not have to prove that an official proceeding was under way or even likely in order to prove that Andersen had committed a crime.
Thus, the importance of the Andersen case to in-house counsel and corporate counsel is clear -- if the Supreme Court upholds the 5th Circuit decision, virtually any corporate document retention policy that includes throwing things out would be at risk because making such documents unavailable is at least part of such a policy's purpose. Somewhat surprisingly, the document warehousing industry has not filed an amicus brief with the Supreme Court in support of the government's position. ;^)
However, in a larger sense, the Andersen appeal gives the Supreme Court an opportunity to knock down one of the government's most visible symbols of its dubious policy of regulating business generally -- and auditors in particular -- through criminalization of heretofore normal business practices. One brave U.S. District Judge already this week firmly rejected the government's over-zealous attempt to obtain what would have amounted to a life sentence for former Merrill Lynch head of international investment banking, Daniel Bayly, who was bit player in a relatively small Enron-related deal. Inasmuch as the government's disembowelment of Andersen as a source of productive employment for approximately 30,000 U.S. citizens is equally indefensible, here's hoping that the Supreme Court sends the government a clear message in the Anderson case that misapplying criminal law to regulate business will not be tolerated.
Normally, at the commencement of most trials, counsel for either or both parties will invoke "the rule," which simply means that fact witnesses cannot listen to the testimony of any other witnesses during the trial. The rule was apparently invoked at the start of the Enron Broadband case.
However, prior to the commencement of the trial, one of Mr. Skilling's lawyers -- Daniel Petrocelli -- had been advised that Mr. Skilling would not be called as a witness during the trial. So, on Friday morning, Mr. Skilling walked into the courtroom gallery to attend the trial, probably in anticipation of the testimony of former president of Enron Broadband Services and close Skilling confidant, Ken Rice, who has copped a plea bargain and began his testimony yesterday afternoon on behalf of the prosecution.
When the prosecution realized that Mr. Skilling was in the courtroom, the prosecutors raised an objection to U.S. District Judge Vanessa Gilmore based on "the rule." Mr. Skilling was asked to leave the courtroom and did so without incident.
If Mr. Skilling had indeed been taken off the witness lists for Broadband trial, then it was more than a minor mistake to exclude him from attending the testimony of Mr. Rice. Inasmuch as Mr. Rice's testimony on behalf of the prosecution is going to be detrimental to, and disputed by, Mr. Skilling in his trial next January, Mr. Skilling is absolutely entitled to be present in the courtroom during that testimony so long as he is not going to be called as a witness during the trial.
If a witness is not telling the truth in his testimony, then often it is much harder to prevaricate in the presence of someone who knows that the witness is lying. Inasmuch as the truth of Mr. Rice's testimony is a key issue in the Broadband trial, the jury in the Broadband trial ought to be allowed to view Mr. Rice's demeanor while testifying in front of his former boss who, if Mr. Rice's testimony is false, would know it.
April 22, 2005
After a short but successful 3-1 homestand, the Stros (8-7) hit the road for a weekend series in St. Louis (9-5) and then a series in Pittsburgh (5-11) during the first part of next week before returning home on Friday the 29th to begin a six game homestand against the Cubs(8-8) and the Pirates.
The most recent homestand featured this Stros club's strength, which is solid starting pitching. The Rocket, Brandon Backe, Roy O, and Pettitte all had strong performances, and the only reason the Stros didn't win all four games was that they couldn't muster a run in 12 innings in Clemens' game against the Braves. Oswalt's performance (9 IP, 4 H, 1 R/ER, 0 BB, 8 K's) was particularly masterful as he mowed down the Brew Crew in a little more than two hours with a devastating combination of a 95 mph heater and a 70 mph curve. By the way, the 27 year old Oswalt is well on his way to becoming the best pitcher in Stros history. After 2.97 ERA/21 RSAA (RSAA explained here) and 3.49 ERA/22 RSAA seasons in 2003-04, Oswalt is off to a 3.41 ERA/3 RSAA start in his first 4 starts. He has a 3.12 career ERA, compared to a league average of 4.25 during his career, and a 108 RSAA in 124 games. Roy O already holds the Stros record for career RSAA:
1 Roy Oswalt 108
2 Billy Wagner 99
3 Mike Hampton 76
4 Dave Smith 75
5 Octavio Dotel 67
6 Nolan Ryan 60
7 Wade Miller 56
8 Don Wilson 55
9 Joe Sambito 53
10 Larry Andersen 45
By the way, if you want to miss one of the Stros' games this weekend during the St. Louis series, you may want to make it tonight's game. The Stros trot out fifth starter Brandon "Home Run" Duckworth to the mound against the Cards' power lineup, so this one could get ugly fast.
U.S. District Judge Sim Lake ruled Thursday afternoon that bank-fraud charges against Enron former chairman and CEO Ken Lay would be tried to him without a jury early next year immediately following the multi-defendant conspiracy jury trial against Mr. Lay, which is scheduled to begin in mid-January, 2006. Judge Lake had previously severed the bank-fraud charges against Mr. Lay from the conspiracy and securities fraud case against Mr. Lay and co-defendants Jeff Skilling, Enron's former CEO and COO, and Richard Causey, Enron's former chief accounting officer. The government had been seeking to try Mr. Lay on the bank-fraud charges -- which will not take as long to try as the larger multi-defendant case -- later this summer. Earlier posts on this particular issue relating to Mr. Lay's case can be reviewed here, here, here and here.
Although Judge Lake indicated during the hearing that he preferred to go ahead and get the bank fraud trial out of the way, he decided that such an early trial could cause a flurry of publicity that could negatively affect the jury pool for the trial of the larger conspiracy and securities fraud case that will begin in January.
Meanwhile, Banjo Jones speculates on what Tony Curtis and Mr. Lay talked about at a recent party.
April 21, 2005
Inasmuch as I had to appear at an hearing in federal court early this morning, I stuck around after my hearing to attend the sentencing hearing of former Merrill Lynch executive Daniel Bayly in connection with the Enron Nigerian Barge case, which has been a regular subject on this blog over the past year.
To say the least, I'm glad I stuck around.
In one of the most impressive judicial performances that I have witnessed in my 26 year legal career, U.S. District Judge Ewing Werlein, Jr. (picture above) -- in the face of widespread public and political expectation that anyone who had anything to do with Enron should be punished severely -- rejected the Enron Task Force prosecutors' pleas to punish Mr. Bayly with up to 15 years of prison and sentenced the former Merrill Lynch executive to 30 months in prison, six months of probation, a $295,000 restitution award, and a $250,000 fine. Later in the afternoon, Judge Werlein sentenced former Merrill executive James Brown -- who, unlike Mr. Bayly, also faced conviction on perjury and obstruction of justice charges over the barge deal -- to 46 months of prison and similar financial penalties as the ones assessed to Mr. Bayly.
Inasmuch as Mr. Bayly is the first defendant to be sentenced after being convicted at trial of an Enron-related crime, the far shorter sentence than the punishment that the prosecutors recommended was a bitter blow to the Task Force prosecutors, who did not attempt to hide their displeasure with Judge Werlein's ruling after the hearing.
Clearly in full command of the legal issues and evidence before him, Judge Werlein carefully stated his findings and conclusions, which included the following:
He categorically rejected the prosecution's controversial $44 million "market loss" theory as being contrary to the U.S. Supreme Court's recent decision in Dura Pharmaceuticals v. Broudo, in which the Court rejected the price inflation theory of causation that the Task Force prosecutors used in calculating the $44 million in market loss.
He declined to adopt the jury's $13.7 market loss theory, essentially on the same grounds as he rejected the government's theory.
He ended up calculating market loss at $1.4 million, which was the total profit that Merrill and the Enron-related partnership ultimately made on the Nigerian Barge deal.
He rejected the prosecutors' pleas for an upward adjustment of the sentence under the advisory sentencing guidelines "to make an example out of Mr. Bayly for Wall Street."
He granted a downward adjustment of the sentence under the sentencing guidelines because of Mr. Bayly's exemplary professional and personal record. "I may have never had a defendant before me who had a more glowing and extraordinary record of being a good citizen," noted Judge Werlein.
Although he noted the jury conviction of fraud, Judge Werlein observed that -- in the constellation of of Enron fraudulent conduct that former Enron CFO Andrew Fastow orchestrated -- Mr. Bayly's involvement in the barge transaction was relatively benign and not central to Enron's fraudulent transactions.
He noted that the Enron Task Force had obtained plea bargain sentences for two Enron executives who were central to Enron's more wide-ranging fraudulent conduct -- 10 years for Mr. Fastow and five years for former Enron treasurer Ben Glisan -- and that those sentences were less than the one that the prosecution was recommending for Mr. Bayly, who was a bit player in Enron's fraudulent conduct.
Then, as if to punctuate his rulings, Judge Werlein firmly rejected the prosecution's over-the-top call at the end of the hearing for Mr. Bayly to be taken into custody immediately, and allowed Mr. Bayly to report to prison voluntarily in accordance with a date to be scheduled in the near future by the Bureau of Prisons.
Judge Werlein delivered his rulings in his customary conscientious and professional manner that exuded the careful consideration that this man of extraordinary depth gave to the issues before him. After the hearing, I happened to get on the same elevator as Mr. Bayly and several members of his family. After having lived through a nightmarish prosecution and clearly expecting the worst when they came to court today, Mr. Bayly and each of his family members -- several of whom had tears in their eyes -- were clearly touched by Judge Werlein's courage, grace and fairness in sentencing Mr. Bayly.
Later, as I drove back to my office after the hearing, I reflected on Ewing Werlein, Jr. and the remarkable judicial performance that I had just witnessed.
When I moved to Houston as a young college student over 30 years ago, one of the first Houston families that my family and I met was that of Mr. and Mrs. Ewing Werlein, Jr., who hired a couple of my younger sisters to babysit their daughter and son. I recall my late father observing to me at the time: "Tom, if you want to become a gentleman, Mr. Werlein would be a fine model for you to follow."
Several years later, after finishing law school and becoming a young attorney in Houston, I learned quickly that Ewing Werlein, Jr. -- then a partner at Vinson & Elkins -- was one of the most respected lawyers in the Houston bar and a model for young lawyers.
Over a decade later, Judge Werlein's son, Ken, became an associate pastor at my family's church here in The Woodlands before going on to start his own church in northwest Houston. One of Ken's finest sermons during his time at my family's church was one that he gave on Father's Day in which he lovingly described his father's tender mentoring of his son and daughter.
Finally today, in the face of virtually unprecedented public animus toward anyone or anything having to do with Enron, Judge Werlein has shown judges everywhere the model of what a judge should aspire to be.
That's quite a fine legacy in my book.
April 20, 2005
Following on the heels of this post from last week on the sentencing hearing tomorrow in U.S. District Judge Ewing Werlein's court in regard to two defendants in the Enron-related Nigerian Barge case, developments in another case this past week shine a clearer light on the dubious nature of the government's position that Judge Werlein should toss the barge defendants in prison and throw away the key. Even the Justice Department does not have a license to take contradictory positions in important cases, even if one of those cases is Enron-related.
As noted in last week's post, the Enron Task Force is taking the position that former Merrill Lynch executive Daniel Bayly should receive a more severe sentence based on a bogus theory of "shareholder loss" that has been long rejected in civil securities fraud cases. By way of background, Mr. Bayly was a well-regarded and longtime Merrill Lynch executive who was involved in a transaction in late 1999 in which Merrill bought from Enron an interest in three Nigerian energy-generation barges as a favor for Enron. An Enron partnership bought the barges six months later and then sold them to a third company for a profit. The Enron prosecutors argued that the deal allowed Enron to book illegal profits at the end of 1999 because Enron had orally agreed to buy the barges back from Merrill, and a jury convicted Mr. Bayly and four others of conspiracy and fraud (Enron's in-house accountant - Sheila Kahanek - was acquitted). The prosecutors are now arguing that Judge Werlein should increase Mr. Bayly's sentence by up to 15 years because the alleged fraud caused a near $44 billion shareholder loss.
As noted in this prior post, the prosecution has no legal basis for this alleged loss figure. Under civil securities fraud law, investors sue for a decline in the value of a security only if they can show that the decline was actually caused by the fraud. Thus, if a company puts out news of a transaction that causes a share price to rise, and then discloses that the transaction is a sham that, in turn, causes the share price to decline, investors can recover any loss that resulted directly from the disclosure of the misrepresentation.
Which is precisely the rub in the Enron Nigerian Barge case -- no such loss resulted from the alleged sham deal. As noted in this prior post, Enron sold the barges to Merrill and Merrill sold them to an Enron-related partnership well before Enron collapsed at the end of 2001. Accordingly, any reduction in the price of Enron stock happened well in advance of disclosure of details of the barge transaction, which disclosure did not occur until well after Enron had filed bankruptcy and Enron's share value had already dropped to zero. Consequently, the government simply cannot show that Enron shareholders lost a dime from the disclosure of this particular transaction.
Thus, to get around this rather substantial legal problem, the Enron Task Force prosecutors are taking the position that, because some shareholders bought Enron stock at an inflated price due to losses that were covered up by the barge transaction, those purchases equate to a loss. The prosecutors even got an "expert" to opine during the market loss hearing after the completion of the Nigerian Barge trial that the relatively small barge deal pumped up Enron's price and, presto, the government has its $44 billion market loss figure.
Interestingly, even the Justice Department does not support the Enron prosecutors' dubious views regarding market loss. Earlier this week, the Supreme Court unanimously ruled in Dura Pharmaceuticals v. Broudo that plaintiffs who claim securities fraud must prove a connection between a misrepresentation and an investment's subsequent decline in price. In direct contradiction of the Enron Task Force's position in the Enron Nigerian Barge case, the Justice Department and the Securities and Exchange Commission filed this joint brief in Dura in support of the proof-of-causation position and against the price inflation theory of causation that the Justice Department prosecutors used in asserting "market loss" in the Nigerian Barge trial.
Does simply the fact that a case is related to Enron justify the Justice Department in taking such blatantly contradictory positions? As noted in last week's post, the Justice Department continues seeking maximum sentences against easy targets, such as relatively wealthy business executives who had the misfortune of doing business with the pariah Enron. Apparently, it's going to take wise judges to step in and check the government's zeal. Judge Werlein is capable of doing so, and I hope he does so tomorrow.
This New York Times article -- entitled The Troubled Oil Company -- reviews the Venezuelan dictator Hugo Chavez's mismanagement of Houston-based oil company Citgo, which is owned by Petroleos de Venezuela, the Venezuelan national oil company. Over the past two years, virtually every high-ranking Citgo executive has resigned, including the refining chief, the chief financial officer, the head auditor, and the marketing director. Here is a previous post on Mr. Chavez's mismanagement of Citgo.
Although the Times article about Citgo and Mr. Chavez is interesting, it's always funny how the Times analyzes a government's mismanagement of a big oil business. As late as 1999, Venezuela was the U.S.'s largest foreign supplier of oil, but then Mr. Chavez took over, began establishing close friendships with anti-business types such as Fidel Castro, and generally started mismanaging the Venezuelan economy. By 2003, Mr. Chavez had cut its exports to the U.S. by 22% and was threatening to cut off oil exports to the U.S. entirely if the U.S. government doesn't stop meddling in Venezuelan affairs.
Now, if the foregoing were occurring in Saudi Arabia, then the Times would be handling it as a major foreign policy story of impending doom. However, when a crackpot socialist and Castro admirer mismanages oil exports, the Times treats it as a typical business story.
Which is exactly the way the story should be handled. Mr. Chavez's management of the Venezuelan economy has been horrific, albeit aided by high oil prices. But U.S. oil imports as a percentage of GDP are relatively small, about $132 billion in 2004 compared with a about a $11 trillion GDP. That's about 1%, folks. Thus, if Mr. Chavez chooses to sell us less oil, hopefully the U.S. government shrugs, we replace Venezuelan oil with oil from the numerous other markets, market prices adjust, and we get on with getting to work.
Besides, if the U.S. government is going to take a hard line with an oil exporter, don't you think that the government should take that stance with the country from which we import the most oil? Oh, and what country is that?
Hat tip to Bryan Caplan for info on the Venezuelan oil imports.
KPMG LLP agreed to pay a record (for an auditing firm, anyway) $22.5 million to settle SEC charges in connection with the firm's audits of Xerox Corp. from 1997 through 2000. KPMG has had its share of legal problems over the past couple of years.
As is typical in such deals, KPMG consented to entry of the order in U.S. district court in New York without admitting or denying the charges. During the four year period involved in the Xerox case, the SEC alleged that Xerox overstated its revenue by $3 billion and its earnings by $1.5 billion in an effort to bolster its stock price. Xerox previously paid a $10 million penalty in 2002, which at the time was a record fine. In addition, six former senior Xerox executives have paid penalties and disgorged profits totaling $22 million, and a civil-fraud lawsuit against five current and former KPMG partners involved in the Xerox audits is continuing.
As part of the settlement, KPMG agreed to take certain remedial actions, including a review process for any change in assignment of an audit partner, establishing whistle-blower channels within KPMG, and the retention of an outside consultant to review its policies and certify to the SEC that the changes are in effect two years from now.
The airline business is all atwitter today with the news that US Airways, which has been wallowing in a chapter 22 (i.e., it's second chapter 11 case) since September of last year, is considering a merger with America West to form the sixth largest airline and the largest discount airline in the United States. Here are some previous posts over the past year or so on U.S. Air's various travails.
H'mm, let's set the buzz aside and take a look at this deal. Last year, US Airways posted a net loss of over $600 million on revenue of just north of $7 billion. In addition to two chapter 11 cases within two years, it's got all kinds of union problems, operational and customer problems, and competition problems.
Meanwhile, America West narrowly escaped a chapter 11 case in late 2001 by arranging a bailout loan of over $400 million backed by almost an equivalent amount of federal guarantees. That financing allowed the airline to tap more than $600 million in other financing and concessions from manufacturers, vendors, leasing firms and others. Nevertheless, America West posted a net loss last year of almost $90 million on revenue of about $2.35 billion, and ended 2004 with a bit over $400 million in cash.
I don't think this proposed merger has Southwest Airlines quaking in its boots.
April 19, 2005
The ceremony honoring Mr. Wynn will be on Friday, July 8, before the game against the Dodgers.
In this Wall Street Journal ($) op-ed, Chief Executive magazine editor William J. Holstein addresses a common theme of this blog -- namely, the dubious motives and methods behind New York AG ("Attorney General" or "Aspiring Governor," take your pick) Eliot's Spitzer's multiple investigations into alleged business corruption. Here is a sampling of posts over the past year regarding Mr. Spitzer's abuse of power.
Addressing Mr. Spitzer's heavy-handed treatment of former AIG chairman and CEO Maurice Greenberg and his son, Jeff, the former Marsh & McClennan CEO, Mr. Holstein notes the following:
Mr. Spitzer has charged in and discovered a pattern of practices he doesn't like. He is applying a new set of values to reinsurance practices that had been in place for years . . .
Reflecting their dismay at the high-handed conduct of King George, the Founding Fathers created a judicial system with a stringent set of procedural safeguards to protect against overzealous or arbitrary prosecution. Yet in the atmosphere that Mr. Spitzer has helped create, the presumption is that CEOs are guilty -- if Eliot Spitzer says they're guilty.
Then Mr. Holstein turns to the specific "charges" that Mr. Spitzer has made publicly to prompt AIG to can Mr. Greenberg:
In dispute in the AIG case are highly complex transactions that may have reduced the company's shareholder equity of $82.9 billion by as much as 2%. It's not yet known if the total losses will reach that level, nor if they were material to AIG as a whole. After Mr. Greenberg's departure, the board ran up the white flag to Attorney General Spitzer and declared the transactions "improper."
Were they? One proper way to resolve this would be to create a policy framework with clear rules, which does not currently exist. Another way would have been for the Securities and Exchange Commission to negotiate an earnings restatement with AIG.
But Mr. Spitzer reportedly threatened a criminal indictment, which in effect would have put AIG out of business. Then he went on television to pronounce that the AIG transactions were "wrong" and "illegal," . . . It's not yet clear what the charges are. Nor has Mr. Spitzer heard Mr. Greenberg's side of the story.
So the New York attorney general both charges and convicts in the court of public opinion.
Then, Mr. Holstein bores in on the hypocritical nature of Mr. Spitzer's self-righteous campaign against business executives:
Mr. Spitzer's political ambitions are increasingly clear. He wants to use his record to become governor of New York. Mr. Spitzer's campaign office even paid Google to link a search for "AIG" to a Web site promoting his campaign before it was quickly taken down. In the same television show where he discussed the AIG case, Mr. Spitzer said he was "very close" to presidential hopeful Hillary Clinton and didn't rule out a run for the vice presidency or presidency.
Mr. Spitzer has thus created a reasonable doubt about whether he is using the legal process for political gain. An attorney general running for higher office is different than a senator running because it creates a risk that the legal system becomes politicized and is no longer seen as adhering to principles of fair play and due process. . .
Ironically, the cornerstone of Mr. Spitzer's actions has been an attack on conflicts of interest and cozy relationships that had long been tolerated. He is attempting to create a new ethical standard. Yet he has turned a blind eye to his own ethical problem.
The existence of business fraud at companies such as Enron, WorldCom, Tyco and maybe even AIG does not necessarily mean that there is more misconduct in big business than in any other relatively large organization, such as big government. Nevertheless, Mr. Spitzer and other prosecutors are publicizing these instances of business fraud to generalize arbitrarily against those who are easy and popular targets -- i.e., wealthy and apparently greedy businessmen.
That tactic plays well with the mainstream media, which enjoys portraying the morality play of Mr. Spitzer as the defender of noble egalitarianism fighting against the forces of corrupt capitalism. In the wake of such seemingly simple stories, many complex structured finance transactions -- which most prosecutors and journalists do not understand and do not perform the homework necessary to understand -- are unfairly and incorrectly portrayed as complex business frauds despite the fact that such transactions are beneficial to shareholders of the company and have been reviewed and approved by multiple professionals who are experts in such transactions. Moreover, with the inviting prospect of greater political rewards resulting from the favorable publicity, prosecutors such as Mr. Spitzer have dispensed with any notion of prosecutorial discretion in regard to investigating business executives over such transactions.
And for those who would respond -- "So what's the big deal? What's the problem with eroding the rule of law a bit to nail a few greedy business executives?" -- I would remind them of Sir Thomas More's advice to young lawyer Will Roper in the great movie, A Man for All Seasons. After Roper opines that it is acceptable to abuse the rule of law in order to achieve the laudable goal of prosecuting the Devil, Sir Thomas responds:
"Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down -- and you're just the man to do it, Roper! -- do you really think you could stand upright in the winds that would blow then?"
"Yes, I'd give the Devil the benefit of law, for my own safety's sake!"
Folks, even greedy business executives are entitled to the protection of due process in the face of the overwhelming power of government. Not only for their protection, but for ours.
April 18, 2005
Don't miss Banjo Jones reminiscing about the Houston Post, which closed ten years ago today.
When I moved to Houston back in the early 1970's, the Post was Houston's morning paper and the Chronicle was delivered in the afternoon. Then, the Chronicle began to publish multiple editions, including a morning edition. Seemingly before you knew it, the Chron had bought the Post's assets and the Post was no more.
As Banjo notes, Houston lost something quite special when the Post closed, and the newspaper landscape in Houston has never been anywhere near as interesting without it.
One would normally not be all that surprised by reading this following news report coming out of California, but San Antonio?:
'Mad Max' Fan Convoy Ends in Arrests
SAN ANTONIO - Eleven "Mad Max" fans were arrested after alarming motorists as they made their way to a movie marathon in a theatrical convoy in which they surrounded a tanker truck armed with fake machine guns.
As the group was headed to San Antonio from nearby from Boerne on Saturday morning, police received several calls from motorists who reported a "militia" surrounding a tanker truck, a police report states.
Police charged nine people with obstruction of a highway and two others with possession of prohibited knives in addition to obstruction of a highway.
One of the organizers of the convoy, Chris Fenner, said the arrests were unfair. He said he didn't know why anyone would have confused the costumed crew recreating a scene from "Mad Max 2: The Road Warrior" - set in a post-apocalyptic wasteland - with a real threat.
"I honestly don't know how that could be, because 'Road Warrior' was so over the top," he said.
About 25 people participated in the convoy and more than twice that number were expected to attend the movie marathon, which was canceled after the arrests.
A reader reminds me that this event would not have made the news in California because it would not have been considered particularly unusual and certainly no one would have been arrested. ;^)
Given that it is Shell Houston Open week, it seem appropriate to note that Ft. Worth's Dan Jenkins -- whose writings were previously featured in posts here and here -- is the best golf writer of our times. An outstanding golfer as a collegian at TCU, Mr. Jenkins has covered golf for various publications (he writes a column for Golf Digest these days) for over 50 years. He writes with an engaging combination of wit and historical perspective (he has covered the past 55 straight Masters golf tournaments), which allows him to compare better than anyone else the accomplishments of Tiger Woods to the other dominant golfers of the past 50 years, Ben Hogan and Jack Nicklaus. Thankfully, Mr. Jenkins has passed on his talent to his daughter, Sally, who is an excellent sportswriter for the Washington Post.
In connection with the recent Master's golf tournament, Golf Digest ran this article excerpting pieces of Mr. Jenkins' writings over the past 20 years and also providing parts of a recent interview with Mr. Jenkins. Don't miss it. Here are a few gems:
On Ben Crenshaw's emotional and inspirational 1995 Masters victory the week after the death of this long-time mentor, Harvey Penick:"Not to bury the lead, but all in all, this Masters was a very bad week for atheists."
On Greg Norman shooting 78 and blowing a six-shot lead to Nick Faldo on the last day of the Master's in 1996:"When Greg Norman self-destructed, Nick Faldo was right there to claim his third green jacket. A strange object slowly bled to death before our very eyes for four hours, and it wasn't even a shark. Although Norman did it to himself and unleashed every Great White Can of Tuna joke in the book, his undoing also wrought sympathy from his most cynical critics. On the one hand, you could appreciate why Faldo hugged Greg on the final green. Why wouldn't you hug a guy who's been that nice to you?"
Which reminds me of Mr. Jenkins' following joke (not included in the article) about Norman, who is a favorite target of Mr. Jenkins. Upon French golfer Jean Van de Velde's blow-up on the final hole that cost him the 1999 British Open, Mr. Jenkins observed:Q: What does "Jean Van de Velde" mean in English?
A: "Greg Norman."
Again on Norman, this time after he hit a wayward shot on the 18th hole of the 1986 Masters ensuring Jack Nicklaus' fifth green jacket:"What do you do if you're Greg Norman in the 18th fairway of the Masters on Sunday and you're trying to get Jack Nicklaus into a playoff? You hit a half-shank, push-fade, semi-slice 4-iron that guarantees the proper result for the history books. Oh, well, Greg Norman always has looked like the guy you send out to kill James Bond, not Jack Nicklaus."On the proliferation of Tournament Player Courses on the PGA Tour:"TPC sounds too much like something kids sniff."
On Ian Baker-Finch's blow-up round during the 1997 British Open:"He went out in 44 and came back in 48, which sounded like a man's service history in World War II."
And finally, in the interview, Mr. Jenkins is asked whether today's PGA Tour players are as accessible to the press as the players of bygone eras:"Not even close. Hell, they're not even accessible to each other. The old guys hung out, in the locker rooms, bars, restaurants. Players and writers drank together, had dinner together. Back then, smoking wasn't a felony and cocktails came easier."
Dan Jenkins is a Texan and American treasure.
Update: I just have to pass along this Jenkins anecdote from Dr. Jim Bob Baker, a reader of this blog who commented:
After years of cigarettes and cream gravy, Jenkins had to face the inevitable Cardiac Bypass surgery, but he managed to joke about even this. His surgeon had said that he was planning to do 4 bypass grafts pre-operatively, but managed to restore good blood flow to Jenkins' heart with only three, prompting Jenkins to brag that he had "birdied my bypass."
"Birdied my bypass?" Classic Jenkins!
April 17, 2005
After starting the season with a promising 4-1 homestand, the Stros (5-6) stumbled on their their first road trip of the season over the past week. The Stros lost five of six games on the trip, with the Mets (6-6) sweeping the Stros in three close games to begin the trip. Then, after the Stros blew out the Reds (6-5) in the first game of their weekend series, the Reds came back to win two close games to take that series.
Despite the disappointing road trip, the Stros are about where most everyone expected them to be 11 games into the season. Until slugger Lance Berkman returns (probably in a couple of weeks or so), it is unlikely that this Stros team has enough hitting to do much better than win as many games as they lose. In fact, unless changes are made, it is highly unlikely that this Stros team can win more than 85 games even with Berkman.
I hope Stros management is open to making changes because the Stros' pitching staff is every bit as good as I predicted and, barring injury, good enough to carry the team to more than 90 wins. Through two weeks of the season, the Stros pitching staff is ranked second only to the Marlins (6-6)in the National League in runs saved against average ("RSAA," explained here). With the exception of Brandon Duckworth's typically mediocre performance in today's game, every Stros pitcher has been above-average in their pitching performances to date.
Although it's a bit dicey to make firm conclusions less than 7% into a baseball season, it's becoming clearer with each game that Phil Garner is not pushing the right buttons to maximize the effectiveness of the Stros' meager offensive weapons. He continues inexplicably to bat the light-hitting Everett (.150 Ave./.255 OBP/.225 SLG) at leadoff even though Everett has not yet proven that he is even an average Major League hitter, much less an effective leadoff batter. Similarly, Garner continues to write the anemic Ausmus (.111/.200/.148) into the lineup each day even though Ausmus has now deteriorated to well below even replacement level performance. Meanwhile, Garner continues to sit Mike Lamb, the Stros' best lefthanded hitter outside of Berkman, and makes such questionable moves as batting Jason Lane -- arguably the club's best hitter right now -- sixth in the batting order in the final game of the Reds series.
This Stros club is going to win most of its games with its strong pitching. But the club's hitting is so weak that there isn't much marging for error, and Garner made his share over the past road trip. Garner needs to put Lamb in left field and leave him there and move Everett to the back end of the order. Then, the Stros' management needs to call up catcher Humberto Quintero (acquired in the Tim Redding trade) from AAA Round Rock, where he is currently hitting .368/.428/.667. Quintero and Chavez would be a better duo than Chavez and Ausmus, who simply is no longer a major league quality player.
The Stros have a quick four game homestand this week with two games each against the Braves (6-5) and the Brewers (5-6)before going out on the road again to face the Cardinals (6-4) next weekend and then the Pirates (4-8) during the first part of next week. The Stros return home to face the Cubs (6-6) on Friday the 29th.
The 2005 Shell Houston Open is this week at Redstone Golf Club as the no. 2 ranked player in the world -- Vijay Singh -- returns to defend his 2004 title. Shreveport native David Toms, the ninth-ranked player in the World Golf Rankings, is also in the field, but he is the only other player in the tournament who is in the Top 10 of the World Rankings. Although the tournament's awkward date two weeks after The Masters -- among other problems -- continues to hurt the quality of the field, crowd favorites such as John Daly, Steve Elkington, Chad Campbell, Darren Clarke, Charles Howell III, Mark Calcavecchia, and Jose Maria Olazabal make the field good enough to justify making the trek to Redstone for a day or two of the tournament. Here is the Chronicle's special section on the tournment.
This is the final Shell Houston Open tournament that will be played on the Redstone Golf Club's Peter Jacobsen-Jim Hardy designed course. Next year, the tournament will move across the steet to the new Rees Jones course that the Houston Golf Association and Redstone have developed specifically to host the golf tournament. The HGA is hoping that the top PGA Tour players will take a liking to the new course and again make an effort to fit the Shell Houston Open into their schedules.
Although I have my doubts that this strategy will prove successful, I hope I'm wrong. The Shell Houston Open is good for Houston, but it is definitely a golf tournament that needs a shot in the arm.
April 16, 2005
Chris Tomlin, my old friend who has been the subject of these previous posts, was awarded a prestigious Dove Award for Best Praise and Worship Album of the Year by the Gospel Music Association in its awards show on Wednesday night in Nashville. Chris' award-winning album -- Arriving -- has been at the top of the contemporary Christian music charts for months now.
This richly deserved award could not have been won by a nicer fellow than C.T. However, the honor will still not stop me from continuing to throttle him on the golf course. That's just the way it is in big golf games.
Almost three and a half years after Enron collapsed into bankruptcy, the first criminal trial involving exclusively former Enron executives will crank up in front of U.S. District Judge Vanessa Gilmore in Houston federal court on Monday. Here is the Mary Flood's article from last week and from the Sunday edition of the Chronicle on the case, which is know in Enron legal circles as the "Enron Broadband case."
Despite widespread public acceptance that the name "Enron" means "business corruption," the Enron Task Force has not actually done much in court to prove that proposition. Of the 23 people on which the Task Force has obtained indictments so far in connection with the Enron scandal, six have pled guilty and five -- but only one former Enron executive -- have been convicted in the Nigerian Barge case. Moreover, in that trial, one of the two former Enron defendants (former Enron accountant, Sheila Kahanek) was acquitted. Accordingly, 11 of the 23 people who have been indicted in Enron-related cases still await trial.
The trial of the Enron Broadband case will take care of five of those remaining 11 defendants. Those five former Enron employees of the Enron Broadband Services ("EBS") subsidiary face charges of making false and misleading public statements about the financial viability of EBS. Adding intrigue is that those charges are closely related to charges against Enron's big three defendants -- former chairman and CEO Ken Lay, former CEO and COO Jeff Skilling and former chief accountant, Richard Causey -- that are pending and will go to trial in January, 2006. Thus, the outcome of the Broadband trial will likely set the stage for that big Enron trial and possibly for future Enron-related prosecutions.
EBS was a part of the Enron's emergence from a large but unexciting gas pipeline company to a high-techn global trading market-maker. In acquiring EBS, Enron planned to build a high-speed network that could not only deliver telecommunications services, but also create a trading market for the network, much as the company had created big trading markets in natural gas and electricity. Thus, EBS helped give Enron the glow of a trendy Internet stock when investor interest was creating the bubble in such stocks during the late 1990s.
The latest indictment in the Broadband case alleges that the five former EBS executives from April 1999 through May 14, 2001 engaged in a scheme and made false and misleading statements that were designed to deceive investors and others about EBS' technological capabilities, value, revenues and business performance. Essentially, the indictment contends that the EBS defendants had Enron issue false and misleading press releases to equity analysts and other investors, used fraudulent structured finance transactions to generate bogus revenue so EBS would appear to reach publicly announced financial targets, and failed to disclose materially adverse information about EBS' poor business performance.
However, perhaps most troubling for three of the defendants -- Joseph Hirko, Scott Yeager and Rex Shelby -- is the government's insider trading charges. Those three former EBS executives made a boatload of money on sales of Enron stock during the period in which the government contends that they made false and misleading statements regarding EBS. According to the indictment, Mr. Hirko sold stock valued at about $70 million, Mr. Yeager about $55 million and Shelby about $35 million, which are numbers that will perk up any jury. Messrs. Hirko, Yeager, and Shelby -- along with former EBS executives Kevin Howard and Michael Krautz -- face conspiracy to commit wire and securities fraud charges, while the indictment's insider trading and money laundering charges are focused solely on Messrs. Hirko, Yeager and Shelby.
Other potential problems for the defendants are the plea bargains that two former EBS executives have struck with the Task Force prosecutors. Ken Rice, a former high-level Enron executive who was once EBS' CEO, and Kevin Hannon, EBS' former chief operating officer, were originally indicted in the Broadband case, but both entered into plea deals with the prosecution in which they agreed to testify during the upcoming trial. Under cooperation agreements with the government, Messrs. Rice and Hannon admit to some of the indictment's allegations, including that Enron and EBS made false statements about the products, services and business performance of EBS. Mr. Rice pled guilty to one count of securities fraud and faces up to 10 years in prison and a $1 million fine, while Mr. Hannon pled guilty to one conspiracy to commit securities and wire fraud count and faces up to five years in prison and a $250,000 fine.
The prosecution's theory of the case revolves around the allegation that Messrs. Hirko, Yeager and Shelby orchestrated false press releases in April 1999 when touting the Enron Intelligent Network, which was a software driven telecommunications network. Although other EBS employees allegedly told the three defendants that "the Enron network was not intelligent," the prosecution contends that the three continued issuing misleading press releases and marketing materials promoting EBS. In particular, the indictment refers to early drafts of a PowerPoint presentation that disclose that EBS' network control software was under development. According to the prosecution, later versions of that PowerPoint presentation that were actually used in analyst meetings in December 1999 and January 2000 did not include that key disclosure. After one supposedly misleading presentation that was "received favorably by analysts and investors," the prosecution contends that Enron's stock price spiked from $54 on the day of the presentation to more than $72 the following day.
Meanwhile, the charges against Messrs. Howard and Krautz relate to a April 2000 structured finance transaction known as Project Braveheart that was designed to allow EBS to monetize a 20-year agreement with Blockbuster Inc. EBS' agreement with Blockbuster provided that Blockbuster would obtain digital rights to films that EBS would encode and stream over its network to customers' homes. The government contends that Messrs. Howard and Krautz understood the accounting rules relating to such a structured finance transaction, but that they intentionally violated those rules and withheld key information from Enron's auditors so that the Braveheart transaction could be booked and allow Enron to post about $110 million in revenue in 2000-01.
The trial will feature at least two prominent members of Houston's fine criminal defense bar. Jack Zimmermann -- one of many proteges' of legendary Houston criminal defense lawyer, Richard "Racehorse" Haynes -- will represent Mr. Howard, while Lee Hamel, an experienced defender of white collar criminal cases in the Houston area, will defend Mr. Yeager.
Jury selection begins on Monday when 100 prospective jurors will report to Judge Gilmore's courtroom for voir dire. Judge Gilmore told lawyers at a pretrial hearing earlier in the month that she will bring in another group of about 90 potential jurors on Tuesday if the lawyers do not pick a jury from the first group. Each side says they will need about four weeks for trial, so I'm guessing that the case will go to the jury sometime in early to mid-June.
The Chronicle's Mary Flood reports today on recent developments in the Enron-related Nigerian Barge case, in which four former Merrill Lynch executives and one former Enron executive are awaiting sentencing after being convicted last year of wire fraud and conspiracy charges in regard to a relatively small transaction in which Enron allegedly disguised a loan from Merrill as a sale of an interest in some barges off the coast of Nigeria. Two of the defendants are scheduled to be sentenced by U.S. District Judge Ewing Werlein this coming Thursday and the other three will be sentenced on May 12.
Ms. Flood and the Chronicle have gotten involved in the case by filing a motion to unseal pleadings after the Task Force and the defendants attempted to keep the Task Force's recommendations relating to their sentences under seal (i.e., not available for public scrutiny). But one of the Merrill defendants -- James Brown -- earlier this week filed his objection to the Task Force's sentencing recommendation in regard to him, and that pleading contains shocking information regarding the length of sentences that the Task Force is proposing. The Task Force Court is proposing sentences ranging from seven years for William Fuhs, the former low-level Merrill executive who had little control over the transaction, to an effective life sentence in prison for Dan Boyle, the former Enron executive who was in charge of closing the deal.
The basis of the Task Force's draconian sentencing recommendations is the alleged loss to Enron resulting from the Nigerian Barge transaction. However, as noted in earlier posts here and in regard to the U.S. Chamber of Commerce amicus curie brief noted here, the Task Force's position on the damages to Enron investors resulting from the relatively small barge deal is highly dubious and simply is not a credible basis for tossing business executives with no prior criminal record into prison for long periods of time.
Thus, even after the injustice of the sad case of Jamie Olis, the Justice Department continues its unfortunate policy of seeking maximum sentences against easy targets, such as relatively wealthy business executives. Given the utter lack of any perspective within the Justice Department regarding such matters, it's going to take strong-willed judges to step in and impose sentences that relate fairly to the nature of the offenses. Let's hope that Judge Werlein does just that on Thursday.
Former Enron suitor Dynegy Inc. has agreed to pay $468 million to settle a class action suit that accused the Houston-based company and several of its former officers and directors of conspiring to cook the company's books to mislead investors. The Chronicle story on the settlement is here.
For more than a decade in the Houston business community, Dynegy was known as "Enron-lite" -- a smaller energy company that tracked Enron's success in various business ventures, but primarily in natural gas trading. The class action claims arose during the period after Dynegy's failed merger with Enron during that latter company's meltdown at the end of 2001. Inasmuch as Enron was a market-maker in energy trading, that entire industry suffered a major shakeout immediately after Enron's demise, and Dynegy was one of the trading companies that had to scramble to avoid its own demise in the aftermath of Enron's bankruptcy.
Dynegy said it will pay the settlement using available cash, insurance, company stock, and bank lines. Dynegy reported about $1.2 billion in cash and unused bank credit availability as of Dec. 31, 2004. Dynegy will use insurance to cover $150 million of the settlement, $250 million from its cash reserves, and the remaining $68 million will be in the form of Dynegy's common stock issuance. Dynegy expects to book a first-quarter charge of $155 million from the settlement and associated legal expenses, and its stock finished Friday's regular session down 3.8% at $3.56.
The class action claims revolved around a financial project dubbed "Project Alpha," a system of gas trades that Dynegy allegedly used to mollify a discrepancy between lagging operating cash flow and rising net income. As a part of that deal, class plaintiffs alleged that Dynegy disguised a $300 million loan as cash to inflate its financial statements. Representatives of Arthur Andersen, Dynegy's former auditor, testified that Dynegy representatives had not disclosed key parts of the deal to Andersen and that its accounting treatment of the deal would have been different had all information been disclosed. That testimony led to a well-known conviction in a related criminal case that is known on this blog as the sad case of Jamie Olis.
The settlement also covers negligence allegations pending against former Dynegy CEO Chuck Watson, former president Steve Bergstrom, and former CFO Rob Doty. Their portions of the settlement will be paid out of the company's Directors and Officers' liability insurance policy.
April 15, 2005
Although Tiger Woods may not make it look so, golf is an exceedingly difficult game to play for most of us. Yet, because of the exceptional ability of Mr. Woods and a relatively few number of professional golfers, this Golf Digest article reports that the United States Golf Association is now officially searching for a more sluggish golf ball.
In an email dated April 11, the USGA is asking about 35 golf equipment manufacturers for prototype golf balls that fly shorter distances than those currently allowed. The email requests that manufacturers submit two golf-ball designs, one that would land 25 yards shorter on average than the USGA's current standard, and another that would fall 15 yards shorter. The email stated that participation in the new prototype ball is voluntary and did not set a timetable for submitting the prototypes.
Until around 2000 or so, most good golfers used liquid-filled wound golf balls that were soft and easy to control, but did not fly as far as hard balls with solid cores and urethane covers. However, newer ball technology has now produced balls have a solid core and a urethane cover that are as easy to control as the old liquid-filled balls, so the good golfers are pounding these balls longer distances.
So, what's wrong with hitting a golf ball further, you ask? Well, while most golfers are looking for any edge to make a difficult game easier, proud course owners contend that that the new balls make their courses too easy to play. As a result, a few course owners have lengthened their courses to make them more challenging, but golf "traditionalists" believe that such acts are sacriligeous and akin to retrofitting a work of art. Meanwhile, the vast majority of golfers do not hit a golf ball appreciably further with the new balls, and many of the new longer courses that are created to challenge the long hitters are simply torture chambers for the average golfer. Nevertheless, the mantra to rein in the golf ball coninutes on. Prominent professionals such as Jack Nicklaus and Greg Norman have lobbied for limits on golf equipment for years and Augusta National Golf Club, host of last weekend's Masters Tournament, is also calling for technological restrictions.
On the other hand, golf manufacturers are resisting the call for restrictions. Outside the insulated world of professional golf, manufacturers understand that golf as a sport is struggled to keep golfers playing. The number of rounds played in the U.S. was about 495 million in 2003, which is down from a peak of around 520 million in 2000, and industry statistics reflect that new golfers each year are offset roughly by the number of people who give up the game.
Some manufacturers have suggested that the USGA consider allowing separate technologies for pros and recreational golfers, which would make the sport easier for recreational players while maintaining stricter standards for professionals. However, such a move would break with golf's tradition of maintaining the same rules for all players, and it is highly uncertain how such a break would be received in the marketplace. Moreover, inasmuch as everyone from Mr. Woods to low-handicap recreational golfers can qualify for open tournaments, differing technological standards would raise the issue of where the USGA would draw the "technology line?"
So, in the end, the USGA should just leave good enough alone. No golfers are quitting the game because of technological innovations in golf equipment. The fact that a few professionals' ability to hit the long ball is making a few courses obsolescent for professional tournament golf is an inadequate reason to make an already impossible game more difficult for the vast majority of golfers.
On a day in which the stock market was hammered generally, Dallas-based Southwest Airlines savvy use of fuel hedges allowed it to offset high fuel costs and nearly triple its profit to $76 million in the first quarter. Southwest's net profit was equivalent to nine cents a share, which compared with a profit of $26 million (three cents a share) in the year-earlier quarter.
However, after Southwest, first quarter results from other airlines will likely be bleak. With several airlines wallowing in bankruptcy, JetBlue Airways -- another discount airline -- is the only other airline that is expected to report a profitable first quarter.
Southwest's hedging program allows the company to lock in fuel prices and protect itself from soaring fuel costs. Southwest saved $155 million during the quarter by capping 86% of its fuel expenses at the equivalent of just $26 a barrel of crude oil, close to half the actual cost of oil during the quarter. Southwest has also hedged 85% of its 2005 jet fuel costs at the equivalent of $26 a barrel of crude oil, 65% of its expected 2006 fuel needs are hedged at $32, and 45% of 2007 fuel costs are hedged at $31.
Meanwhile, Southwest also reduced its costs almost 4% from a year ago, while operating revenue rose 12% to $1.66 billion.
Southwest is one well-managed business.
As expected, the House approved the Bankruptcy Reform legislation and sent it to President Bush, who has stated that he will sign it promptly. The amendments will go into effect in six months.
This previous post sets forth my reservations about this legislation, so they will not be restated here, except to point out that this is special interest-driven legislation that modifies an underappreciated bankruptcy system that contributes much to the strength of the American economic system. The "fresh start" of a bankruptcy discharge encourages entrepreneurs to take risk and create businesses and jobs, and gives individuals hope that they can rebound from a financial disaster to rebuild wealth for their families. Accordingly, making that remedy more expensive and more restrictive to individuals is not a step in the right direction.
April 14, 2005
The shoe dropped today for a couple of Houston-based businessmen in regard to the criminal investigation into the allegedly corrupt administration of the United Nation's Oil for Food program.
Following this earlier post from last December, this New York Times article reports that David B. Chalmers, Jr. -- a Houston resident who owns Bayoil, Inc., a Bahamian company -- was arrested today along with two other oil traders under a Southern District of New York indictment that alleges that they paid millions of dollars in secret kickbacks to Saddam Hussein's Iraqi regime and, in so doing, cheated the United Nations' oil-for-food program of humanitarian aid funds. Ludmil Dionissiev, a Bulgarian citizen and permanent U.S. resident, was also arrested today at his Houston home in connection with the indictment, and the U.S. Attorney in New York is seeking the the extradition from England of a third defendant, John Irving.
Under the indictment, the government accused the defendants of paying millions of dollars in kickbacks so that Mr. Chalmers' oil companies could continue to sell Iraqi oil under the oil-for-food program. The kickbacks between mid-2000 and March 2003 involved over $100 million in funds that allegedly otherwise would have been earmarked for humanitarian relief. Another criminal complaint unsealed on Thursday in New York charged South Korean citizen Tongsun Park with conspiracy to act in the U.S. as an unregistered government agent for the Iraqi government's effort to create the oil-for-food program.
The U.N. program, which the U.S. originally endorsed, began in 1996 and permitted Iraq to sell oil despite a stiff U.N. economic embargo against Saddam's regime. Under the program, the proceeds of the oil sales were to be used to buy food and medicine for Iraqi people suffering under the sanctions. The indictment alleges that "the government of Iraq alone had the power to select the companies and individuals who received the rights to purchase Iraqi oil," and, beginning in 2000, the government demanded that distribution of oil be conditioned upon the recipients' willingness to pay kickbacks.
The investigation of Mr. Chalmers and others in regard to the Oil for Food scandal has been ongoing for some time, and the connections between the individuals allegedly involved are certainly intriguing, as this Laurie Mylroie Financial Times article reports.
The gamesmanship continues in the battle between the Enron Task Force and former Enron chairman and CEO Ken Lay over when and how to handle the trial of the government's bank fraud charges against Mr. Lay. Prior posts on this flanking action in the war between the Task Force and Mr. Lay can be reviewed here, here, and here.
In response to the government's request for a trial within the next two months on the severed bank fraud charges, Mr. Lay not surprisingly has asked U.S. District Judge Sim Lake to include the bank fraud charges in the January 2006 trial of the larger conspiracy-securities fraud charges in which Mr. Lay is a defendant along with former Enron CEO Jeff Skilling and fomer Enron chief accountant Richard Causey. However, in an interesting twist, Mr. Lay has requested that Judge Lake adjudicate the bank fraud charges himself rather than allowing those charges to be considered by the jury that will hear the conspiracy-securities fraud charges. Thus, Mr. Lay's attorneys are attempting to hedge the substantial risk that a jury might be inclined simply to throw the book at Mr. Lay and convict him on all counts whereas he might stand a better chance of acquittal on the bank fraud charges in front of Judge Lake.
Although an interesting strategy, my sense is that Mr. Lay's approach will not work because the Task Force will want to try the bank fraud charges to a jury, which the government figures will be more sympathetic to its case than Judge Lake. A hearing is scheduled on the matter on April 21. The Chronicle's Mary Flood's report on the skirmish is here.
One of the truly good guys in Houston's legal community -- Fulbright & Jaworski litigator Tom Godbold -- has been elected chair of the board of the State Bar of Texas and will assume the one-year term during the State Bar's annual meeting to be held June 23-24 in Dallas.
Tom has given his time generously to Bar activities for some time. He has served on the State Bar Board since 2003, and was awarded a State Bar Presidential Citation for serving as Chair of the Legal Services for the Poor Funding Request Work Group in 2004. Tom has also been active in the Houston Bar Association for years and served as its president in 2002-2003.
In the first event 20 years ago, 237 riders braved the ride and raised $117,000 for research into Multiple Sclerosis. Incredibly, the event has now grown to over 13,000 riders who will raise about $10 million, which is the largest event by far of this type of event organized by the National Multiple Sclerosis Society. Check out the MS 150 website, which allows you to donate money in the name of any of the riders in the event.
This New York Times article reports on a just released New England Journal of Medicine study that indicates athletes who drink as much liquid as possible during intense exercise to avoid dehydration face an even greater health risk than dehydration.
The study reports that an increasing number of people who engage in intense exercise or recreation are severely diluting their blood by drinking too much water or sports drinks, risking serious illness and, in some cases, death.
The condition -- called Hyponatremia -- occurs because, during intense exercise, the kidneys cannot excrete excess water. Accordingly, as intense exercisers continue to exert themselves and drink more fluid, the extra water moves into their cells, including brain cells. The expanded brain cells eventually have no room to expand further and press against the skull and compress the brain stem, which controls vital functions such as breathing.
Indeed, the mantra from docs to intense exercisers over the past generation -- i.e., avoid dehydration at any cost -- may be part of the culprit. As the Times article notes:
"Everyone becomes dehydrated when they race," [said one of the researchers involved in the study]. "But I have not found one death in an athlete from dehydration in a competitive race in the whole history of running. Not one. Not even a case of illness."
On the other hand, he said, he knows of people who have sickened and died from drinking too much.
To make matters even more complicated, Hyponatremia can be treated,
but doctors and emergency workers often pressume that a person feeling ill after intense exercise is simply suffering from dehydration. Thus, they give the exerciser intravenous fluids, which makes the Hyponatremia worse and can kill the patient.
I guess those old high school football coaches of mine back in the late 1960's who didn't allow my teammates and I so much as a drink during two-a-days in the summer heat knew more than they were letting on? ;^)
April 13, 2005
The Stros probable fifth pitcher in their starting rotation -- rookie Ezequiel Astacio -- had an impressive warm-up last night at AAA Round Rock in preparation for his Major League debut next week.
Astacio gave up just one hit -- a solo yak -- and one walk in seven innings while whiffing five in Round Rock's 2-1 loss to the Iowa Cubs last night. The Cubs scored the winning run in the eighth after Astacio had left the game.
Astacio is tall (6'3"), but weighs only 150 lbs., and that may be pushing it for his weight. Despite his slim build, Astacio has wicked stuff and could be a nice addition to an already imposing Stros pitching staff this season. Astacio is one of three promising young starting pitchers in the Stros' minor league system who could see action on the Major League level soon. The other two are Wandy Rodriguez (AAA Round Rock) and Fernando Nieve (AA Corpus Christi). Nieve threw six innings of one hit, shutout ball while walking two and striking out eight in leading Corpus to its first victory in franchise history last night.
This Chronicle article reports on the road trip that several Houston business and city government representatives are taking to New York this week for a Thursday meeting with National Football League officials on Houston's bid to host Super Bowl XLIII (i.e., 43) in 2009. Final bids must be submitted by May 2, and the league's owners will award the Super Bowl to one of the candidates on May 25 at the NFL summer meetings in Washington. Houston and Atlanta are considered the early favorites to win the bid, although Tampa and Miami also are submitting bids.
Houston's successful hosting of the Super Bowl XXXVIII in 2004 is certainly a feather in its cap, but the competition for hosting the Super Bowl is getting very stiff. With new stadiums likely to be completed in both Dallas and New York by 2010, and with San Diego, Miami and New Orleans being the favored sites for Super Bowls, Houston might not be in the running to host another Super Bowl for a long time if it is not successful in its bid for the 2009 game.
Don't miss this Wall Street Journal ($) editorial today, which addresses the same issue that many of these earlier posts address in regard to the Lord of Regulation's ongoing public flogging of American International Group, Inc. and its former chairman and CEO, Maurice "Hank" Greenberg:
[Y]ou don't have to belong to the ACLU to wonder about the lack of due process here. Mr. Spitzer uncovers questionable accounting about an insurance transaction and demands that the board fire the CEO. He then uses that firing to justify a public accusation of "fraud" that he hasn't yet proven to anybody, much less to a jury of Mr. Greenberg's peers.
To which our reaction is, then why not get on with it and indict the man? If Mr. Greenberg's behavior is so heinous that it warrants a denunciation as "fraud" on national TV, what is Mr. Spitzer waiting for?
As an aside, this post addressed the Lord's unusual public statement from last week in which he stated that his public flogging of AIG would probably not result in a criminal prosecution of the company, although the same could not be said about Mr. Greenberg. AIG and Berkshire Hathaway board members and shareholders heaved a joint sigh of relief and gave thanks to the Lord for his public statement.
Well, it turns out that the Lord may have had more than market stabilization as a motive for that public statement. The Lord is already running for Governor of New York, and it turns out that some of the Lord's largest campaign contributors are partners in the law firm that is defending AIG in the Lord's investigation of the company. Inasmuch as that firm has apparently been advising AIG to roll over for the Lord during the investigation, do you think the AIG board knew of the connections between the company's law firm and the Lord before acting on that advice?
April 12, 2005
Here is the Justice Department's brief in Arthur Andersen's appeal to the U.S. Supreme Court of its criminal conviction of witness tampering in connection with its destruction of Enron Corp.-related documents during the latter stages of that company's collapse in late 2001.
The Justice Department frames its argument of the key issue in the appeal in the following manner:
The lower courts correctly defined the term ?corruptly? in Section 1512(b) as ?having an improper purpose? ?to subvert, undermine, or impede the fact-finding ability of an official proceeding.? The lower courts? definition is consistent with the purpose-based definition long given to the identical term in the general obstruction-of-justice statute, 18 U.S.C. 1503, on which Section 1512 was based; in other obstruction-of-justice statutes; and in other federal criminal statutes more generally. That definition does not render the term ?corruptly? superfluous. Nor does it criminalize conduct that is not inherently wrongful, because it has long been understood that it is improper to destroy documents when litigation is anticipated for the purpose of frustrating the truthseeking process.
Petitioner?s novel alternative definitions of the term ?corruptly? ? which would require either ?proof of improper means of persuasion or inducement to unlawful acts,? or ?proof of consciousness of wrongdoing? ? should be rejected. The former definition cannot be reconciled with the text of the statute; would give the term ?corruptly? a different meaning in Section 1512(b) than in other obstruction-of-justice statutes; and would criminalize little, if any, conduct that is not already criminalized by other provisions. The latter definition contravenes the established principle that ignorance of the law is no defense, and no exception to that principle is warranted here.
The Justice Department's brief is 77 pages, which makes it even more incredible to me that appellate attorneys are not using the bookmark tool in Adobe Acrobat to facilitate ease of review of lengthy appellate briefs.
Las Vegas is not normally the place that one goes to visit a museum, but the one described in this Opinion Journal piece appears to be worth checking out during a respite from the blackjack tables:
Over . . . 40 years, 928 nuclear devices were exploded at [the Nevada Test Site, 65 miles northwest of Las Vegas] -- although atmospheric blasts eventually gave way to underground testing.
The fascinating, often surprising, story of the site's four-decade history is the subject of the new Atomic Testing Museum (www.ntshf.org), not far from the Las Vegas Strip, a place where levity and holocaust often go hand-in-hand. In the museum gift shop, for example, I picked up a postcard. "Greetings from the Nevada Test Site," it proclaimed, showing a collage of doomsday clouds floating above a scraggly desert. I half expected to see a postmark from hell.
In the wake of dismantling former Russian oil giant OAO Yukos, the Russian government hammered British Petroleum PLC's Russian joint venture with new back-tax claims totaling about $790 million. The news did not do much for the already jittery capital markets that are considering investments in Russia's badly undercapitalized exploration and production infrastructure.
The news also came just weeks after Russian President Vladimir Putin promised in a meeting with local business leaders to control the excesses of Russian tax inspectors who have slammed numerous Russian companies over the past several years. In the case of Yukos, that conduct led to the effective nationalization of the company.
The BP Russian venture -- called TNK-BP -- announced that it would fight the claims, although that approach did not do Yukos much good. At least BP's potential financial exposure is limited because the joint venture was formed only in 2003 in a transaction in which BP's Russian partners agreed to carry most of the exposure.
Although Russian officials have sought to portray the Yukos case as an isolated event involving a rogue company, the tax claims against TNK-BP and others have continued to undermine investor confidence in the Russian business system. The current Russian government tax claims against TNK-BP are the largest against a company with a major foreign investor.
Meanwhile, in a closing statement during the Russian government's trial of criminal charges against him, former Yukos chairman and CEO Mikhail B. Khodorkovsky laid the wood to the Russian government yesterday in which he alleged that the charges were "the fantasies of a pulp-fiction writer" meant to cover up the Russian government's effort to seize his oil assets and silence him politically.
Various former executives of disgraced and insolvent Enron Corp. are under indictment for using structured finance transactions that independent lawyers and accountants approved to mislead investors regarding Enron's true financial condition. Although such transactions came to light almost four years ago, no such Enron executive has yet to be tried on such charges. In the meantime, Enron has been effectively liquidated.
Several years ago, General Reinsurance Corp., a unit of Berkshire Hathaway, and American International Group, Inc. entered into at least one large structured finance transaction with each other. As with Enron's structured finance transactions, numerous executives, lawyers, accountants and perhaps even consultants for both companies reviewed and approved the deal. Here are the previous posts on the saga involving AIG and Berkshire.
New York Attorney General Eliot Spitzer, the new Lord of Regulation, believes that the companies did not account for the transaction properly and, as a result, that the transaction made AIG and Berkshire's financial performance appear better to each company's investors than it really was. Despite not having heard his side of the story, the Lord has already concluded that former AIG chairman and CEO Maurice "Hank" Greenberg -- a rather hard-knuckled executive -- committed a crime in regard to the transaction.
Yesterday, as this NY Times article reports, the Lord had a nice chat with the avuncular Oracle of Omaha, the chairman of Berkhsire, in which he questioned the Oracle over his knowledge of the transaction. The Oracle replied that he knew about the deal generally, but that others at General Re handled the details of the transaction. The Oracle also stated that he understood that the deal had been properly accounted for, but again, he did not really know much about the details of all that.
By the way, the Oracle agreed to chat with the Lord because the Lord assured him that -- unlike the dastardly Mr. Greenberg -- the popular Oracle is not a target of the Lord's investigation. In appreciation for the Lord's courteous gesture, the Oracle served up some more juicy tidbits of AIG's involvement in the transaction for the Lord to chew on.
In the meantime, former Enron chairman and CEO Ken Lay's defense of the criminal charges against him relating to Enron's structured finance transactions is precisely the same as the Oracle's above explanation of his role in the transaction with AIG.
In the wake of almost unprecedented negative publicity -- much of which has been flamed by prosecutors pursuing him -- Mr. Lay is facing the prospect of spending much of the remainder of his life in jail. The same is probably true for Mr. Greenberg.
Meanwhile, another large company that engaged in similar structured finance transactions -- and which collapsed at about the same time as Enron -- announced yesterday that it had settled civil charges with the SEC over its involvement in such transactions. No criminal charges were ever filed in regard to that matter.
And the Oracle returns to Omaha to work on his next letter to shareholders.
Quare: Is this any way to regulate business?
April 11, 2005
This Angry Bear post provides a good overview of the probable impact of current oil prices on the American economy, which segues nicely to this recent Wall Street Journal ($) interview with ExxonMobil CEO Lee Raymond, in which he observes the following:
WSJ: What do you think of ChevronTexaco's decision to acquire Unocal?
Mr. Raymond: I can never remember an industry consolidating at high prices. But I can remember an industry consolidating at low prices.
WSJ: Some people think prices will keep going up.
Mr. Raymond: Maybe. I'll bet they'll be lower at some point.
Let me go back to the last time we went through something like this, which started when the shah of Iran was around. [The shah went into exile in 1979.]
A lot of people don't remember, but we went through a period of relatively high oil prices, which by today's standard would be very high oil prices, that lasted for almost five years. It was at that time that we got into our first stock-buyback program.
As today, we had very strong cash flows. There were a lot of people that were talking about buying other companies. Although we didn't say it directly at that time, we had a view that the price structure could not last -- that it was fundamentally unstable, and that it was just a matter of time. And so we concluded that the cheapest oil we could buy was our own. But because of the stock-buyback program, we were roundly criticized on Wall Street. There were no opportunities. We were liquidating the company. All that kind of stuff.
But the facts are that, behind the scenes -- we were not going to say it publicly, obviously -- we just felt that the price structure couldn't persist. And, come along December of 1985, it just collapsed. Went from $28 to $10 in two weeks. So when people ask today, what are you going to do with the money, my answer is: We're not going to do anything stupid. We're going to manage it like we've managed everything else.
WSJ: What is Exxon planning to do with all its cash?
Mr. Raymond: First of all, we'll sort through it. And secondly, why in the world would we ever tell anybody in advance what we were going to do with it anyway?
The fluctuation of oil prices is a common topic on this blog, and prior posts on the topic can be reviewed here.
British historian Paul Johnson (author of "Modern Times," "History of the Jews," "History of Christianity," "A History of the American People," and his more recent "Art, A New History," among others) is one of my favorites. In Modern Times, one of his dominant themes is the development in the 20th century of huge governments and their exponential capacity to do evil, particularly to human life.
In this insightful Opinion Journal op-ed on Pope John Paul II, Mr. Johnson notes that the world has lost one of its staunchest supporters of the sanctity of human life:
This great pontiff was essentially a defender, promoter, protector and enhancer of life: life in all its forms, as God created them, but especially human life.
He sought to limit, almost to vanishing point, the occasions on which the state, let alone individuals, might legitimately extinguish or frustrate life. He had spent his manhood largely under the tyranny of the two vilest anti-life systems the world had ever seen: Nazism and Communism, together responsible for the unnatural deaths of over 120 million people in Europe and Asia. He had seen at close quarters the appalling consequences which inexorably follow when authority is directed by philosophy contemptuous of life.
John Paul was, perhaps, most vehement in his condemnation of abortion, especially when practiced under the sanction of law and on a huge scientific scale, in the clinics specially created to smother the spark of life before birth, which he compared to the death camps erected by Nazi and Soviet mass murderers. It was a sharp sword in his heart which filled him with righteous indignation that, after the world had been scourged for more than 50 years by the mass killings of totalitarianism, anti-life politicians, above all in the democracies, should have set up a holocaust of the unborn which has already--as he often asserted with awe and anger--ended the existence of more tiny human creatures than all the efforts of Hitler, Stalin and Mao combined.
But it should not be thought that John Paul's defense of life was conducted on principles seen as conservative. He was an absolute and implacable opponent of capital punishment, an issue on which he parted sorrowfully from many of his warmest admirers. He was most reluctant to admit the admissibility of war in almost any circumstances. He was wary of giving any kind of approval to President Bush's active war on terror, and plainly opposed the invasion of Iraq. It was his view that a righteous ruler, however tempted by the urge to end wicked regimes, should not set in motion events which would soon move out of control and perhaps cause evils far worse than those it was designed to end.
Not that the pope condoned terrorism in any form. He was never among those clergy in the West who mitigated their disapproval by pointing to legitimate grievances.
Indeed it would be hard to imagine a greater contrast between Pope John Paul, who spent his entire existence searching perpetually to prolong and preserve life, and that evil caricature of a spiritual leader Osama bin Laden, who from the moment he awakes, throughout the day, until he falls into a troubled sleep, directs his agents to end as many lives as possible, including their own (but never his). In their cataclysmic duality, these two men came as close as ever human beings do to embodying the principles of Good and Evil.
Eliot Spitzer, the New York AG (i.e., "Aspiring Governor") made the Sunday talk show circuit yesterday in regard to his campaign against corporate wrongdoing generally and his ongoing investigation of transactions between AIG and a unit of Berkshire Hathaway (earlier posts here) specifically.
The investigation -- which has not yet resulted in a single indictment, but has battered AIG's stock and credit rating -- involves scrutinizing complicated financial transactions that were approved by scores of transaction lawyers, accountants, and consultants for both AIG and Berkshire. Indeed, the MSM reporting on Mr. Spitzer's campaign have not even attempted to obtain an explanation of the transactions from the persons involved in structuring the transactions. Nevertheless, the Lord of Regulation said yesterday that he had strong evidence that former AIG chairman and CEO Maurice "Hank" Greenberg committed fraud in initiating the deal between A.I.G. and General Re, the subsidiary of Berkshire. Mr. Spitzer's following comments will give you a flavor for the entire interview:
These are very serious offenses, over a billion dollars of accounting frauds that A.I.G. has already acknowledged. . . That company was a black box, run with an iron fist by a C.E.O. who did not tell the public the truth. That is the problem.
Today, this NY Times article today reports that Mr. Greenberg is probably going to refuse to testify based on his Fifth Amendment privilege at a deposition that Mr. Spitzer has scheduled for Tuesday.
After Mr. Spitzer's public comments of yesterday, how could Mr. Greenberg responsibly do anything else?
By the way, it's nice to see that someone else is noting that Mr. Spitzer is manipulating prejudices in an unhealthy manner.
The Stros finish their first home stand of the season at 4-1, although the five runs that they scored in the Sunday win over the Reds was the most that the club has scored in any of its first five games of the season. At least Bags hit a couple of yaks over the weekend, along with taters from Bidg, Ensberg, and Lane. Rookie Chris Burke drew his first start of the season in the Sunday game (in left field) and acquitted himself well with three hits.
The Stros now go on the road for a week with an odd Monday, Wednesday, and Thursday series in New York against the 1-5 Mets, who just won their first game of the season on Sunday. Ex-Stro Beltran has not yet warmed up (.273 Avg./.304 OBP/.455 SLG.), so let's hope he stays in the doldrums for awhile longer. After the Mets series, the Stros visit Cincinnati for another series next weekend against the Reds (3-3), and then return for a quick four game homestand on Monday April 18th with two games each against the Braves (4-2) and the Brewers (3-2) before heading back out on the road against the Cardinals (2-3) and then the Pirates (2-4).
April 10, 2005
After previous posts here and here regarding local investigative reporter Wayne Dolcefino's recent squabble with his long-time employer, KTRK-TV, this Chronicle article confirms that the conflict arose from the station quashing Dolcefino's story on the non-profit Houston Livestock Show & Rodeo's lavish spending on its offices and the Rodeo's rather pedestrian amount of charitable contributions in relation to the size of the revenues generated by the Rodeo.
Dolcefino is famous (or infamous, depending on your point of view) in local circles for his outspoken investigative journalism pieces of high-profile targets. Who can forget the devastating Dolcefino series that KTRK ran several years ago on Doug Sanders' now-defunct charity senior golf tournament? The Chron reports that KTRK bowed to pressure from the Rodeo in spiking Dolcefino's Rodeo story, probably because the station is one of many local groups that is considering partnering with the Rodeo on a summer festival that is currently in the planning stages.
Essentially, Dolcefino would have reported that the Rodeo spent lavishly on its new offices at Reliant Park and that it provides many free perks to the media representatives who cover the event for various media organizations. Dolcefino's story also would have addressed the Rodeo's low level of charitable contributions compared to other charitable organizations, which Rodeo representatives contend is unfair because the Rodeo's primary purpose is entertainment and its charitable contributions are ancillary to that primary purpose.
An interesting story would be comparing the charitable contributions of the Rodeo with those of Houston's other major non-profit entertainment sponsor, the Houston Golf Association, which puts on the Shell Houston Open each April. The HGA is considerably smaller than the Rodeo, but each organization operates in much the same way -- a non-profit corporation sponsoring an entertainment event with the pitch that charities are the primary beneficiary of the proceeds from the event. Maybe that's the story that Dolcefino should really pursue.
April 9, 2005
On the heels of this earlier post regarding the controversy over whether the Harris County Sports Authority should be put out of its misery, don't miss this Anne Linehan blogHouston.net post about current HCSA chairman Billy Burge's (picture left) over-the-top outburst during a recent appearance of former HCSA chairman Jack Rains on Dan Patrick's call-in show on KSEV-AM radio.
It occurs to me that, when a quasi-governmental official such as Burge expresses this degree of concern over dissolution of his agency, then that is pretty darn good evidence that the agency needs to be dissolved. Quickly.
April 8, 2005
Paul Frame, the former CEO of Houston-based geophysical seismic company Seitel, Inc., was convicted yesterday by a jury in Houston federal court of of swindling $750,000 from the company to settle a civil lawsuit that his former fiancee had filed against him. Here is a previous post on Mr. Frame's indictment on those charges.
In an unusual move, U.S. District Judge David Hittner ordered Mr. Frame taken away by U.S. Marshals and placed in the Federal Detention Center in downtown Houston after the verdict rather than allowing him to remain free on bond pending sentencing. Prosecutors had requested a small increase in his bond, but had not opposed Mr. Frame's release pending sentencing. Sentencing is scheduled for July 7, and Mr. Frame faces up to 20 years in federal prison.
Seitel emerged earlier from a chapter 11 case in 2004 that was commenced in 2003 several months after Mr. Frame had been terminated as the company's CEO amidst revelations of his use of corporate assets for personal purposes and accounting issues regarding the value of Seitel's primary asset, which is its library of geophysical seismic data.
The Wall Street Journal's ($) Washington Wire reports today that Michael Jackson's 72% negative rating dwarfs his 5% positive rating, and that those numbers are worse than those of O.J. Simpson.
However, of some comfort to Mr. Jackson is that his ratings are slightly better than those of Saddam Hussein.
In an extraordinary development in the unfolding criminal investigation of transactions between American International General, Inc. and Berkshire-Hathaway, Inc., this NY Times article reports that Berkshire chairman Warren Buffett -- in an effort to win leniency for Berkshire in an unrelated case -- directed Berkshire's lawyers several months ago to turn over documents describing the transaction between Berkshire unit General Re and AIG that is at the heart of the criminal investigation. Here are the previous posts on the AIG and Berkshire saga.
As a result of Mr. Buffett's peace offering, former AIG chairman and CEO Maurice "Hank" Greenberg is facing the prospect of giving a deposition next week to the Justice Department, Securities and Exchange Commission, Eliot Spitzer and the New York attorney general's office, and New York insurance regulators. In comparison, Mr. Buffett will merely be "interviewed" on Monday by the investigators, who consider him merely a witness in the AIG probe at this point.
According to the Times article and this similar Wall Street Journal ($) article, Mr. Buffett and Berkshire served up AIG and Mr. Greenberg on a platter to prosecutors in December when prosecutors were questioning Berkshire officials regarding General Re's transactions with Reciprocal of America, a failed Virginia-based insurer. The prosecutors are investigating whether General Re had helped Reciprocal disguise loans as reinsurance to hide losses from insurance regulators. Two Reciprocal executives have copped plea deals and began cooperating with investigators, which led prosecutors to inform Berkshire lawyers that General Re and Berkshire executives may face criminal charges in connection with their probe of Reciprocal. A couple of weeks later, the Times and WSJ report that, at Mr. Buffett's behest, Berkshire lawyers gave investigators documents regarding General Re's questionable transaction with AIG.
Sort of makes one feel warm and fuzzy about doing business with that American business icon, Warren Buffett, doesn't it?
After splitting the first two games of the season with the Cardinals, the Stros have their first weekend series of the season at Minute Maid Park against the slugging Cincinnati Reds, who are coming off a satisfying season-beginning three game sweep of the Mets. The Rocket takes the hill on Friday against the Reds' Ramon Ortiz, followed by Backe on Saturday and Roy O. in the Sunday matinee.
It's not prudent in baseball to make concrete conclusions based on the anecdotal experience of two games, but the Stros' lack of hitting -- particularly power hitting -- is apparent. In Games 1 and 2 against the Cards, the Stros were able to score a total of seven runs on 22 hits, 15 of which were singles and none of which were home runs. Pitchers Pettitte, Qualls, and Lidge looked good in Game 2 against the Cards, but without more run production, good pitching will only go so far.
The Reds are sort of the polar opposite of the Stros, with a raft of mashers at the plate (Houston area resident Adam Dunn, Ken Griffey, Jr., Austin Kearns, etc.), but marginal pitching, at best. The Reds also started fast last season, but faded badly after the All-Star break as the club's deficient pitching simply could not keep the team in many games. I think they will do better this season, but my sense is still that they do not have enough pitching to get to the 90 win level that is necessary to compete for a playoff spot.
The only thing that I've seen during the first two games that is truly baffling is Stros' manager Phil Garner's decision to bat light hitting shortstop Adam Everett in the leadoff spot in the Stros' order. So far in his career, Everett has been a far below average hitter. Over the past two seasons, Everett has a -24 RCAA (explained here) -- i.e, he has created 24 fewer runs than an average player in the National League would have produced in the same number of games. Moreover, Everett has a career on-base percentage of .315, which is well below the 2004 average OBP of .329 in the National League. Inasmuch as a club should not be batting someone at lead off who is merely average in terms of on base average, it goes without saying that a player who is below average in that department should not be leading off.
Although Garner's reputation rode the crest of the Stros' marvelous finish last season, his record during his eleven previous seasons as a manager before coming to the Stros was not good. Although Everett is a wonderful defensive player and those skills can justify playing him despite his offensive deficiencies, it is simply managerial malpractice for Garner to place him in the leadoff spot in the Stros' order. A few more moves like that and Garner might as well hire Jimy Williams as his bench coach.
Meanwhile, over at the Brazosport News, Banjo Jones reports on a rather embarrassing problem pertaining to Alvin, Texas' statute of former Stros star and local icon, Nolan Ryan.
When Naval Academy head football coach Paul Johnson took over the head coaching job after the 2001 season, he inherited a Navy football program that that had gone 1-20 over the two seasons before he was hired.
In Coach Johnson's first season, Navy went 2-10, playing six teams that played in postseason bowl games. But then, in 2003, Navy went 8-5 and became just the sixth team in NCAA history to make a bowl game two years or less after a winless season. This past season, the Midshipmen were 10-2, which was Navy's first 10 win season in 99 years. In so doing, the Midshipmen wrapped up their second consecutive Commander in Chief's Trophy (their last one had been in 1981) and beat New Mexico in the Emerald Bowl in San Francisco to give Navy its first bowl win since 1996.
In short, Coach Johnson can flat out coach.
Longtime Houston oil and gas attorney Dick Watt gained an appreciation for cogent football coaches while playing under the legendary Darrell Royal and Coach Royal's late Defensive Coordinator, Mike Campbell, on the fine University of Texas football teams from 1966-68. Dick's son, Andrew, is currently attending the Naval Academy and so Dick has taken an interest in Coach Johnson, whose blunt nature reminds him of football coaches from bygone eras.
Along those lines, Dick passes along this recent interview with Coach Johnson, who is just not pleased with the way spring football practice is going at the Naval Academy. Here are a few pearls of wisdom from the interview:
Q. How does the team look?
Q. Who's your best fullback?
A. I don't know. I don't know if we have one.
Q. Have you not been pleased with what you've seen from the fullbacks so far?
A. Not really.
Q. In what way?
A. I just haven't been pleased.
Q. They don't run hard enough?
A. It's a myriad of things, each one has his own problems. It hasn't sorted itself out at all in my mind.
Q. Do you think the three guys that are out here (Kimbrough, Ballard and Hall) are capable?
A. Yeah, I think they have the ability. But if they don't get better, we will play with a freshman.
Q. What happened to Marvin Dingle?
A. He quit.
Q. Is he expected to return? Is he just taking the spring off?
A. Nope. Not when you quit. You don't do that here with me. When you quit, you quit.
Q. Any injuries of note?
A. Not really, same guys that were hurt before.
Q. How does the quarterback situation look at this point?
A. It's about like I thought. Some days are better than others.
Q. Just watching the kickers briefly, it appeared that the kid that came over from the sprint football team (Joey Bullen) has a decent leg.
A. Today he did better than the others.
Q. But it's not that way every day?
A. None of them are consistent right now.
Now, that's my idea of a football coach!
April 7, 2005
This BBC News article reports on a University of Minnesota Medical School study that links use of Viagra to vision loss:
[Researchers at the University of Minnesota Medical School] writing in the Journal of Neuro-ophthalmology, said it brought the total number of reported cases to 14. But Pfizer, the makers of the drug which has been used by more than 20m men since its launch in 1998, said the cases were a coincidence. The seven men, aged between 50 and 69 years old, had all suffered from a swelling of the optic nerve within 36 hours of taking Viagra for erectile dysfunction.
If the plaintiffs' lawyers can use this information to prompt Pfizer to use Viagra's advertising budget for defense costs rather than advertising, then I will be strong advocate of the plaintiffs' bar in this case. Hat tip to the HealthLawProf Blog for the link to the BBC News article.
Coming on the heels of this earlier post on the Enron Task Force's use of Ken Lay's prior public statements to move for an early trial on the pending bank fraud charges pending against him, Mary Flood of the Chronicle reports that U.S. District Judge Sim Lake (picture on the left) has called a hearing in the case for next Friday to discuss scheduling matters in regard to the bank fraud charges against Mr. Lay.
Contrary to my earlier speculation, Ms. Flood speculates that Judge Lake -- who does run an efficient docket -- will schedule the bank fraud trial against Lay this summer before the bigger January 17, 2006 trial of the securities fraud charges against Mr. Lay and his co-defendants Jeff Skilling and Richard Causey.
This is a horrifying development not only for Mr. Lay, but also for Messrs. Skilling and Causey. The adverse publicity that will result from a trial of Mr. Lay six months before the trial of the multi-defendant case will be hard for the defendants to deal with in an environment that is already hostile to anyone associated with Enron.
Meanwhile, Ms. Flood also reports that there will be a panel discussion about the Enron scandal before the Houston premiere of Alex Gibney's documentary, Enron: The Smartest Guys in the Room on April 19, which was the subject of this earlier post.
By the way, I have not been asked to participate on the panel. ;^)
The Master's Golf Tournament cranks up today and, almost on cue, Martha Burk is railing against the capitalist roaders wasting money on such nonsense. Writing in today's Wall Street Journal ($), Ms. Burk asserts that corporate sponsorship of a rich man's club that does not allow women members is only part of the good ol' boys network that prevents an equal number of women from becoming members of corporate boards:
Augusta National Golf Club, which openly and proudly discriminates against women, will produce its Masters Golf Tournament with considerable help from the masters of corporate America. After two years without sponsors, the tournament will again be underwritten -- by stockholders and customers of IBM, SBC and ExxonMobil. The companies will spend between $7 million and $12 million for the privilege of sharing four commercial minutes per hour on the air. Even so, CBS will lose money on the broadcast, giving its stockholders -- male and female alike -- the opportunity to pick up the slack.
With the return of corporate sponsorships, there will no doubt be a return of corporate entertainment. Citigroup, Coca-Cola, Bank of America, and others will spend up to a million dollars apiece on lavish meals, liquor, housing, transportation, and gifts to customers. And that doesn't count hidden overhead expenses such as use of the company plane, staff time, and cash-only "all-night entertainment services."
It's hard to imagine this kind of corporate involvement with a club that flaunted its race discrimination. In a parallel situation in 1990, when the subject was exclusion of blacks at the Alabama club hosting the PGA Championship, IBM pulled its sponsorship with the statement: "Supporting even indirectly activities which are exclusionary is against IBM's practices and policies." Yet because the subject is now gender discrimination, IBM repudiates these selfsame policies, and other corporate lemmings follow suit. If it's good enough for Big Blue, why not?
The harm to stockholders pales beside the harm to working women. If the largest companies can send the message that sex discrimination is acceptable, it has a legitimizing effect that goes far beyond Augusta. It trickles down to frontline management, it permeates the culture, and it stifles women's progress. If women were fully represented on corporate boards, it is doubtful they would approve company entertainment at places that keep females out, or nominate new board members who condone sex discrimination by belonging to such clubs. But females constitute only 10% of boards in the Fortune 500.
Well, maybe because of the good ol' boy network, which happens to be the focus of Ms. Burk's new book, Cult of Power, published this week by Scribner. But I'm sure that Ms. Burk would not use the purity of her criticism regarding corporate support for Augusta National Golf Club to promote her new book.
Apparently, Ms. Burk has a policy of advocating rather odd views. Apart from the dubious notion that a corporation's support for a popular golf tournament means that it is supporting a golf club's policy of discriminating against women, Ms. Burk's argument fails to acknowledge that wealthy businessmen -- as well as strident women -- have the right in America to associate in a private organization with whomever they want. Those of us not in the organization may not like it, but about the time that we start advocating that the government do something about the club excluding people like us, we better start worrying about what else that a government so empowered can do. And believe me, a government so empowered can generate much greater injustice to women than anything Augusta National can do.
By the way, The Master's website has a pop-up screen that allows you to watch players on the practice tee hitting balls while warming up and on a couple of holes on the course. Check it out. That is, if you can tolerate using the website of a club comprised of a bunch of rich, white guys.
April 6, 2005
Golf Digest's annual survey of America's Greatest 100 Golf Courses is always an interesting and controversial article, and this year's edition is no exception.
The following is Golf Digest's Top 10 courses in the United States or, as one friend of mine from the Midwest points out, "the Top 10 courses near the East and West Coasts":
1. PINE VALLEY G.C. Pine Valley, N.J.-- George Crump & H.S. Colt (1918)
2. AUGUSTA NATIONAL G.C.
Augusta, Ga.-- Alister Mackenzie & Bobby Jones (1933)
3. SHINNECOCK HILLS G.C.
Southampton, N.Y. -- William Flynn (1931)
4. CYPRESS POINT CLUB
Pebble Beach, Calif. -- Alister Mackenzie & Robert Hunter (1928)
5. OAKMONT C.C.
Oakmont, Pa. -- Henry Fownes (1903)
6. PEBBLE BEACH G. LINKS
Pebble Beach, Calif.-- Jack Neville & Douglas Grant (1919)
7. MERION G.C. (East)
Ardmore, Pa. -- Hugh Wilson (1912)
8. WINGED FOOT G.C. (West)
Mamaroneck, N.Y. -- A.W. Tillinghast (1923)
9. NATIONAL G. LINKS OF AMERICA
Southampton, N.Y.?C.B. Macdonald (1911)
10. SEMINOLE G.C.
Juno Beach, Fla.?Donald Ross (1929)
One cannot quibble much with most of this list, although Golf Digest's Eastern U.S. bias shows with the inclusion of both Shinnecock Hills and National Golf Links of America. Both of those are fine courses and clearly should be included in the Top 100 somewhere, but neither are Top 10 material.
In addition to its East Coast bias, Golf Digest's annual survey has long had an anti-Texas bias, reflected by its inclusion of only a couple of Texas courses each year in the Top 100. This year, Golf Digest includes the deserving Tom Fazio-designed Dallas National Golf Club (65th) and traditional favorite Colonial Country Club in Ft. Worth (73rd), which is really not one of the top ten golf courses in Texas anymore. Texas might not have the number of great golf courses of such golf meccas as Florida, California, and Arizona, but it does have its share of outstanding golf courses that compare favorably with golf courses anywhere. Golf Digest's persistent failure to include more Texas golf venues among its Top 100 U.S. courses borders on the absurd.
Golf Digest's annual survey also includes a list of the best courses in each state, and here is its list of the Top 25 Texas courses:
1. Dallas National G.C. Dallas
2. Colonial C.C. Fort Worth
3. Whispering Pines G. C. Trinity
4. Spanish Oaks G. C. Bee Cave
5. The Club at Carlton Woods, The Woodlands
6. Briggs Ranch G. C. San Antonio
7. Champions G. C. (Cypress Creek ) Houston
8. Brook Hollow C. C. Dallas
9. Shadow Hawk G. C. Richmond
10. Crown Colony C. C. Lufkin
11. Royal Oaks C. C. Houston
12 The Rawls Course, Lubbock
13. The Tribute G.C. The Colony
14. River Oaks C. C. Houston
15. Cimarron Hills C. C. Georgetown
16. The Vacquero Club, Westlake
17. Preston Trail G. C. Dallas
18. The Hills C. C. (Flintrock Falls) Austin
19. Barton Creek Resort & Spa (Fazio Foothills) Austin
20. The Club at Comanche Trace, Kerrville
21. Pine Dunes Resort & G. C. Frankston
22. Austin Country Club, Austin
23. Deerwood at the Clubs at Kingwood, Houston
24 Hyatt Hill Country G. C. San Antonio
25. Barton Creek Resort & Spa (Fazio Canyons)
Here are the Houston area golf courses included in that Top 25 list:
3. Whispering Pines G. C. Trinity
5. The Club at Carlton Woods, The Woodlands
7. Champions G. C. (Cypress Creek ) Houston
9. Shadow Hawk G. C. Richmond
11. Royal Oaks C. C. Houston
14. River Oaks C. C. Houston
23. Deerwood at the Clubs at Kingwood, Houston
Golf Digest does a reasonable job with its Texas list, but there are several errors and oversights. As noted above, Colonial is rated far too highly and realistically should come in around number 20 or so. Houston's Lochinvar Golf Club, which Golf Digest usually rates in the top 10 or so of Texas courses, is not even rated in the top 25 this year. On the other hand, Golf Digest always rates Houston's River Oaks Country Club highly because of its Donald Ross design, and it is certainly -- along with Memorial Park Golf Course -- one of Houston's finest old golf courses. However, there are at least a dozen golf courses in the Houston area alone that are superior to River Oaks, so its rating as number 14 in Texas and six in Houston is a bit too high. The inclusion of Houston's Royal Oaks at no. 11 in Texas and no. 5 in the Houston area is downright bizarre as that nice but otherwise pedestrian course probably would barely eke into the Top 20 courses in the Houston area, much less all of Texas.
Of Houston's top three courses, Golf Digest gets it right, although I would rate Champions Cypress Creek first, Whispering Pines second, and Carlton Woods third. I would put Lochinvar at four, followed by Shadow Hawk, Deerwood, and The Woodlands East Course (formerly the TPC at The Woodlands) as the top seven golf courses in the Houston area. By the way, the picture of the golf hole above is no. 17 at The Woodlands East Course -- the notorious "Devil's Bathtub" -- and one of the best holes in Houston.
One final note. Two new Houston-area golf courses that are about ready to open may edge their way into the top courses in Texas and the Houston area. First, Rees Jones' long-awaited tournament course for the Shell Houston Open golf tournament will open this summer at Redstone Golf Club. And then, Tom Fazio's new course in The Woodlands -- where many folks believe the Shell Houston Open should be played -- will open on a beautiful piece of land later this year. These two new courses will surely add to the outstanding array of courses that makes Houston one of the truly under-rated golf venues in the United States.
A new Journal of the American Medical Association ($) article (abstract here) described in this summary reports on a once-monthly, injectable medication that has been shown to reduce heavy drinking substantially among alcoholics.
The drug is a formulation of naltrexone, a drug that is currently approved to treat alcohol dependence. However, the drug is currently rarely prescribed because it must be taken daily, which most alcoholics simply will not do. Cambridge, Mass.-based Alkermes Inc. filed an application with the Food and Drug Administration earlier this month to approve the drug, which will be known under its brand name of Vivitrex. According to the study, Vivitrex -- which must be taken only monthly -- has the "potential to improve intervention strategies for alcohol dependence." Alkermes funded the JAMA-Vivitrex study and the development of the drug was supported by a grant from the National Institute on Alcohol Abuse and Alcoholism, a unit of the National Institutes of Health.
The NIAAA estimates that up to 18 million Americans have an alcohol-related disorder. Alcohol dependence is defined as women who consume four or more drinks a day on a regular basis and men who consume five or more drinks, which researchers used to define a "heavy drinking" day in the JAMA study involving Vivitrex.
James C. Garbutt of the University of North Carolina at Chapel Hill headed up the study, which involved 624 alcoholic adults. The patients received either an intramuscular injection of 380 milligrams of Vivitrex, 190 milligrams of Vivitrex, or a placebo (i.e., a fake injection), and all of the patients received counseling. Overall, the study showed that the number of "heavy drinking" days was cut by 25%, a drop that researchers deemed "significant" among those using the highest dose of the drug.
Don't miss Wall Street Journal ($) columnist Holman Jenkins' Business World piece today. In analyzing the Lord of Regulation's assault on American International Group, Inc. and its long history of being rewarded by the market for its adroit management of earnings, Mr. Jenkins makes an interesting point about the importance of trust -- or, as he dubs it, the "predictability premium" -- in AIG's business, something that was touched on in this earlier post:
That Mr. Greenberg did his accounting as he thought best was no secret to anybody, even before recent revelations. Money Magazine called AIG a "faith stock," lumping it with other giant, complex money machines such as GE and Citigroup. This newspaper dubbed it one of the economy's great "black boxes." Indeed, the whole reason to own AIG in the 1990s was to reap the predictability premium built into its stock price thanks to Mr. Greenberg's ability to generate uncannily rising earnings from a complex of more than 100 businesses, including not just insurance, but aircraft leasing, commodity trading and much else.
In some ways, this model was already falling out of step with the business mainstream by the 1980s, long before Enron made "transparency" the central virtue of the new corporate value system. But exceptions were granted to AIG and a few others (like GE). Their opacity might have earned them skepticism in the marketplace, but instead they were awarded higher share prices. AIG sold for about 26 times its earnings, compared to 10 or 15 for most insurers.
Let's dwell on this for a moment: When the market was the arbiter, it unambiguously rewarded Mr. Greenberg and AIG's shareholders for applying the techniques of earnings management. The market understood that behind the screen lay all the volatility and mishaps that insurance is heir to, but it applauded Mr. Greenberg for using his wiles to create a security (AIG's stock) that transmuted that volatility into unnaturally smooth reported earnings.
One big albatross for [former AIG chairman and CEO, Maurice "Hank" Greenberg] will be the Enron overhang. By far, the largest factor in AIG's stock decline is the evaporation of its predictability premium, not the accounting scandal. But that won't stop trial lawyers, prosecutors or the media from assuming that the distance between AIG's peak and its ultimate low reflects the damage Mr. Greenberg personally did to investors.
And in closing, Mr. Jenkins notes that it may still be a tad early to be making a play for AIG stock, which is down almost 30% in value from the beginning of the year:
[AIG's board of directors] no interest in defending any of this, since board members have learned that their personal fates are best served by running up a white flag. Eliot Spitzer, New York's attorney general, let it be known this week that their compliance had met with his approval.
There's also a question of whether, in a market where skepticism rather than trust is the rule, it's possible or sensible to maintain an organization as complex as AIG. Hold onto your seats for the battle over Starr International, a peculiar entity set up years ago and holding much of the incentive wealth of the company's top executives. We can't think of a quicker way to destroy the morale of AIG's remaining leadership, and thus perhaps the company.
April 5, 2005
Fortune magazine's annual list of the 500 largest U.S. publicly-owned companies has just been published, and the following 21 Houston-area companies made the list. The asterisk next to Anadarko's name notes that the company is based in The Woodlands, which is 30 miles north of downtown Houston:
San Ramone, California-based ChevronTexaco Corp. won the bidding yesterday for its California-based rival Unocal Corp. yesterday in a cash-and-stock package valued at $16.8 billion. The deal is the largest oil-sector deal since 2001 when the acquirer was created under Chevron's merger with Texaco.
ChevronTexaco is paying a premium price for Unocal as U.S. oil companies face heightened competition for scarce oil-and-gas reserves, many of which are locked up in regions where the companies are not welcome. The theory behind the deal is that it turns the merged company into the second-largest holder of oil-and-gas reserves in Southeast Asia behind Petrochina Co. and also strengthens ChevronTexaco's presence in the Caspian Sea region.
However, today's high oil prices can turn such deals upside down in a hurry. Although the price allows companies such as ChevronTexaco to have the strong balance sheet necessary for such acquisitions, should oil prices retreat from current levels in the next two to three years, the risk of write-downs in goodwill is high. ChevronTexaco hedged that risk somewhat by financing the deal mostly with its own stock -- ChevronTexaco will pay $4.4 billion in cash and the balance in stock, and will assume $1.6 billion in Unocal debt.
Moreover, the deal reflects the increasing price that oil companies will pay for reserves. ChevronTexaco was able to replace only about 20% of the oil and gas that it produced in 2004, even though it generated in excess of $13 billion in profits and ended the year with over $9 billion in cash. The merged company will have daily production of over 3 million barrels of oil equivalents and increases ChevronTexaco's reserves by about 15%.
The deal values Unocal at $62.07 a share, which is a 3.6% discount based on Unocal's closing price of $64.35 on Friday. Widespread market anticipation that Unocal would be acquired has increased its share price nearly 50% since the beginning of the year. News of the deal actually sent both Unocal and ChevronTexaco stock down yesterday on the New York Stock Exchange, Unocal to $59.60 and ChevronTexaco to $56.98.
In an effort to calm the harried investors in his latest target, American International Group Inc., New York AG ("Aspiring Governor") the reigning Lord of Regulation Eliot Spitzer announced yesterday that his office expects to reach a civil settlement with AIG even as he rachets up the criminal investigation into several private entities closely tied to AIG's business. Here are the previous posts on the developing AIG and Berkshire Hathaway debacle.
After being hammered for over a month, the price of AIG shares responded to the Lord's announcement yesterday by increasing to $2.35, to $53.30 on the New York Stock Exchange. Even with yesterday's spike, however, AIG shares are down 26% since the beginning of the Enronesque investigation into AIG's finances. The seemingly bottomless drop in AIG's share price is driven by the fact that no major financial company has survived criminal charges in the history of U.S. financial markets.
Meanwhile, seemingly just to make things more interesting, several senior AIG executives were fleeing the boards of C.V. Starr & Co. and Starr International Co,, two closely-owned AIG-associated entities, the former of which controls 12% of AIG's stock. Former AIG chairman and CEO Maurice R. "Hank" Greenberg is the CEO of Starr International, which uses its stake in AIG to provide deferred-compensation to AIG executives. Inasmuch as the Lord of Regulation does not approve of Mr. Greenberg's tentacles affecting AIG, the AIG board is scrambling to disassociate itself from the closely-owned entities and reassert control over AIG's executive compensation program.
Given the Lord's disapproval of AIG's arrangement with Starr International, that the structure of the arrangement may actually benefit AIG shareholders does not appear to be a particularly important consideration at this time to the AIG board.
April 4, 2005
You know, the one in which U.S. District Judge Sim Lake delivered a body blow to the Lay defense team when he granted Mr. Lay a separate trial on the bank fraud counts that are specific toward him, but ruled that he would also have to stand trial with Messrs. Skilling and Causey in regard to the securities fraud and related criminal counts that are common to all three of the former Enron executives.
Well, the effect of that ruling is reverberating through Houston's Federal Courthouse today. The Chronicle's Mary Flood is reporting that the Enron Task Force has filed a motion in which it requests that Judge Lake schedule the trial of Mr. Lay's bank fraud charges in May or June of this year before the trial of the larger case against Messrs. Lay, Skilling, and Causey that is currently scheduled to begin on January 17, 2006. Apparently, in support of its motion, the Task Force is relying upon Mr. Lay's prior pleadings and public statements to the effect he wanted a speedy trial of all criminal charges against him.
Of course, Mr. Lay made those statements in the context of seeking a separate trial altogether from Messrs. Skilling and Lay, and quickly waived his speedy trial right when Judge Lake ruled that he would be tried with Messrs. Skilling and Causey on the common charges relating to all three. Thus, the Task Force is taking Mr. Lay's request for a speedy trial out of context in using those statements to support its request for a quick trial on the bank fraud charges. Mr. Lay has suggested that the separate bank fraud trial commence within 60 days after the conclusion of the multi-defendant trial.
Judge Lake probably will not want to risk the prejudicial publicity of having Mr. Lay tried on the smaller bank fraud case before the larger multi-party case, so my sense is that he will deny the Task Force's request for an earlier trial of the bank fraud charges against him. But the results of Mr. Lay's seemingly innocuous motion seeking a separate trial in this case will prompt defense attorneys to think twice (and maybe three times) before filing such a motion in future multi-defendant cases.
This Chronicle article reports on the brewing controversy over whether the Harris County-Houston Sports Authority -- the quasi-governmental agency created to coordinate the construction of Houston's Minute Maid Park, Reliant Stadium and Toyota Center -- should be dissolved because its purpose has been achieved and it has nothing left to do.
Seems as if a few local legislators are questioning whether the $3 million annual overhead for the Sports Authority is really worth it when it appears that all the Authority is doing is writing checks on bonds issued to build the stadiums. Supporters of the Sports Authority are concerned that dissolving the Authority would impair the debt rating on the bonds. After spending a total of $1.036 billion to build all three stadiums, the Authority voted to sell another $37 million in bonds last summer to induce the investment rating agencies not to downgrade the bonds from investment grade to junk. The additional bond revenue was needed to make up for lagging hotel and car rental tax revenues that are dedicated to pay the bond debt.
The sports authority has about a $3 million operating budget, about half of which is dedicated to contractual obligations and professional fees that either the city or county would have to pay even if the authority were dissolved. However, the bonds are amortized over 30 years, so saving $1.5 million a year over that period is not chump change.
Curiously, the Sports Authority is attempting to justify its existence by proposing the construction of yet another sports venue.
Coming on the heels of this earlier story regarding HUD's decision to freeze over $48 million of federal funds allocated to the City of Houston until the City corrects serious problems in the City's Housing and Community Development Department, this Chronicle article reports on a Jefferson Wells audit report that essentially concludes that the Authority has been run as the personal fiefdom of some of its directors for over a decade.
The report identifies serious deficiencies in every area of the department, including a dysfunctional management culture and ineffective systems for verifying such basic things as whether contractors were doing their jobs and ensuring repayment of loans. Probably only the department's system for setting up directors' travel arrangements worked without a hitch.
The findings in the report are no surprise to anyone who has attempted to deal with the City of Houston Housing Department in an honest and businesslike manner. Tip to Mayor White: Clean house.
April 3, 2005
With Spring Training concluded and Opening Day on Tuesday approaching, it's time for my preview of the Stros and the upcoming Major League season.
My first year of blogging coincided with last year's magical Stros season in which the club came within a game of its first World Series. Just to see how it would go, I decided to blog a post on each Stros game and, as it turned out, I'm glad I did. I'm not going to blog each game this season, but the Stros will continue to be a common blog topic throughout the season, and I will continue to analyze the club's performance periodically using sabermetric-based statistics.
Last season was truly one for the ages. After falling to a season-worst 56-60 record on August 14th, the Stros won 36 out of their next 46 games, a run that included 12 and seven game winning streaks. During the last two weeks of the season, the Stros pulled out the NL Wildcard Playoff spot in a tight race with the Giants and Cubs by winning nine out of their last 10 games and their final seven straight. Then, after beating the Braves in the Divisional Series, the Stros lost to the Cards in the seventh game of a memorable National League Championship Series, coming within an eyelash of the Stros' first World Series appearance. Regardless of that ending, the Stros' closing kick was one of the greatest finishes in Major League Baseball history.
Coming into the 2005 season and as noted in this earlier post, it has been fashionable for baseball experts to predict that this will be the season that the Stros will finally fall from the lofty perch that they have occupied among the top teams in the National League Central Division over the past decade. The experts at Baseball Prospectus have been particularly pessimistic about the Stros.
Baseball Prospectus' theory is that the Stros have lost two of their best hitters from last season's club (Beltran and Kent) and will not have their best hitter (Berkman) for the first month of the season. Meanwhile, the club continues to accomodate the aging Bidg, who is blocking the development of promising rookie Chris Burke at second base. Also, the club is forced for contract reasons to continue playing the declining Bags at first base rather than placing Berkman there, which is his natural position. Throw in the Stros' continued inexplicable reliance on the consistently unproductive Ausmus at catcher, plus doubts about whether Andy Pettitte can rebound from elbow surgery, and skepticism that the Rocket can repeat last season's incredible performance at the age of 43, and you have a decent argument that the Stros are cruising toward a big downturn. Baseball Prospectus' Joe Sheehan -- one of the most insightful baseball writers around today -- is so down on the Stros that he projects the Stros to finish 77-85, or 14 games worse than their record last season and above only the woeful Pirates in the NL Central standings.
Could it really get that bad so quickly?
Well, yes it could, but my sense is that such a dramatic downfall is unlikely. Although the Stros are coming to the end of the Bidg-Bags era, the club has an interesting mix of veteran players and youthful prospects that can still contend for a playoff spot.
In evaluating the Stros on this blog last season, I introduced two handy statistics that baseball sabermetrician Lee Sinins developed for evaluating hitters and pitchers. "Runs created against average" (RCAA) is the hitters' statistic. RCAA measures the two most important things from a hitter's perspective in winning baseball games ?- that is, creating runs and avoiding making outs. Thus, RCAA computes the number of outs that a particular player uses in creating runs for his team. RCAA then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs. Inasmuch as the hypothetical average player's RCAA is always zero, a player can have either a positive RCAA -- which indicates he is an above average hitter (i.e., Barry Bonds, who had a +152 RCAA last season) -- or a negative RCAA, which means he is performing below average (i.e., Ausmus, who had a -26 RCAA).
"Runs saved againt average" (RSAA) is the parallel statistic for pitchers. RSAA measures the number of runs that a pitcher saves for his team relative to the number of runs that an average pitcher in the league would give up while obtaining an equivalent number of outs for his team (as with RCAA, RSAA is park-adjusted). As with RCAA, a hypothetical average pitcher in the league always has an RSAA of exactly zero. Thus, a pitcher can have either a positive RSAA, which indicates he is an above average pitcher (i.e., Randy Johnson had a +50 RSAA last season) or a negative RSAA, which means he is performing below average (i.e., Tim Redding had a -15 RSAA last season).
Clearly, the biggest problem for this Stros club is going to be hitting, which was also the biggest problem of last season's club. The excitement of the Stros' extraordinary play during the final quarter of last season tends to make people forget that the Stros meandered around 10th among the 16 National League teams in RCAA for the first three quarters of the season. Even after their hitting picked up during their closing drive, the Stros still ended up just seventh in RCAA among the National League teams. Given that the Stros' collective +50 RCAA included substantial contributions from the now departed Beltran (28) and Kent (12), it is certainly reasonable to question whether the Stros' hitting this season will be sufficient to sustain a playoff caliber performance.
Part of the reason that I think the Stros will be good enough to contend for a playoff spot this season is that I expect big improvement from three players who did not contribute much hitting-wise last season -- Jason Lane, Morgan Ensberg, and Adam Everett. Last season, Lane in limited play had only a +3 RCAA, while Ensberg (-12) and Everett (-11) actually reduced the Stros' team RCAA by 23 runs. With Lane finally getting a long overdue full-time spot in the lineup, with Ensberg returning to his 2003 form (+20 RCAA), and Everett improving to become an average Major League hitter (0), I expect those three to contribute at least +40 to the Stros' team RCAA this season, which would make up for the loss of Beltran and Kent.
Although Berkman's 69 RCAA from last season (5th in the National League) will almost assuredly go down a bit this season coming off his injury, I do not expect a big drop off from any of the Stros' other primary players this season. Moreover, given a chance to play, Burke is a good bet to be at least as productive as Bidg (8 RCAA) or Kent (12) at second base. Consequently, given all of the above, my sense is that that this Stros team could develop into being at least as productive hitting-wise as last season's club.
Which leads me to make a comment about Kent. Many pundits have criticized the Stros for not picking up their $7 million option on Kent for this season, but I don't agree. Kent is on the downside of his career and has declined in production for the past three seasons, a problem that the Stros are already dealing with in regard to aging stars Bidg and Bags. For most of last season, Kent was barely above average hitting-wise, and only a late flurry over the club's last two weeks allowed him to achieve a reasonably decent +12 RCAA for the season. Moreover, Kent was clearly below average fielding-wise last season as his declining speed resulted in a frustrating lack of range in the field. Throw in the increasing injury risk with Kent and either Burke (my preference) or Bidg is likely to be just as productive as Kent this season and certainly far cheaper.
However, where I think Baseball Prospectus is going wrong on the Stros this season is by not recognizing a markedly improved pitching staff. That's not to suggest that the Stros' pitchers were all that bad last season -- in fact, the staff ended the season with a +45 runs RSAA, which was 4th among the 16 National League pitching staffs. Nevertheless, even though Clemens, Lidge and Oswalt were among the best pitchers in the National League, the rest of the Stros' staff struggled, including an aggregate -41 RSAA from the quartet of Carlos Hernandez, Brandon Duckworth and the now departed Pete Munro and Redding. Those four generally ineffective pitchers were manning at least one of the starting pitching spots throughout all of last season.
This season, the Stros' pitching staff appears to be substantially stronger. Brandon Backe, Chad Qualls, and Dan Wheeler all stepped up big time during the playoff run last season and appear to be primed to become solid Major League pitchers this season. Pettitte's recovery from surgery has been smooth and he appears ready to take his spot with Clemens, Oswalt and Backe as solid starters. Finally, one of the pleasant surprises of Spring Training has been the dominating performance of Ezequiel Astacio, one of the Stros' fine young pitching prospects who appears ready to take over the fifth spot in the pitching rotation. The Stros optioned Astacio to triple A affiliate Round Rock to begin the season to allow him to make a couple of starts before the Major League club's schedule requires a fifth starter, but there is little doubt that he will be back with the Stros soon. Accordingly, barring injury, this Stros' staff could improve by 10-15 runs in total RSAA over last season's staff, which would likely place this group in the top three staffs in the National League.
Astacio's performance in Spring Training prompts an observation about minor league players becoming Major Leaguers. Generally, it is more common for pitchers to be able to make the jump successfully from Double A ball than hitters. Astacio and the Stros Spring Training camp's other young stars -- CF Willie Taveras and LF Luke Scott -- all played Double A ball last season. All three performed well during Spring Training and have made the Major League club, although Astacio is having a cup of coffee at Round Rock to begin the season.
Nonetheless, I would prefer that the Stros have Taveras start the season at Triple A so that he can continue to develop his plate patience and power before taking on Major League pitching (.402 OBP/.386 SLG, but only 38 walks in 409 AB's at AA last season). The Stros probably need Scott's left-handed stick on the Major League roster at least until Berkman returns, so keeping him on the Opening Day roster is a more reasonable move, but we should all remember that -- despite Scott's unconcious hitting performance during Spring Training -- he was playing high A ball at this time last year. Thus, do not be surprised when both Scott and Taveras struggle against Major League pitching.
Another reason for my optimism is the Stros' competition within the division. Although the Cardinals still appear to be the class of the division, the Cards pitching staff's performance last season has a collective "career year" written all over it. Assuming that the Cards' pitching returns to a more typical level this season, look for the Cardinals to lose at least 10-15 wins off of their 105 win season of last year. Mr. Sheehan of Baseball Prospectus predicts that the Cards will have 16 fewer wins this season (89).
The other probable contenders in the division also have problems. Although the Cubs have the best pitching in the division, both Prior and Wood are having arm problems and the staff still has no clear closer. Moreover, the Cubs hitting has declined with the losses of Alou and, to a lesser extent, Sosa, so run production is a concern there, too. Unless Prior and Wood can pitch for most of the season, my sense is that the Cubs will struggle to win 80 games this season (they won 89 last season).
Similarly, although the Reds' hitters can flat out tear the cover off the ball, the club's pitching staff still creates an adventure for the club almost every time a member steps on the mound. My sense is that the Reds will improve on their 76 wins from last season, but their pitching will limit that improvement to about 5-10 wins and not the 15 win improvement that the Reds will need to contend for a playoff spot.
Thus, even with the loss of Beltran and Kent, the Stros still appear to me to be an above .500 team. The offense is probably going to slide a bit with Berkman out for the first month of the season. But the starting pitching looks very good, Lidge is currently the best closer in the National League, and the middle relievers look improved over last season's dubious group. If Lane hits as expected, Ensberg rebounds, Bags (+17 RCAA) and Bidg (+8 RCAA) maintain as well as they performed last season, and the young players develop well, then my sense is that the Stros are an 85 to 88 win team with an outside chance to take it over 90 wins if the injury bug does not bite.
90 wins would put the Stros right in the middle of the playoff race in the NL Central, just as they have been for the past decade. Admittedly, I view the Stros somewhat through rose-colored glasses (except for Ausmus), but my sense is that the club's run of competing for a playoff spot is not quite done. And with a couple of key acquisitions a couple of years from now when Bags and Bidg retire, there appears to be no reason why the Stros cannot build around their Berkman-Oswalt-Lidge core and continue their playoff-contending status for years to come.
April 2, 2005
As Pope John Paul II nears death, Newsweek provides this online review of its issues over the past 27 years that have featured a picture of the Pope on the cover.
George Weigel's Witness to Hope is probably the best biography on Pope John Paul II. Mr. Weigal's op-ed from ten years ago -- The Mobile Pope -- explains how the Pope modernized the papacy and in The Holy Father in the Holy Land from five years ago, Mr. Wiegel describes the Pope's historic visit to Jerusalem and the Middle East.
Pope John Paul II leaves a legacy of grace, strength and forgiveness that is a beacon of light in an increasingly dark world. His is a life worthy of reflection, so take a few moments to review the momentous contributions of this remarkable man.
Update: Mr. Wiegel provides this interesting personal remembrance upon the Pope's death on Saturday afternoon.
Oil prices climbed to record highs Friday on mounting concern about limited supplies.
Crude futures for May delivery on the New York Mercantile Exchange settled up $1.87 at $57.27 a barrel. That price is a new record closing price, beating the old record of $56.72 a barrel of a couple of weeks ago. Adjusted for inflation, Friday's closing price close is the highest since Oct. 11, 1990 when Nymex crude closed at $40.42, which is equal to $58.18 in today's dollars. Nymex crude would still need to reach $90 a barrel to beat the inflation-adjusted high price that was established in 1980.
This Forbes graph provides an instructive overview of oil prices over the past 150 years. The last 30 years of oil price fluctuations has been quite a ride.
April 1, 2005
Wynn -- who was nicknamed "the Toy Cannon" -- toiled for the Stros during the club's difficult early years when the club was not blessed with much talent. Moreover, his career hitting numbers do not compare well with statistics of today's sluggers because Wynn played in a different, more pitching dominated era (1963-77). Nevertheless, as Brattain points out, Wynn was one of the best centerfielders of his era:
I?ve often been amazed that Wynn never got more love from the BBWAA or the VC in Hall of Fame consideration. No, I?m not advocating him, but when I watched this little dynamo, I was always very impressed how he played the game.
When you consider that he played the bulk of his career in what were at the time the toughest hitter?s parks in the game (the Astrodome and Dodger Stadium) his 291 home runs looks very impressive. Wynn was a plus defender (albeit a rag arm which caused right fielder Joe Ferguson to cut in front of Wynn to make a catch with a runner on third during the 1974 World Series) with a terrific batting eye. He has a number of legitimate knocks against him: short career (6653 AB), no hardware save three All Star Game rings, just 26 post-season AB, no big career milestones etc.
According to Lee Sinins? sabermetric encyclopedia, Wynn was the second best (albeit a distant second) CF in the NL from 1960 to 1980 (using the "Runs Created Against Position" ("RCAA") metric). If there was ever an "Unappreciated Player Hall-of-Fame," I?m guessing Wynn would go in on the first ballot.
Brattain's article points to another reason why the RCAA is particularly valuable to evaluate hitting ability across different eras. RCAA measures the two most important things in winning baseball games ? that is, creating runs and avoiding making outs -- by computing the number of outs that a particular player uses in creating runs for his team. RCAA then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs. Inasmuch as the hypothetical average player's RCAA is always zero, a player can have either a positive RCAA -- which indicates he is an above average hitter (i.e., Barry Bonds) -- or a negative RCAA, which means he is performing below average (i.e., Brad Ausmus).
Thus, RCAA measures a player's hitting ability against that of an average player each season and, as a result, a player's lifetime RCAA reflects how well that player hit in comparison to an average player during that player's career. Accordingly, Wynn's RCAA reflects how well he compared to an average hitter during his era, just as the current Stros' hitters' RCAA reflects how they measure against the average player in today's era. Inasmuch as Wynn was consistently in the top ten in the National League RCAA during a good part of his career -- which is basically the stature of current players Bags, Bidg and Berkman during their prime seasons -- the Toy Cannon remains one of the best Stros players of all-time.
Kevin Whited at blogHouston.net notes that the Houston Chronicle has been awarded a prestigious business writing prize from the Society of American Business Editors and Writers in the Breaking News category for its coverage of the indictment of former Enron chairman and CEO, Ken Lay. The award is a well-deserved honor for the Chronicle Enron-reporting team, which has been led by Chronicle reporter Mary Flood. The Chron endured some criticism from local and national press sources for its supposedly slow reaction when the Enron scandal began to unfold in late 2001. However, regardless of that criticism, the Chronicle is now clearly the leading source of information on the Enron scandal. The Chron's special Enron online section is the best overall source of information on pending matters relating to the Enron scandal.
American International Group Inc.'s public admission this week that it engaged in improper accounting practices has placed AIG's auditor -- PricewaterhouseCoopers LLP -- squarely in the sights of government regulators and plaintiffs' lawyers. Here are the earlier posts on the fast developing scandal that has enveloped AIG and Berkshire Hathaway over the past several weeks.
Federal and state investigators (Mr. Spitzer is seemingly everywhere these days) are currently evaluating what AIG told PWC auditors about the questionable transactions, but it is only a matter of time before investigators and class action securities plaintiffs' lawyers will begin to question PWC regarding its failure to uncover the allegedly improper accounting. As noted in this earlier post, one of the most troubling aspects of the current AIG investigation is that many of these transactions under scrutiny may well have been reviewed and approved by various business professionals working on behalf of AIG. Already, press reports on the AIG investigation assume that the accounting for the transactions was improper, and any defense that the transactions were accounted for properly has been shoved aside in the wave of negative publicity and the AIG board's efforts to bend over backwards for the regulators in an attempt to limit the collateral damage to AIG's stock price.
At any rate, if the transactions were accounted for improperly and were material, generally accepted accounting principles require that AIG restate its financial reports for several past years. If the violations are not deemed material, then AIG could correct its financials by taking a one-time adjustment to its fourth-quarter results for 2004. The question of whether an accounting violation is material is determined by whether the financial result of the violation would have influenced the opinion of a hypothetical reasonable investor. AIG has already stated that correcting the known violations would reduce its $83 billion net worth by only 2%.
So, as we wait for the other shoe to drop on PWC, let's hope that governmental regulators take note of this point.