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April 30, 2006

John Kenneth Galbraith, R.I.P.

John Kenneth Galbraith died Saturday night at the age of 97 in Cambridge, MA. The NY Times' lengthy story on Galbraith's remarkable life is here and the well-done Boston Globe story on Galbraith's life is here.

Although Galbraith won world-wide recognition throughout his life as a liberal economist, a consultant to presidents, an active ambassador and a prodigious and witty author regarding America's affluence, my sense is that his foremost legacy is as a wonderful teacher. During his long and distinguished career at Harvard, his lectures were among the most well-attended of any professor, prompting Harvard colleague Henry Rosovsky to pass along the now well-known anecdote that even his car mechanic had heard about Galbraith's formidable teaching talent. Galbraith's death comes about a year after the publication of Richard Parker's seminal book about his life, John Kenneth Galbraith: His Life, His Politics, His Economics (Farrar, Straus 2005), reviewed here by Robert Skidelsky.

As noted in this earlier post, Parker in his book notes how the late President Lyndon Baines Johnson's rejection of one of Galbraith's speeches prompted the following hilarious observation from LBJ about economics and economists:

"Did y’ever think, Ken, that making a speech on ee-co-nomics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."

Posted by Tom at 7:43 AM | Comments (0) | TrackBack (0)

April 29, 2006

Bye-bye Reggie; Hello Mario

Although perhaps not always fulfilling, things are certainly always interesting over at Texansville.

In a stunning development, the Texans ignored conventional wisdom and threw today's National Football League draft into chaos by signing North Carolina State defensive end Mario Williams instead of USC running back and Heisman Trophy winner Reggie Bush as the no. 1 pick in the draft. The ESPN.com report is here and the Houston Chronicle's John McClain's story is here.

Although Chronicle sports columnist Richard Justice is typically apoplectic (see also this blog post) about the Texans' decision to select Williams over Bush, the decision is not all that surprising. For their entire existence, the Texans have come into each season with the same basic problems -- the team could not protect its own passer and could not put pressure on the opposition's passer.

Despite those constant problems, the Texans were able to muddle through their first three seasons with the appearance of overall improvement, but then backslid in Season Four last year as the chronic problems became too much for the undermanned franchise to overcome. Thus, when contract negotiations between the Texans and Bush's agent stalled this past week, the decision to attempt to address the Texans pass rush problem with the 6' 7", 295 lbs. Williams -- who is about as fast as Texas QB Vince Young -- was really not unreasonable at all.

There will be much knashing of teeth over the Texans' decision to pass on Bush, but I'm not buying into that type of over-reaction. Last fall when the Texans' season was going awry, most folks simply concluded that the answer to the Texans' troubles was simple -- fire General Manager Charlie Casserly, head coach Dom Capers and Capers' staff. However, as noted in subsequent posts here and here, the solution to the Texans' problems are not that simple.

Consequently, addressing one of the team's chronic problems with the first pick in the draft is not an unreasonable decision. I only wish that they had done so with the first pick in the draft before Year One that the club used on QB David Carr. Oh well, better late than never.

By the way, almost 30 years ago, the Houston Oilers used the first pick in the NFL draft to pick Texas running back Earl Campbell, who elevated the Oilers into several seasons of championship contention and went on to become an NFL Hall-of-Famer. However, there is a key difference between then and now.

Unlike the Texans, that Oilers team was already a pretty good one when it drafted Campbell. In fact, one of the primary reasons that the Oilers were already a good team was defensive tackle Curly Culp, who the Oilers had obtained in a trade a couple of seasons earlier. With Culp plugged into the middle of the Oilers' defensive line, teams could not run consistently on the Oilers and, with Culp occupying the interior offensive lineman, LB Robert Brazile and DE Elvin Bethea were free to generate a devastating pass rush off the edge. That rock-solid defense is what made those Oilers teams of that era good. The addition of Campbell made them nearly great, but that would not have been the case without players such as Culp, Brazile and Bethea.

In contrast, the Texans are not a good enough team yet for Bush to elevate them into a great one. Frankly, I am cautiously optimistic that Texans owner Bob McNair did not allow public pressure to sway him from addressing a core need with the first pick in this draft. Remember that key fact over the next several months as you listen to the Richard Justices of the world rail against the Texans' decision to pass on Bush.

While we're on the subject of the NFL draft, don't miss this NY Times op-ed by Jim McFarland, a former NFL player, who proposes that the draft be abolished in favor of allowing each NFL team to negotiate with any former college player that they want after each season.

Finally, for absolutely the funniest thing I've seen regarding the draft in some time, don't miss this video entitled "New York Jets NFL Draft Blunders."

Update: L.A.-based corporate law and football expert Professor Bainbridge believes that the Texans blew it by not picking Bush, but points out that the Saints may have blew it even more by selecting Bush. And local blogger Kevin Whited makes the case that the failure to pick Bush reflects an overall lack of competent Texans management.

Posted by Tom at 7:31 AM | Comments (3) | TrackBack (1)

April 28, 2006

Lynn Hughes strikes again

First, he hammered the FDIC with a record sanctions award in the long-running case against Maxxam chairman Charles Hurwitz.

Then, he challenged the Enron Task Force's bludgeoning of a plea bargain from a mid-level former Enron executive.

Now, U.S. District Judge Lynn Hughes accused federal prosecutors of "reckless and conscious indifference" for bringing a fraud charge against Oklahoma lawyer John Claro and said he would award attorney's fees to Claro under the Hyde Act that provides sanctions for bad-faith prosecutions.

"The charges are a jumble of claims and stray facts," U.S. District Judge Lynn Hughes said about a health-fraud indictment against John Claro and seven others.

Giving short shrift to protests by Assistant U.S. Attorney Vernon Lewis, Hughes allowed Claro to present the court a bill for $327,000, or 1,090 hours at $300 per hour, from Houston attorney Dick DeGuerin.

Grizzled courthouse veterans observed that Claro must have received DeGuerin's discount rate.

The Chronicle article goes on to explain:

A Houston grand jury issued indictments March 25, 2004, accusing Claro and the others of fraudulently enticing employers to buy health insurance policies administered by offshore companies not licensed to do business in the United States.

In announcing the indictment, then U.S. Attorney Michael Shelby said in a news release, "Today's indictment brings to light a fraud of unimaginable proportions that victimized thousands of working men and women across the United States and the small businesses that employ them."

[Judge Hughes] threw out the charges against Claro and the other defendants July 20 [2005] after DeGuerin invoked the Hyde Amendment, a 1997 law that allows a court to award reasonable attorney's fees and other expenses if a prosecution is found to be "vexatious, frivolous, or in bad faith."

Judge Hughes has scheduled a May 9th hearing to determine the amount of fees and expenses that he will award in favor of Claro.

Posted by Tom at 6:37 AM | Comments (0) | TrackBack (0)

Lay-Skilling, Week Thirteen

Week Thirteen of the corporate criminal case of the decade (prior weeks posts here) was the Ken Lay week and, based on the media reports, it was alternately either the most boring or the most entertaining week of testimony in the trial to date.

However, from my vantage point of reading the transcript of each day’s proceedings and sitting in occasionally on the trial when I can, Lay’s testimony underscored what the Enron Task Force’s strategy has become in this case — a show trial to degrade Lay and Skilling for denying the presumption that underlies Task Force’s case. In so doing, the Task Force is hoping that the jury equates humiliation with guilt rather than noticing the gaping holes that have emerged in the Task Force’s case.

Before addressing Lay’s testimony, it’s helpful to step back and review how we got here. Since shortly after the Enron saga began in late 2001, the Task Force and a large number of media outlets have promoted the now common theme that Enron was merely a house of cards and that the company's intrinsic instability was hidden from the investing public by a deceitful management team that Lay and Skilling led.

That view has been readily embraced by a wide-range of societal forces, such as publicity-seeking politicians who don't allow facts to get in the way of demonizing unpopular entrepreneurs for political gain, government prosecutors who improperly expand the reach of criminal laws to further their careers, competing businesspeople and business plaintiffs’ lawyers seeking to profit from Enron's demise and a pliable public that finds it easy to resent wealthy businesspeople, particularly after the bursting of a stock market bubble. As reflected by this discussion over the gross injustice of what happened to the four Merrill Lynch executives in the Nigerian Barge case (one that hopefully is in the process of being righted), these societal forces believe that they understand the Enron morality play so thoroughly that otherwise thoughtful and intelligent people lose the capacity for independent thought regarding Enron and reject any notion of ambiguity or fair-minded analysis in ferreting out the truth of what really happened at Enron.

This common view of Enron ignores the more nuanced view that has arisen during the Lay-Skilling trial. In many ways, Enron was an innovative firm, both in its primary business activities and in the ways in which it raised money. Experts in structured finance and derivatives recognize this and have already written extensively about Enron's innovation in that regard (see, for example, Christopher Culp and William Niskanen's Corporate Aftershock: The Policy Lessons from Enron and Other Major Corporate Corporations and Culp's subsequent book, Risk Transfer: Derivatives in Theory and Practice).

Even Enron's original purpose in using special purpose entities ("SPE's") was sound and creative, at least before former Enron CFO Andrew Fastow and henchman Michael Kopper hijacked a couple of them. With equity owned primarily by investment banks and other financial institutions, the SPE's were initially intended to be private equity funds with completely separate management from Enron. The main attraction of the SPE's for investors was the funds' preferred right to invest in Enron assets, which benefitted Enron by allowing the company to preserve liquidity and hedge risk.

Thus, the picture that has emerged during Skilling and Lay’s testimony is that Enron was engaged in mostly legitimate and beneficial financial activities, including energy trading, structured finance and other financing transactions that had literally never been attempted before, and certainly never on the scale that Enron generated them. As a result, it is critically important in determining the truth of what happened at Enron — particularly when the futures of two men and their families are at risk — to distinguish between Enron's role as a legitimate, innovative company and the fraud that Fastow and Kopper engineered.

Unfortunately, the Enron Task Force has utterly dispensed with any notion of truth and fairness in pursuing convictions of Lay and Skilling. A case in point is Enron Task Force prosecutor John Hueston’s first questions out of the box to Lay, which I witnessed on Wednesday afternoon. Toward the end of direct examination, Lay and his counsel, Mac Secrest, discussed Lay’s attempts to repay $7.5 million that he still owes Enron, a point that Hueston railed about during opening argument in the case. After the now-insolvent Lay recounted how he and the Enron Creditors’ Committee had worked out a settlement in 2004 under which he would repay the debt, Secrest asked Lay whether the deal had been consummated. The following exchange ensued:

Q. Did you actually execute the document, along with your wife?

A. I -- Linda and I -- I think it was early July 2004 – did execute this agreement, and a lawyer representing the creditors committee also executed it. [. . .]

Q. Okay. Was that agreement actually finalized?

A. It was not finalized. And it was not finalized because John Hueston blocked that deal.

MR. HUESTON: Objection. That is just outrageous.

THE COURT: I sustain the objection.

MR. HUESTON: I wish I had such power.

THE COURT: The jury will disregard the last answer.

Well, that’s certainly a little detail that Hueston conveniently left out during opening argument in disparaging Lay about the non-payment of the debt. With that backdrop, the following is Hueston's opening cross-examination of Lay:

Q. I'd like to start by just writing something up here. Mr. Lay, your attorney, in opening statement, said the following: "By our deeds we are known." You'd agree with that; right?

A. Yes. Yes, at least in part.

Q. Okay. So you're backing way from that? From the statement of your attorney? Maybe? Sometimes?

A. No. Our deeds are more important. Life is a little more complicated than that, though.

Q. Okay. Well, let's elaborate. We're going to come back to that $7.5 million. But just to make it clear, as of today, you have not repaid one dollar of the principal owing on that $7.5 million from Enron as of the end of 2001; correct?

A. We tried to, and you blocked it.

Q. Sir, have you repaid even a single dollar of the principal from November 27th, 2001 until today? It's a simple question.

A. We have not because you blocked it.

Q. Did the Task Force block you from doing that in January of 2002?

A. Mr. Hueston –

Q. It's a simple question.

A. -- you know you blocked it.

Q. Sir, did the Task Force block it in January of 2002?

A. It was not due in January of 2002.

Q. So you didn't repay it in January of 2002?

A. We tried to repay it in 2003, 2004, and you blocked it.

Q. Simple -- simple question.

A. And simple answer.

Q. Zero is the right response for the principal; correct?

A. It's not the right response, but you can write it down.

Q. All right. Is that incorrect? Is there more than a dollar? Have you paid more than zero principal balance?

A. Mr. Hueston, when I was sworn in here, I was sworn in to tell the truth and the whole truth, not partial truths.

Q. Okay. I'm going to try to ask simple questions and --

A. Good.

Q. -- and so, that one again, once more: No principal paid; correct?

A. No principal paid because you blocked the settlement.

Q. We'll get to that later. Let's go to another item.

So, let’s see here. In the corporate criminal case of the decade and the Enron Task Force’s legacy case, the first subject of the Task Force's cross-examination of the former chairman and CEO of Enron is his failure to repay a $7.5 million debt to Enron that is not even a part of the criminal charges against him and that the Task Force blocked him from repaying, to boot. Hueston followed that dubious initial line of questioning with the following subjects, which were not any more substantive:

Making the absurd suggestion that Lay was witness tampering by attempting to make contact with a couple of prospective witnesses in the trial. Since when is it wrong to attempt to talk with potential witnesses in a trial? Only in the Lay-Skilling case, where the Task Force has effectively precluded dozens of important witnesses with exculpatory testimony for Lay and Skilling from testifying at trial by designating those witnesses as unindicted co-conspirators in a conspiracy that the Task Force has not come close to proving during the trial.

Chastising Lay for his attorney Mike Ramsey calling key Task Force witness Ben Glisan a “monkey” to media reporters after Glisan’s testimony several weeks ago. Frankly, Ramsey’s characterization of Glisan was mild in comparison to how Task Force and government representatives have referred to Lay in the media. For good measure, Hueston then bizarrely criticized Lay for approaching Glisan during a courtroom break and expressing his sorrow for what Glisan and his family had been put through by the Task Force.

Paralleling a major cross-examination point with Skilling, criticizing Lay for not following Enron’s Code of Ethics regarding disclosure to the Enron board of his investment PhotoFete, a small Enron vendor operated by a former girlfriend of Skilling. It is one of the more revealing indications of the fundamental weakness of the Task Force’s case that the prosecution has asked dozens – maybe hundreds – of questions to Lay and Skilling over the past two weeks about PhotoFete and none to date about such key issues as the alleged Global Galactic agreement (see also here) and the alleged huge conspiracy that Lay and Skilling supposedly orchestrated at Enron.

On Thursday morning, Hueston made a big deal out of the fact that Lay’s son had shorted Enron stock in 2001. Apparently, Hueston was attempting to cast aspersions on Lay’s earlier testimony that short sellers had contributed to the market panic that prompted Enron’s collapse in late 2001, but Hueston’s questioning was typically disingenuous. Neither Lay nor Skilling have ever blamed legitimate short-sellers as being a material cause of the market panic that doomed Enron. Rather, Lay and Skilling have testified that certain short-sellers’ planting of false and misleading information about Enron in the financial media fanned the flames of the market panic. Not surprisingly, Hueston did not ask Lay if he thought his son had planted any false information about Enron with the media.

Is there any question about what is really going on here? As Larry Ribstein noted last week in regard to the similarly vacuous cross-examination of Skilling, the Task Force is betting that guilt in this case will not be determined by the sometimes messy and difficult process of sorting out the truth, but on ephemeral matters to the charges that the jury can easily understand.

Lay's sales of stock to meet margin calls and use of his line of credit with Enron is another case in point. The Task Force has not charged Lay with insider trading for selling his Enron stock or that Lay did anything illegal with regard to using the board-approved line of credit, but that has not stopped the prosecution from hammering Lay with regard to the sales, which approximated $70 million in 2001. The Task Force's theory is that Lay's entirely legal decision not to advertise his sales of stock back to the company publicly is evidence that Lay was hiding other bad news about Enron from the markets.

"If the market had found out you had sold $70 million of stock in that time, that actually would have caused the stock to tumble?" asked Hueston about the stock sales.

"It depends, Mr. Hueston," responded Lay, who went on explain that using cash from internal stock sales to Enron to preserve his Enron stock as collateral for private loans was a sign that he had faith in Enron stock. Lay shot back at Hueston: "There was no requirement that I disclose any of that. You're trying to mislead the jury as to somehow I was doing something illegal, and I was not."

When the Task Force did dip into the evidence relating to the substance of its charges against Lay -- such as the resegmentation of the retail unit or the international division's water unit (Wessex) -- the dubious nature of its actual charges quickly becomes evident. On Thursday afternoon, Lay calmly but firmly refuted each area that Hueston addressed and -- although one might disagree with Lay's business judgment -- none of his answers came close to indicating that this was a man who was desperately conspiring to cover up a massive fraud so that he could dump more Enron stock.

Finally, late in the day, Lay observed to Hueston: “You can go where you want with this, but I think this is a real waste of the jury’s time.” Judge Sim Lake agreed with Lay and made the following observation upon ending the week a half-hour early: “Any jury that has sat through two-and-a-half hours of alleged Wessex impairment deserves the right to leave early.” Although courtroom observers related to me that the jurors, lawyers and courtroom spectators cracked up over Judge Lake's dry wit, Hueston -- who is wound pretty tight -- was apparently not amused.

Of course, who knows how all of this is playing out with the jury? On Wednesday afternoon, my sense was that the jurors — whose apparent leaders appear to be closer in age to the 64 year-old Lay than Hueston, who is about 40 — appeared put off with Hueston’s initial cross-examination, much in the same way that I perceived them to be in regard to Hueston’s similarly misguided cross-examination of former Enron general counsel Jim Derrick during Week Ten of the trial. Peter Lattman of the WSJ Law Blog noted the same dynamic, although most others in the media simply breathlessly reported that Hueston was having his way with a beleaguered Lay. It’s anyone’s guess what the jurors are really thinking.

As for Lay’s direct examination, it was definitely interesting, although perhaps more so reading it than sitting through it. Almost lost amidst the Task Force’s blather is that all of the charges against Lay in this case relate to the period after which he replaced Skilling as Enron’s CEO in mid-August 2001. Lay denied Fastow and Glisan’s testimony that they were telling him as early as mid-August, 2001 that Enron had serious financial problems, and Lay’s testimony is buttressed by numerous documents and an early October board presentation in which Glisan and Fastow reported that Enron’s liquidity position was strong.

Lay’s testimony was particularly riveting regarding the accelerating crisis in Enron’s credit and equity markets after the series of Wall Street Journal articles beginning on October 17, 2001 that revealed Fastow’s shenanigans with certain SPE’s to the markets. Enron’s fate was literally sealed within three weeks, maybe even less time, and Lay’s testimony provides fascinating insight into the conflicting issues and pressures that he was confronting on a daily basis as unsettled markets were quickly souring on the company.

Lay is clearly a proud man who desperately wants to tell his side of the story, and it is quite a story. Born and raised in a family with little money, Lay worked his way through college and graduate school, landed his first job with Houston-based Humble Oil (the predecessor to ExxonMobil), and then served his country admirably as a Naval officer and Deputy Undersecretary of Interior for Energy for six years during the Vietnam War. After his governmental service, Lay rose quickly through the executive ranks of a couple of gas pipeline companies before assuming the chairman and CEO position of the company that eventually became Enron in 1985. From that perch, Lay accumulated a personal net worth of about $350 million as of 2000 as he oversaw the growth of Enron into one of the largest publicly-owned companies in the U.S., and then saw that net worth evaporate over the past four-plus years since Enron's collapse into bankruptcy.

But as difficult as that fall must have been, Lay does not appear to be the type of man who is bothered all that much by the loss of wealth, and certainly not nearly as much as he is aggravated by the Task Force and media’s ravaging of his reputation over the past five years. According to media reports, Lay and Secrest struggled somewhat during the early stages of Lay’s direct examination, and my sense is that their struggles were attributable largely to Lay’s frustration with not being able to explain to the jurors directly — without the limiting framework of a trial — the utter contradiction between his life story and the nature of the criminal charges against him.

Lay will remain on the stand through at least Monday of next week, and probably into a part of Tuesday. Several character witnesses for the defendants will follow Lay, and the Skilling team still has an impressive group of expert witnesses prepared to testify regarding the Task Force’s allegations that Enron’s business practices were outside the ordinary and customary standards of similarly-situated U.S. public companies. Thus, my sense is that the defense probably has at least two more weeks of testimony, and the Task Force will present another week’s worth of rebuttal testimony. Consequently, my best guess at this point is that the close of evidence will take place around mid-May as the corporate criminal case of the decade turns toward what will likely be a very entertaining home stretch.

Posted by Tom at 4:30 AM | Comments (1) | TrackBack (2)

April 27, 2006

Houston attorney pleads

Following on this post from a couple of weeks ago, Michael J. Wing, an attorney who lives in Tyler but practices out of Houston, faces up to 20 years in prison after pleading guilty in Tyler earlier this week to wire fraud charges over defrauding one investor of $500,000 in 2004.

Wing had been charged with 18 counts of securities and wire fraud and, although his plea deal involves only one defrauded investor, he also admitted to defrauding 10 investors of more than $7 million. No sentencing date has been scheduled yet. Hat tip to Letter of Apology for the news.

Posted by Tom at 7:40 AM | Comments (0) | TrackBack (0)

Confounding contango

This post from last week noted the seeming contradiction between rising oil prices at a time of rising inventories and the current longstanding "contango" in the oil trading market -- i.e., futures contracts for a given product are priced substantially higher than that same product for near-term delivery.

In this post, Clear Thinkers favorite James Hamilton takes a stab at explaining the situation, and casts doubt on the conventional wisdom that speculation is a separate force from supply and demand in affecting the price of oil. In so doing, Professor Hamilton makes the following common-sense observation, which you will never hear from politicians and a mainstream media that prefer to characterize business interests that make money speculating on oil prices as greedy capitalists:

[I]f these speculators turn out to be right [that prices will be higher in the future] and earn themselves a tidy profit, they will have done us all a favor. By bidding up the price of oil today and filling the storage facilities to the brim, they will have caused consumers to conserve today in order to have more oil available in the event that we do run into a big shortfall in production before September. On the other hand, if the speculators turn out to be wrong, they bought high and sold low. That would be destabilizing, forcing us all through some current pain, which, if we somehow could predict the future with certainty, will turn out to have been unnecessary. Our only consolation would be that the speculators will undoubtedly feel our pain, and then some, as their multibillion dollar bets flew into the wastebasket.

So, the only reason I see to be concerned about the contribution of speculation is if you think that the speculators are in danger of making huge losses. But if that's your concern, I have a simple cure -- just put yourself on the selling side of some of those futures contracts -- let their pain be your personal gain.

Posted by Tom at 7:03 AM | Comments (0) | TrackBack (0)

Defining a framework for Constititutional interpretation

This previous post notes Yale Law School Constitutional Law professor Jack Balkin's (of the popular Balkinization blog) article in which he favors the "living Constitution" approach over originalism as a theoretical framework for interpreting the U.S. Constitution.

In this recent blog post, Professor Balkin addresses a basic structure of constitutional interpretation and the limits of interpretive theory, and breaks down the topic into four basic issues: fidelity, interpretation, construction, and constraint. He then notes:

[T]he issue of what fidelity requires is not the same thing as the question of how the system produces constraint. That is to say, it's possible (in fact it is likely) that the requirements of fidelity permit people to arrive at a wide range of different answers to constitutional questions over time, and that the work of constraining interpretation and construction is achieved by other features of the system. It is often assumed that what constrains judges are a set of rules of interpretation and construction, that, if followed, will produce correct answers that will also constrain judges, or, less ambitiously, keep judges from making arbitrary decisions (and poor decisions) or keep them from moving too far out of the mainstream of constitutional thought.

My view, by contrast, is that theories of constitutional interpretation, even the best theories, offer only part of the constraints necessary for the practice of judicial review, particularly when constitutional issues become most strongly contested. Rather, much of the work of constraint is produced by structural and institutional features of the constitutional system.

Check out the entire post.

Posted by Tom at 5:36 AM | Comments (1) | TrackBack (0)

Explaining corporate agency costs

During the Lay-Skilling trial, the questionable governmental policy of criminalizing corporate agency costs is on full display.

In this TCS Daily column, Clear Thinkers favorite Stephen Bainbridge lucidly explains corporate agency costs and why shareholders deserve protection from theft, but not from risk-taking.

Given the government's overwhelming prosecutorial power and the presumption in cases involving failed business decisions, the criminalization of corporate agency costs is a serious threat to justice and to creation of wealth and jobs. Professor Bainbridge is an expert at the top of his game on this key business law issue, so don't miss his analysis.

Posted by Tom at 4:13 AM | Comments (2) | TrackBack (0)

April 26, 2006

Europe's hyprocisy regarding Microsoft

WSJ ($) columnist and Clear Thinkers favorite Holman Jenkins (prior posts here) is on a roll today in his Business World column as he addresses the hypocrisy of Europe pursuing its anti-trust case against Microsoft while simultaneously indulging such transparent European-based anti-trust violators as Airbus. Money quotes:

"Antitrust is untrammeled bureaucratic whim masquerading as law and science, and sometimes the only effective check is a political check."

"Antitrust always and everywhere ends up being a neurotic response to ephemeral issues of corporate power, yielding only when the spasms of a previous administration can be politely swept out of sight."

Read the entire column. Good stuff.

Posted by Tom at 6:16 AM | Comments (0) | TrackBack (0)

Another Houston business innovation

Despite the success of Wal-Mart, operating a successful retail business in the U.S. during the best of times is difficult. In that regard, recent years have not been kind to retailers, particularly "big box" retailers -- i.e., those companies that lease large, warehouse-type buildings that anchor a strip shopping center containing any number of smaller retail businesses.

As a result, many of those strip centers have lost their anchor tenants, which often prompted smaller businesses to vacate the premises because of reduced customer traffic. Moreover, inducing a new retail anchor tenant to come into a center that has already lost its previous anchor is usually a dicey proposition, so owners of such centers often are left with the vexing problem of attempting to turnaround a relatively new retail property in a market that is devoid of potential tenants. What to do?

Well, as this Thaddeus Herrick/Wall Street Journal ($) article reports, Houston is at the forefront of an innovation that is helping owners of such properties solve their problem -- big chuches buying or leasing such centers to house part of the growing space needs of the churches:

Several years ago, when leaders at the 5,000-strong Tallowood Baptist Church in Houston realized they needed more space to expand their congregation, they considered building a new church on the outskirts of this sprawling Texas city. Instead, they opted for a less conventional site: a strip mall on the Katy Freeway.

Last year, Tallowood began services in a renovated 32,000-square-foot building that was formerly a Circuit City store. In addition to a 300-seat auditorium, the location now boasts 30 offices, a conference room that doubles as a day-care center and a Christian bookstore. "Not everyone comes to church for the architecture," says Larry Heslip, Tallowood's minister of education and administration. "Some people just like to be in a space that's usable." [. . .]

To make room for members, many churches are moving into commercial and retail spaces such as strip malls, big box locations and corporate campuses. Though often less spectacular in design than conventional churches, these buildings tend to be cheaper than new construction.

Large churches also see such properties as more desirable because they might attract potential churchgoers who are shopping at a retailer next door or across the street. And plenty of suburban property is available thanks to a commercial and retail push to both the fringes and downtowns of large urban areas. [. . .]

Tallowood paid $7.5 million for the 12-year-old strip center in 2004, acquiring 80,000-square-feet of retail space and 390 parking spaces on about 6.2 acres across the street from a Ford dealer.

Mr. Heslip says new construction would have cost considerably more, and older members might not follow the congregation to a new church. Tallowood spent $500,000 on the renovation of the Circuit City store, a project that presented few construction challenges. The older church, located less than a mile away from the new structure, is undergoing a $26 million expansion.

Tallowood's leaders believe the new campus will attract new followers. For younger members, the church plans to turn what was once the storage bay -- with 24-foot ceilings -- into basketball courts.

At the rear of the building, a modified coffee bar is in the works where Mr. Heslip says folks will be able to come in off the freeway and watch sports network ESPN. And all the church services feature an electronic band, not a choir.

"It's the opposite of the old campus," he says. "And intentionally so."

Posted by Tom at 5:39 AM | Comments (0) | TrackBack (0)

Shell Houston Open -- we have a problem

As noted in this earlier post, the Tournament Course at Redstone Golf Club -- the new home course of the Shell Houston Open golf tournament -- received mixed reviews from the players who played in last week's tournament, a view echoed in this GolfWeek magazine report after the tournament. However, it appears that the verdict on the new course from spectators may not even reach the level of mixed.

First, Chronicle sportswriter and columnist John Lopez noted over the weekend that some spectators were complaining to him of the inordinately long walks between the parking areas and the course entrance, and also the long hikes between the 1st hole green and the 2nd hole tee and the 17th green the 18th tee. That view was shared by a spectator who made the following comment to the Chronicle's Sports Update blog:

"The golf was fine, but the layout is very poor and too massive for a fan-friendly event. The walking distances are much too long and there is minimal multi-hole viewing. The HGA has really messed up on this venue."

But that barb was nothing compared to the scathing criticism that I received yesterday from a friend who attended the tournament over the weekend:

"I got to go to the Shell Houston Open on Friday and Sunday. What the hell is the HGA doing? That course is not PGA quality nor fan-friendly. The only holes you can watch easily are 1 and 18. Not too many folks want to make that 20 minute walk over the bayou to chase down another group on holes 2-17. I also got to watch first hand some pretty pissed-off caddies as they lugged their bags from 17 to 18. That was about a 10 minute walk. The viewing sites are sparse, no spectator mounds. No decent food pavilion. This tournament is doomed when it moves to the week before The Masters."

H'mm. Consequences of bad decisions?

Posted by Tom at 4:00 AM | Comments (2) | TrackBack (0)

April 25, 2006

Uh, Reggie, can you return kick-offs, too?

I may have missed it, but I didn't see the following news reported in ProFootballTalk reported by any of the local media:

Mathis Pulls a Winslow

A league source tells us that Texans receiver Jerome Mathis is sporting casts on both hands and bandages on his wrists and arms due to a recent motorcycle accident.

The accident happened recently, and nearly a year to the day after Browns tight end Kellen Winslow auditioned for the role of Superman by flying over the handlebars after attempting a reverse wheelie. Winslow suffered far more extensive injuries, including a torn ACL that knocked him out for the 2005 season.

Per the source, the injuries to Mathis appear to be limited to his arms. The source added that Mathis looks like "a mummy from the elbows down" (which raises all sorts of interesting bathroom issues).

Mathis, who excels at returning kick-offs, was the only member of the Texans team to make the NFL Pro Bowl All-Star game this past season.

Posted by Tom at 9:33 AM | Comments (1) | TrackBack (0)

A class act calls it quits

George Melloan, the deputy editor, international, of The Wall Street Journal and the author of the WSJ's weekly "Global View" column for the past 16 years, is retiring from the Journal at the end of this week. His final Global View column is here, which concludes as follows:

As readers may have suspected from the above, this is my last Global View column. After 54 years of joy at being part of a great news organization, I am retiring at the end of this week. I will keep myself busy writing a book about the 36 years I have spent writing and editing a portion of the copy you have read on the Journal editorial pages.

Part of the pleasure of this column has been the exchanges I've had with readers. Let me thank again those of you who have been generous with your time in sending me your thoughts and criticisms. A tiny few readers have expressed their disagreement in barnyard terms, but, having grown up on an Indiana farm, I long ago became familiar with that kind of discourse. I can quite understand hostile reactions to the preachments of a newspaper columnist, since I occasionally have tantrums myself when I disagree with a journo who sees the world in a different light. In America, neither side, thank goodness, can use the power of the state to suppress the other.

I will leave this column in the hands of a far younger and more talented writer. It has been fun, but all good things must end. Sayonara.

Melloan is a talented writer on business and politics, and I have liberally cited his columns in these previous posts. His common sense and -- most of all -- clear thinking will be sorely missed. Congratulations on a fine career and a job well done.

Posted by Tom at 7:31 AM | Comments (0) | TrackBack (0)

Plains Exploration's big deal

Houston-based Plains Exploration & Production Co. announced Monday that it has agreed to acquire Stone Energy Corp. of Lafayette, La. and assume the company's debt in a stock deal with a current value of about $1.35 billion.

Under the agreement, Plains will swap 1.25 common shares for each Stone Energy common share as Plains expects to issue about 34.5 million shares and assume about $485 million in debt. When the acquisition closes, Plains shareholders will own 70% of the combined company with Stone Energy shareholders owning the balance. Stone Energy shares rose $1.76 to $48.86, while Plains stock declined $2.92 (7%) to $39.05 as of the end of yesterday afternoon's New York Stock Exchange composite trading.

The primary purpose of the acquisition is to diversify Plains heavy concentration of reserves in California into Louisiana and the Gulf Coast. After the acquisition closes, Plains will have a proved reserve base of about 500 million barrels of oil equivalent (about 80% in oil) with operations in California, the Rocky Mountain region, Texas and the Gulf of Mexico.

Posted by Tom at 6:55 AM | Comments (0) | TrackBack (0)

Protecting Bezos

In this era of increasing skepticism regarding executive compensation of public companies, I pass along this Seattle Times blurb on the compensation package of Amazon.com's CEO, Jeff Bezos:

Amazon.com spent $1.1 million last year protecting Chief Executive Jeff Bezos, according to regulatory filings.

Since 2003, the online retailer has paid roughly $3.2 million on security for Bezos, including at business facilities and for business travel. The expense showed up for the first time on the company's annual proxy, which was filed Thursday with the Securities and Exchange Commission.

Meanwhile, Bezos' pay remained the same for the eighth year: $81,840.

As the company's founder, Bezos owns 101.3 million shares, or 24.3 percent of the company, worth about $3.68 billion.

80 grand in annual compensation and over a million in security costs? Sounds as if Bezos should trade jobs with his bodyguard. ;^)

Posted by Tom at 6:45 AM | Comments (0) | TrackBack (0)

The real presumption in the Lay-Skilling case

Although the key presumption in the criminal trial of former key Enron executives Ken Lay and Jeff Skilling is supposed to be that the men are innocent of the charges levied against them, a far different presumption is turning out to be the key one in the trial.

The Enron Task Force's case against Lay and Skilling heavily relies on an unstated presumption -- that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something in connection with Enron's descent into bankruptcy. Although the presumption is superficially appealing because of the human instinct to find scapegoats for failure, it is insidious because it is not true.

Yesterday, during his initial direct examination, Lay challenged that presumption by testifying that Enron's meltdown was the result of an unfortunate series of events that coalesced in undermining the market's trust in the company. As regular readers of this blog know, I have studied the Enron case and come to much the same conclusion as Lay. Enron was a "trust-based" business -- that is, Enron's business model required that its customers rely on the company's financial integrity and not necessarily its net worth. Accordingly, when customer confidence in a company such as Enron is undermined, participants in that company's markets become less willing to engage in the purchase or sale of long-term contracts that might not be fulfilled. Consequently, as the "bid-ask" spreads on trading contracts in Enron's trading business diverged in late 2001, Enron's markets unraveled, Enron's formerly profitable trading business collapsed and the company melted down into bankruptcy.

A typical reaction of the media reporters covering the Lay-Skilling trial have labeled the "run on the bank" explanation of what happened to Enron as audacious, but it's really not. Although the bankruptcy of a company as large Enron is unusual, Enronesque experiences for even the largest trust-based companies are not. In fact, over the past couple of years, two of the largest companies in the U.S. -- American International Group and General Motors -- each have had their own Enronesque experience. AIG survived its Enronesque experience; it remains to be seen whether GM will. In understanding how companies deal with such a loss of trust in the marketplace, it is helpful to review a few previous posts about AIG and GM's experience:

AIG's Absolutely Enronesque experience, how AIG was reeling as its experience continued and continued until the company was able to wind it up by serving Hank Greenberg and a few other executives up to the Lord of Regulation.

Thinking about GM's Enronesque experience as the company's Enronesque slide continues.

Finally, although not related to either AIG or GM, this post discusses Allied Capital's strategy for avoiding an Enronesque experience.

Although AIG and GM are trust-based businesses, they are different companies than Enron was, and the market forces that AIG faced and that GM continues to face are different -- and in many ways, more favorable -- than the dicey market conditions that Enron confronted in 2001. However, the point remains that, if any trust-based company loses the trust of the market, then the same thing that happened to Enron could happen to any such company, and such a breach of trust is not necessarily the result of the criminal wrongdoing of its leaders. That's an important point to remember as the Enron Task Force continues to rely on its dubious presumption to prop up a fundamentally weak and flawed case in attempting to place Lay and Skilling in prison for most of the remainder of their lives.

Posted by Tom at 5:31 AM | Comments (11) | TrackBack (0)

April 24, 2006

Stephen Cooper's big payday

This earlier post (also see here) noted the wrangling that had developed in the Enron bankruptcy case in New York over former Enron chapter 11 CEO Stephen Cooper's $25 million "success fee" request. That success fee, mind you, was on top of over $100 million that Cooper's firm had already made in providing debtor-in-possession management services to Enron.

Well, as the thorough Steve Jakubowski reports here, Cooper's proposed compromise of a $12.5 million success fee was approved late last week by the Enron Bankruptcy Judge, Arthur Gonzalez.

Not bad work if you can get it. But still no word yet from Lynn LoPucki.

Posted by Tom at 7:43 AM | Comments (2) | TrackBack (1)

A potentially Sharp tax on lawyers

Flying somewhat beneath the radar screen of a Houston business community that is preoccupied by the corporate criminal case of the decade is a new proposed state tax on earnings of partners that exceeds $300,000 a year (are you listening, law firm partners?).

This Ft. Worth Star-Telegram editorial surveys the political landscape regarding the proposed tax, which has been proposed by the so-called Sharp Commission, the special tax reform commission that former state comptroller John Sharp chaired. The proposed tax is part of a legislative effort to meet a June, 2006 deadline to fix the state’s funding system for schools and -- as you might expect -- more than a few law firms are opposing it.

Among other things, the Star-Telegram editorial notes that opponents are contending that the tax is unconstitutional because the Texas Constitution contains a 1993 amendment that specifically prohibits any “tax on the net incomes of natural persons, including a person’s share of partnership and unincorporated association income” without approval by voters in a statewide referendum.

Posted by Tom at 7:04 AM | Comments (4) | TrackBack (0)

Enron point and counterpoint

As former Enron chairman and CEO Ken Lay prepares to take the stand today in Week Thirteen of the corporate criminal case of the decade, I wanted to pass along an interesting exchange of posts from this past week.

This previous post noted this Jim Johnston/Paul Fisher Heartland Institute article that questions the demonization of Enron generally and the validity of the Lay-Skilling prosecution, in particular.

Chronicle business columnist Loren Steffy, who has believed for a long time that the book should be thrown at Lay and Skilling, responded to the Johnston-Fisher piece in this blog post.

In this follow-up post on the Heartland blog, Johnston replies to Steffy's post and concludes by making the point that the type of innovative risk taking that Enron engaged in is often necessary for the creation of new markets, wealth and jobs:

I am glad to hear that the establishment of a once vibrant risk management system for natural gas is not just chopped liver in Mr. Steffy’s opinion. The failed attempts with broadband, water and more importantly electricity, were good attempts and much was learned from the efforts. Maybe someday markets will be established in broadband and water. Electricity markets are even now recovering. It will take entrepreneurial companies with sizable assets to reestablish these markets. These companies will also have to watch out for the politicians.

These companies will need to watch out for the prosecutors, too!

Posted by Tom at 6:21 AM | Comments (0) | TrackBack (0)

Appleby wins SHO in a cakewalk

Stuart Appleby led from wire-to-wire in winning his second Shell Houston Open golf tournament Sunday at the new Tournament Course at Redstone Golf Club. The final leaderboard is here, local golf writer Ed Fowler's report on the tournament is here, and GolfWorld senior columnist John Hawkins' analysis of Appleby's remarkable performance is here.

Appleby lapped the rest of the SHO field as his 19-under-par performance was six shots better than second-place finisher, University of Texas alum Bob Estes. Appleby posted seven birdies in his closing round as he shot 66-67-69-67 for the tournament on the par-72, 7,500 yard Tournament Course layout. Inasmuch as the tournament was played under near-perfect weather conditions, the field scored well on the new course -- better than two thirds of the 70-player field on the final two days finished under par.

On a personal note, Houston clearly has a special place in Appleby's heart. His first win at the SHO came in 2002, about a year after his wife, Renay, had been hit by a car at the airport in London and killed. Everyone at that tournament will recall the tears in Appleby's eyes as he accepted the trophy and spoke of carrying on. He has since remarried, is now the proud father of a 1-year-old daughter and is enjoying his best season on the PGA Tour.

The verdict on the new Tournament Course -- the foundation of the SHO's effort to elevate its presence on the PGA Tour -- was decidedly mixed. The tree-lined course looked gorgeous on television and several players in the field complimented the design over the weekend. Jesper Parnevik, playing in his first Shell Houston Open, shot a 71 Sunday to shoot a one-under par 287 for the tournament, liked the course:

“I think it was very nice for a brand new golf course. There’s no funkiness about it. Very fair."

Parnevik also thinks the move to a new date next year the week before The Masters Tournament will help the SHO:

"It seems like Phil [Mickelson is] going to be here. There’s pros and cons playing the week before a major. Some guys love to play. A guy like Tiger never plays. I think it’s going to be a fairly good field. I like to play before the majors. The only thing about Atlanta is you could drive to Augusta. Now you have a 2 ½-hour flight."

That won't be much of a problem as I'm reasonably sure that the SHO will charter a flight after the tournament next year to transport those players who are playing in The Masters directly from Houston to Augusta. Second-place finisher Estes also thinks the SHO field will improve with the new date:

“Overall, it’s going to help. You’ll get a lot more foreign players. You’ll definitely have a stronger field and get more of the top players.”

A couple of other players expressed optimism that the Tournament Course will help players prepare for Augusta:

“I think it’s a nice warmup for the Masters,” said Ted Purdy. “With the big greens (here), I’m sure they’ll be in perfect condition. It’s a very similar green design, with the big undulations. It will be fun for Houston to have a lot more of the international players here. I think you’re going to have a real strong field.”

“If they can find a way to get the greens good and fast, with the undulations, I think they can draw a good field here,” said Lucas Glover. “They’ll have to find a way to get the greens fast so everyone will want to come before the Masters. This is as good a tuneup for the Masters as anything because of the iron shots, hitting it into the right areas on the greens.”

However, a couple of key players -- neither of whom played particularly well on the new course -- expressed reservations about coming back next year:

"The golf course did not grow on me," said three-time SHO winner Vijay Singh, who shot 2-under for the tournament. "Normally the more you play one, the more it grows on you. For some reason, it didn't do that. I hope they go back to the old golf course next year. I think a lot of the players feel the same way."

"Every hole is pretty similar. I wish they had used more trees instead of lakes. It's a modern golf course. It's not a bad golf course. I prefer the other one."

Asked whether he will return to the tournament next year during its new date before The Masters, Singh didn't sound enthusiastic:

"That's something to be thought about. I don't know. If we play the other golf course, I'd play."

Meanwhile, crowd favorite John Daly, who finished in the top 10 in the last three SHO tournaments, but shot 1-over par to finish 59th, also was not happy:

"Every hole is different. Every day, you've got to sit there and decide what you've got to hit off the tee. That one (the Member Course), it's driver. You know it's driver. This one, there are too many certain shots you've got to think about each tee, depending on the wind. It makes it a lot harder."

And will Daly return to play the Tournament Course again?

"Probably not. It doesn't set up for me at all."

Meanwhile, SHO tournament director Steve Timms said he heard much more positive than negative feedback about the Tournament Course during the week.

"You're not going to get a 100 percent vote of confidence."

Any changes in the course anticipated?:

"It's also 11 months away, so we'll see. Some things can change."

Any chance that one of those changes would be a move back to the old Redstone Course:?

"None at all."

Finally, kudos to the CBS Golf Television crew for their fine tribute to the late Dick Harmon during coverage of the tournament. On Saturday, CBS ran a moving segment on Dick in connection with reporting on the opening of the new Dick Harmon Learning Center at Redstone this week. CBS color commentator Lanny Wadkins, on old friend of Dick's, gave a particularly tender testimonial on his friendship with Dick and his appreciation for Dick working with Wadkins' sons on their golf games. It was a wonderful expression of admiration for a great ambassador for Houston, who is sorely missed.

Posted by Tom at 4:28 AM | Comments (0) | TrackBack (0)

April 23, 2006

LBJ on Ee-co-nomics

Thanks to Arnold Kling for pointing out this Robert Skidelsky review of Richard Parker's new book, John Kenneth Galbraith: His Life, His Politics, His Economics (Farrar, Straus 2005), which contains the following earthy observation on economics from the late Lyndon B. Johnson, made to Galbraith while Johnson was throwing away a Galbraith-authored draft of a speech:

"Did y’ever think, Ken, that making a speech on ee-co-nomics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else."

Posted by Tom at 6:29 AM | Comments (1) | TrackBack (0)

April 22, 2006

Stros 2006 Review, Part One

This is my first periodic review or the Stros' season in my third straight year of blogging the club, and the first 10% of the season has has initially justified my generally rosy pre-season outlook. The club has burst out of the gate with a Major League-best 11-5 record and, with the exception of the relief pitching, every other part of the club has been performing at above-expected levels so far.

As regular readers know, I'm a stathead with regard to analyzing baseball, so here are the key stats of the Stros' hitters (pdf of hitting stats here) and pitchers (pdf of pitching stats here) through the first 16 games, courtesy of Lee Sinins' sabermetric Baseball Encyclopedia:

The abbreviations for the hitting stats are defined here and the same is done for the pitching stats here.

16 games is not a large enough sample size of games to draw definitive conclusions about the Stros this season, so the following are just some good and bad trends that I see through the first 10% of the season:

The Good: The Stros are off to an 11-5 start.

The Bad: Most of the games have been against the likes of the Marlins (5-10), the Nationals (7-10), the D-Backs (7-10) and the Pirates (5-13), all of which are likely to be bottom-feeders in the standings this season. Thus, before getting too excited, let's wait to see how the Stros do against better-quality competition.

The Good: 3B Ensberg (22 RCAA/.522 OBA/.964 SLG./ 1.486 OPS) and 1B Berkman (18/.408/.721/1.130) are absolutely raking the ball right and both of them are off to All-Star quality starts. Berkman recently went over 300 RCAA for his career and now ranks behind only Bags and Bidg on the all-time Stros RCAA list:

1 Jeff Bagwell 680
2 Craig Biggio 351
3 Lance Berkman 300
4 Jose Cruz 277
5 Cesar Cedeno 249
6 Jimmy Wynn 240
7 Bob Watson 216
8 Joe Morgan 170
9 Moises Alou 128
10 Terry Puhl 114

The Bad: Newly-acquired LF Preston Wilson (-5/ .273/.435/.708) is looking more like a bust each day. Wilson's spiral downward bottomed out this past week (we hope) against the Brewers when he tied a major league record with 11 strikeouts in the three game series, picked up a golden sombrero (four strikeouts in one game) and a "plutonium sombrero" (five K's in one game -- hat tip to John Lopez) plus two more in the middle game of the series. Given Chris Burke's improved production (2/.389/.563/.951) in limited play to date, Wilson is probably not a better option than Burke in left field.

The Good: Although off to a slow start hitting the ball, RF Jason Lane (0/.357/.429/.786) is showing much better plate discipline and has a team-leading 14 walks in 70 plate appearances after drawing only 32 walks in 561 plate appearances last season. Moreover, light-hitting but superlative-fielding shortstop Adam Everett (0/.333/.444/.778) has had his best hitting start this and is showing some pop in his bat (five extra base hits in 57 plate appearances). Even C Brad Ausmus (3/.489/.361/.850) -- arguably the worst-hitting regular player in the National League -- has parleyed improved plate discipline into a decent start. Above-average hitting seasons from these three would be a big boost for the Stros' chances to reach the post-season.

The Bad: Willy Taveras (-5/ .324/.328/.652) is a horrble drag on the Stros lineup from a hitting standpoint. Not only does Taveras lack power (two extra-base hits in 73 plate appearances), the speedy centerfielder has not stolen a base yet and has been caught stealing two times! And despite their relatively strong starts, Ausmus has precisely one extra base hit (a double) in 47 plate appearances and Everett has drawn only two walks in his 57 plate appearances. Neither Taveras nor Everett likely to become a National League-average hitter unless they draw more walks.

The Good: The freak-of-nature Bidg (-2/.338/.450/.788) continues his power surge from last season with seven extra-base hits in 65 plate appearances.

The Bad: Bidg's power surge has come at the expense of plate discipline, which is hurting his on-base average. After having only 37 walks in 651 plate appearances last season, Bidg has only 2 walks in his first 65 plate appearances this season. Inasmuch as Taveras has a below-National League average OBA, Bidg needs to maintain an at least average OBA to help generate baserunners at the top of the Stros' lineup. It's hard for a player to have even an average OBA if he is not drawing plenty of walks.

The Good: Veteran starters Roy O (6 RSAA/2.76 ERA) and Pettitte (-2/5.25) (Pettitte's numbers are deceptively elevated because of a horrid first game), and young starters Wandy Rodriguez (6/2.52) and Taylor Buchholz (2/3.18) have all had solid starts to the season.

The Bad: Backe's elbow injury (on the disabled list and probably out for at least a couple of months) hurts the already shaky starting pitching depth and no one else has stepped up to take Backe's place in the rotation. The Stros could definitely use the Rocket come the first of May. Moreover, the bullpen has been generally shaky so far this season, but that appears to be more a function of working the kinks out during the early part of the season rather than a talent problem. My sense is that Brad Lidge, Dan Wheeler and Chad Qualls remain a highly formidable trio at the end of games for the Stros.

The Good: Chronicle sports columnist Richard Justice, who has made frequent snarky comments toward Stros owner Drayton McLane, actually pens a nice column about McLane.

The Bad: The filing by the Stros of the lawsuit against the insurer of the disability insurance policy on Jeff Bagwell confirmed that the baseball career of the greatest player in Stros history is over.

So, all in all, a great start, but there are definitely enough warning clouds on the horizon that Stros fans shouldn't be ordering their playoff tickets just yet. After finishing this weekend's series with the Pirates, the Stros play three against the Dodgers at Minute Maid Park, then go on road to face the resurgent Reds, Brewers, Rockies and Dodgers again with only a couple of games at home during that time against the Cardinals. Consequently, the schedule gets a big tougher for the Stros in the next 10% of their season, so a cool down from the club's hot start should be expected.

Posted by Tom at 1:30 AM | Comments (4) | TrackBack (0)

April 21, 2006

Lookin' good

As noted in this earlier post, the Shell Houston Open golf tournament is taking place this week at Redstone Golf Club. Yesterday afternoon, I was able to watch a few minutes of the USA Network telecast of the first round and was particularly impressed with the overhead shots of the new Tournament Course at Redstone from the "Bloomin' Onion" -- the Outback Steakhouse Blimp.

Unlike the other courses on which the tournament has been played recently, the new Tournament Course is not a "subdivision" course -- i.e, there are no homes lining the fairways of the course. As a result, the tree-lined course with several small lakes looks much better from an aesthetic standpoint than either the other Redstone course or the TPC at The Woodlands, the two other recent venues of the tournament.

My previous post on this week's tournament is here and my review of of the new Tournament Course is here.

Posted by Tom at 6:54 AM | Comments (2) | TrackBack (0)

Lay-Skilling, Week Twelve

The Jeff Skilling segment of the corporate criminal trial of the decade concluded during Week Twelve (prior week summaries are here) as the former Enron CEO testified for a bit over three days on cross-examination from Enron Task Force director Sean Berkowitz and on re-direct from Skilling attorney, Daniel Petrocelli.

As has been my custom during the Lay-Skilling trial, I continue to read each day's transcript of the trial and pop into the courtroom whenever I am in the federal courthouse on other matters and have an hour or two to spare. This week, I was able to sit it on the final two hours of Berkowitz's cross-examination of Skilling, and that experience reinforced my overall opinion of the trial to date -- the Task Force is presenting a fundamentally flawed and weak case against Skilling and Lay.

Given the societal bias against anything having to do with Enron, it is helpful to review from time to time the case that the Task Force has actually presented in court to date. In short, the Task Force has presented a "pump and dump" case that, to a large extent, relies on a complex jumble of innuendo and opinion. According to the Task Force, Enron was so successful in making money in its trading operations that it allowed Skilling and Lay to soft-pedal to the markets the losses that Enron was incurring in several of the company's less successful units.

Mind you, the Task Force is careful not to contend that either Lay or Skilling was involved in fraudulent accounting. Rather, the Task Force asserts that mainly Skilling understated to the market the losses of a couple of poorly-performing Enron business units, including allegedly hiding one unit's losses underneath the blanket of the trading unit's high profits. The Task Force contends that the alleged hiding of these losses -- along with alleged over-reserving of excess profits in the trading unit -- allowed Skilling and Lay to misrepresent Enron to the investing public as a stable logistics company rather than the more volatile trading company that prosecutors allege that Enron had become. As noted in this earlier post at the beginning of the trial, the Task Force's theory of the case relies on its unstated, but nevertheless key, presumption -- i.e., that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something as a result of Enron's failure.

Berkowitz's entire cross-examination of Skilling played heavily on that presumption. Given that dubious premise, it's not particularly surprising that Berkowitz's cross-examination was long on style but noticeably short on substance. Relying on word games and satirical indignation, Berkowitz often gave Skilling little time to answer questions and frequently cut him off during his answers. Meanwhile, Berkowitz failed to pursue most substantive areas of inquiry related to the 28 charges against Skilling in favor of spending an inordinate amount time on relatively superficial matters that have little to do with the charges.

For example, early in the cross-examination, Berkowitz brought up that Skilling was using a jury consultant to assist him in preparing his defense and even showed the jurors the consultant's webpage on the courtroom's exhibit screen. Given the vacuous nature of the entire line of inquiry, it was a credit to Petrocelli's trial instincts that he didn't bother to object. Since when is working with a jury consultant to help establish one's innocence a sign of guilt?

Similarly, Berkowitz spent a substantial amount of time questioning Skilling about his earlier SEC testimony regarding Skilling's investment in Photofete, a former girlfriend's photography business. The investment was clearly small potatoes, but Berkowitz suggested to the jury that Skilling's mistaken earlier SEC testimony about the size of his investment, possible backdating of an investment check and his failure to disclose to the Enron board that he had invested in a small vendor of Enron was definitive evidence of Skilling's lack of credibility. Maybe so, but what about those 28 charges against Skilling? Larry Ribstein summed it up well in this post:

So the biggest fraud of the century is going to come down to Photofete? As I've pointed out in the post linked above, this is all part of what I've called the "corporate crime lottery," where guilt depends on such things as what juries will understand rather than on the essential wrongfulness of the misconduct.

Despite widespread speculation that Skilling would come unhinged under the pressure of cross-examination, he did not. The only time that Skilling flashed anger was during the second day of cross-examination when Berkowitz suggested in a line of questioning that changing the classification of a public company's preliminary earnings estimates in the company's later published financial results was conclusive evidence of accounting fraud. Under Berkowitz's way of thinking, if a company's initial estimates later change in the company's actual published results, it's prima facie evidence of fraud, which would make virtually every public company in the United States subject to being indicted for fraud. After Berkowitz persisted in such nonsense during a protracted series of questions, Skilling finally lost his temper for a moment and chastised Berkowitz's mendacity. However, from my vantage point, it seemed clear from the exchange that Berkowitz either did not understand what he was talking about or was disingenuously suggesting that a common practice of most large public companies is a crime.

But if the first two days of Berkowitz's cross-examination were somewhat odd for the failure to address substantive issues related to most of the actual charges against Skilling, the final day of cross-examination was downright bizarre. During the morning session that I attended on Wednesday, Berkowitz quizzed Skilling over a substantive area -- i.e., Enron's trading business and the company's disclosures related to it.

Berkowitz continually asked Skilling spurious questions about Enron's trading business, while Skilling patiently explained to Berkowitz how the questions reflected either his misunderstanding or mischaracterization of the business. Don't take my word for it, see for yourself -- the transcript of the final hour or so of that portion of the cross-examination is here (note "VaR" in the transcript means "value at risk," the elaborate methodology that Enron developed to monitor and control trading risk). As one old local lawyer sitting next to me commented right before the lunch break:

"This is not a fair fight. Skilling is schooling him."

Then, after the lunch break, Berkowitz changed directions and began to question Skilling regarding the reasons that he decided to resign as Enron's CEO in mid-August, 2001. After about 45 minutes of meandering and innocuous questioning, the elderly lawyer sitting next to me leaned over and cracked:

"I think Berkowitz really just wants to have a beer with Skilling and talk things over."

About an hour into his post-lunch break questioning, Berkowitz finally suggested that Skilling had told a former McKinsey & Co. partner shortly after his resignation from Enron that he would consider the CEO job at Lucent. When Skilling denied the allegation, Berkowitz snidely retorted to Skilling "[t]hat's another person you disagree with?" and abruptly ended the cross-examination. Thus, rather than ending cross-examination with a bang, Berkowitz ended it with a whimper (check out the transcript of that post-lunch break portion of the cross here).

How all of this is playing with the jury is one of the fascinating imponderables of trial law. Certainly, given the government and much of the media's demonization of both Skilling and Lay, the Task Force may not need anything more than a weak case to obtain convictions. Peter Lattman of the popular WSJ Law Blog attended Skilling's direct testimony and the first part of the cross-examination, and he thought that the jurors responded negatively to Skilling in regard to the Photofete testimony. During my visit at the closing of cross-examination on Wednesday, the jurors appeared bored with Berkowitz's morning questioning over the trading business and somewhat befuddled by his aimless post-lunch break questioning. For what it's worth, the Tradesports contracts predicting a Skilling conviction did not move a lick during the cross-examination, which at least reflects a perception in that market that cross did not go well for the prosecution.

Although I do not have as good a basis for evaluating the jury as those who are in the courtroom on a daily basis, my approach of reading the transcript, writing weekly summaries and occasionally popping into the courtroom does allow me to reflect on the proceedings a bit more than the folks who are under the pressure of reporting on each day's developments. In that regard, none of the pervasive media reports on the trial picked up on the fact that Berkowitz failed to address two key allegations in its case during Skilling's cross-examination -- (i) the alleged Global Galactic agreement that former CFO Andy Fastow testified that he entered into with former Enron chief accountant and former Lay-Skilling co-defendant, Richard Causey, and (ii) the alleged huge conspiracy at Enron.

It doesn't say much about the strength or validity of the Task Force's case that arguably the key issue (see also here) in its case-in-chief is not even addressed during cross-examination of the defendant against whom the issue was directed. Similarly, Berkowitz's failure to question Skilling about the alleged conspiracy within Enron is equally baffling, but at least consistent with the Task Force's paltry presentation of evidence related to its conspiracy charges throughout its case-in-chief.

The Task Force's ducking of the conspiracy issue brings into sharp focus the true reason why the Task Force made the conspiracy allegations against Skilling and Lay in the first place -- to make sure that key witnesses with exculpatory testimony for Lay and Skilling do not testify during the trial. In short, the Task Force is getting away with keeping exculpatory testimony for Lay and Skilling out of this trial by designating key potential witnesses as unindicted participants in a conspiracy that the Task Force has not come close to proving.

Although reasonable people can differ over whether criminalizing corporate agency costs is sound public policy, there is no serious question that the government's effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious violation of the principles of justice and the rule of law upon which our criminal justice system is based. Berkowitz's cheap comment made at the end of Skilling's cross-examination ("That's another person you disagree with?") only underscores that this jury should be allowed to hear from the dozens of former Enron executives who agree with Skilling, and not just the relative few who cut plea deals with the Task Force and testified now that they disagree with him.

As discussions of the Lay-Skilling trial reflect on this blog and others, many otherwise thoughtful and intelligent people believe that they understand the Enron morality play so thoroughly that they seemingly lose the capacity for independent thought regarding Enron and reject any notion of ambiguity or fair-minded analysis in ferreting out the truth of what really happened at the company. However, against that daunting societal bias, Skilling admirably told his side of the Enron story for over 40 hours on the stand and did not back off from attempting to answer any question posed to him. Regardless of the outcome of this trial, Skilling's performance was both impressive and a daunting reminder of the increasing hazards involved for businesspersons in taking cutting-edge risks to create jobs and build wealth in the current U.S regulatory environment.

When the trial resumes on Monday, Lay will take the stand and my sense is that his testimony will take the remainder of the week. Lay's testimony will be even more focused than Skilling's on the conflicting considerations and pressures that surrounded the process of making tough business judgments for Enron in an unsettled market that was quickly souring on the company. Thus, stay tuned for yet another highly interesting week of testimony as the corporate criminal trial of the decade heads toward conclusion.

Posted by Tom at 4:58 AM | Comments (5) | TrackBack (0)

April 20, 2006

More troubles for V&E?

As noted earlier here, the venerable Houston law firm of Vinson & Elkins has received its fair share of bad publicity for its role as primary outside counsel for the social pariah, Enron. Probably the severest criticism for V&E was its role in handling the investigation into the allegations contained in Sherron Watkins' memo to former Enron chairman and CEO, Ken Lay. V&E's investigation found no wrongdoing, and Watkins and the Enron Task Force contend that V&E whitewashed the matter to help Lay hide severe problems at the company.

Now, according to this Bond Buyer News article, the San Diego city attorney is prepared to file a lawsuit against V&E over an investigation into the city's pension debacle that the city attorney alleges was mishandled. San Diego's pension problems were revealed in early 2004 when the city announced that it had about $1.2 billion in unfunded pension liabilities — now estimated to be between $1.4 billion and $2 billion — due to a number of factors, including the underfunding of annual contributions and the creation of expanded retirement benefits, some of which may not have been legal. The city hired Vinson & Elkins to review the city’s pension problems and disclosure practices and to recommend improvements.

Vinson & Elkins wrote two reports. The initial one was completed in the fall of 2004 and detailed how the pension problems occurred over time. It also recommended a series of major steps for the city to take to improve its pension reporting and disclosure practices. The second report was completed in July 2005 and concluded that at least six former officials and San Diego city council members may have violated the federal securities laws by failing to ensure pension problems were disclosed in bond documents.

San Diego City Attorney Michael Aguirre has contended that the Vinson & Elkins reports, for which he says the city was billed about $6 million by the law firm, were “a whitewash” (heard that before?) that failed to hold city officials fully accountable. Aguirre conducted his own investigation of the pension debacle after the issuance of the V&E reports and his conclusions regarding the former officials were much harsher than the V&E conclusions:

“Both [Vinson & Elkins] and Kroll [another participant in the investigation] are exploiters of vulnerabilities of the city,” Aguirre said. “Instead of helping the city do what it was required to do, they coordinated their efforts to help the people that were under investigation escape responsibility because that’s where the money was.”

This investigatory work is getting a tad expensive for V&E, don't you think?

Posted by Tom at 8:20 AM | Comments (0) | TrackBack (0)

Alabama politics and the latest Scrushy trial

Let's see if I can keep this straight.

This article about the beginning of jury selection for the upcoming bribery trial against former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman reports that former Alabama Lieutenant Governor Bill Baxley represents one of the other co-defendants, former Siegelman cabinet member Mack Roberts.

Meanwhile, Siegelman is running for governor again and wants to be acquitted of the charges before the June 6th Alabama Democratic primary in which he is opposed by current Alabama Lieutenant Governor Lucy Baxley, who is the former wife of Roberts defense counsel Baxley.

I wonder if Ms. Baxley will be a character witness for Siegelman? ;^) Hat tip to Letter of Apology for the link.

Posted by Tom at 7:48 AM | Comments (0) | TrackBack (0)

The brewing political storm involving the NatWest Three

As the testimony of former Enron CEO Jeff Skilling concludes today in a Houston courtroom, a political firestorm is brewing in the United Kingdom over the Enron-related case of the NatWest Three (previous posts here) -- the three former London-based National Westminster Bank PLC bankers who are charged in Houston with bilking their former employer of $7.3 million in one of the schemes allegedly engineered by former Enron CFO Andrew Fastow and his right hand man, Michael Kopper.

According to this article from The Scotsman, an influential committee of the Scottish Parliament has taken the extraordinary step of writing to the UK government to lodge a formal complaint requesting that Scotland be exempted from the provisions of the 2003 Extradition Treaty signed with the US in the wake of the 9/11 attacks on New York and Washington, D.C.

According to The Scotsman article, the committee has notified the UK government that it is objects to Scots being taken to the US to stand trial for offenses without the US being required first to present a prima facie case against the Scots in a UK court. The committee also objects to other terms of the controversial treaty, such as allowing UK citizens to be extradited to the US for one offense and charged with another and giving US the power to demand the extradition of British citizens to face trial in the US even though the US Congress has not approved the treaty allowing the British government similar extradition rights with regard to US citizens. One of the NatWest Three -- Gary Mulgrew -- is a Scot and the son of a member of the Scottish Parliament.

Inasmuch as it is highly unlikely that the UK government would exempt Scotland from a major international treaty, the Scottish committee's complaint is largely symbolic. But it is adding to growing political pressure in the UK for the UK government to disavow the extradition treaty, which went into effect in January 2004 as an anti-terrorist measure. The treaty has resulted in 12 extraditions to date, but none of them have been for terrorist offenses. Two were extradited for alleged drug offenses, six for alleged fraud or robbery, one on murder allegations, two for alleged rape and one for an alleged assault. 23 other alleged white-collar criminals -- many of whom work in London's financial district -- are currently awaiting extradition on allegations of fraud and other financial offenses.

Meanwhile, the London Daily Telegraph has established this handy webpage that includes articles, editorials and other resources relating to the controversy.

Thus, if the NatWest Three lose their current appeal to the House of Lords and are extradited to Houston, they will be forced to prepare the defense of their case against the imposing resources of the Enron Task Force while imprisoned in Houston's Federal Detention Facility. Meanwhile, their main accusers -- Fastow and Kopper -- remain living comfortably in River Oaks and Montrose.

But an equally damaging aspect of the the case is the way that it portrays the US justice system in the UK and internationally as a wild frontier with no respect for due process of law. That portrayal is a natural product of the criminalization of business mindset that elevates propaganda campaigns and prosecutorial misconduct over proof of criminal charges in a court of law. Little wonder that the already high price of asserting innocence in the US justice system continues to increase.

Posted by Tom at 5:36 AM | Comments (2) | TrackBack (0)

Diet and Alzheimer's

A new Annals of Neurology study headed by Nikolaos Scarmeas of the Columbia University Medical Center in New York has found that people who followed a Mediterranean-style diet were up to 40% less likely than those who largely avoided it to develop Alzheimer's during the course of the research study. Previous posts on Alzheimer's research are here.

The study evaluated about 2,200 elderly residents of northern Manhattan every 18 months for signs of dementia over a four years period. None showed any dementia at the start of the study, but by the end of the study, 262 had developed Alzheimer's. The researchers gave each participant a score of zero to nine on a scale that measured how closely they adhered to a Mediterranean-style diet. Compared to those showing the lowest adherence, those who scored four or five on the diet scale showed 15% to 25% less risk of developing Alzheimer's during the study and those with higher scores had about 40% less risk. Prior research suggested that certain components of the Mediterranean diet can reduce the risk of developing Alzheimer's, but the research focused on specific nutrients (such as vitamin C) or foods such as fish. By incorporating an entire diet, the new study addresses possible interactions between specific foods and nutrients.

The diet tested in the study included primarily vegetables, legumes, fruits, cereals and fish, while limiting intake of meat and dairy products. The diet also included drinking moderate amounts of alcohol and emphasizing monounsaturated fats, such as in olive oil, over saturated fats. Previous research has suggested that such an approach also reduces the risk of heart disease, and the new study is additional evidence that certain conditions that are associated with heart disease -- high cholesterol, high blood pressure, obesity, smoking and uncontrolled diabetes -- may also contribute to Alzheimer's.

Posted by Tom at 4:56 AM | Comments (0) | TrackBack (0)

April 19, 2006

Creditors' rights, Chinese-style

This earlier post noted the paradigm shift in favor of creditors that has occurred recently with the amendments to the U.S. Bankruptcy Code, but that shift is nothing in comparison to the pressure that creditors in China can apparently bring to bear upon struggling debtors.

Get a load of this First Circuit Court of Appeals decision involving an appeal of a lower court decision denying a young Chinese woman's request to remain in the U.S.:

Petitioner grew up in a small village in southeastern China. In 1998, her father partnered with Su Fei Pan, a local Communist Party boss, to start a new business. After an employee embezzled the business's proceeds, the venture failed and petitioner's father was left unable to pay off his outstanding loans.

Su Fei Pan, however, brokered a deal to clear the father's debts. A wealthy Taiwanese man would pay off the debts if petitioner's father would permit the man to marry his daughter, petitioner's older sister. Petitioner's father agreed, but the sister, who was 19 years younger than the Taiwanese man, refused and ran away from home.

A month later, in September 1999, Su Fei Pan attempted to broker the same deal but with petitioner taking the place of her older sister. Su Fei Pan told petitioner that her older sister was waiting for her in a hotel in the city of Fuzhou (a two hour drive from her village). When petitioner entered the hotel room, she was grabbed by an older man, presumably the Taiwanese man, who then tried to force her down onto the bed. Petitioner resisted and was able to escape. She fled from the hotel and went into hiding.

After hiding from her father, the Communist Party official and the Taiwanese man for several years in China, the young girl eventually made her way to the U.S. in 2002 with a fake visa, where she was promptly arrested at the LA airport and placed into custody for another few years. Inasmuch as she does not belong to a particular social group ("unmarried young wom[en] from rural China . . . who have resisted being forced into marriages and sexual relationships by a person in power" apparently isn't good enough), the First Circuit affirmed the Immigration Board's ruling and sent the young woman packing to China, where presumably the Communist Party is still providing brokerage services for her marital future.

Sort of makes you wonder what collection strategy the Communist Party would have taken had the father not had any daughters? Hat tip to Appellate Law & Practice for the link to the First Circuit decision.

Posted by Tom at 6:08 AM | Comments (4) | TrackBack (0)

The Texas Untouchables?

While perusing the Chronicle over the past couple of days, I came across this article about the Texas Alcoholic Beverage Commission quietly suspending a program of stepping up arrests of intoxicated bar patrons after state legislators scheduled a hearing this week to investigate complaints from the public — and legislators — about how the arrests were being carried out.

I'm not a patron of bars, so I didn't think much more about the article until yesterday, when I read this follow-up article about the hearing. State Senator John Whitmire of Houston, who co-chaired the hearing and is usually quite supportive of the TABC, was reportedly outraged by the "cowboy attitude" exhibited by TABC agents, which included storming targeted bars while outfitted in full-SWAT team gear. Other committee members reported stories of patrons forced up against a wall en masse. In fact, a number of witnesses testified about being arrested without a sobriety test and, in one case, of being arrested after passing a Breathalyzer test. At one point, TABC even invited a local television camera crew to film their sting operations!

Now, let me get this straight. Alcohol control agents are dressing in SWAT gear to raid bars where people are drinking, all for a spot on the 10 o'clock news?

My sense is that we could use a bit of housecleaning at the TABC.

Posted by Tom at 5:35 AM | Comments (1) | TrackBack (0)

Billy Goldberg, R.I.P.

Longtime Houston businessman and Texas Democratic leader Billy Goldberg died this past weekend at the age of 90. The Chronicle story on Billy's life and death is here.

Billy was one of the many colorful larger-than-life characters who I have had the privilege of getting to know while practicing law in Houston over the past 27 years. A well-known Democratic Party activist for much of his life, Billy was in his late 70's when I first met him. By that time, he had put most of his political activities aside to concentrate on business interests.

Billy was a risk-taker in business, so he had his share of financial and legal challenges. Eight or nine years ago, when he was in his early 80's, Billy called me to help him work out a particularly complex jumble of business and legal problems. After a long but delightful meeting in which Billy laid out his problems in between anecdotes about LBJ and John Connally -- and reminding me of possible help that he could receive from Clinton Administration officials -- I presented a couple of alternative strategies, one of which was simply to pull back and prepare for retirement:

"Billy, you're in your early 80's," I reasoned. "This approach would allow you to retire comfortably. Doesn't that make most sense at this point in your life?"

"No, Tom, I don't think so," replied Billy with a wry smile. "The way I see it, I've only got six or seven more years of really good income-producing potential before I think about retiring. I don't want to waste that potential!"

Six or seven more "really good income-producing years" after the age of 80? I just hope I have a fraction of Billy's energy if I reach my early 80's! Rest in peace, friend.

Posted by Tom at 5:02 AM | Comments (0) | TrackBack (0)

April 18, 2006

The intrigue of the NFL Draft

This NY Times article from over the weekend discusses the ups and downs that prospects endure in the run-up for the annual National Football League draft, but even that did not prepare me for this:

For the first time, there is legitimate reason to think that USC running back Reggie Bush is not going to be wind up in Houston, the city that currently holds the No. 1 overall pick. This does not come from one source or from one team. This comes from multiple sources, from across the league, without any agenda to push.

The mounting evidence includes this:

As of Monday, the Texans had not had any contract discussions with Bush and his representatives. None.

Yet the Texans have approached North Carolina State defensive end Mario Williams, trying to see if he would be receptive to discussing a deal.

But the evidence goes beyond contracts. When Bush was in Houston, a certain segment of the organization never introduced itself to the running back. This might not be unusual, but if the organization was convinced it was taking a certain player, it should be rolling out the welcome mat with everyone trying to make the player feel as at home as possible. This, according to those who know Bush, did not happen.

Then there is the simple and significant matter of need. Within the past year, the Texans signed running back Domanick Davis to a long-term extension. They also drafted wide receiver Jerome Mathis, the return man who went to the Pro Bowl during his rookie season. The Texans know they have a dependable running back and return man, the two spots Bush fills.

Houston's greater need is at defensive end, and, just as much, at left tackle, a position that could be filled by Virginia's D'Brickashaw Ferguson, who is expected to go in the top four picks.

Yet whether Houston winds up with Williams or Ferguson is unknown. What is known is that Bush no longer is a lock for Houston.

As a person in the Bush camp said Monday, "Do I have a feeling that Reggie is going to Houston? No, I have a feeling that he's not."

Posted by Tom at 7:59 AM | Comments (4) | TrackBack (0)

Oil settles at over $70 per barrel

Crude oil closed above $70 a barrel yesterday for the first time despite the fact that U.S. oil inventories are at their highest levels in nearly eight years. Thus, this current price spike appears to be a reflection of a new phenomenon -- investment in oil futures driving higher prices rather than the typical principles of supply-and-demand.

The U.S. is the world's largest oil market, generating almost a quarter of world demand of about 85 million barrels a day. U.S. benchmark oil for May delivery settled at a record of $70.40 a barrel yesterday on the New York Mercantile Exchange, up $1.08 a barrel. Although oil prices are up almost 15% for the year, the inflation-adjusted record price for oil remains the April 1980 price, which equates to $97.21 in 2006 dollars. Yesterday's price came after the U.S. Energy Department reported last week that commercial crude-oil inventories had risen to 346 million barrels, the highest level since May 29, 1998. At that time, the crude-oil market was about to crash and, by the end of 1998, prices fell below $11 a barrel from an average of over $18 in late 1997.

The seeming contradiction of rising prices and inventories probably is best explained by concern over supply constraints in Iraq and Nigeria and the steadily increasing demand in large countries such as China and India. As a result, investors are flocking to oil markets where it is currently estimated that investment managers are holding between $100 to $125 billion in commodities investments, which compares to less than $10 billion in such investments back in 2000. That level of investment indicates that the market is betting that demand for oil will continue to rise under tightening supplies.

For over a year now, the three-year bull market in oil has resulted in what energy traders call "contango" -- i.e., futures contracts for a given product are priced substantially higher than that same product for near-term delivery. As a result, it pays to buy and hold oil now to sell it later at the higher price. "Backwardation" is the opposite of contango and occurs when near-term prices are higher than long-term contracts. That market condition would prompt buyers to dump inventories, which would in turn dampen prices considerably.

For more expert views on the current spike in oil prices, check out James Hamilton (also here and here) and the Oil Drum.

Posted by Tom at 5:48 AM | Comments (3) | TrackBack (0)

UH Law Center Dean Rapoport resigns

University of Houston Law Center Dean Nancy Rapoport resigned yesterday. This Chronicle article on the resignation suggests that the resignation was prompted by a stormy meeting last week in which the Dean was criticized by students and faculty for, among other things, a drop by the UH Law Center of almost 20 places (from 50 to 69) over the past four years in U.S. News & World Report rankings of U.S. law schools. Christine Hurt over at Conglomerate provides perspective on Dean Rapoport's tenure at UH.

I do not know the reasons for Dean Rapoport's resignation, but if it is truly a result of criticism over the drop in the U.S. News & World Report rankings, then the critics ought to be ashamed of themselves. True experts in law school evaluation have long considered the U.S. News rankings as highly defective and misleading. University of Texas Law Professor Brian Leiter, who authors a much more well-reasoned and objective ranking of U.S. law schools than the U.S. News rankings, currently ranks the UH Law Center faculty as the second-best of Texas law schools (behind only UT) and better than the faculties of the law schools at SMU and Baylor, both of which are ranked higher than UH in the U.S. News rankings.

Posted by Tom at 5:10 AM | Comments (6) | TrackBack (0)

TSU cans Slade for cause

The Board of Regents of Texas Southern University voted Monday to terminate the employment of embattled TSU president Priscilla Slade for cause after an outside law firm's report concluded that Slade and TSU's former chief financial officer had violated TSU policy regarding reimbursement of hundreds of thousands of dollars of Slade's expenses. The prior posts on the Slade affair are here.

Slade's problems began in January after she had moved into a new home near Memorial Park. Slade billed TSU for $86,467 in home furnishings, $138,159 in landscaping services and $56,010 in security-related equipment for the new home. After regents questioned certain of the expenses, she reimbursed the university for the landscaping expenses, which Slade contends she always planned to pay but which TSU employees mistakenly paid. However, a report by Bracewell & Giuliani -- the outside law firm that the board hired to conduct an investigation into Slade's expenses -- found that Slade authorized the landscaping work without knowing how she would pay for it and without prior approval of the board. The law firm concluded that Slade initially intended for the university to cover the costs.

Of course, it didn't help Slade that TSU's former CFO who actually signed the checks for the reimbursements to Slade has a criminal background stemming from passing hot checks several years ago. No one has explained to date how the former CFO got the position at TSU in the first place.

The DA's office continues to investigate the matter.

Posted by Tom at 4:40 AM | Comments (1) | TrackBack (0)

April 17, 2006

Simmons on the NBA

As noted in earlier posts here and here, it has been rather easy for Houstonians to ignore the NBA generally because the local team -- Houston Rockets -- has been mediocre over the past decade or so, although at least some recent management decisions look encouraging.

Thus, when I want to know what's going on in the NBA, I usually just check in on ESPN Page 2 columnist Bill Simmons, whose latest column on the NBA provides about a fine overview on the season to date.

Simmons -- who also penned this hilarious column on the Texas-USC National Championship football game -- is one of the most entertaining and insightful sports columnists on the scene today. Check him out.

Posted by Tom at 6:52 AM | Comments (0) | TrackBack (0)

Gretchen Morgenson's worst nightmare

For years, NY Times business columnist Gretchen Morgenson was able to publish her columns about the morality plays of greedy and conniving American businesspersons without critical analysis, save for an occasional letter to the editor.

But the blogosphere has changed all that. Now, sharp analysis of columnists' views is available almost immediately for all the world to review and absorb. In particular, Larry Ribstein is exposing the vacuous nature of Ms. Morgenson's columns, the latest of which is this column on John Bogle's proposal to require disclosure of fund manager compensation. Professor Ribstein comments on Ms. Morgenson's relentless bashing of what she perceives as excessive executive compensation:

While we're constructing conspiracy theories about the incentives of all kinds of business people we might ask about Morgenson's incentives. As I've discussed, Morgenson has an incentive to entertain readers, not inform. So she constructs the most entertaining scenario – a conspiracy of silence about mutual fund manager pay. Then it's off to the races, manipulating every argument so that it fits the plot.

Because I find Morgenson to be such a particularly shining example of distortion of business issues by prominent business writers, I've decided to institute fisking of her columns as a regular feature of this blog. So after you curl up with the Sunday New York Times, be sure to tune in here for the real story.

Posted by Tom at 6:04 AM | Comments (0) | TrackBack (1)

Criminalizing the right to counsel

This earlier post examined the Justice Department's policy under the controversial Thompson Memo to threaten to go Arthur Andersen on companies that fulfill an obligation to pay defense counsel for current or former employees who are under criminal investigation or indictment by the DOJ.

According to the Thompson Memo, the DOJ expects companies under investigation to surrender any right against self-incrimination and to cut their accused employees adrift. The memo is incredibly bad public policy in that it now places a business executive on notice that even seeking legal counsel from company counsel could later be used against the executive in court as evidence that the executive knew what he or she was doing might not be proper. Under those circumstances, what rational executive would seek legal advice from company counsel in the first place?

Now, this Lynnlee Browning/NY Times article reports on U.S. District Judge Lewis Kaplan's decision to conduct a hearing in the criminal case against the former KPMG partners who the firm served up as sacrifical lambs in connection with the DOJ's probe of KPMG in connection with the firm's creation and promotion of allegedly illegal tax shelters. Judge Kaplan is clearly troubled by the DOJ's pressure on the accounting firm to stop paying the defense costs of the former KPMG partners. Peter Lattman (here and here), Ellen Podgor (here and here) and the Wired GC also comment on this development.

Although the DOJ attempted to characterize KPMG's decision to cut off support for a former employee as "voluntary," it appears that Judge Kaplan has seen that ruse. As a practical matter, few CEO's or corporate boards will risk becoming the next Arthur Andersen by not cooperating with the DOJ, so the "cooperation" that the DOJ "suggest" under the Thompson Memo is hardly optional. In an earlier hearing in the KPMG case, when Judge Kaplan questioned the fairness of pressuring companies to throw their employees into the grease, the Assistant U.S. Attorney handling the hearing replied that companies are "free to say, 'We're not going to cooperate.'" Judge Kaplan replied: "That's lame."

Judge Kaplan then asked the prosecutor what legitimate purpose was served by insisting that companies cut their former employees off from legal support. The prosecutor replied that paying the legal fees of former employees charged with crimes amounted to protecting "wrongdoers," which prompted Judge Kaplan to remind the prosecutor about that little "innocent until proven guilty" principle under American jurisprudence and the Sixth Amendment's guarantee of the right to counsel. The upcoming hearing could be very interesting.

Meanwhile, Judge Kaplan has also ruled that prosecutors in the case have to declare whether they intend to show at trial that the KPMG tax shelter products were fraudulent in their design. The ruling was in response to defense motions seeking more details about the government's theory of the case. Judge Kaplan ruled that the indictment offered two distinct theories for the tax shelters' illegality -- that the structures violated tax law and the defendants implemented them fraudulently. Inasmuch as the prosecution has hinted that it was planning to drop the first theory, Judge Kaplan ordered prosecutors to advise the defendants by April 21 whether the government was contending that various tax shelter were fraudulent "as designed as and approved by KPMG and, if so, in what respects?"

The Thompson Memo is symptomatic of the wave of prosecutorial abuses that have engulfed the American business community after the bursting of the late-1990's stock market bubble. Unfortunately, those abuses have gone largely unchallenged by the judiciary, which is a key check on the enormous prosecutorial power of the executive branch. Here's hoping that Judge Kaplan changes that.

Posted by Tom at 4:37 AM | Comments (1) | TrackBack (0)

April 16, 2006

It's 2006 Shell Houston Open Week

This is Shell Houston Open week, and this year's tournament is a particularly interesting edition of the venerable local stop on the PGA Tour.

As noted in this earlier post, the SHO is still recovering from a series of dubious decisions and unfortunate circumstances that have combined to place the tournament well out of the elite, non-major events on the PGA Tour. In an attempt to elevate the tournament's stature, the Houston Golf Association -- the local organization that manages the event -- is putting on the tournament for the first time at its new home -- the Rees Jones-designed Tournament Course at Redstone Golf Club. Moreover, next season, the tournament moves to a new date on the PGA Tour schedule in the slot on the Tour schedule the weekend before the Masters Tournament, which the HGA believes will be a superior date to the current one, which is plagued by the best players taking time off after the run-up to the Masters and before the U.S. Open in June.

The field this year certainly validates the HGA's concern over the current date of the tournament. Only two players with top 10 World Golf rankings are playing -- defending champ Vijay Singh (No. 3) and David Toms (No. 7) -- and only ten others in the top 60 in the World Rankings are showing up: 2005 tournament runner-up John Daly (No. 50), No. 17 Darren Clarke, No. 30 Padraig Harrington, 1999 champion Stuart Appleby (No. 32), No. 38 Mike Weir, No. 42 K.J. Choi of The Woodlands, No. 44 Brandt Jobe, No. 47 Justin Leonard, No. 49 Greg Owen and No. 52 Lucas Glover.

Moreover, Chad Campbell (No. 14), the best Texas player on the PGA Tour this year, is not playing in his home state this week, and local favorites Steve Elkington and Fred Couples are not playing this week, Elk because of injury and Couples because, well, the SHO is not currently worth troubling with two weeks after the Masters. So, the HGA certainly has its work cut out for it over the next several years in attempting to sell the new course and the new tournament date to a currently skeptical bunch of top PGA Tour members. Although I have my doubts that the SHO will be as successful at Redstone as the HGA desires, I hope I'm wrong because Houston is a wonderful golfing community that deserves a top-flight PGA Tour event.

The following links will provide you with useful information on this year's SHO tournament, which will be televised next weekend in the afternoon by CBS and on Thursday and Friday afternoons on USA Network:

My review of the Tournament Players Course at Redstone, including a my FilmLoop photo loop and this Chonicle/Doug Pike review of the new course.

The Shell Houston Open website where you can buy and print passes to the tournament.

A good friend who will be particularly missed during this year's tournament.

The consequences of bad decisions regarding the SHO and the impact of next year's new date for the tournament.

And what would golf be in Texas without a little of Clear Thinkers favorite, Dan Jenkins.

Posted by Tom at 11:37 AM | Comments (2) | TrackBack (0)

April 15, 2006

The Great Waste

As noted earlier here, I was able to attend the Lay-Skilling trial for several hours on a couple of afternoons this past week. As I watched Jeff Skilling defend himself against criminal charges amidst the overwhelming societal bias that exists today regarding anything having to do with Enron, one thought kept knawing at me -- the enormous waste caused by the government's policy of criminalizing corporate agency costs.

As noted in this earlier post on the high price of asserting innocence, the known direct costs of the Lay-Skilling trial are sizable. The defense costs are currently in the $75 million range and the cost of the prosecution is at least that high, probably more. Skilling's remaining net worth -- around $50 million -- has been frozen by the government, so that wealth has been stagnant for almost three years now. Defending themselves against criminal charges that could put them in prison for the remainder of their lives has been a full-time job for Skilling and Lay, so another cost is that neither of these undeniably-talented businessmen has been in a position to create wealth or jobs for well over three years now. Add in the horrific cost attributable to the Enron Task Force's dubious decision to prosecute Arthur Andersen out of business and you have quite a direct expense ledger.

However, as enormous as those direct costs are, the indirect costs of criminalizing bad business judgments dwarfs the direct ones. Whether management makes such judgments correctly is a fundamental risk of business ownership. Criminalizing that risk -- through the prism of hindsight bias -- will simply make executives in the future less likely to take the risks necessary to build wealth and create jobs while not deterring in the slightest the Andy Fastows of the world from embezzling money. Business owners deserve protection from theft, but not from risk taking, and it's not clear that government prosecutors know -- or even care about -- the difference.

That point was hammered home to me in the following two passages, one from the Lay-Skilling trial and the other from this engaging Kimberly Strassel/OpinionJournal interview of former AIG chairman Maurice "Hank" Greenberg. Late in Skilling's testimony on Thursday afternoon, he was summarizing the state of Enron at the time he resigned as CEO in August, 2001 -- a little over two months before the company began melting down -- and noted the following about Enron's flagging Broadband unit:

And one last thing -- I'll make the last one argument for Broadband because people criticize me about Broadband, and I will take the criticism. We -- certainly, we made a mistake. But it wasn't big. I mean, it was a billion dollars. We invested a billion dollars in the Broadband business. If it had worked, it could have been worth $30 billion. It didn't work. We lost a billion dollars, but if you can make those kinds of bets, that's the kind of the risk you're [should be taking] as a corporation. And if you do a lot of [deals with a] downside of a billion and upside of 30 [billion], you're doing a good job for your shareholders in the long run, in my opinion. This one didn't work.

Enron's failed broadband joint venture with Blockbuster was developing video on demand, which now exists on cable and is similar to Apple Computer's iPod. Frankly, given the worth of that latter system, Skilling's valuation of Enron's Broadband business -- had the company been able to capitalize on its investment -- may have been low.

Following up on that thought, Greenberg comments on the dampening effects of criminalizing risk-taking:

One of the biggest problems" facing America's competitiveness at the moment "is regulation," [Greenberg] states. He notes the legislative fiasco that flowed out of Enron--Sarbanes-Oxley. "Any time you publish regulations in a crisis mode, you probably do it wrong," he says, and as proof he points to all the companies now listing in London rather than New York. "Friends don't let friends regulate in a crisis," he jokes. [. . .]

The authorities themselves have changed. After Enron, "the regulators became far more aggressive, threatening boards of directors with all kind of dire things if they didn't do certain things. What happens? The board simply takes over. And when that happens you don't have a company that is thinking about innovation or risk-taking. . . . And once you stop thinking about risk and thinking only about compliance, you are no longer going to be a growth company."

That's particularly a problem for the insurance industry, which is entirely "about risk." Of this, in particular, Mr. Greenberg knows of what he speaks. The accounting errors that Mr. Spitzer threw at AIG were related to finite risk insurance. Such products are a modern innovation, and play a vital role in managing risk and stabilizing balance sheets. Yet the rules were always murky as to how to account for the transactions. So what regulators and prosecutors may have allowed in a non-scandal era became fraud post-Enron. That sort of uncertainty is deadly for companies. Today, "everybody is playing it close to their vest, and don't do anything. If you do something, you get slapped down, so why do it?" [. . .]

. . . Mr. Greenberg does note that New York has been worse than most at allowing a climate where prosecutors create law, rather than just enforce it. The overall legal climate, and basic system of due process, "has changed dramatically. We're living in an environment now . . . in a public company, who do you talk to? Do you talk to yourself? You can't talk to anybody. [The prosecutors] will have to start subpoenaing your thoughts."

Business decisions necessarily involve judgments over various possible alternatives, and the nature of business risk means that a number of those decisions will ultimately turn out badly, as certainly occurred at Enron. But rather than allowing the civil justice system to sort out responsibility for such a loss, the increasing governmental mindset is to criminalize the loss by appealing to the jurors' hindsight bias and urging them to convict business executives of crimes for making "the choice of seemingly riskier alternatives."

Thus, in large part because of that dubious policy, Greenberg notes that "you couldn't build an AIG today." In an increasingly competitive world for creating wealth and jobs, is such an enormously costly policy one that we really want our government pursuing?

Larry Ribstein knows the answer, as he points to another of Greenberg's comments:

So Greenberg today is turning away from investment opportunities in the US and focusing on China. He says "it's nice to go to a country where they don't pay as much attention to the headlines." Only, it seems, to the bottom line.

Posted by Tom at 8:05 AM | Comments (18) | TrackBack (1)

April 14, 2006

The Yukos chapter 26 case?

Chapter 22 cases -- the nickname for successive but seperate reorganization cases under chapter 11 -- are uncommon, but certainly not unheard of. However, a chapter 26 case -- a reorganization under chapter 11 followed by a bankruptcy case in a foreign country and an ancillary case in the U.S. under chapter 15 of the U.S. Bankruptcy Court -- well, you just don't see that even once a decade.

Enter OAO Yukos, the embattled Russian oil and gas company that filed a chapter 11 case last year in Houston (subsequently dismissed) in a failed effort to stop a Russian government-imposed dismantling of the company to pay the government for past-due taxes. A couple of weeks ago, Russia's Moscow Arbitration Court placed Yukos under outside supervision and appointed a supervisor, which is the rough equivalent of a bankruptcy trustee under the U.S. system. The Russian court then set a June 27 hearing in which it will consider formally declaring Yukos bankrupt under the Russian bankruptcy system.

Meanwhile, Yukos' supervisor and institutional creditors are claiming that Yukos managers are engaging in a "fire sale" of assets in an attempt to subvert the Russian bankruptcy case. Consequently, yesterday, the supervisor initiated a chapter 15 bankruptcy case for OAO Yukos in the Southern District of New York in an effort to derail the purported impending sale by Yukos of the company's interest in a refinery.

I wonder if Yukos will seek a change of venue of the chapter 15 case to Houston? ;^)

Posted by Tom at 8:27 AM | Comments (0) | TrackBack (0)

Lay-Skilling, Week Eleven

Week Eleven of the corporate criminal case of the decade (previous week summaries here) was the Jeff Skilling Week, and the former Enron CEO did not disappoint. In over three and a half days of direct examination (of which I was able to sit in for a couple of hours on Wednesday and Thursday afternoons), Skilling provided a clear, thorough, passionate and at times riveting account of Enron's business and the wide array of issues and considerations that he confronted on a daily basis in helping build the company into one of the largest U.S. companies. In so doing, Skilling's testimony underscored plainly what the Lay-Skilling case has become -- the purest instance of criminalizing corporate agency costs in recent American history.

Skilling's testimony on direct disputed head-on the presumption on which the Enron Task Force's entire case is based -- i.e., that Enron melted down and, thus, Skilling and Lay must be guilty of some crime -- and included the following points:

In educating the jury about Enron's business, Skilling analogized Enron's gas bank -- the creative model for buying and selling natural gas that Skilling devised while working as an Enron consultant for McKinsey & Co. -- to a slaughterhouse. The gas bank was like a cow in that some folks want steak and are willing to pay more for it, while some people want hamburger, and others want waste items such as hooves. Enron got all the cows together, cut'em up and organized them into their various pieces, and then delivered them to customers that distributed them to the public. In so doing, Enron turned itself into an aggregator of natural gas and an intermediary between gas drillers and distributors. In short, Skilling noted that Enron sold "reliable delivery and predictable prices" of natural gas and electricity.

Described the complexity of Enron and the extensive planning and reviews that went into management of the company's business decisions. Skilling's portrayal of the way the company operated was in sharp contrast to the prosecution witnesses who testified under plea deals that many of Enron's key business activities were based upon misrepresentations to the market or secret side deals.

In disputing the Task Force's allegations of wrongdoing regarding Enron's earning-per-share estimates, explained the internal process of continually updated financial information from Enron's various business units after the end of each quarter in explaining how an earnings-per-share estimate could move from 30 cents to 31 cents in one day. Skilling noted that it was not unusual at all for such earnings estimates to change on a daily basis because of the torrent of information that management absorbed from its various business units following the end of a quarter and that such changes occurred systematically within the company.

Defended the purpose and validity of Enron's special purpose entities -- including LJM and the other SPE's involved in the Raptor structures -- as providing valuable hedging and related financial benefits for Enron that were thoroughly reviewed and approved by scores of professionals both within Enron and outside the company.

Denied that he ever pressured former Enron CFO Andrew Fastow to unload any Enron assets into the SPE's in order to hit Wall Street earnings targets and denied ever guaranteeing Fastow that an SPE would not lose money on a transaction with Enron.

Explained the valid business purposes for the reorganization of Enron's EES trading operation into Enron's wholesale unit, and denied the Task Force's allegation that hiding losses of EES in the more profitable wholesale unit was any motivation at all for the reorganization.

Explained his purpose in selling less than half of his Enron stock on the first day that the stock market reopened after the 9/11 attacks and why he simply forgot in prior SEC testimony about his attempt to sell a smaller amount of Enron stock five days before 9/11.

Conceded that Enron's broadband unit turned out to be a mistake, but that nothing about it was criminal in nature. Although ultimately a failed investment of about $1 billion, Skilling noted that -- if Enron's bet on broadband had been correct -- the unit could have been worth as much as $30 billion. That's precisely the type of reasoned bets that companies need to be taking to build wealth for their shareholders, contended Skilling. Moreover, Skilling noted the fallacious nature of the Task Force's allegation that Enron's sales of "dark fiber" and structured finance transactions in its broadband unit were used to cover up how badly the unit was really performing. In fact, Skilling noted that those sales and structured finance transactions were always viable alternatives under the unit's business plan to hit earnings targets.

Reviewed how Enron was in outstanding financial shape when he resigned as CEO in August 2001, even with the shattered telecom industry affecting the broadband business and his failure to sell overvalued international assets sooner. Moreover, while noting that short selling was a legitimate market tool, Skilling blamed the market panic in regard to Enron that occurred two months later on inflammatory and often untrue media reports on Enron that were improperly planted and promoted by short sellers of Enron stock.

Contended that the Enron Task Force intentionally misrepresented Enron's business practices and purposely failed to consider exculpatory evidence in its effort to make a case against him and Lay.

Not only was the substance of Skilling's passionate performance impressive, the method that he and defense attorney Daniel Petrocelli used in presenting it to the jury was equally effective. Inasmuch as the method of the Task Force's presentation of its case-in-chief against Skilling and Lay was essentially to throw as much mud as possible against the wall to see how much might stick, Petrocelli navigated Skilling through direct examination by having Skilling respond to the actual language of each charge in the Task Force's indictment against Skilling, something that the Task Force had sought to prevent (here and here).

In so doing, Petrocelli brought structure to Skilling's defense and provided the jury with a handy framework in which to consider Skilling's defense to the Task Force's charges. Keeping the jury interested in a key witness over a long direct examination is not easy, but my sense is that Petrocelli's method of juxtaposing heavily-scripted questioning on key points with frequent periods where he simply allowed Skilling to defend himself with passionate and knowledgeable explanations to the jury was a particularly effective way to present Skilling's case. The fact that Petrocelli and Skilling seem to have an easy and genuinely-friendly relationship with each other also facilitated the presentation.

By the way, the effervescent Petrocelli and the witty Judge Lake are clearly the jury's favorite lawyers in the trial, and the two of them have developed an engaging relationship through this long case. Yesterday, after the second afternoon break and as a long week of tiring testimony was drawing to a close, Petrocelli used a baseball analogy in advising Judge Lake that he was almost finished and in "the bottom of the ninth." Judge Lake responded with a wry smile: "With two out." Petrocelli, Skilling, the jury and the spectators in the courtroom cracked up.

Although reading a jury is highly speculative business, my sense is that Skilling's direct examination resonated well. The reports early in the week from the major news reporters who are attending the trial daily (Barrionuevo-NY Times; Carrie Johnson/WaPo; Emshwiller-McWilliams/WSJ($); and Mary Flood/Houston Chronicle) described the jurors as responding somewhat coldly toward Skilling during the first stages of his testimony, but by yesterday afternoon the jurors -- particularly the ones who I perceive to be the leaders -- appeared to me as being fully engaged and warming considerably toward Skilling. By the time Skilling noted late yesterday afternoon that he enjoyed working on cars as a hobby and that the reason he owned two Range Rovers was because "they're English cars, so they don't work" and thus, "there's always something to work on," the jurors were laughing heartily and looking as if they were genuinely enjoying Skilling's observations.

So, on the Monday after Easter Sunday, the next key stage of the Lay-Skilling trial takes place as the Task Force begins the difficult task of cross-examining Skilling. Although the conventional wisdom is that the Task Force will attempt to goad Skilling into becoming unattractively angry and self-righteous on the stand, my bet is that Skilling will not take that bait. Moreover, a particularly daunting problem for the Task Force is that Skilling understands Enron's business so much better than the prosecutors could ever hope to that they run the risk of actually allowing Skilling to help himself during cross-examination if they delve too deeply into the nuts and bolts of Enron's business practices.

My sense is that cross-examination and re-direct of Skillling will take most of next week, and then the Skilling team has only a few additional witnesses before they will turnover the defense to the Lay team, probably sometime in Week Thirteen. Accordingly, stay tuned as the corporate criminal case of the decade turns toward home in what will likely be as fascinating a finish as this remarkable trial has proven to be to date.

Posted by Tom at 6:26 AM | Comments (0) | TrackBack (0)

April 13, 2006

Playing for keeps in the SEC

This SI.com article reports that Logan Young, a University of Alabama football supporter who was convicted in 2005 for money laudering and racketeering in connection with bribing a high school coach to induce a top high school football recruit to play football from the Crimson Tide, was found brutally murdered in his Memphis, Tenn. home this past Tuesday.

Interestingly, Philip Shanks, a Memphis attorney involved in a lawsuit stemming from the resulting NCAA sanctions over the Young affair, was attacked in his office and left unconscious in May 2004. No one was ever charged in that incident.

Update: Memphis police are now contending that Young's death was the result of a bizarre accident.

Posted by Tom at 7:41 AM | Comments (2) | TrackBack (0)

No harm?

One of New York AG Eliot Spitzer's misguided regulation-through-litigation forays has been his lawsuit barrage against various radio station owners over payola -- i.e., the practice of radio stations owners accepting money from promoters to pay certain types music over the airwaves.

I'm normally sympathetic to companies that have the misfortune of having to deal with Spitzer's regulatory thrusts, but this WSJ ($) article on a radio owner's defense to one such Spitzer lawsuit stretches even my liberal sympathy:

To properly file a suit under the consumer-protection laws, Entercom's lawyers say, [Spitzer] must prove that consumers were harmed as a result of material deception. Entercom argues that, because radio is free, there can be no harm.

As a father of two teenage daughters who insist upon listening to free radio music while riding in the car with me, I can attest that Entercom's allegation of "no harm" from listening to free radio music is wrong.

Posted by Tom at 6:40 AM | Comments (1) | TrackBack (0)

Houston is a baseball hotbed

Although the Stros have been one of Major League Baseball's best clubs over the past 12 years of the Biggio-Bagwell era, what is not as well-known outside of baseball circles is that the Houston area has become one of the leading sources of young baseball talent in the nation.

Most folks already know about Coach Wayne Graham and Rice University's outstanding baseball program, which won the College World Series in 2003. However, not as many folks realize that the University of Houston and its fine baseball coach Rayner Noble also have an excellent program, which this season is competing neck-and-neck with Rice for the Conference USA regular season title and -- along with Rice -- is likely to receive a spot in the upcoming NCAA Baseball Tournament. Finally, one of the local high school programs in my hometown of The Woodlands, about 30 miles north of downtown Houston -- The Woodlands High School baseball program -- is currently the number one-ranked high school baseball program in Texas and the United States by Baseball America.

With that backdrop, the Chronicle's Richard Justice profiles UH pitcher Brad Lincoln, who Baseball America currently ranks third among college players and is likely to be one of the top 10 picks in the upcoming Major League Baseball draft. Lincoln is 7-1 with a 1.68 ERA this season, has allowed just 70 baserunners in 75 innings and has 92 strikeouts compared to only 18 walks. Lincoln is just the most recent in a long-line of outstanding pitchers developed at UH by Coach Noble, who was a fine pitcher in his day before a Major League career was doomed by an arm injury.

But not mentioned in the Justice column is that Kyle Drabek of The Woodlands -- the son of former Cy Young-award winning and Stros pitcher Doug Drabek -- is also currently projected as a top 10 pick in the MLB draft. During the current high school season, Drabek has already thrown four shutouts, two no-hitters and two one-hitters, and did not allow an earned run through his first 36 innings this season.

I think it's safe to say that baseball is booming in Houston.

Posted by Tom at 5:16 AM | Comments (2) | TrackBack (0)

The "Hail Mary" strategy

Embattled Texas Southern University President Priscilla Slade has apparently decided to take a page from the playbook of Steve Spurrier -- that is, an aggressive offense is the best defense.

According to this Matthew Tresaugue/Chronicle article, President Slade -- who is on paid leave pending the outcome of the TSU board's ongoing investigation into allegations that she has embezzled hundreds of thousands of dollars from the school through reimbursement of unauthorized expenses -- has recently gone on a public relations offensive:

This week, Slade started talking in public about the case, meeting Sunday with some of Houston's most prominent black leaders at the Rev. Bill Lawson's house.

She later granted her first interview since the inquiry began to Lawson's daughter, Melanie, at KTRK (Channel 13). Slade also sent a letter explaining the expenses to the Houston Chronicle, instead of giving an interview.

On Wednesday, Slade defended her spending and highlighted the achievements of her seven-year presidency for an hour without commercial interruption on KCOH-AM (1430), the city's oldest black radio station. Mike Petrizzo, the station's general manager, said he provided the airtime at the request of U.S. Rep. Al Green.

However, Slade is not apparently not ready to answer questions from all comers at this point:

Green and state Rep. Sylvester Turner interviewed Slade in the studio. She also answered questions from callers, who included former TSU regent Willard Jackson, the Rev. Manson Johnson and the Rev. Kirbyjon Caldwell, pastor of Windsor Village United Methodist Church.

Slade is a member of Caldwell's church, and TSU's auditor has raised questions about $6,500 of university money she spent with the church. [. . .]

The guest hosts did not provide the call-in number for listeners.

Michael Harris, host of the station's morning show for 24 years, said he was told not to ask questions and only one caller was among his regulars. When asked after the program if Slade's explanations resonated with listeners, Harris expressed doubt.

"I don't think anyone who is a regular listener of the program will be persuaded because I wasn't allowed to talk and the people who usually call didn't talk," he said. "It was a show, but not a talk show. There was no dissenting opinion."

Slade's strategy is to portray the allegations against her as, at best, a civil matter in an attempt to dissuade the District Attorney's office from pursuing criminal charges. Although a good offense can be the best defense in certain cases, this particular strategy appears to be the equivalent of a "Hail Mary" pass to me. If Slade does have at least a colorable defense for the reimbursements, then the best way to avoid prosecution is to persuade the TSU board's law firm of that defense so that the firm reports to the TSU board and the D.A.'s office that recovery of the funds from her in a civil lawsuit is uncertain. In that case, the D.A.'s office might conclude that proving criminal charges beyond a reasonable doubt is unlikely and, thus, elect not to pursue criminal charges.

Unfortunately for Slade, Hail Mary passes usually don't work.

Posted by Tom at 4:29 AM | Comments (5) | TrackBack (0)

April 12, 2006

Houston attorney indicted

Ellen Podgor lets us know that Michael J. Wing, an attorney who lives in Tyler but whose practice is apparently mostly in Houston, has been indicted in the Eastern District of Texas for allegedly running a Ponzi scheme promoting investments in phony companies.

Wing faces up to 20 years in prison and a fine of up to $250,000 for each of the eighteen counts alleged in the indictment, and the government is also seeking the forfeiture of $3.575 million traceable to the offenses alleged in the indictment.

Posted by Tom at 8:13 AM | Comments (1) | TrackBack (0)

Defending Mr. Skilling

As I look forward to sitting in for a couple of hours this afternoon during the direct examination of former Enron CEO Jeff Skilling in Houston federal court, attorney Paul Fisher and former Amoco economist Jim Johnston provide this interesting Heartland Institute article (hat tip Professor Bainbridge) that defends Skilling and Enron, and hits on many of the same points that I have made over the past two years (here, here, here, here, and here, to cite just a few) about the misguided nature of the Enron-related prosecutions. Fisher and Johnston's thoughtful piece concludes with the following observation:

The Enron story is reminiscent of an earlier political attack on an energy company during the Great Depression of the 1930s. New York Governor Franklin D. Roosevelt was making a political issue out of Samuel Insull, the CEO of Commonwealth Edison in Chicago. The matter helped get FDR elected president in 1932 but forced the ComEd holding company into bankruptcy, even though Insull and his associates were subsequently acquitted of all charges.

We hope the Enron jury will show the same wisdom as the jury in the Samuel Insull case and reject the politically inspired attack on energy risk management. Maybe in time efficient risk management will return to the natural gas and electricity industries. Energy consumers will be the prime beneficiaries.

Posted by Tom at 7:06 AM | Comments (2) | TrackBack (0)

Debating contingent fees

Don't miss this entertaining featured discussion over at PointofLaw.com in which PofL's Jim Copland and Alex Tabarrok of Marginal Revolution fame debate contingent legal fees. Jim is the director of the Center for Legal Policy at the Manhattan Institute and is a leading advocate for reform of America’s civil justice system, while Alex is a member of George Mason University's up-and-coming libertarian-oriented economics department. An earlier post on Alex's research into contingent fees is here.

Although Jim does not advocate a prohibition on all contingency fee arrangements, he makes the following case for regulation:

[U]nder a contingency fee arrangement, plaintiffs' lawyers accept not only cases that are likely to succeed but long-shot cases with high potential damage payouts. A risk-neutral plaintiffs' lawyer with a diversified portfolio of cases is just as happy to take a case with a 1 percent chance of paying out $20 million as a case with an 80 percent chance of paying out $250,000.

But as a society, do we really want to be flooded with high-dollar, low-probability claims? The contingency fee creates a very real incentive to play the "lawsuit lottery"—a lottery with positive expected returns for the plaintiff and client, but substantial social costs. At a very basic level, the contingency cap, while a crude mechanism, ameliorates this problem. If a lawyer's take in a case goes down—-especially for high-dollar cases-—the incentive to take shoot-the-moon cases falls proportionately.

To which Alex replies:

If a lawyer and her client want to contract in Lira what business is it of the state to interfere? If the lawyer and client agree on an incentive plan, why should that be regulated? Do we want to regulate contingent fees in other areas? A money-back guarantee, for example, is a contingent fee - you pay only if the product is a winner. A tip is a contingent fee - you pay only if the service was good.

True, not all contracts should be respected - we don't enforce contracts against the public interest - nevertheless, my spider-sense starts to tingle whenever reformers of any stripe try to abrogate private contracting.

Walter Olson also has more.

Posted by Tom at 6:22 AM | Comments (1) | TrackBack (0)

How Gates works

In discussing the digital tools that he uses daily, Microsoft chairman Bill Gates in this CNN Money article provides an interesting glimpse into how he organizes his workday, particularly with regard to two constant problems -- email and paper:

I get about 100 e-mails a day. We apply filtering to keep it to that level—e-mail comes straight to me from anyone I've ever corresponded with, . . .and anyone I know. And I always see a write-up from my assistant of any other e-mail, from companies that aren't on my permission list or individuals I don't know. That way I know what people are praising us for, what they are complaining about, and what they are asking.

We're at the point now where the challenge isn't how to communicate effectively with e-mail, it's ensuring that you spend your time on the e-mail that matters most. I use tools like "in-box rules" and search folders to mark and group messages based on their content and importance.

As you might expect, paper is not a big part of Gates' experience:

Paper is no longer a big part of my day. I get 90% of my news online, and when I go to a meeting and want to jot things down, I bring my Tablet PC. It's fully synchronized with my office machine so I have all the files I need. It also has a note-taking piece of software called OneNote, so all my notes are in digital form.

And his one low-tech piece of office equipment:

The one low-tech piece of equipment still in my office is my whiteboard. I always have nice color pens, and it's great for brainstorming when I'm with other people, and even sometimes by myself.

But there is one overused low-tech aspect of management that even Gates cannot avoid:

Days are often filled with meetings. It's a nice luxury to get some time to go write up my thoughts or follow up on meetings during the day. But sometimes that doesn't happen.

Posted by Tom at 5:55 AM | Comments (0) | TrackBack (0)

Baseball salaries for 2006

This Maury Brown article over at Hardball Times provides a good analysis of Major League Baseball salaries for the 2006 season and, as usual, the results are interesting.

The league average team payroll for 2006 is $77,556,890, up $4,708,716 from 2005's $72,848,173 league average. The Stros had a $15,772,503 increase from 2005 (a 20.54% change) to $92,551,503, which is eighth among MLB teams. 19 of the 30 MLB clubs are spending more money this season on player salaries than last and only the Marlins and the Rockies are spending considerably less among the clubs that are spending less on salaries this season than they did last season.

Although their payroll is down a bit, the Yankees at about $195 million are still spending almost $85 million more than their nearest competitor (the Red Sox) and are only $7 million short of the entire combined payrolls of the Marlins, Devil Rays, and Rockies. The median salary — the point at which an equal amount of players fall above and below — rose to a record high of $1 million from $850,000 in 2005, and the median salary on the Stros is $940,000.

Posted by Tom at 5:20 AM | Comments (2) | TrackBack (0)

April 11, 2006

Houston's Bubble Boy

You may want to set your Tivo to this Friday at 1 p.m. when local PBS channel KUHTDT-TV (check your local PBS station for the time) will rebroadcast the excellent PBS American Experience series segment that ran last night entitled The Boy in the Bubble, which focuses on the difficult ethical issues raised by the medical treatment of the late Houstonian David Vetter (a/k/a the "bubble boy"), who had severe combined immunodeficiency and lived inside a sterile plastic chamber for his 12 year life:

When David Vetter died at the age of 12, he was already world famous: the boy in the plastic bubble. Mythologized as the plucky, handsome child who had defied the odds, his life story is in fact even more dramatic. It is a tragic tale that pits ambitious doctors against a bewildered, frightened young couple; it is a story of unendingly committed caregivers and resourceful scientists on the cutting edge of medical research. This American Experience raises some of the most difficult ethical questions of our age. Did doctors, in a rush to save a child, condemn the boy to a life not worth living? Did they, in the end, effectively decide how to kill him?

Here is a Steve McVicker/Houston Press story from nine years ago that raises many of the same questions as those addressed in the PBS show.

Posted by Tom at 7:48 AM | Comments (3) | TrackBack (0)

The eroding nature of the automatic stay

As noted in these previous posts, I think that the Bankruptcy Reform Act of 2005 (nicknamed "BAPCPA") is a misguided piece of legislation, a thought that Bankruptcy Judge Frank Monroe of Austin shares. Now, as the decisions on BAPCPA start rolling in, it appears that the legislation has significantly altered one of the cornerstones of American bankruptcy law -- the automatic stay.

As most everyone knows, the automatic stay is the powerful injunction that goes into effect immediately upon the filing of a bankruptcy case. The stay enjoins most creditor actions against the debtor and the debtor's assets to give the debtor some breathing room before a reorganization or liquidation ensues. In so going, the stay stops the "grab law" syndrome of creditors dismembering a debtor's assets pursuant to state law collection remedies, and facilitates the dual policies of equitably distributing a debtor's assets to all creditors while attempting to generate the highest value for such assets through either an orderly liquidation or reorganization.

Houston Bankruptcy Judge Marvin Isgur -- who is at the forefront of early interpretation of the new bankruptcy legislation -- points out in this new decision that the force of the automatic stay has been significantly altered under BAPCPA. In this particular case, Judge Isgur had previously dismissed the debtor's bankruptcy case because the debtor had failed to obtain credit counseling in advance of the filing of the petition (another new BAPCPA-imposed requirement). Then, Judge Isgur took up the question of whether the automatic stay even went into effect at all during the period between the time of the filing of the defective bankruptcy case and the time that he declared the debtor ineligible to be a debtor under section 109(h) of BAPCPA. Judge Isgur makes a persuasive case that it does not:

[I]t is implausible to believe that Congress specifically identified people to exclude from the bankruptcy process, yet permitted those same people to benefit from bankruptcy's most powerful protection: the automatic stay. Both logic and the statute dictate that no automatic stay arises on the filing of a petition by an ineligible person . . . [T]he relevant statutory language leaves no room for discretion.

Steve Jakubowski of the excellent Bankruptcy Litigation Blog provides more thorough analysis of the decision, which Judge Isgur certified for an immediate appeal to the Fifth Circuit Court of Appeals because of the policy implications of the decision. However, Judge Isgur's interpretation of the language of the relevant BAPCPA-modified Code sections is straightforward and logical, so a reversal appears to be a longshot.

The bottom line -- particularly in consumer bankruptcy cases, the automatic stay is simply not what it used to be.

Posted by Tom at 6:21 AM | Comments (0) | TrackBack (0)

Will Carroll on Bonds' steroid use

Will Carroll is an expert in sports medicine who writes extensively (including a column for Baseball Prospectus ($)) on injuries to professional athletes (prior post here).

In this Muscle Magazine article (you may need to click through the magazine's online cover page; the hyperlink to Carroll's article is on the left), Carroll examines the available information on Barry Bond's steroid use from a clinical perspective and concludes that the information remains far too uncertain to jump to the conclusion that Bonds' phenomenal performance over the the 2000-2004 seasons is primarily attributable to steroid use:

In essence, Barry Bonds allowed a self-taught chemist and pretty solid bass player to experiment on him with powerful steroids, hormones, and prescription pharmaceuticals. Knowingly or unknowingly, Bonds was given drugs that go against the spirit of sport and may have helped him put up numbers the game has never seen before. However, those drugs may have been the wrong ones. “I would have had him Lr3IGF-1 [insulin growth factor, now sold as Increlex by prescription] and GH [growth hormone.],” said [Anthony] Roberts [co-author of Anabolic Steroids – The Ultimate Research Guide]. “Neither are detectable and both will help with strength and power. If testing were a concern, then testosterone and Oxandrolone.”

That’s right. The exhaustive and excellent research done by [Game of Shadows investigative reporters Mark] Fainaru-Wada and [Lance] Williams definitely proves one more thing - Bonds got the wrong stuff.

Posted by Tom at 5:15 AM | Comments (4) | TrackBack (0)

Long Term Google

With all the recent talk lately about hedge funds shorting stocks (here and here, it's important to remember that the information marketplace is a big place. Something that may seem like a keen insight to one investor is dismissed as baseless negative information by another.

With that backdrop, remember Long Term Capital Management? Back during the latter stages of the stock market bubble of the late 1990's, the Federal Reserve organized a rescue of LTCM, which was a large and prominent hedge fund that was on the brink of failure. The Fed intervened because of Clinton Administration concern at the time about possible dire consequences for world financial markets if the hedge fund were allowed to fail. As it turned out, the Fed's concerns about the effects of LTCM's failure on world financial markets were exaggerated and the Fed's intervention simply helped the LTCM shareholders and managers get a better financial deal for themselves than they deserved or would otherwise have obtained (and none got indicted). The intervention also was misguided from a public policy standpoint, but that's a subject for another post.

In this interesting post, Ed Sim passes along an observation from a friend about something that reminds him of LTCM:

I was having lunch with a friend recently who was telling me about some of his dealings with Google over the last year. As an ex-Wall Street guy, it struck him that some of the meetings he had with Google were like the ones he had at Long Term Capital years ago.

Read the entire post. But short Google at your own risk. ;^)

Posted by Tom at 4:39 AM | Comments (0) | TrackBack (0)

April 10, 2006

Is the worm turning in favor of the NatWest Three?

This London Daily Telegraph article reports that the Enron-related case of the NatWest Three (previous posts here) -- the three former London-based National Westminster Bank PLC bankers who are charged in Houston with bilking their former employer of $7.3 million in one of the schemes allegedly engineered by former Enron CFO Andrew Fastow and his right hand man, Michael Kopper -- is back in the news this week. The three former bankers are requesting that the High Court certify that their fight against extradition to face criminal prosecution in Houston raises issues of general public importance and, thus, should be taken up by the U.K.'s highest court.

As noted in the previous posts on the case, the NatWest Three case is being watched closely by the UK business and legal communities, which are alarmed at powers given to United States prosecutors under the 2003 Extradition Act. Under the treaty signed by then UK Home Secretary David Blunkett, the United States government can seek extradition of UK citizens without providing prima facie evidence in the UK that a crime has been committed by the UK citizens in the United States. However, the UK has no such reciprocal power because the US Congress still has not ratified the treaty. Moreover, the use of the treaty to target business executives for extradition is controversial because the treaty was proposed and enacted in the UK in the aftermath of the 9/11 attacks, at which time it was promoted as necessary to make it easier to extradite terrorists.

Recent evidence has come to light that appears to buttress the NatWest Three's appeal. This earlier Telegraph article reports on discovery of a letter showing that the UK Home Office and its legal team have differing views on where court cases should be heard when more than one country is involved. In the letter, Home Office minister Andy Burnham strongly supported European Union guidelines that, where possible, "a prosecution should take place in the jurisdiction where the majority of the criminality occurred or where the majority of the loss was sustained." However, in the case of the NatWest Three, the UK government lawyers have been taking a contrary position in urging the UK courts to allow extradition of the three former bankers to Houston. Another recent Telegraph article reports that UK public opinion appears to be solidly in support of the NatWest Three's position in the extradition dispute.

Posted by Tom at 7:33 AM | Comments (4) | TrackBack (0)

Is Disney-Ovitz about to be reversed?

Larry Ribstein, who was prescient in predicting the outcome of the corporate case of the decade, thinks in this post that the Delaware Supreme Court may be preparing to reverse Chancellor Chandler's decision in the Disney-Ovitz case:

The supreme court might say [that Ovitz's healthy Eisner-arranged severance from Disney] was important enough to require the same level of attention [as the board in Van Gorkum should have given to the transaction in that key case].

This would fit in with all the public agitation on executive compensation and the performance of executives and the need for active board supervision of these matters. But such a holding would be problematic because it seems to deny the need for perspective and judgment – just what the feds have lost with the obsession with trivia in the SOX internal controls rule.

Another possible basis for reversal is that the chancellor held that Eisner had the power to terminate Ovitz on his own, and therefore that the board had no duty to act. The supreme court might hold that this was wrong -- the ceo's technical power does not limit the board's duty. This holding would satisfy the need to tell the board to do more, yet on a sufficiently narrow ground that the court can distinguish it in the future. So by taking this tack, the court will have satisfied its need to preserve VG without too great an expansion of the board's duties. [ . . .]

The above analysis leads to the seemingly weird result that Eisner gets off while the board members go down for not controlling him. Of course good faith would ultimately fix that by letting everybody off. Apart from that, I'm not sure how Eisner goes down without questioning his substantive business judgment or finding a breach of a duty of loyalty, and both are stretches here.

Professor Bainbridge doesn't think so because he doesn't "see any basis in [Chancellor] Chandler's decision for the requisite finding of 'a genuine question about a director’s independence or personal interest in the outcome.'" Besides, Professor Bainbridge notes, all this talk about disclosure of executive compensation really misses the point, anyway.

Before the blawgosphere, discussion and analysis of such corporate governance issues -- which are key factors in the success or failure of virtually all businesses -- were buried in law reviews and an occasional op-ed on the editorial pages. As a result, these key issues were largely unappreciated by the public, many businesspersons and a large segment of the legal profession. Now, through the leadership of corporate law blawg pioneers Bainbridge and Ribstein, analysis of these important and interesting issues are instantly available for the world to review as a virtual cornucopia of corporate law blawgers has emerged to provide commentary and insight. That's a wonderful legacy for these two fine educators, and one for which we should all be appreciative.

Posted by Tom at 5:10 AM | Comments (0) | TrackBack (0)

The Medical Center philanthropist

Todd Ackerman does a fine job covering the Texas Medical Center for the Chronicle and, in this Sunday Chronicle article, profiles Dan Duncan (previous posts here), chairman of Houston-based Enterprise Products Partners, LP and the leading philanthropist to Houston's famed Texas Medical Center.

Duncan's life is a quintessential Houston success story, a hard-working, self-made man who started his first company with $10,000 and a trailer-truck and, after working for a small independent oil and gas company, started Enterprise in 1968 and built it into a $15 billion company that is one of the two largest companies in the nation that transports natural gas between exploration and end-use. As Ackerman's profile points out, that task has not always been easy -- such as during the mid-1980's when the bottom fell out of the natural gas market -- but Duncan perservered and was ultimately rewarded for his vision and hard work. Couldn't happen to a nicer fellow.

Posted by Tom at 4:44 AM | Comments (0) | TrackBack (0)

The pre-pack plan-asbestos claim scam

The WSJ's Kimberly Strassel pens this devastating op-ed in today's edition in which she chronicles one of the chapter 11 cases prompted by contingent liability for asbestos claims that has resulted in the Third Circuit Court of Appeals issuing a series of decisions over the past several years highly critical of the asbestos plaintiffs bar's conduct in connection with those reorganization cases. Previous posts on a several of those cases are here.

The particular case that Strassel addresses is the In re: Congoleum Corp case, a New Jersey reorganization in which the Third Circuit concluded that the Bankruptcy Court had improperly approved the debtor company's retention of one of the asbestos claimants' law firms (Gilbert, Heintz & Randolph or "GHR") as special counsel for the debtor:

Under the Congoleum plan, the lawyers would shift their asbestos claims into a special trust that had first dibs on any money. Congoleum and its parent, ABI, would contribute $250,000 in cash and a $2.7 million promissory note -- payable 10 years down the line. Congoleum would then breeze in and out of bankruptcy in record time, its shareholders emerging with all of their equity and the company with a clean bill of health.

As for who'd pay for the trust, that was the beauty of the deal: The lawyers would arrange it so that the trust bill would land with insurers. And elegantly, the size of the trust they engineered was almost precisely what insurers owed under Congoleum's maximum policy limits: a staggering $1 billion. Much of this booty would go instantly to the lawyers (via contingency fees) and their plaintiffs. Anyone who really did get sick from a Congoleum product down the line would be ushered into a second, unsecured trust that could pay pennies on the dollar.

In a stroke, sworn enemies were working together. The lawyers' goal was to get the biggest insurance payoff. Congoleum's job was apparently to sign off on any claim that came its way and ultimately deliver on the insurance proceeds. This would lead to a Congoleum windfall, as it emerged from bankruptcy with its shares unburdened. The lawyers would also be well-positioned to get exactly what they wanted. Theoretically, Congoleum's legal team should have been vigorously fighting to keep the trust small and protect its insurers. Instead, Congoleum hired GHR -- a firm with ties to [other asbestos claimant law firms] . . .

GHR's first job was to "represent" the Congoleum side in negotiations over the size of the trust. Given its past prepack work with [other asbestos plaintiffs lawyers], this struck at least a few insurers as having the same team sitting on both sides of the table. As it happens, the ties were more than just smelly. What GHR never fully disclosed to the bankruptcy judges was that it was also serving as co-counsel with [another asbestos plaintiffs law firm] in representing 10,000 asbestos plaintiffs who were suing Congoleum. GHR was thus designing an enormous trust ostensibly on behalf of Congoleum that would ultimately benefit GHR's own legal clients. One insurer, Century Indemnity, litigated this conduct all the way to the Third Circuit Court of Appeals, which ultimately led to GHR's disqualification and disgorgement [of $9.6 million in compensation from the Congoleum bankruptcy estate].

Read the entire piece.

Posted by Tom at 4:04 AM | Comments (0) | TrackBack (0)

April 9, 2006

Is Casserly gone?

ProFootballTalk.com is reporting that embattled Texans General Manager Charlie Casserly will be replaced as the Texans GM after the upcoming NFL Draft:

A league source tells us that the Houston Texans plan to fire G.M. Charley Casserly after the 2006 draft. Casserly has been the franchise's only general manager, joining the team more than two years before the Texans every played a game.

The plans to part ways with Casserly, we hear, are common knowledge within the upper reaches of the organization.

The move isn't all that surprising. Owner Bob McNair brought in former Broncos, Giants, and Falcons coach Dan Reeves as a consultant late in the 2005 season, and charged Reeves with the task of, among other things, evaluating the team's roster. Since that's usually the G.M.'s function, it wasn't a good sign for Casserly's long-term job security.

And it's not unusual for a team to hold on to a football executive through the April draft in lieu of firing him at the end of the season. Casserly, in January, was privy to much of the team's free agency and draft strategies. He could have landed with another team and coughed up all sorts of sensitive information.

Casserly has spent nearly 30 years in the NFL, including 23 with the Redskins. He reportedly is under consideration for a position in the league office. His contract with the Texans runs through June 2007.

Posted by Tom at 11:32 AM | Comments (2) | TrackBack (0)

An inside perspective on DeLay's fall

This Sunday Washington Post op-ed by John Feehery, Tom DeLay's former Communications Director, provides an interesting perspective on DeLay's fall -- that DeLay's strength of being willing to delegate was offset by his attraction to those who were willing to cut corners to win:

The overwhelming majority of DeLay's staffers were professional, honest and working in Congress for the right reasons. But Tom prized the most aggressive staffers and most often heeded their counsel . . . A former hockey player, Tony Rudy was DeLay's enforcer; he wasn't evil, but lacked maturity and would do whatever necessary to protect his patron. Ed Buckham, DeLay's chief of staff, gatekeeper and minister, constantly pushed DeLay to be more radical in his tactics and spun webs of intrigue we are only now beginning to unravel. And Michael Scanlon, who, in my experience, was a first-class rogue and a master of deception. People like Rudy and Scanlon pleased DeLay because they were always pushing the envelope . . . I don't know if Tom always knew what his staff was doing -- I know that I didn't. But I had my suspicions, and now I have seen them borne out.

Check out the entire piece. Hat tip to Josh Marshall.

Posted by Tom at 8:20 AM | Comments (2) | TrackBack (0)

April 8, 2006

Best Golf Picture of the Year

It simply doesn't get any better than this Augusta Gazette photo of Long John Daly catching a quick smoke while hitting balls on the Augusta National driving range before his first round Thursday at The Masters Tournament.

By the way, 31 year-old Texan Chad Campbell -- he of the Hoganesque swing and one of the best ball-strikers on Tour -- is leading The Masters by three at six under after the first two rounds. Campbell is not well-known by casual followers of professional golf, but he has quietly become an elite Tour player since joining the Tour in 2001. He soared to seventh on the Tour money list by 2003 when he finished second at the PGA Championship and won the season-ending Tour Championship by shooting an incredible 61 in the third round at Houston's Champions Golf Club. In nine tournaments this season, Campbell has one victory (the Bob Hope Chrysler Classic) and one runner-up finish, is sixth on the Tour money list and is currently 20th in the World Golf ranking. WaPo's Thomas Boswell profiles Campbell here.

For those interested in the mechanics of the golf swing, Campbell's swing is from the Ben Hogan school of the classic one-plane swing, which is fundamentally different from a two-plane swing, such as that of Daly or Fred Couples, who is currently tied for second at The Masters. As Houstonian Jim Hardy explained in his groundbreaking golf swing book The Plane Truth for Golfers (McGraw-Hill 2005) published last year, the one-plane swing is harder physically on the player, but easier to repeat consistently, while the two-plane swing is easier on the player physically, but requires more timing and hip action that is harder to repeat consistently.

Inasmuch as the swings of the contending players at the Masters are fairly evenly divided between one and two-plane swingers, It will be interesting to watch how these two fundamentally different swings hold up under the intense pressure of the weekend at Augusta National.

Meanwhile, this John Feinstein article reports on the remarkable one-under-par Masters performance through 36 holes of 54 year-old Austin native and resident, Ben Crenshaw:

[T]he Masters is frequently about memories, whether it is Jack Nicklaus charging up the leader board Sunday in 1998 at the age of 58 or Arnold Palmer simply walking up the 18th fairway to say goodbye -- on more than one occasion. For two days, it has been Crenshaw turning back the clock and conjuring up warm memories.

Posted by Tom at 8:10 AM | Comments (0) | TrackBack (0)

April 7, 2006

She's everywhere!

On the heels of her cameo at the Lay-Skilling trial, the ubiquitous one -- Houston Congresswoman Sheila Jackson Lee -- gets more camera time standing next to colleague Cynthia McKinney apologizing about waylaying a Capital Hill police officer. Slampo will be pleased.

Meanwhile, Eric Berger reports that Ms. Jackson Lee has gotten her way with regard to a matter of utmost importance to the Gulf Coast region.

You can't make this stuff up.

Posted by Tom at 8:21 AM | Comments (4) | TrackBack (0)

Will Jamie Olis be freed pending re-sentencing?

This Tom Fowler/Chronicle article reports on the oral argument yesterday at the Fifth Circuit Court of Appeals in New Orleans on former Dynegy executive Jamie Olis' appeal of U.S. District Judge Sim Lake's denial of Olis' motion to be released on bond pending Judge Lake's re-sentencing of Olis as previously ordered by the Fifth Circuit. Olis is presently held in custody in the Federal Detention facility in downtown Houston as he awaits re-sentencing.

Olis' appeal on Judge Lake's denial of his motion for release pending re-sentencing is a long shot. The Fifth Circuit generally leaves such decisions to the discretion of the trial judge, particularly one as competent and well-regarded as Judge Lake. However, the Fifth Circuit did grant a similar request recently in connection with the Enron-related Nigerian Barge case, and there is little question that the government intentionally misrepresented to Judge Lake the market loss attributable to the transaction for which Olis was convicted in order to hammer Olis with the most draconian sentence possible. So, while it is unlikely that the Fifth Circuit will order the release of Olis pending re-sentencing, it would not be unprecedented for the Court to do so.

Posted by Tom at 6:09 AM | Comments (1) | TrackBack (0)

Lay-Skilling, Week Ten

After only one week of the defense's case and the tenth week of trial (prior week summaries here), it has become clearer than ever that the Enron Task Force's prosecution of former key Enron executives Ken Lay and Jeff Skilling has become the purest attempt to criminalize corporate agency costs of any prosecution since the bursting of the stock-market bubble of the late 1990's. After a friend of prosecution witness and former Enron investor relations chief Mark Koenig kicked off the defense case by testifying that Koenig had told her that he lied about wrongdoing at Enron in order to cop a plea deal with the Enron Task Force, the Lay-Skilling defense presented a series of former Enron executives who disputed the testimony of prosecution witnesses on a number of key prosecution allegations, including the following:

That Skilling authorized former Enron CFO Andy Fastow to operate Enron's special purpose entities as parking lots for Enron's underperforming assets while running roughshod over other Enron executives in negotiations;

That Enron had no internal controls regarding Fastow's conflict of interest in managing certain of Enron's SPE's while acting as Enron's chief financial officer;

That there was any wide-ranging criminal conspiracy within Enron;

That Skilling had misrespresented to the marketplace layoffs in Enron's broadband unit as redeployments;

That Skilling had misrepresented to the marketplace the true purpose of a restructuring of Enron's EES business unit and the nature of problems within that unit;

That former finance executives Fastow and Ben Glisan had ever informed Lay that the Dhabol Power Plant in India was highly overvalued; and

That Vinson & Elkins' investigation into the allegations contained in Sherron Watkins' memo was a sham by Lay to cover-up Enron's shaky finances

Business decisions necessarily involve judgments over various possible alternatives, and the nature of business risk means that a number of those decisions will ultimately turn out badly, as certainly occurred at Enron. But rather than allowing the civil justice system to sort out responsibility for such a loss, the Enron Task Force's mindset is to criminalize the loss by appealing to the jurors' hindsight bias and urging them to convict Lay and Skilling of making "the choice of seemingly riskier alternatives." As corporate law experts Stephen Bainbridge and Larry Ribstein have long maintained, shareholders deserve protection from theft, but not from risk taking, and it's not clear that government prosecutors know -- or even care about -- the difference.

Thus, while the Task Force has properly obtained guilty pleas from Fastow, Glisan and the relative few of their cohorts who truly committed crimes by effectively embezzling money from Enron, the Task Force continues to spend an enormous amount of resources criminalizing business judgments that Lay, Skilling and others made in regard to Enron that simply do not involve the black-and-white circumstances of theft or embezzlement. As a result, the Task Force has been forced to engage in a number of highly questionable tactics (see also here) in order to attempt to pull off a win in such cases. The Task Force's record in the three previous Enron-related prosecutions that have actually gone to trial -- the Andersen case, the Enron Broadband case, and the unraveling Nigerian Barge case -- reflects that even those dubious tactics cannot pull the wool over the specious nature of such prosecutions.

The cross-examination of former Enron general counsel James Derrick Thursday afternoon was a case in point. Derrick -- who is a quietly forceful, competent and genuinely nice man -- made the following insight Thursday afternoon when Task Force prosecutor John Hueston accused him of trying to shield himself from civil liability by denying wrongdoing in connection with his involvement in retaining Vinson & Elkins to conduct the investigation into allegations contained in the Watkins' memo:

A. I think it is fair for people to question [Derrick's involvement in the decision to retain V&E], but the reason I haven't admitted to [wrongdoing] is because I am personally confident that I have discharged, and did discharge, my obligation in good faith to the company. It's perfectly proper to challenge my judgment, but in terms of whether I exercised it in good faith in a way that I thought was in the best interest of the company, I have no doubt that I did that. [. . .]

Q. Sir, it certainly helps you claim that you did everything proper by denying ever receiving a memo in that same time from your own internal legal counsel which would corroborate those Watkins allegations; right?

A. I think it serves my interest to tell the truth.

Derrick's analysis is spot on. Sure, his and Lay's decision to retain V&E to handle the investigation over the Watkins' memo is subject to legitimate question. But there is little doubt that the decision was a reasonable business judgment that these two men made after careful consideration of the difficult circumstances and issues that their company faced at the time of the decision. Whether management makes such judgments correctly is a fundamental risk of business ownership, and criminalizing that risk -- through the prism of hindsight bias -- will simply make executives in the future less likely to take the risks necessary to build wealth and create jobs while not deterring in the slightest the Fastows of the world from embezzling money.

How all of this is affecting the Lay-Skilling jury remains decidedly unclear. As Professor Bainbridge pointed out earlier in the week, the betting markets are lining up in favor of conviction, which mirrors public opinion that is conditioned by the mainstream media's presumption in such cases -- i.e., that Enron melted down and, thus, Lay and Skilling must be guilty of something as a result. Although most of the reporters attending the trial each day are providing reasonably objective analysis, that hardly makes a dent in the societal bias against anything having to do with Enron. Heck, the business columnist for Lay and Skilling's hometown newspaper has rarely missed a day during the trial in which he does not call for the conviction of the two men.

Nevertheless, my sense remains that the dynamics in play in the Lay-Skilling courtroom indicate that the outcome is not as certain as conventional wisdom suggests. This week, the defense witnesses have presented an interesting contrast to the prosecution witnesses of the previous nine weeks. Inasmuch as virtually all of the key prosecution witnesses had cut plea deals with the Task Force in return for their testimony against Lay and Skilling, their testimony came after many hours of preparation with prosecutors. In contrast, almost all of the defense witnesses this week had either met only briefly or not at all with the Lay-Skilling team before testifying. The result was testimony that was not as prepared as that of the prosecution witnesses, but maybe just more credible to the jury than the heavily-scripted testimony of the prosecution's plea-bargaining witnesses.

Similarly, the Task Force's cross-examination of the defense witnesses has seemed mostly off-target. For example, during cross-examination of Max Hendrick, a Vinson & Elkins partner involved in the investigation of the allegations in the Watkins memo, a Task Force prosecutor attempted to impeach the testimony of Hendrick with the hearsay statement of an unindicted co-conspirator, even though the statement was exculpatory with regard to the unindicted co-conspirator being involved at all in the alleged conspiracy at Enron. That not-so-subtle point went unreported in the mainstream media accounts of the trial, but it nevertheless highlighted perhaps the biggest injustice of all of the Enron-related prosecutions -- the Task Force tactic of effectively precluding key witnesses with exculpatory testimony from testifying for the Lay-Skilling defense.

Likewise, the Task Force's cross-examination of Derrick on Thursday afternoon was questionable, at best. During direct examination earlier in the day, Derrick had recounted conversations with Skilling on how they both valued the importance of family and how burdensome Enron executive jobs were on their them. Derrick -- who did not prepare his testimony with the Lay-Skilling team before taking the stand -- then expressed appreciation to Skilling and Enron for allowing him to take an extended 1991 vacation trip rafting down the Colorado River with his only son, who died unexpectedly several years ago. "I'll be forever grateful," stated Derrick from the stand regarding Skilling's kindness. An observer of the morning session told me later that the jury's attention was riveted on Derrick during that part of his testimony.

Then, in the afternoon session (which I was able to attend), Task Force prosecutor Hueston attacked -- with an accusatory tone in his voice -- Derrick's credibility and integrity. Never changing his quiet and patient demeanor in the face of Hueston's misguided tone of cross-examination, Derrick politely but firmly refused to give Hueston an inch and, by the end of the day, appeared to have Hueston flustered. After the morning's testimony about Derrick and his son, my sense in the courtroom was that the jury -- which is predominantly female -- was not appreciating the style of Hueston's cross-examination toward Derrick one bit. Sometimes such seemingly small incidents in long trials end up making a big difference in the way jurors ultimately frame the issues.

Derrick returns to testify on Monday for a short time before Skilling takes the stand, probably around mid-morning. Thus, Week Eleven of the corporate criminal case of the decade will be the Jeff Skilling Week, as the former Enron CEO will probably be on the stand for the entire week and probably a portion of the following week. Unlike many white collar business defendants, Skilling is anxious to tell his side of the story, and I expect his testimony will be a fascinating look into the conflicting considerations and pressures that surrounded the process of making tough business judgments for a huge company that was often involved in taking cutting-edge risks. From a business law standpoint, it doesn't get much more interesting than that, so stay tuned.

Posted by Tom at 5:30 AM | Comments (10) | TrackBack (2)

April 6, 2006

The "Arch-Booby?"

Seventh Circuit judge and Clear Thinkers favorite Richard Posner (previous posts here) has some fun in this recent decision involving an age-discrimination claim by a church organist. Federal courts generally do not have jurisdiction over religious disputes, but courts may review employment decisions of religious institutions if they are based on secular factors. In this particular case, a Catholic church fired the organist, purportedly after a dispute over what music should be played at Easter services. The organist claimed that the music dispute was just a ruse by the church to cover up its quite secular desire to fire him on the basis of his age in order to hire a younger organist.

Judge Posner was not swayed by the organist's argument and uses Mozart's dispute with Archbishop Colloredo to help explain his reasoning:

So far as his role as organist is concerned, his lawyer says that all Tomic did was play music. But there is no one way to play music. If Tomic played the organ with a rock and roll beat, or played excerpts from Jesus Christ Superstar at an Easter Mass he would be altering the religious experience of the parishioners. [. . .]

At argument Tomic’s lawyer astonished us by arguing that music has in itself no religious significance—its only religious significance is in its words. The implication is that it is a matter of indifference to the Church and its flock whether the words of the Gospel are set to Handel’s Messiah or to “Three Blind Mice.” That obviously is false. The religious music played at a wedding is not necessarily suitable for a funeral; and religious music written for Christmas is not necessarily suitable for Easter. Even Mozart had to struggle over what was suitable church music with his first patron, Archbishop Colloredo, whom the Mozart family called the “arch-booby.”

Hat tip to Robert Loblaw for the link to Judge Posner's decision.

Posted by Tom at 5:55 AM | Comments (1) | TrackBack (0)

It's time for The Masters

The Masters golf tournament begins today and, as Brian Wacker reports, the tournament is -- as usual -- a tough ticket:

As I write this, the going rate for two badges to the second, third and fourth rounds of this year's Masters is $4,999.99 on eBay. In case you were wondering, shipping is free. Conversely, for $1,200, you can get two Trophy Club packages for the entire week at this year's U.S. Open at Winged Foot.

The following provides a good primer for the weekend:

Phil Richards of The Indianapolis Star provides this fine article on golf's most exclusive dinner -- The Masters Champions Dinner.

Brian Wacker's analysis of who's hot and who's not;

The current thinking in Las Vegas;

Gary Van Sickle's handicapping of -- and observations about -- the Masters field;

Who Golf World's Masters Performance Index model predicts will win; and

Previous posts over the past couple of years on The Masters, including a good dose of Clear Thinkers favorite Dan Jenkins.

Posted by Tom at 5:15 AM | Comments (1) | TrackBack (0)

Baseball season tickets

My younger son and I were able to slide down to Minute Maid Park last night to attend our first Stros game of the season and the hometown club came through with a victory behind (or, should I say, in spite of?) Wandy Rodriguez.

As regular readers know, I've been a Stros season ticket holder for 20 years now, and my family and I enjoy going to games very much. For many years, I have split the 81 home games with two friends with each of us taking 1/3rd of the games, which allows me in most seasons to see each National League team one time. But even with just 27 games, I find myself giving away a substantial number of the tickets each season to friends and business associates -- my family and I simply do not have time to catch all 27 games.

With that backdrop, this post from Richard Samuelson over at the Claremount Remedy made me chuckle:

On my commute this morning, I was listening to ESPN radio. It being Opening Day, and they were discussing season tickets. "What's it like to attend 81 games a year?" "Grueling, yet fun" was the answer.

They interviewed one guy who has attended 75 Angels games the past couple of seasons, and another who caught 80 Reds games the past couple of seasons, before moving to Florida. Then they spoke with a guy who has been to every Orioles home game in the past four years, and is starting another season today.

"How do you have time for so many games," the ESPN guy asked?

The answer, of course: "I work for the government."

Posted by Tom at 4:41 AM | Comments (2) | TrackBack (0)

April 5, 2006

Houston well-represented in the Fortune 500

Fortune magazine has just published its annual Fortune 500 list of America's largest public companies, and ExxonMobil again leads the pack. ConocoPhillips weighs in as Houston's largest public company at number six on the Fortune 500.

Here is the top ten:

1. ExxonMobil
2. Wal-Mart Stores
3. General Motors
4. Chevron
5. Ford Motor
6. ConocoPhillips
7. General Electric
8. Citigroup
9. AIG
10. IBM

Houston, with 23 companies on the list, is second only to New York City (44) as a home for Fortune 500 companies. Dallas has 11 companies on the list and San Antonio has five.

By the way, is it just me or is it a sign of the times that two of the Fortune 500's top ten -- GM and AIG -- have experienced Enronesque experiences over the past year?

By the way II, don't miss Larry Ribstein's terrific post on GM today as he explains how GM's traditional business form perpetuated a flawed business model and what that could mean for the structuring of firms in the future.

Posted by Tom at 7:28 AM | Comments (1) | TrackBack (0)

Will the other Merrill Lynch executives be freed?

On the heels of the Fifth Circuit Court of Appeal's extraordinary order last week commanding the release of former Merrill Lynch executive William Fuhs, the three other Merrill Lynch executives convicted in the Enron-related Nigerian Barge case -- including Merrill's former global investment banking division chief, Dan Bayly -- have filed this motion seeking a similar release pending the Fifth Circuit's disposition of their appeals (this earlier post examined Bayly's initial such motion). The government's uninspired response to the Merrill executives' motion is here, and Bayly's succinct reply to the government's response is here.

As noted in these earlier posts, the plight of the four Merrill Lynch executives in the Nigerian Barge case is a prime example of the appalling cost of the government's criminalization of business in the post-Enron era (for a thorough discussion of that subject in the context of the barge case, begin here). In the Nigerian Barge case, the Enron Task Force took a relatively small transaction under which Merrill Lynch bought a stream of dividend payments from an Enron affiliate and criminalized it through a brazen web of distortion, suppression of key testimony, inadmissible hearsay, opposition to the defense's jury instruction on the key issue in the case and prosecutorial misconduct. The Task Force effectively prosecuted the Merrill Four for doing their jobs in connection with Enron's sale of an asset for which Enron may have improperly accounted, although even that issue was never proven at trial.

In reality, the Merrill Four were convicted for having the misfortune of being involved in a legitimate transaction with the social pariah Enron. Here's hoping that the Fifth Circuit begins the process of righting this wrong by ordering the immediate release from prison of Dan Bayly, James Brown and Robert Furst.

Posted by Tom at 5:32 AM | Comments (2) | TrackBack (1)

Myths about Martha

In the original version of this Chronicle story (since revised) about Jeff Skilling's upcoming testimony in the Lay-Skilling trial and the importance of witness preparation, Austin-based jury consultant Doug Keene is quoted as making the following observation about Martha Stewart:

In contrast, Martha Stewart did herself no favors during testimony in her 2004 trial, in which she was widely seen as being less than contrite.

"She came across as someone who would lie even on a very small matter out of arrogance, who made jurors say, 'Yeah, what I've heard about her is probably true,'" Keene said. "Arrogance is one character trait that a white-collar defendant can't leave jurors with."

Sounds reasonable, doesn't it? Except when you realize that Stewart elected not to testify during her criminal trial (see here and here). But then, isn't the point that Keene is really making is that all high-profile executives of big companies are arrogant? Right?

So it goes in the wacky world of criminalizing businesspersons in America.

Posted by Tom at 4:39 AM | Comments (1) | TrackBack (0)

April 4, 2006

Charting Lay-Skilling

In connection with this NY Times/Alexei Barrionuevo and Kurt Eichenwald article on the upcoming testimony of former key Enron executives Ken Lay and Jeff Skilling, the Times provides this handy chart of the government's core allegations in the trial.

The chart underscores the point made earlier here and here on why the Enron Task Force does not want the Lay-Skilling jury to see the indictment against Lay and Skilling, and does not want the Lay-Skilling defense team to be allowed to question witnesses about it -- a substantial number of the allegations that the prosecution has elicited from its witnesses to date are simply not in either the indictment or statements in compliance that the prosecution filed against Lay and Skilling.

Moreover, the chart also underscores the Task Force's slimmed down case (just half a dozen key witnesses) and -- despite the conventional wisdom -- that the limited areas of alleged wrongdoing make this an eminently defensible case for Lay and Skilling.

Posted by Tom at 10:37 AM | Comments (0) | TrackBack (1)

When even Tiger can't help

The Enronesque experience of General Motors has been a common topic on this blog, but you know it's gotten bad for the automaker when even Tiger Woods's endorsement appeal cannot bolster one of the company's brands. This John O'Dell/LA Times article reports about the slide into oblivion of GM's Buick brand:

Buick was the seed from which General Motors Corp. sprouted. And for generations, the luxury car line was one of GM's most bountiful divisions.

The Buick brand filled a crucial niche for the auto giant, attracting well-heeled consumers who wanted more than an Oldsmobile but weren't comfortable with the flash of a Cadillac.

Now as GM faces the threat of bankruptcy, Buick has emerged as an emblem of the auto giant's broader woes. GM sold nearly a million Buicks in the U.S. in 1984. By last year, sales had sputtered to 282,288, a 70% decline over two decades, the biggest of any major auto brand.

Buick has broken down in U.S. showrooms for the same reasons that Americans deserted GM brands such as Chevrolet, Pontiac and Olds in favor of Toyota, Honda and Nissan. [. . .] Even using golf superstar Tiger Woods as pitchman hasn't helped Buick. [. . .]

Last year, Lexus — the luxury division of Toyota Motor Corp. — gave Buick the final push off its perch, outselling it for the first time. [. . .] Since 1999, Buick has used Tiger Woods, whose name and face are known globally. But the golf tournaments that carry Woods' endorsements don't reach out to young buyers because they are largely watched by older men, some of whom might already gravitate to Buicks.

"While you can sell a hot car designed for younger buyers to an old guy, you can't sell a stodgy old car to a young guy," said Bill Porter, Buick's design chief from 1980 until 1996. "The average Buick buyer is 69, the oldest demographic in the industry, and there aren't many new buyers coming in to replace them," said George Peterson, president of AutoPacific market research in Tustin. [. . .]

GM's goal for Buick shows how far the once mighty has fallen: Company officials say they're now aiming to become the American Lexus.

Read the entire article. Although soaring labor, pension and health care costs are certainly important factors in GM's demise, the decline of the Buick brand is a case study in the lack of creativity that is at the core of GM's problems. That will be even more difficult to solve than the company's financial problems.

Posted by Tom at 6:07 AM | Comments (0) | TrackBack (0)

Former Westar executives sentenced

Although overshadowed by the Lay-Skilling trial, former Westar Energy, Inc. CEO David Wittig and his corporate right hand man Douglas Lake were sentenced yesterday to 18 and 15 years in prison after being convicted last year of looting the utility of millions of dollars in unapproved compensation. An earlier contentious trial of the two former executives had ended in a mistrial in late 2004 after another federal jury in 2003 convicted Mr. Wittig of bank fraud charges in a case that was not directly related to Westar. Federal prosecutors had sought life sentences against the 50 year-old Wittig and the 55 year-old Lake.

Wittig and Lake each faced charges relating to allegations they looted the largest electric utility in Kansas after the pair left Westar late in 2002 amidst allegations of misuse of corporate funds. Subsequently, Westar under Mr. Wittig was implicated in the scandal surrounding efforts to fund Houston Congressman Tom DeLay's political action committee. Westar's contribution of funds during 2002 to the DeLay's PAC was among the allegations of wrongdoing that led to DeLay's indictment in Travis County last year.

Wittig, who was a former star deal maker at Salomon Brothers, became CEO of Westar in 1998 and immediately turned the sleepy Midwestern utility into a deal machine. Wittig was paid compensation of more than $25 million in his seven years Westar, and had no reservations about showing it in staid Topeka, where Westar is based. He bought the largest home in town, which is a 17,000-square-foot mansion that former Kansas governor and one-time presidential candidate Alf Landon built. Wittig then spent over $2 million in art and interior decoration on the pad while driving around Kansas in a $230,000 Ferrari 550 Maranello. After some early success, Mr. Wittig's fast deal plan at Westar faltered and the company's stock price fell from $44 to $9 as Westar came under increasing pressure from shareholders and investigators, including the Travis County grand jury.

The first trial of Wittig and Lake was particularly wild. U.S. District Judge Julie Robinson, who is a former prosecutor, battled constantly with Wittig's defense attorneys -- Adam Hoffinger and Edward Little -- as the defense accused the judge of favoring the prosecution in her rulings. At several points during that trial, Judge Robinson angrily lectured the attorneys for their courtroom demeanor, which included rolling their eyes during witness testimony. Finally, a day before closing statements, the friction between the judge and the defense attorneys boiled over as Judge Robinson took the extraordinary measure of barring one of Mr. Lake's lawyers from the courtroom for the remainder of the trial.

For excellent background on Westar's involvement with Rep. DeLay, the PAC, and the Travis County investigation, check out Charles Kuffner's comprehensive posts on the subject.

Posted by Tom at 4:58 AM | Comments (0) | TrackBack (0)

DeLay is done

This NY Times article and this WaPo article are reporting that Houston Congressman and former House Majority Leader Tom DeLay will announce today that he is leaving Congress and pulling out of his ongoing re-election bid. Earlier posts on DeLay's mounting troubles over the past couple of years are here. Although DeLay won the Republican primary last month in his re-election bid, he still faced a tough re-election race against former Rep. Nick Lampson in November.

Once one of the most powerful politicians in Washington, DeLay was indicted in Travis County (Austin) last year for his role in allegedly routing illegal campaign contributions into Texas during the 2002 elections that followed a controversial redistricting effort in Texas that cemented Republican dominance of the Texas Congressional delegation. DeLay is also at the center of an increasingly broad Justice Department corruption probe of former Republican lobbyist and top DeLay fundraiser Jack Abramoff and former DeLay aides. Two of DeLay's former aides have pleaded guilty in the investigation and Abramoff was sentenced last week to over five years in prison after copping a plea deal earlier. DeLay has not yet been accused of a crime in the probe, but he appears to be a target of the ongoing investigation.

However, even if DeLay is not charged, he clearly displayed poor judgment in his personnel decisions. As this Wall Street Journal ($) editorial observed today:

What caused this outbreak of greed is impossible to know for sure. Clearly a sense of entitlement set in among some Republicans, who forgot why they were elected and began to believe that power was its own reward. We can recall when Republicans, back in the early 1990s, proposed to reduce the size of their Capitol Hill staffs in order to reduce the scope of Congressional mischief. That idea went away pretty fast once they became a majority.

Could this be the reason?

Posted by Tom at 4:32 AM | Comments (0) | TrackBack (0)

April 3, 2006

Defending "Courting Failure"

UCLA law professor Lynn LoPucki's book last year -- Courting Failure : How Competition for Big Cases Is Corrupting the Bankruptcy Courts (UM Press 2005) -- is still reverberating through corporate reorganization and bankruptcy legal circles. As noted in this earlier post, Professor LoPucki has been studying for many years the issue that he characterizes as the "race to the bottom" -- i.e., bankruptcy courts in certain jurisdictions (primarily Delaware and New York City) bending federal bankruptcy law to market themselves to debtors' lawyers who often are instrumental in choosing the venue of big business reorganization cases. Professor LoPucki argues that court competition caused high reorganization failure rates in Delaware and New York during the period from 1991-96 and then high reorganization failure rates nationally when the competition spread to the rest of the country in 1997.

In September 2005, the University of Wisconsin Law School convened a conference of leading bankruptcy scholars to provide a critique of Professor LoPucki's book, and an upcoming symposium issue of the Buffalo Law Review will include the papers presented at that conference along with this response from Professor LoPucki, the abstract of which provides in part as follows:

By historical accident, the bankruptcy venue statute gives large public companies their choice of bankruptcy courts. Over three decades a competition for those cases has developed among some United States Bankruptcy Courts. The most successful courts - Delaware and New York - today attract more than two thirds of the billion-dollar-and-over cases. The courts compete principally because the cases represent a multi-billion dollar a year industry in professional fees alone, because local lawyers pressure judges to compete, and because judges who lose the competition are stigmatized and may not be reappointed. [...]

This essay summarizes the critiques and responds. Part I reviews the four-step argument that corruption is the right word for what is happening to the bankruptcy courts. Bankruptcy judges are under pressure to attract big cases. Courts have changed substantive rules and rulings to attract them, affecting such matters as professional fee awards, trustee appointments, deference to consensus, critical vendor orders, conflicts of interest, executive retention bonuses, insider releases and many others. That every significant trend in big cases bankruptcy has been in favor of the professionals, executives, and DIP lenders who are capable of bringing the courts additional cases demonstrates that at least some of the judges are acting in bad faith. That is, at least some of the changes are driven by the desire to get cases, not a good faith belief that the changes are legal or desirable.

. . . Part II responds to a variety of objections to [the argument that court competition caused high reorganization failure rates in Delaware and New York during the period from 1991-96 and high reorganization failure rates nationally when the competition spread to the rest of the country in 1997].

Posted by Tom at 6:29 AM | Comments (5) | TrackBack (0)

And in other baseball news . . .

This earlier post noted that the Tampa Bay Devil Rays have been the train-wreck of Major League Baseball for the club's entire existence. Now, this Landon Thomas/NY Sunday Times article explains how former Houstonian Andrew Friedman -- son of longtime Houston attorney J. Kent Friedman -- is taking an innovative approach as Devil Rays general manager in attempting to make the ballclub competitive in the brutal American League East Division. Interestingly, the article notes that the Devil Rays best player is another native Houstonian -- outfielder Carl Crawford -- but does not even mention (even in a picture!) another former Houstonian who was recently hired by the Devil Rays to help Friedman: former Stros GM Gerry Hunsicker. Hunsicker's star sure has dimmed since leaving Houston, hasn't it?

Meanwhile, this San Antonio Express article provides the latest on San Antonio's effort to lure the Florida Marlins (previous posts here and here):

[Bexar County Judge Nelson] Wolff said he has received 36 non-binding, oral commitments from area businesses to rent suites. That information, he said, will be passed on to [Marlins owner Jeffrey] Loria on Monday in Houston, where a San Antonio contingent led by Wolff . . . will watch the Marlins' season opener against the Astros as Loria's guest.

According to the Marlins, the [proposed San Antonio] ballpark likely would sit on 18.2 acres, require an additional 100-140 acres for parking and include 38 luxury suites with 16 seats each.

There also would be 24 premium suites (20 seats each) and seven party suites (30 seats). The four newest ballparks in MLB have an average of 64 suites. . . . Wolff said the Marlins told him weeks ago the stadium would cost $310 million, not including a retractable roof or the cost of the land.

Wolff's plan to pay for the proposed stadium requires the county to provide as much as $200 million, with the Marlins picking up the rest of the tab. The county's share would be generated, pending voter approval, through an extension of the hotel and car rental taxes paying for the AT&T Center.

Posted by Tom at 5:00 AM | Comments (1) | TrackBack (0)

Batter up! Stros 2006 Season Preview

It's Opening Day today in Houston as the Stros take on the Marlins this afternoon at Minute Maid Park, so it's time for my annual preview of the Stros upcoming team and season (last season's preview is here). Let's first review what happened over the 2005 season and the off-season:

First, the improbable ride to the 2005 World Series.

An off-season snarky week in Strosland and Richard Justice's continued petty criticism of Drayton McLane and Tim Purpura.

Why Milo Hamilton is wrong when he claims that Willy Taveras should have been National League Rookie-of-the-Year.

Comparing bad off-season deals and Roger Clemens, player agent.

Reviewing the top ten Stros minor league prospects.

Acquiring Preston Wilson may upgrade leftfield, but he's no slugger.

Why Gene Elston should still be the Stros play-by-play announcer and the Stros connection to the latest Hall of Fame inductee.

The muddle over the disability insurance policy on Jeff Bagwell (here, here, here, here and here), the greatest player in Stros history prepares for the Hall of Fame, and something about steroids that Stros fans may soon be hearing about.

So, with that backdrop, the Stros begin their quest to make the National League playoffs for the seventh time in the past ten seasons as they close out the remarkably successful Biggio-Bagwell era. I was one of the few to predict that the light-hitting 2005 club could contend for yet another playoff berth, although even I wavered during the early part of the season and even later in the season. But after a horrible 15-30 record in their first 45 games, the 2005 Stros were a remarkable 74-43 for the remainder of the regular season to lock up the playoff berth with only three less wins than the 2004 club that came within a game of the World Series.

Most experts are again predicting that the Stros will decline during the 2006 season. Essentially, the contrarian view of the Stros is that inexperience in starting pitching, combined with the Stros' overall lack of hitting and hitting prospects in the high minor leagues, will finally catch up with the Stros and cause them to finish closer to a .500 record than the 90-95 wins that are usually necessary to sew up a playoff berth (Baseball Prospectus' Joe Sheehan has the Stros finishing 80-82). Although I understand the contrarian view, my rose-colored glasses view of the Stros is that the club has enough to make at least one more playoff run at the end of the Biggio-Bagwell era in which the Stros have posted a winning record in five consecutive seasons and 12 of 13 since 1993.

This season's club will likely be better than last season's club from a hitting standpoint, although that's really not saying much. Last season's club ended up at a -26 team runs created against average ("RCAA," explained here) for the regular season (12th out of the 16 National League teams), which means that the 2005 Stros scored 26 fewer runs than an average National League team would have scored during the season.

However, the hitting of last season's club stabilized over the second half of last season (a +2 team RCAA after the All-Star Game), and the upgrade of Wilson over Burke in leftfield, a full-season from star slugger Lance Berkman, and probable improvement from starters Jason Lane, Taveras, and Adam Everett will likely make the Stros at least an average -- and perhaps a slightly above-average -- National League club from a hitting standpoint this season. That is significant because, had the 2005 club been able to maintain an average level of hitting throughout the season, the Stros pitching was so strong that the club would have challenged the Cardinals for the best record during the regular season in the NL Central Division.

Unfortunately, the hitting will have to better for the Stros to make the playoffs this season because the pitching probably will not be as good as last season. Most importantly, it remains unclear at this point whether the Rocket will return in May to attempt to add a third straight playoff run with his hometown team. Even if he does, it is highly unlikely that the 43 year-old Clemens will be able to match his incredible 2005 season performance in which he saved the Stros an incredible 53 runs more than an average National League pitcher would have saved in the same number of innings pitched ("RSAA," explained here).

Similarly, it's just as unlikely that 34 year-old Andy Pettitte, whose 43 RSAA last season was second only to Clemens in the National League, will be able to match that performance in 2006. Thus, even though the Stros pitching staff's 100 team RSAA in 2005 was second only to the Cardinals staff's 130 among the 16 National League teams, it is not likely that the Stros 2006 staff will be able to approach that total.

That's not to say that the Stros do not have some talented new pitchers ready to contribute. For example, rookie Taylor Buchholz, who was the key to the Billy Wagner trade with the Phillies from a couple of years ago, has been the best starting pitcher on the club during Spring Training. He earned a place in the starting rotation and clearly has good enough stuff to become an above-average National League starter. However, Buchholz has had arm and shoulder problems over the past two seasons in the minors and it is decidedly unclear whether he can survive the rigors of an entire MLB season.

Meanwhile, Brandon Backe, despite his heroics during the club's playoff runs over the past two seasons, still has not pitched more than 150 innings in one MLB season, had a horrible Spring Training and has not yet ever achieved a positive RSAA for a season as a starter. The Stros other starter coming out of Spring Training -- lefthander Wandy Rodriguez -- was basically horrible last season (-20 RSAA), although a deceptively good won/loss record misleads casual observers into thinking that he was better than he really was.

The Stros do have some good, albeit inexperienced, pitchers (Fernando Nieve and Jason Hirsch being the first two) available if Backe, Buchholz or Rodriguez falters, and the bullpen anchored by Brad Lidge, Dan Wheeler and Chad Qualls will likely be one of the NL's best. But there is no question that the starting pitching after Roy O and Pettitte is the 2006 club's biggest question mark coming into the season.

The Stros made a couple of other off-season moves that bode well for the club. First, the versatile Burke looks as if he may play a considerable amount this season at shortstop, which would be a definite hitting upgrade over Everett at that position. Moreover, the Stros finally acquired a catcher who has the potential to hit, former Tigers first-round draft bust Eric Munson. Converted from first base back to his original position of catcher after being picked up by the Stros on waivers during the off-season, Munson mashed the ball during Spring Training and earned the backup catcher role behind Ausmus, who remains one of the weakest hitters among National League starting players. Giving at bats to Burke and Munson rather than Everett and Ausmus is likely to generate more runs for the Stros, and the Stros bench of Burke, Munson, Mike Lamb, Orlando Palmeiro and Eric Bruntlett is one of the strongest that the Stros have fielded in over the past decade.

As far as the Stros' competition is concerned, The Cardinals' veteran starting pitching and strong hitting make them the favorite again in the NL Central Division, and the Brewers and the Cubs both have enough talent to contend. However, barring injury to key players and if Clemens can provide a boost come May, I remain cautiously optimistic that this Stros club could get into the 90's in wins for the season and achieve a third straight playoff berth. If the hitting is better than expected and the pitching comes close to last season's performance, then the Stros might even challenge the Cards for the best regular season record in the division.

Thus, as the Biggio-Bagwell era draws to a close, the Berkman-Oswalt-Ensberg-Lane-Lidge nucleus of this club has taken over, and that's a formidable group for the Stros to build around over at least the next five seasons. If the Stros can acquire another couple of above-average hitters while maintaining their strong corps of young pitchers within the organization, then I see no reason why the Stros cannot continue to contend for playoff berths over the next 5-7 seasons just as they have over the past 12 years. That would be a pretty darn good 20 year run, don't you think?

By the way, every Stros game will be televised this season — 130 on FSN Houston, 25 on KNWS (Channel 51), six Saturday games on KRIV (Channel 26) and a Sunday game on ESPN.

Finally, I have decided to modify my review routine slightly from the past two seasons in regard to blogging the Stros. After blogging every Stros game in the 2004 season and then providing weekly reviews during the 2005 season, I have decided this season to review the Stros progress after each 10% segment of the 2006 season, which works out to be essentially ten 16 game segments over the course of the 162-game Major League Season. Hopefully, that approach will allow me to provide a bit more perspective into the club's progress than is feasible while doing daily or weekly summaries, so look for my Stros 2006 Review, Part One after the first 16 games of the season.

Posted by Tom at 4:09 AM | Comments (2) | TrackBack (1)

April 2, 2006

The remarkable Jack Burke

One of things that makes Houston such an endearing place to live is the city's many characters, one of the most colorful of whom is Jack Burke, Jr., the former PGA Tour professional who retired at the age of 35 from the Tour in the late 1950's to develop and operate Houston's Champions Golf Club with his lifelong friend, the late Jimmy Demaret.

Burke -- who is now 83 years old, but looks and acts like a much younger man -- still runs Champions, which is one of Houston's one of Houston's finest golf clubs and the home club of such prominent golf swing gurus as Jim Hardy and Steve Elkington. I have had the pleasure of enjoying several lunches with Burke over the years, and they have always been highly entertaining as he holds forth with his sharp-edged and witty observations about the state of golf and its fascinating cast of characters.

Consequently, this Steve Campbell/Houston Chronicle article on the 50th anniversary of Burke's 1956 Master's Tournament victory is particularly interesting to me. Playing under the worst weather conditions in Master's Tournament history (cold with 40-50 mph wind gusts), Burke charged from nine strokes back on the final day of the tournament with a one-under-par 71 to beat by a stroke the third round leader, a 24-year old car salesman from San Francisco named Ken Venturi. Twenty-nine players — including Byron Nelson, Jimmy Demaret and Julius Boros — shot 80 or above at Augusta National that day and the Sunday scoring average of 78.261 remains the highest for the last round in Master's Tournament history. Burke's one-over-par winning score of 289 matched the highest since the Masters began in 1934.

To give you an idea of how tough Augusta National played in those conditions, Burke hit driver-wedge to the back of the par-3 4th green playing into the wind on the hole during the final round. Burke, who was one of the best putters of his time and still gives putting tips to Tour pros, promptly rolled in a 30-foot putt to save par:

"It's a downhill putt that I would lay you odds that you couldn't two-putt," Burke said. "It's 1,000-to-1 you're not going to make it. I could have putted it in the front bunker."

Venturi -- who had a habit of blaming others when he experienced a tough loss (see here and here) -- shot 80 on that final day, but suggested after the tournament that Burke's victory was tainted by Burke's playing partner and buddy Mike Souchak helping Burke out with club selection and reading greens. Venturi's allegation prompted Souchak to reply:

Souchak said he was happy to see "a close friend" win the Masters, [but] he wonders what he could have had to do with Burke's $6,000 payday. "I know I got accused of helping Jackie the last day," Souchak said. "But I shot 80 and took 42 putts. How could I help Jackie?"

The entire article is well worth reading, but I'll leave you with the following gem from Burke regarding how life has changed on the PGA Tour since Burke followed up his Master's victory with the 1956 PGA Championship:

The payoff for becoming the seventh player in history to win two majors in the same year: $5,000.

"It wasn't like you were on top of the mountain," Burke said.

Reality really set in when Burke tried to collect his PGA winnings.

"The check was hot," Burke said. "The PGA had to guarantee my check."

Posted by Tom at 11:13 AM | Comments (0) | TrackBack (0)

April 1, 2006

The Osteen Empire

This Ralph Blumenthal/NY Times article profiles the ubiquitous Houston-based mega-pastor, Joel Osteen (prior posts here) in a quite positive light:

After a warm-up of rousing original rock and gospel hymns with lyrics and videos flashing on jumbo screens around the arena, Mr. Osteen began to speak. "We come with good news each week," he told the packed crowd at his gigachurch in his native Texan twang.

The news for Mr. Osteen has lately been very good indeed: two weeks ago he signed a contract with Free Press, an imprint of Simon & Schuster, that could bring him as much as $13 million for a follow-up book to his debut spiritual guide, "Your Best Life Now: 7 Steps to Living at Your Full Potential," which, since it was published by Warner Faith in 2004, has sold more than three million copies. "I believe God wants us to prosper" is the gospel according to Mr. Osteen, 43, who offers no apologies for his wealth.

"You know what, I've never done it for the money," he said in an interview after Sunday's service, which he led with his glamorous wife and co-pastor, Victoria. "I've never asked for money on television." But opening oneself to God's favors was a blessing, he said. "I believe it's God rewarding you.

Mr. Osteen's motto is: "God wants you to be a winner, not a whiner." [...]

He is not shy about calling on the Lord. He writes of praying for a winning basket in a basketball game, and then sinking it; and even of circling a parking lot, praying for a space, and then finding it. "Better yet," he writes, "it was the premier spot in that parking lot."

But R. Albert Mohler, Jr., the president of The Southern Baptist Theological Seminary, one of the largest seminaries in the world, is a tad skeptical of Reverend Osteen's message:

The first question is this -- Would anyone watching his television program, or sitting in his vast church facility, hear in Mr. Osteen's message a clear and undiluted message of Gospel proclamation? Would this person have any reason, based on hearing Mr. Osteen's message, to know himself as a sinner and to understand how the cross of Christ is the only ground of his salvation? Would he come to know that Jesus the Christ is fully human and fully divine, and that He came in order that we might have everlasting life -- not just a good parking space?

Ben Witherington has more.

Posted by Tom at 8:45 AM | Comments (5) | TrackBack (0)