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June 30, 2006

The fraying KPMG tax shelter defense

U.S. District Judge Lewis Kaplan's decision earlier this week was a major victory for the defendants in the KPMG tax shelter case because it at least gives the defendants the basis for obtaining the financial means for defending the case effectively. However, as this Lynnlee Browning/NY Times article points out, the deck is still stacked firmly in favor of the prosecution in such multiple-defendant, business fraud criminal cases. The conflicting interests of the multiple defendants are now rising to the surface of the case, as is the prosecution's ability to cherry-pick certain defendants for attractive plea deals:

In pretrial hearings since their clients' indictments last August and last October, defense lawyers have presented a unified front, filing joint motions and refraining from public squabbling. Lawyers for all of the defendants, countering prosecutors' assertions of criminal intent, are expected to argue that their clients thought at the time that what they did was aggressive but legal.

But increasingly, defense lawyers speak of different camps forming over recent weeks, with lawyers for the junior defendants indicating that they will focus on proving that their clients took orders from the senior defendants, who were responsible for designing and approving the tax shelters.

"You're beginning to already see the finger-pointing," said a lawyer for one of the KPMG defendants, declining to be named or to name his client, saying he did not want to jeopardize the case. "It's going to get antagonistic."

Another lawyer, who also declined to be named, said, "If the shelters weren't legitimate, then my client was fooled as much as anybody else."

Lawyers for the junior defendants are expected to argue that senior-level defendants contributed to their clients personally being indicted, by withholding crucial materials from or lying to the Internal Revenue Service when KPMG first came under hard scrutiny, in early 2004.

By contrast, lawyers for the senior defendants, who also include a former chief financial officer and a former associate general counsel, have indicated that they will argue that because the lower-level defendants dealt directly with the investors who bought the shelters, the senior defendants are not responsible for any misrepresentations those clients may have made to the I.R.S.

In recent weeks, prosecutors offered a plea deal to Mark T. Watson, a former partner in KPMG's Washington National Tax group, saying they would drop at least one of the 40 counts he faces and recommend probation if he pleads guilty and agrees to cooperate with the prosecution.

Mr. Watson, a midlevel partner, declined the offer, according to two defense lawyers close to the matter. Michael Kim, the lawyer representing Mr. Watson, said that he "was not authorized to comment" on the matter. But Mr. Kim said that in the past Mr. Watson "had a lot of friction with his co-defendants over some of the very issues on trial here, and those frictions have not disappeared." He declined to elaborate.

The bad blood stems from Mr. Watson's appearance under subpoena before a Senate subcommittee in 2003 looking into tax shelters. In the hearings, which later started a wave of criminal and civil cases against KPMG and other promoters of supposed tax shelters, Mr. Watson cast himself as a canary in the coal mine. He said he wrote e-mail messages to his superiors questioning the propriety of certain shelters at the heart of the indictment.

Peter Henning has typically insightful thoughts on the situation confronting the KPMG defendants. Judge Kaplan's decision is a welcome criticism of the prosecutorial misconduct that has been apparent in numerous of the criminal prosecutions in this particular post-stock market bubble era. However, the more insidious corruption that besets the federal criminal justice system is the policy of prosecutors placing employees under pressure not not only to plead guilty, but also to testify against their bosses and fellow employees. When such a witness is placed under such extraordinary pressure, the witness will almost always feel compelled to deliver testimony that will ingratiate the witness to prosecutors. Grizzled criminal defense attorneys refer to this syndrome as a pressured witness learning how to "sing and compose."

Posted by Tom at 6:17 AM | Comments (0) | TrackBack (0)

The increasingly sensitive energy markets

Bill O'Reilly contends that it's all just an energy company conspiracy, but this week's price hike for gasoline and crude oil is actually showing just how sensitive U.S. energy markets have become to disruptions that just a few years ago would have barely registered a blip in those markets.

Gasoline and crude-oil and prices surged after the June 20 spill of 47,000 barrels of oil waste snarled the Calcasieu Ship Channel, a major Louisiana waterway that connects the Port of Lake Charles to the Gulf of Mexico. The stoppage stranded oil barges and tugs that are delivering crude oil to three refineries that together refine about 775,000 barrels of crude oil a day into fuels such as gasoline. The Coast Guard reported yesterday that it might open the channel to limited traffic by this weekend.

Primarily as a result, gasoline futures on the New York Mercantile Exchange have risen by almost 15% over the past week to yesterday's close of $2.29 a gallon, the highest level since the aftermath of last summer's Gulf Coast hurricanes. Meanwhile, August crude-oil futures rose over $1.30 to $73.52 a barrel, which is about $3 higher since the spill and an 11% increase for the current quarter. The spill is merely the latest in a series of supply disruptions over the past year that have increased average U.S. gasoline prices by almost 25% and crude-oil prices by 15% since the beginning of the 2005 hurricane season.

Not only are the US gasoline and crude oil markets tightening because of increased global crude-oil demand and flat production levels, US refineries are already operating at almost 95% of capacity, which is making the US more dependent on gasoline imports. Accordingly, expect short-term gasoline prices to go even higher during this hurricane season and the peak summer vacation season while longer term prices also will likely trend upward because of the limited refinery capacity. Inasmuch as the US currently uses just over 9 million barrels of gasoline a day and US refineries can produce about 8.5 million barrels a day, the balance of the US daily usage is imported and will grow if US demand for gasoline increases.

Just a few years ago, an incident such as the Calcasieu spill would have barely caused a ripple in the gasoline or oil markets that had bountiful supplies and untapped refining capacity. But no more. With little spare global capacity in crude oil and even less untapped refining capacity, any blip on the global oil production or refining radar screen is likely to generate quick price hikes in those markets. Remember that the next time you hear O'Reilly railing against energy companies or US politicians dithering about how to limit energy company profits rather than on how to encourage those companies to increase production of oil and gasoline.

Posted by Tom at 5:03 AM | Comments (0) | TrackBack (0)

Feds finally get Scrushy

After failing to convict former HealthSouth chairman and CEO in a highly-publicized business fraud prosecution almost exactly a year ago, federal prosecutors obtained a conviction of Scrushy and former Alabama governor Don E. Siegleman on multiple bribery, conspiracy and mail fraud charges relating to Scrushy's alleged bribe to Siegleman of $500,000 to procure a seat on a state regulatory board that oversees hospital construction projects. Two other defendants -- a onetime Siegleman aide Paul Hamrick and former head of the Alabama transportation department, Gary Roberts -- were acquitted on all charges.

Interestingly, the Scrushy-Siegleman jury had reported to the judge on several occasions over the 11 days of deliberations that It was deadlocked, and it is not immediately clear from news reports what ended the deadlock. In this particular case, Scrushy's defense team attempted to sway the predominantly black jury by comparing Scrushy to civil-rights figures of the 1950's and 60's who suffered injustice in Alabama and the deep South. Scrushy's defense team even included Alabama lawyer Fred D. Gray, who represented Rosa Parks when she was arrested in 1955 for refusing to give up her seat on a Montgomery, Alabama bus. As you might expect, prosecutors denounced the Scrushy defense team's strategy as a racially-motivated attempt to influence the jury while contending that Scrushy was simply using his money and power to gain political influence to help HealthSouth.

The 53-year-old Scrushy was convicted on six counts and faces a potential sentence of over 20 years in prison. Sentencing is expected to take place this fall.

Posted by Tom at 4:16 AM | Comments (0) | TrackBack (0)

June 29, 2006

Colbert on Buffett's big donation

Stephen Colbert's comment on Warren Buffett's decision to donate $30 billion to the Bill and Melinda Gates Foundation qualifies as the line of the week:

"Warren Buffet is so rich, he just hired Bill Gates to spend his money for him."

By the way, Larry Ribstein has an interesting perspective on the Buffett donation in relation to the growing effort of certain shareholders to pursue social causes through their corporate ownership.

Posted by Tom at 7:55 AM | Comments (2) | TrackBack (0)

Criminalizing corporate agency costs and the KPMG decision

As noted earlier here, U.S. District Judge Lewis Kaplan earlier this week slapped the Department of Justice upside the head for threatening KPMG with indictment in the KPMG tax shelter case unless the firm threw its partners to the wolves by rescinding the firm's policy of paying its partners' defense costs in such cases. Although Judge Kaplan concluded that it was premature to dismiss the indictment against the KPMG partners as the remedy for the DOJ's misconduct and fashioned a financial remedy for the partners instead, Larry Ribstein believes that Judge Kaplan's opinion is a landmark decision that calls into question the DOJ's dubious policy of criminalizing corporate agency costs in reaction to Enron and other recent corporate scandals:

My basic problem with criminalization of agency costs is precisely that it ignores internal corporate arrangements. The complex set of contracts and incentive devices that comprise a corporation simply doesn't fit with the sort of moral condemnation that criminal penalties necessarily involve. The nuances of an agency contract are the proverbial square peg in the round hole of criminal law.

But Judge Kaplan emphasizes that indemnification serves an important function in an agency contract: If directors and other agents are over-exposed to liability, they simply won’t work for the firm. One might add that even if they do work for the firm, they won’t take the risks that are necessary to maximize shareholder value and to make capitalism work. Corporate criminal liability essentially seeks to reengineer the firm to change incentives so that agents are no longer maximizing profits, but attempting to root out fraud at all costs.

The fundamental importance of this case is that Judge Kaplan is telling the government that the contract matters, even if it gets in the way of prosecution. By doing this, Judge Kaplan is re-reengineering the firm to make it, once again, a profit-maximizing entity rather than a government agent. [. . .]

Of course this one case isn’t going to solve all of the problems of corporate criminal liability. Corporate defendants will face the basic problem that it is hugely burdensome to defend these cases, which gives the government considerable leverage. The case's precise implications for other uses of government leverage are unclear. But by saying that there is a limit to what the government may do in criminalizing agency costs, the judge has taken an important first step. I predict the opinion will be a landmark.

Read the entire post.

Posted by Tom at 6:25 AM | Comments (0) | TrackBack (0)

Another milestone for Clemens

Although the 2006 Stros are quickly sliding into oblivion (I will post my next periodic analysis of the club's 2006 season this weekend after the Stros reach the halfway point in the season on Saturday), Roger Clemens is still likely to make baseball interesting in Houston for the remainder of the season.

Earlier this week, Clemens pitched well (6 1/3 IP, 3 H, 2 R, 1 ER, 2 BB, 3 SO) in his second game of the season and, in so doing, became the first pitcher in Major League Baseball who has pitched after 1900 to reach 700 runs saved against average ("RSAA") in his career. The following is the top ten pitchers in career RSAA who pitched after 1900, courtesy of Lee Sinins:

1 Roger Clemens 701
2 Lefty Grove 668
3 Walter Johnson 643
4 Greg Maddux 548
5 Pedro Martinez 526
6 Grover C Alexander 524
7 Randy Johnson 521
8 Christy Mathewson 405
9 Tom Seaver 404
10 Carl Hubbell 355

Clemens' accomplishment is particularly notable because RSAA is arguably the best measure for the most important statistic in baseball for a pitcher -- that is, saving runs for his team. As with its counterpart for comparing hitters -- runs created against average ("RCAA," explained here) -- RSAA is valuable in evaluating pitchers because it focuses on the two most important things for a pitcher in winning baseball games -- that is, not giving up runs and getting hitters out. RSAA measures the number of runs that a pitcher saves for his team relative to the number of runs that an average pitcher in the league would give up while obtaining an equivalent number of outs for his team (as with RCAA, RSAA is park-adjusted). Inasmuch as the hypothetical average pitcher's RSAA is always zero, a player can have an RSAA that is either a positive number -- which indicates he is an above average pitcher (i.e., Clemens) -- or an RSAA that is a negative number, which means he is performing below average (i.e., remember Brandon Duckworth or Tim Redding?).

Moreover, RSAA is a the best measure for comparing pitchers who played during different eras. Inasmuch as RSAA measures a pitcher's ability against that of an average pitcher in the pitcher's league for each particular season, a pitcher's lifetime RSAA measures how that pitcher performed against an average pitcher of his era. That's really the best way to compare pitchers from different eras because comparing other pitching statistics -- such as earned run average, wins and hitting statistics against -- is often skewed between pitchers of hitter-friendly eras (i.e., the era in which Clemens has pitched) versus pitchers of pitcher-friendly eras (i.e., such as the late 1960's and early 70's).

Thus, Clemens' career RSAA reflects that he is inarguably one of the greatest pitchers in the history of Major League Baseball. Enjoy watching him perform for the remainder of this season because it is becoming increasingly clear that the 2006 Stros as a team will continue to struggle. The following are Clemens' career statistics through his most recent game:

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

In a split decision, the winner is the Texas GOP. For now.

The Supreme Court issued its long-awaited decision yesterday (earlier posts here) ordering congressional districts in south Texas redrawn because a 2003 redistricting map orchestrated by former House Majority Leader Tom DeLay was designed to disenfranchise Hispanic voters so that vulnerable Republican incumbent Rep. Henry Bonilla could maintain his seat. However, a sharply-split Court rejected a broader Democratic challenge to the DeLay redistricting plan that prompted the new Republican majority in the Texas Legislature to throw out existing districts in favor of new ones designed for partisan benefit. Charles Kuffner, who has followed the redistricting case closely, has more here and an extensive archive on the case here. Amy Howe passes along what appears to be an interesting error in the opinion, a pdf of which is here.

The bottom line on this incredibly split-decision (the justices filed six separate opinions concurring and dissenting from parts of the ruling) is that that Justice Anthony Kennedy's controlling opinion leaves open the possibility that the Court could step in someday to set limits for partisan gerrymanders if future litigants find "a manageable, reliable measure of fairness" for doing so. Four liberal-leaning justices joined Justice Kennedy in concluding that the south Texas districts violated the Voting Rights Act and must be redrawn. But Justice Kennedy and the four more conservative justices concluded that the state-wide map complied with Constitutional requirements and that a second district -- which Democrats claimed disenfranchised black voters in Austin -- posed no voting-rights violation. Just to give you an idea of how the Court is all over the place on these issus, Justices Thomas and Scalia would have simply dismissed the case as beyond the scope of the courts to resolve, while several Justices -- including Samuel Alito and John Roberts -- were in a group that left open the possibility that the Court might in the future come up with a legal test to be applied in this type of case.

Posted by Tom at 5:06 AM | Comments (0) | TrackBack (0)

June 28, 2006

Here's one for the hedgies

Given the hedge fund theme today, it seems appropriate to note that the Russian state oil company Rosneft (previous posts here in connection with the Yukos chapter 11 case) is proceeding with its huge $10 billion initial public offering on the London Stock Exchange. As this NZ Herald op-ed notes, participation in the Rosneft IPO is not recommended for the faint-hearted and, as this Financial Times ($) article reports, the company's prospectus includes 25 pages of risk factors that certainly could not be construed as underplaying the risk of investing in the IPO:

Rosneft yesterday began selling itself to investors, warning of "material weaknesses" in its internal controls, a Kremlin-controlled board that might not always act in the interests of minority shareholders and possible legal liabilities of at least $14.7bn (£8bn).

The state-owned Russian oil giant published the preliminary prospectus for its float in London and Moscow next month. It hopes to raise $10bn-$11.7bn, making it one of the world's largest initial public offerings and valuing the company at up to $80bn.

Over 25 pages, the potential pitfalls are set out. As expected, the central threat to any investment lies in the legal challenges surrounding Rosneft's contentious acquisition of the former assets of Yukos, the oil company once owned by the now imprisoned oligarch Mikhail Khordokhovsky. Rosneft acquired Yuganskneftegaz, the main asset, in an opaque and forced auction.

The prospectus says that Rosneft is a defendant or respondent in four cases brought by Yukos or its shareholders that could result in damages of at least $14.7bn. Rosneft is "actively contesting" the claims and suing Yukos in Moscow for more than $17bn.

It adds: "If certain shareholders of Yukos are successful in obtaining an arbitral award against the Russian Federation, those shareholders may seek to enforce that award against Rosneft which may expose Rosneft to substantial liability."

Rosneft's corporate governance might also prove offputting. The prospectus says the Russian government indirectly owns 100 per cent of Rosneft and that six members of the nine-member board are officials in the government. This means Rosneft may "engage in business practices that do not maximise shareholder value" and cause it to "take actions that may not coincide with the interests of minority share-holders".

Its accounting systems may not be as sophisticated as that of companies with a longer history of compliance with US accounting rules and "Rosneft's independent auditor has identified certain material weaknesses in Rosneft's internal controls".

Rosneft might also have trouble financing its capital expenditures. It is relatively highly leveraged and must observe certain financial and other restrictive covenants under the terms of its indebtedness. The document notes that "crime and corruption could create a difficult business climate in Russia". . . .

So, if you're looking for an investment in a company that lacks internal controls, has a board that often does not maximize shareholder value, may lose its shirt in pending litigation, may have trouble financing its capital expenditures and treads in markets that are rife with crime and corruption, then this one's for you!

Posted by Tom at 6:08 AM | Comments (1) | TrackBack (0)

Infidelity Investments?

Markets are truly amazing. The ever-observant Walter Olson reports that UK financial institutions are now providing "matrimonial dispute loans" -- loaning money to a party in a pending divorce secured by the party's expected award or settlement from the party's soon-to-be-ex in the divorce. Inasmuch as the hedge funds cannot be far behind such a financial innovation, it's only a matter of time before the next reason touted for regulation of the hedgies is that they are promoting marital discord without appropriate oversight.

Posted by Tom at 4:46 AM | Comments (0) | TrackBack (0)

The securities fraud myth

Richard Booth is the Marbury Research Professor of Law at the University of Maryland School of Law. In this fine Washington Post op-ed (hat tip Ted Frank), Professor Booth explains that the US securities fraud litigation framework is fundamentally flawed in that investors collectively end up worse off as a result of securities litigation and that a coherent system would protect reasonable investors (that is, ones who diversify their portfolios) rather than unreasonable ones (betting the farm on one company):

For diversified investors who do happen to trade during the fraud period, there are no benefits from class action suits over the long haul. A diversified investor is equally likely to be on the winning side of a given trade as on the losing side. Indeed, diversified investors are net losers from class action because of the costs of litigation. So it is no wonder that an investor would need a little inducement to sue.

Undiversified investors may suffer significantly more harm from securities fraud, possibly losing thier entire investment. But it does not follow that an undiversified investor should have a remedy if they voluntarily assume the unnecessary risk that goes with failure to diversify. Through diversification, an investor can eliminate the risk that goes with investing in a single stock without any sacrifice of expected return. The only risk that remains is market risk.

Moreover, . . . it is so cheap and easy for investors to diversify that it is simply unnecessary for investors to take company-specific risk. Given that the fundamental goal of investing is to generate the greatest possible return at the lowest possible risk, it is irrational for an investor, not to diversify.

The Supreme Court has clearly stated that securities law should be interpreted consistent with the needs of reasonable investors. Plaintiff class members should thus be presumed to be diversified and such actions should be dismissed for lack of harm . . .

Meanwhile, in the face of such lucid analysis, chief NY Times securities regulation advocate Gretchen Morgenson contributes to this article that breathlessly reports that the SEC may be firing employees who take up the good fight of attempting to protect unsuspecting investors from those shady hedge funds. The notion that anyone who invests in a hedge fund in the first place should not be unsuspecting (and, thus, not in need of government protection) is noticeably absent from Ms. Morgenson's analysis.

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

June 27, 2006

Disparate results from overreaching prosecutions

Amidst a busy summer day, I pass along a rare and quick afternoon post on disparate results emanating earlier today from a couple of cases involving overreaching prosecutions of businesspeople.

First, Peter Lattman (here and here), Dave Hoffman and Ellen Podgor are doing standout instant analysis of U.S. District Judge Lewis Kaplan's opinion issued earlier today rapping the knuckles of the Department of Justice for threatening KPMG with indictment in the KPMG tax shelter case unless the firm shirked its policy of paying the defense costs of partners who were indicted for work performed in the course of the firm's tax shelter business (background posts here and here). As Professor Hoffman notes, Judge Kaplan is not ready to dismiss the indictment as the remedy for the prosecutorial abuse, so it appears that KPMG will be left holding the bag for the not insubstantial costs arising from the improper prosecutorial strongarming. That would not seem to be much of a deterrent for a prosecutor to engage in such tactics in the future, but maybe dismissal will be the remedy next time around when prosecutors engage in this sort of nonsense.

Meanwhile, following on this post from last week, the three former National Westminster Bank PLC bankers who Enron Task Force prosecutors are attempting to extradite to Houston to face criminal charges (previous posts here) lost their final appeal to halt or postpone the extradition as the European Court of Human Rights (ECHR) in Strasbourg rejected their request for a stay pending disposition of their appeal to that body. It is now likely that the NatWest Three will be extradited to Houston next month and detained in the Federal Detention Center in downtown Houston as they attempt to prepare for a trial in an unusually hostile environment.

You can bet that the Task Force's reliance on a treaty of tenuous applicability to extradite the NatWest Three to a holding cell in downtown Houston is being followed closely by business interests in the UK. Is this really the way we want the US criminal justice system to be perceived internationally?

Posted by Tom at 3:30 PM | Comments (0) | TrackBack (0)

Going nuclear

My sense is that Asheville Tourists manager Joe Mikulik suspects that Stros farmhand Koby Clemens is getting some favorable treatment from the umps that is normally reserved for his father:

Lexington's Koby Clemens -- whose famous father Roger made a tuneup start for the Legends this month after re-signing with the Houston Astros -- was leading off second base after hitting an RBI double when Asheville pitcher Brandon Durden tried to pick him off.

Umpire Andy Russell called Clemens safe, sending Mikulik roaring out of the dugout and setting off a prolonged tirade that he carried all over the infield and into the dugout.

That led to this:

Posted by Tom at 8:54 AM | Comments (0) | TrackBack (0)

An unintended consequence of Hurricane Katrina

Of all the consequences of Hurricane Katrina on the state of Louisiana, this NY Times article reports on one that I never expected:

State officials assumed that Louisiana's tax base had been battered by last year's hurricanes, but the latest figures show that the opposite occurred: more tax dollars than ever are pouring into the state's coffers as the budget year draws to an end.

The state predicted that tax collections would plunge by almost $900 million this year, and it slashed spending to match. Instead, a record $9.2 billion is on track to be collected by the time the budget year ends on June 30, and at least some of that tax flow looks as if it is likely to continue.

Part of the tax revenue boost has come from increased gambling at casinos and video poker machines located in the state, and higher energy prices has also helped increase tax and state royalty revenue. However, the biggest surge has come from sales taxes as hurricane victims have used federal aid and insurance proceeds to replace personal property. State officials estimate that the state will end up with almost a half-billion more in sales tax revenue than they expected before Katrina.

Meanwhile, the hulks of thousands of damaged cars remain under the highway overpasses of New Orleans as state and federal officials quibble over who will finance the cost of towing the scrap to landfills and scrapyards. And this NY Times article follows up on this earlier post regarding the "breathtaking fraud" that took place in regard to the federal aid that has flowed into the Gulf Coast after last summer's storms. So it goes in Louisiana.

Posted by Tom at 6:42 AM | Comments (0) | TrackBack (0)

And you think the Shell Houston Open has problems?

Heavy rains on the East Coast are making it difficult for the PGA Tour to complete this past weekend's Booz Allen Golf Tournament that is being played just outside Washington, D.C. on the Tournament Players Course at Avenel in Potomac, MD. But according to this Thomas Boswell/Washington Post article, the rain is the least of the tournament's problems:

Golf is the game of sportsmanship and proper manners, the sport that exemplifies respect for others. We even use it to teach values to kids, to instill the idea that conscience defines character.

So this is a week for golf -- at least the crass, ungrateful, traveling-circus PGA Tour version -- to hang its head in shame.

It's no accident that all of the world's four major championships are run by organizations other than the PGA Tour. The tour keeps pumping its own Players Championship to join the elite. But it'll never happen -- not as long as the tour humiliates itself, shows its true colors and drives itself down the scale of social respectability with disasters such as the one it is perpetrating in Washington this week.

Even a golf tournament deserves a decent burial. The funeral for the summer pro golf stop in Washington is being held at TPC Avenel this week. The PGA Tour didn't even have the decency to close the casket.

Geez, sort of makes the well-chronicled problems of the Shell Houston Open (see here, here and here) seem rather tame in comparison, eh?

By the way, given the fact that the problems with the Washington and Houston professional tournaments are not isolated, does anyone else have the feeling that the PGA Tour is heading for serious trouble?

Posted by Tom at 6:12 AM | Comments (0) | TrackBack (0)

Foreshadowing a key issue in the Lay-Skilling appeal

In a strong indication that he believes that the matter raises important appellate issues, U.S. District Judge Sim Lake issued this this 22-page opinion late last week in the criminal case of former key Enron executives Ken Lay and Jeff Skilling expanding on the reasons for his ruling during the trial (see here and here) denying Lay and Skilling's request that Judge Lake grant defense immunity to a half-dozen or so former Enron executives who Lay and Skilling believe would have provided exculpatory testimony for the defendants. Lay and Skilling contend that the Enron Task Force used the threat of indictment against those former executives and dozens of other former Enron executives to induce the witnesses to assert the Fifth Amendement against self-incrimination rather than provide exculpatory testimony for Lay and Skilling.

The Task Force's tactic of icing favorable witnesses for Lay and Skilling has been swirling around the case from the beginning. Lay and Skilling raised the issue prior to trial in regard to the Enron Task Force's alleged intimidation of witnesses (see here and here) and also on the key evidentiary issue in the trial (here and here). Then, Lay and Skilling raised the issue again during the trial as the defendants struggled to corroborate their testimony that key Task Force witnesses such as Ben Glisan and Andrew Fastow were lying when they testified that they had cautioned Lay and Skilling about Enron's shaky financial condition at various times when Lay and Skilling were making positive statements to the market regarding the company's finances.

In a key part of the ruling, Judge Lake explains his reasoning for denying Lay and Skilling's request for the Court to grant defense immunity to the proposed witnesses:

The testimony that defendants expect the proposed witnesses would provide may be relevant and exculpatory, but it falls far short of being essential exculpatory evidence for the simple reason that defendants do not — and cannot — argue that these are the only witnesses capable of providing exculpatory evidence on these issues. When defendants filed their motion to immunize the proposed witnesses both defendants had testified and their testimony contradicted the government’s evidence on these issues. At best, the anticipated testimony of [the witnesses] would be cumulative of the testimony of defendants and of other evidence presented by defendants. Accordingly, the court concludes that the defendants have failed to establish that the testimony that defendants seek to immunize would constitute essential exculpatory evidence.

This reasoning seems oddly superficial. Not only does it fail to address the fact that the Task Force's witness-icing strategy allowed the prosecution to use hearsay statements from alleged co-conspirators against the defendants, the reasoning ignores the important impact that corroborating testimony has in a criminal trial. Just as prosecution witnesses testifying under draconian plea deals have a powerful incentive to testify favorably for the prosecution, defendants asserting their innocence have a similar incentive to testify consistent with that position. Juries intuitively understand this dynamic, and thus often discount such testimony while placing more weight on the testimony of corroborating witnesses who are not subject to those pressures. That Judge Lake's opinion does not address that important impact of the Task Force's witness-icing strategy will almost certainly be a key point on the appeal of this issue.

By the way, the same prosecution witness-icing strategy that was used in Lay-Skilling case is already an issue in the the Nigerian Barge appeal and the Bernie Ebbers appeal. Inasmuch as a number of the convictions in the barge appeal already appear to be unraveling, the Fifth Circuit may even issue a ruling on the issue before the Lay-Skilling opinion arrives at the Fifth Circuit's doorstep.

Posted by Tom at 4:50 AM | Comments (2) | TrackBack (0)

June 26, 2006

Handling defeat

Although this NY Times article reports that Phil Mickelson is still having trouble getting over his 18th hole meltdown at last week's U.S. Open, this earlier Alan Snipnuck article gives us a taste of why Mickelson is currently one of the most popular U.S. sporting figures:

On Saturday, . . . evening [after a grueling 3rd round of the US Open], cordoned off behind the Winged Foot clubhouse, a jolly group of fans had gathered to get a glimpse of their heroes. Player after grumpy player stomped past, looking like they were trying to find a puppy to kick. None stopped to sign autographs.

At 7:30 p.m. Mickelson emerged behind the clubhouse, having endured 45 minutes of media obligations. It had already been a long, draining day. His caddie, Jim MacKay, was nursing sore feet, and had peeled off his shoes and socks to reveal shocking tan lines on his ankles. Mickelson's wife Amy was slumped against a clubhouse railing, occasionally checking her watch. The Mickelson escape car, a gray SUV, was idling nearby. But drawn by the chanting of his name, Phil jogged over to his adoring public. Not content to just scribble autographs, he began working the crowd with a giddy shtick.

A French cameraman got in Mickelson's face to record the scene, and hearing his accent, Phil said,"I love Paris. Tour d'Argent is my favorite restaurant in the world." When a fan asked Phil if he would be playing a tournament in France anytime soon, he stopped signing long enough to jiggle his ample midsection for effect. "I don't go to Paris to play golf," Mickelson said. "I go to eat. Obviously." The crowd spooned it up.

By this time, a pretty blonde had wiggled her way to the front row and was trying to engage Phil with some flirty banter. Mickelson finally asked her for her phone number . . . and then passed on the digits to a sportswriter hovering nearby, giving him a showy introduction. The scribe and the toothsome fan wound up making dinner plans on the spot, a hookup that brought smiles from the burly state troopers doing crowd control. . . . Phil signed three more, and then with a wave he jumped into his car and sped off. On the drive home he made a call to the writer on his cell phone, referring to himself as "pimp daddy" and asking for an update on the date.

On the other side of the popularity coin, this John Huggan/Scotsman article reports on why Colin Montgomerie remains one of the least popular professional golfers in the US:

There was one big difference between the other challengers and Monty, of course. While they managed to maintain the highest standard of etiquette during what turned out to be a traumatic afternoon for all concerned, the same cannot be said for our tartan hero.

Adding to his already lengthy list of crass and boorish behaviour over the years, Monty managed, in less than half an hour, to alienate the gallery around the 17th tee, make unwarranted physical contact with a New York state trooper and offend the United States Golf Association. This made three mean feats and no mean feat, if you know what I mean.

Witnessed first hand by two fellow Scots, Monty was disturbed by a child while over his drive on the 17th tee. After treating the youngster to one of his patented, prolonged glares, he missed the fairway, picked up his tee, walked a couple of paces, then - though he has since denied the following - viciously hurled the tee at his 'tormentor.' It missed, only just.

This provoked understandable outrage among many spectators. "That's why you don't get our support," yelled more than one.

The altercation with the trooper occurred as the officer escorted the Mickelson family to the 18th green for a prize-giving that Monty decided he could happily skip - hence the USGA's disappointment. At first, the incident was reported as a "shove" from Monty, later downgraded to a "collision", presumably when his agents, International Management Group, sent their spin-doctors into action. Sadly, some journalists, no matter what Monty gets up to on the course, are willing to forego their professional credibility, take on the role of apologists and downplay any controversy. It is amazing what the promise of some freelance work or a future exclusive interview will do.

Anyway, at least the now five-time runner-up in major championships did deign to stop for a brief post-round press conference, during which he admitted to "messing up". It's only a pity he was talking about that shot to the last green, and not his disgraceful treatment of an innocent child.

For Monty, growing up has always been hard to do.

Posted by Tom at 6:20 AM | Comments (0) | TrackBack (0)

Houston's gift to Botswana

Major W. Bradshaw has long been one of the talented physician-teachers that makes Houston Texas Medical Center such a fascinating place. Dr. Bradshaw came to Houston and the Baylor College of Medicine as an Assistant Professor of Medicine in 1972 to ramrod Baylor's development of expertise in microbiology and immunology. An outstanding teacher, Dr. Bradshaw was promoted to Dean of Education in 1996 and to Senior Vice-President and Dean of Medical Education in 2004. Now, while most contemporaries are planning their retirement, the Chronicle's Leigh Hopper reports that Dr. Bradshaw has other things in mind:

[After 30 years at Baylor], Bradshaw is making an unusual career move. He's heading to Botswana, a country in sub-Saharan Africa that is roughly the size of Texas.

Baylor is expected to announce this week that Bradshaw has accepted a job as interim founding dean at University of Botswana's medical school, the first such school in a country with one of the world's worst HIV rates. Next month, he and his wife move to Gaborone, Botswana's capital, leaving their home, their children and grandchildren for at least a year.

"It's pretty remarkable for (the University of Botswana) to have the sitting dean of education for the No. 10 medical school in the United States to all the sudden be their new founding dean," said Baylor College of Medicine President Peter Traber. "That's quite a recruitment."

Dr. Bradshaw's appointment is part of Baylor's affiliation agreement with the University of Botswana, which is starting the country's first medical school to address Botswana's critical health needs, including a high percentage of the population that is infected with the HIV virus. Under the leadership of Baylor pediatric professor Mark Kline, Baylor has already opened a treatment center for HIV-infected children in Botswana in 2003 as a part of Baylor's International Pediatric AIDS Initiative. What better legacy for a teacher such as Bradshaw -- who has had a major influence on one of America's finest medical schools -- than to contribute his talents to the creation of a medical teaching institution in a part of the world that needs it the most. Just another example of the magnificent influence that the professionals of Houston's remarkable Texas Medical Center are having throughout the world.

Posted by Tom at 5:37 AM | Comments (0) | TrackBack (0)

New York's regulation premium

This Landon Thomas/NY Sunday Times article is the definitive report to date on the status of New York aspiring governor Eliot Spitzer's lawsuit against former New York Stock Exchange chairman and CEO Richard Grasso (prior posts here) over Grasso's $140 million pension from the NYSE. In short, the NYSE board was quite involved in Grasso's compensation arrangements, although there is some question over how well the details of those arrangements were disclosed to the entire board. However, at the end of the day, the board members knew what they were doing, debated the merits of the package extensively and approved it. If this case were to be determined in accordance with the corporate case of the decade, then it would not even appear to be a close call -- Grasso and the NYSE board wins.

So, you ask, what's driving the lawsuit? Well, apart from the propaganda for Spitzer's political campaign, Thomas reports that the NYSE has already incurred in excess of $40 million in legal fees and costs in defending Grasso and the other board members in the lawsuit. Inasmuch as the cost of defending the lawsuit will likely increase substantially by the time the case is resolved through either trial or settlement, the defense cost will likely be at least half again as large as Grasso's pension itself. That cost is really just the regulation premium that firms should expect to pay if its board decisions on big ticket items do not pass muster with the Lord of Regulation. Can you imagine how high those regulation premiums will go when the Lord of Regulation is elevated to governor?

Posted by Tom at 4:43 AM | Comments (0) | TrackBack (0)

June 25, 2006

Thinking about performance-enhancing drugs

Mark Sisson is a Malibu-based former elite marathoner and triathlete who became well-known in athletic circles as an expert on drug testing for athletes while serving for 13 years as the anti-doping and drug-testing chairman of the International Triathlon Union and as the union's liaison to the International Olympic Committee. In this provocative letter to Art DeVany (previous posts here), Sisson talks about drug-testing for athletes and makes some rather startling observations:

At the risk of sounding a bit brazen, I would suggest to you and your audience that sport would be better off allowing athletes to make their own personal decisions regarding the use of so-called “banned substances” and leaving the federations and the IOC out of it entirely. (Even the term “banned substance” has a negative connotation, since most of these substances are actually drugs that were developed to enhance health in the general population). Bottom line: the whole notion of drug-testing in sports is far more complex than even the media make it out to be. [. . .]

The performance requirements set by the federations at the elite level of sport almost demand access to certain “banned substances” in order to assure the health and vitality of the athlete throughout his or her career and – more importantly – into his or her life after competition. . . . World class athletes tend to die significantly younger than you would predict from heart disease, cancer, diabetes and early-onset dementia. They also typically suffer premature joint deterioration from the years of pounding, and most endurance athletes look like hell from the years of oxidative damage that has overwhelmed their feeble antioxidant systems. Most people don’t realize it, but training at the elite level is actually the antithesis of a healthy lifestyle. The definition of peak fitness means that you are constantly at or near a state of physical breakdown. As a peak performer on a world stage, you have done more work than anyone else, but you have paid a price. It is again ironic that the professional leagues and the IOC -- the ones who dangle that carrot of millions of dollars in salary or gold-medalist endorsements -- are the same ones who actually created this overtrained, injured and beat-up army of young people. They don’t care. These organizations then deny the athletes the very same drugs and even some natural “health-enhancing” substances that the rest of society can easily receive whenever they feel the least bit uncomfortable. [. . .]

I believe that with proper supervision, athletes could be healthier and have longer careers (not to mention longer and more productive post-competition lives) using many of these “banned substances.” And perhaps the biggest assumption I will make here is that the public just doesn’t care. Professional sport has become theater. All the public wants is a good show and an occasional world record.

Read the whole letter. As noted earlier here with regard to Barry Bonds' use of steroids, management of professional sports has not done a good job of drawing the line with regard to what should constitute illegal use of drugs, on one hand, and legal performance-enhancing substances that are beneficial to the health of the athletes, on the other. As a result, the league rules (as well as our nation's laws) governing which substances are legal and illegal are often arbitrary and hypocritical. Indeed, professional sports teams (as well as their fans) often encourage their players to risk their health. Players who "play with pain" are the subject of adulation in all levels of sport, as are players who risk injury by running into walls, taking cortisone shots to be able to perform with reduced pain and undergoing risky surgeries to lessen pain in order to play in a big game (remember Curt Schilling in the 2004 World Series?). The difference between a professional athlete taking pain-reducing drugs to get through a season and another athlete using performance-enhancing drugs in an attempt to be more productive during a season is not as wide as it may appear at first glance.

Posted by Tom at 5:39 AM | Comments (4) | TrackBack (0)

June 24, 2006

Regulating the regulation

Houston-based -- er, . . I mean Bermuda-based, or is that Barbados-based? . . . -- Nabors Industries, Inc. is one of the world's largest drilling contractors. The company has nearly 600 land drilling rigs and more than 900 land workover and well-servicing rigs, and operates across the U.S. and in Africa, Canada, Central and South America, and the Middle East. Nabors' offshore equipment includes platform rigs, jack-ups, barge drilling rigs, and marine support vessels, and the company provides oil field hauling, maintenance, well logging, engineering and construction services. In short, Nabors is the type of oil field service company that exploration and production companies want to have competing for the business of drilling or providing other services for an oil or gas well at the lowest possible price.

One of the reasons that Nabors has been one of the most profitable oil field service companies over the past 20 years or so is that its management team is constantly searching for ways to make the company more profitable and valuable to its shareholders. So, in 2001, Nabors moved its tax headquarters to Bermuda and its legal headquarters to Barbados to lessen its American income taxes. The move has paid dividends for Nabors shareholders as the company paid only $6 million in U.S. income taxes last year on almost $430 million in profits, which would have generated over $80 million more in taxes if Nabors were based in the U.S. Several other big companies have done the same thing as Nabors.

So, given the competitive advantage that Nabors and other tax haven-based companies have over their American-based competitors, you would think that Congress might get the message and simply reduce the tax regulation that prompted such moves. But that would be too easy. Rather than addressing the cause, a fierce debate developed in Congress with demagogues from both parties promising voters to crack down on "Benedict Arnold companies" such as Nabors that move to tax havens to avoid paying U.S. income taxes.

As a result, Congress passed a law before the fall elections in 2002 that bars companies that moved their tax headquarters to tax havens from getting government contracts. However, in a classic example of American political disingenuousness, Congress quietly included a loophole in the law (probably drawn up between members of Congress and certain industry representatives over a power lunch) that allows American subsidiaries of the tax haven-based companies to bid on the government contracts. Thus, everyone was happy -- the demagogues in Congress got to tell voters that they passed a law against those dastardly Benedict Arnold companies while those companies were able to get around the law and get on with their business by simply bidding on the contracts through a subsidiary.

Now, as this NY Times article reports, Congress and Nabors are at it again. This time the problem for Nabors is the largely obsolescent national security portion of the 1920's Jones Act that provides that only American-built, owned and manned ships can move people and cargo between domestic ports. Again, the key word here is "American," which Nabors is technically not.

But wait. Nabors owns over 30 big ships with wide berths that ferry various heavy drilling equipment, supplies and people to various offshore drilling rigs. And, as you might expect, those vessels come in handy in the aftermath of storms such as Hurricanes Katrina and Rita which damaged a large part of the Gulf Coast drilling and production infrastructure last summer. But if Nabors' vessels aren't available to move equipment and cargo around between American ports, then the cost of repair of oil and gas facilities -- which has a direct impact on the cost of oil and gas products to you and me -- will be higher than it would otherwise be if Nabors could compete in the market and push the cost of such repairs down.

So, it would seem that the logical thing to do is for the politicos to strike another face-saving compromise that would allow their constituents to realize the benefit of the market having access to Nabors' assets while preserving the ruse of the Jones Act "protections." However, as with most things in Washington, it's not that easy. Now, Nabors' competitors have joined together to lobby against an exemption from the Jones Act for Nabors on the grounds that they should be allowed to benefit from the protectionist provisions of the Jones Act because Nabors has an unfair competitive advantage by virtue of not having to pay oppressive U.S. taxes. And just for good measure, Nabors' competitors throw in for demogogic appeal the bogeyman argument that all of the drilling companies will flee the U.S. to foreign countries unless the American companies are allowed to make more money than the market for their services would otherwise allow if companies such as Nabors were allowed to compete.

So, there you have it. A profitable company with assets that push prices lower is hampered from doing so through tax and related governmental regulation. In the meantime, those same governmental regulations are allowing other companies to charge higher prices in those markets that are ultimately passed on to you and me. The real problem is counterproductive corporate tax and related regulations, but condemning Benedict Arnold companies and decrying price gouging is certainly more entertaining.

Update: Congress continues to fiddle while Rome burns.

Posted by Tom at 10:00 AM | Comments (0) | TrackBack (0)

June 23, 2006

Anadarko's big deal

The Woodlands, Texas-based Anadarko Petroleum Corp. announced this morning (NY Times story here) that it has agreed to buy Kerr-McGee Corp. and Western Gas Resources Inc. in separate all-cash deals totaling $21.1 billion, plus the assumption of $2.2 billion in debt, in a deal that will create America's largest independent exploration and production company. The boards of each company have already approved the transaction, although Kerr-McGee shareholders and regulators must still approve the deals, which are expected to close by the end of the third quarter. Previous posts on Anadarko are here.

Gee, that's pretty big news in the old hometown.

Anadarko will pay about $16.4 billion, or $70.50 a share, in an all-cash deal for Kerr-McGee and assume debt and other liabilities estimated at $1.6 billion, which works out to pay a premium of about 40% to Kerr-McGee shareholders over Thursday's closing price of $50.30. Anadarko will also pay about $4.7 billion, or $61 a share, and assume about $560 million in debt for Western Gas, which translates to a premium of about 49% for Western shareholders over Western's closing price on Thursday of $40.91. The Kerr-McGee deal includes a right to match competing offers and a break-up fee of $493 million while Anadarko's agreement with Western Gas includes a right to match competing offers and a break-up fee of $154 million.

Anadarko will fund the entire deal with a $24 billion line of credit from UBS, Credit Suisse and Citigroup, and reasons that it expects to recover 3.8 billion barrels of oil equivalent from the acquired properties at less than $12 per barrel. Oil has traded near $70 per barrel for the past couple of months and Anadarko announced that will hedge 75% of the acquired production through late 2008.

Anadarko's bold play follows other huge acquisitions in the oil patch, such as last year's Chevron Corp. acquisition of Unocal Corp. for about $18 billion and ConocoPhillips' purchase of Burlington Resources for $36.5 billion while more conservative industry players such as Exxon Mobil Corp. have held tight and plowed their huge profits over the past couple of years into share buybacks.

Never a dull moment in the oil and gas business, eh?

Posted by Tom at 8:56 AM | Comments (0) | TrackBack (0)

How much did you say you wanted, honey?

Former Texas Southern and current New York Giants star defensive lineman Michael Strahan is discovering that they play for keeps in the divorce courts of New York City:

Michael Strahan's nasty divorce trial hit a new low yesterday - as his estranged wife suggested the Giants sack king and handsome married TV doctor Ian Smith are more than just friends.

After the couple's marriage collapsed, "Michael moved into Ian's one-bedroom apartment," Jean Strahan told reporters after another bruising day in divorce court.

"And you can say an alternative lifestyle sprouted," she added, though her lawyer stopped her before she could elaborate. [. . .]

Michael Strahan himself hinted at some controversy when he said in court that he wasn't sure whether one of his love letters was addressed to "Jean" or "John."

"I've been accused ..." Strahan, 34, quipped on the witness stand before cutting himself off in midsentence and flashing his gap-toothed smile.

Strahan's lawyer rejected any hint that there's anything more than a friendship between his client and Smith.

That's not all.

Posted by Tom at 5:54 AM | Comments (1) | TrackBack (0)

The sad case of Andrea Yates

While on the subject of Houston-based cases that are not reflecting well on the U.S. criminal justice system, the jury in the retrial of Andrea Yates -- the suburban Houston mother and housewife who drowned her five young children in a bathtub in 2001 -- was seated yesterday and opening arguments are scheduled to begin on Monday.

The Yates case is not Texas at its finest. Despite overwhelming medical evidence that Yates was severely mentally ill, suffering from post-partum depression and had been taken off the only medication that had ever helped her when she killed her children, the State of Texas still wants to put Yates in prison instead of a mental health facility for the rest of her life. Not surprisingly, prosecutors have never been able to offer any motive -- much less a reasonable explanation -- for why an otherwise attentive and loving mother would suddenly go nuclear on her young children and kill them.

But it gets worse. The state is retrying this case despite the fact that Yates' first trial ended in a conviction that was subsequently overturned because the lead prosecution expert witness made the dubious link between Yates and an episode of the television show Law and Order in which a mother drowns her child. Now, it's bad enough that State District Judge Belinda Hill ever allowed the jury to hear an expert make such a questionable reference to in the first place, but what's worse is that the episode that the expert referred to was never even broadcast!

Moreover, it's not as if this trial of Yates even involves the issue of incarceration versus freedom -- even if successful, Yates' insanity defense would result in her assignment to a secured psychiatric hospital, probably for the remainder of her life. And, from the looks of it, the prosecution and Judge Hill do not appear to be acting any more responsibly in the second Yates trial than they did in the first one. Last week, Judge Hill granted an inhumane prosecution request that Yates be incarcerated in prison during the retrial rather than in a mental health facility.

In short, despite the fact that there is no meaningful dispute regarding the nature and depth of Yates' mental illness, the State insists upon punishing this feeble and tormented woman by imprisoning her for the rest of her life. Such a lack of prosecutorial discretion leaves a serious black mark on the Harris County District Attorney's Office and the State of Texas criminal justice system, and it is not one that is easily erased.

Posted by Tom at 5:09 AM | Comments (1) | TrackBack (0)

The clock is ticking on the NatWest Three

As noted in these earlier posts, the Enron Task Force's prosecution of three former National Westminster Bank PLC bankers has raised a political firestorm in the United Kingdom, where the Task Force is attempting to use the 2003 Extradition Treaty signed with the US in the wake of the 9/11 attacks on New York and Washington, D.C. as the basis of extraditing the three former bankers to Houston to stand trial for allegedly 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 Independent, the House of Lords refused on Wednesday to hear the NatWest Three's challenge to the UK's extradition treaty with the US, leaving the former bankers with only six days in which to appeal to the European Court of Human Rights in an attempt to avoid extradition to Houston. If extradited to Houston, the NatWest Three likely will face incarceration in the Federal Detention Center pending a trial in an unfriendly environment that could send each of them to prison for over 20 years.

As noted in the prior posts, the NatWest Three are contending that the treaty that is the basis for the proposed extradition is unfairly slanted because the U.S. has not yet ratified the treaty while it is already being implemented in the U.K. Under the treaty, the U.S. government is no longer required to present a prima facie case against the former bankers and the Department of Justice may continue to challenge the evidence put forward in extradition requests while U.K. citizens who are subject to U.S. extradition requests have have no such parallel right. Moreover, the NatWest Three point out that U.K. authorities have already investigated the matter and declined to pursue charges against the former bankers, and that the U.S. culture regarding Enron almost assures a conviction while, at worst, the three would be be facing either fines and light prison sentences if the case were prosecuted in the U.K.

However, the most damaging aspect of the NatWest Three case is the portrayal of the U.S. justice system in the U.K. and internationally as a wild frontier with no respect for due process of law. That portrayal is a natural byproduct 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 of business crimes in the U.S. justice system continues to rise.

Posted by Tom at 4:24 AM | Comments (0) | TrackBack (0)

June 22, 2006

The remarkable Mr. Ogilvy

Somewhat lost amidst Phil Mickelson, Colin Montgomerie and Jim Furyk's train-wrecks at the final hole of last weekend's U.S. Open is the fact that Geoff Ogilvy, the winner of the tournament, is a quite interesting fellow and one of the rising stars on the PGA Tour.

As John Huggan observes in this excellent interview of the 29 year-old Austrailian, "Ogilvy has the potential to be just the sort of wise, high-profile spokesman the professional game needs if it is to rescue itself from the technological black hole into which it is currently headed." For example, Huggan provides the following analysis from Ogilvy on the state of the modern game:

Two important aspects of golf have gone in completely the wrong direction. Most things are fine. Greens are generally better, for example. But the whole point of golf has been lost. Ben Hogan said it best. His thing was that you don't measure a good drive by how far it goes; you analyse its quality by its position relative to the next target. That doesn't exist in golf any more.

The biggest problem today is tournament organisers trying to create a winning score. When did low scores become bad? At what point did the quality of your course become dependent on its difficulty? That was when golf lost the plot. The winning score should be dictated by the weather.

The other thing is course set up. Especially in America there is too much rough and greens are way too soft. Then, when low scores become commonplace, they think how to make courses harder. So they grow even more long grass.

But that misses the point. There is no real defence against a soft green. Today's players with today's wedges can stop the ball from anywhere. The angle of attack and the shape of the shot mean nothing. It doesn't matter where you hit it as long as it is between the out of bounds stakes or between the trees. And so the game becomes a one-dimensional test of execution, time after time after time.

And, as usual in matters pertaining to golf, there is a Houston connection to Ogilvy's win at the U.S. Open. As you can see from the picture of Ogilvy's swing above, Ogilvy has what is referred to in golf swing circles as a "one-plane swing," while each of his main competitors in the U.S. Open -- Mickelson, Montgomerie and Furyk -- all use "two-plane swings" (Furyk's idiosyncratic swing might be more like six planes). As noted in this earlier post, long-time Houston golf teaching pro Jim Hardy authored a ground-breaking golf swing instructional book last year that differentiated the one plane and two plane swings and explained that key principles of the two swings are much different. Although Hardy teaches both types of swing in his book, he prefers the one-plane swing for better players because it has fewer moving parts than the two-plane swing and, thus, is less dependent on timing and more consistent under the intense pressure of tournament golf. No better example of that observation could have been provided than the final hole of last weekend's U.S. Open, where Ogilvy's swing held up brilliantly while both Mickelson and Montgomerie's swings broke down under the intense pressure of the moment.

Finally, you know that Ogilvy has finally arrived when he is the subject of David Letterman's Top Ten List "Top Ten Things That Went Through Geoff Ogilvy's Mind After Winning The U.S. Open." My favorite is no. 10: "This is one of those things you never forget, like seeing John Daly in the locker room naked."

Posted by Tom at 5:41 AM | Comments (0) | TrackBack (0)

Owls hit a bump in the road

The Rice Owls quest for a second NCAA baseball championship took a detour Wednesday night as the Oregon State Beavers used a career-performance from young starter Daniel Turpen -- who had only started one prior game all season -- to defeat the Owls 5-0 and set up another game with the Owls this evening to determine which team will face North Carolina in the best-of-three championship series that begins on Saturday night in Omaha.

As noted earlier here, winning the College World Series is usually all about pitching depth, and so Wednesday's loss provides a clear advantage to North Carolina in the championship series. Regardless of whether Carolina faces Rice or Oregon State, the Tarheels will have the better-rested pitching staff for the championship series. On the other hand, both Rice and Oregon State will use their aces in tonight's elimination game (television by ESPN2) -- Rice's Eddie Degerman and Oregon State's Dallas Buck -- which will effectively limit their availability in the championship series.

One concern for Rice coach Wayne Graham is that the Owls' bats have suddenly gone quiet in Omaha. One of the best hitting teams in college baseball, the Owls have now gone 14 straight innings without a run. If that trend doesn't change, the Owls will likely submit to the old baseball adage "when you don't hit, you sit."

Update: Baseball can be such a cruel game. After mashing the ball for virtually the entire season, the Owls' bats remain asleep as they lose the elimination game to OSU, 2-0.

Posted by Tom at 5:10 AM | Comments (2) | TrackBack (0)

Olis resentencing hearing finally scheduled

Red Redding, Morgan Freeman's character in The Shawshank Redemption, commented that "prison time is slow time" and that "prison life consists of routine, and then more routine." Those observations are certainly true in regard to the resentencing of Jamie Olis.

The Fifth Circuit Court of Appeals set aside Olis' original 24+ year sentence on October 31, 2005. Since that time, Olis has spent most of his time in a small prison cell in the Federal Detention Center in downtown Houston waiting to be resentenced as the prosecution engaged in a series of delaying tactics over most of the past year relating to its new expert report on the key issue in Olis' resentencing -- the alleged market loss attributable to the criminal acts for which Olis was convicted. Finally, yesterday afternoon, U.S. District Judge Sim Lake scheduled Olis' resentencing hearing for September 12, 2006, almost 11 full months after the Fifth Circuit ordered it.

Although the Olis court docket indicates that the prosecution has still not filed its new expert report on the market loss issue, my sense is that some form of it has been provided to the Olis defense team because Judge Lake ordered Olis to respond to the prosecution's report by August 18 and for the prosecution to file any reply by September 1.

Meanwhile, the sad case of Jamie Olis remains a stark reminder of the injustice that is inevitable when the state is allowed to use its overwhelming prosecutorial power to regulate corporate agency costs.

Posted by Tom at 4:19 AM | Comments (0) | TrackBack (0)

June 21, 2006

NY stabbing victim comes home

In the good news department, Houstonian Christopher McCarthy, who was repeatedly stabbed in a shockingly random assault on a New York City subway a week ago, was released yesterday from a New York City hospital and is on his way back home to Houston. The man who assaulted McCarthy and several other subway travelers over a 12-hour period was later apprehended by NYC police.

Upon leaving the hospital, the classy 21 year-old McCarthy thanked New Yorkers for their kindness to his family and him, and expressed forgiveness for the man who attacked him. Welcome home, Chris.

Posted by Tom at 6:24 AM | Comments (0) | TrackBack (0)

The city that time forgot

On the heels of articles noted in earlier posts here and here, the New York Times continues its excellent series on the enormous difficulties involved in the rebuilding of New Orleans with this article that reports on the city's strained public health system, which is attempting to cope with such things as a suicide rate that is three times higher than the pre-Hurricane Katrina rate. The article sums up the dreadful situation:

This is a city where thousands of people are living amid ruins that stretch for miles on end, where the vibrancy of life can be found only along the slivers of land next to the Mississippi. Garbage is piled up, the crime rate has soared, and as of Tuesday the National Guard and the state police were back in the city, patrolling streets that the Police Department has admitted it cannot handle on its own. The reminders of death are everywhere, and the emotional toll is now becoming clear.

Speaking of Hurricane Katrina, the Sun-Herald.com has compiled this extraordinary webpage that contains hundreds of "before and after" photographs of structures and landmarks affected by the storm. It's well worth taking a few minutes to peruse the pictures and contemplate the enormity of the destruction facing the Mississippi-Louisiana Gulf Coast region.

Posted by Tom at 6:02 AM | Comments (0) | TrackBack (0)

Rather leaves CBS; Chung leaves asylum

Former Houstonian Dan Rather's mercurial 44-year career at CBS News came to an end yesterday. The departure had been long anticipated after he stepped down as "CBS Evening News" anchor last year in the wake of a scandal over a report about President Bush's Vietnam-era military service. Rather pulled no punches in publicly stating the reason for his resignation from CBS News: "[A]fter a protracted struggle, [CBS News] had not lived up to their obligation to allow me to do substantive work there." The 74 year-old Rather is currently negotiating a deal to handle a weekly news program for Mark Cuban's HDNet cable channel.

Meanwhile, on a less significant note, Rather's former co-anchor at CBS News, Connie Chung, just had her dreadful show -- "Weekend with Connie and Maury," the MSNBC show with Chung and her husband, Maury Povich -- mercifully terminated, but not before Chung gave this "Thanks for the Memories" musical number in farewell. Suffice it to say that I hope never to be caught in a karaoke bar with Chung.

Posted by Tom at 5:10 AM | Comments (1) | TrackBack (0)

June 20, 2006

So far, so good

The Rice Owls are off to a good start in the 2006 College World Series, winning their first two games over Georgia (6-4) and yesterday over Miami (3-2). In so doing, the Owls avoided the dreaded loser bracket task of having to win three games in three straight days just to have the opportunity to play in the best-of-three championship series that begins on Saturday evening. North Carolina is the only other team in the CWS with two wins and no losses, so the Owls and Carolina are currently the favorites to proceed to the championship series.

The Owls' next game is on Wednesday at 7 p.m. (television by ESPN2) against the winner of today's Miami-Oregon State game and, if the Owls win that one, then they proceed to the first game of the championship series on Saturday evening. If the Owls lose tomorrow's game, then they play the winner of that game again on Thursday night at 7 p.m. for the right to play in the championship series. Consequently, a win in tomorrow's game would be huge for the Owls, who would then be able to preserve key pitching depth for the championship series while avoiding another pre-championship series game on Thursday. Baseball America's continually updated bracket is here and Baseball America's excellent CWS page is here, along with Aaron Fitt and Will Kimmey's blog on the CWS.

By the way, this NY Times article from over the weekend will be of interest to those who follow the Rice baseball program. The article chronicles the surgeries that each of the three top pitchers from Rice's 2003 NCAA Championship Baseball team have undergone during the initial stages of their professional careers.

Posted by Tom at 6:25 AM | Comments (1) | TrackBack (0)

The sad state of New Orleans

On the heels of this report that New Orleans has lost over 60% of its population since Hurricane Katrina last summer, this NY Times article reports that, despite billions of dollars in federal aid that is available, local New Orleans governmental officials cannot even agree on whether a government plan to faciliate the rebuilding of New Orleans is even being prepared, much less when such a plan will be issued.

Then yesterday, after a weekend of grisly violence, New Orleans Mayor C. Ray Nagin admitted that New Orleans police could not control the city's crime problems and requested that the state send National Guard troops to help patrol the streets of New Orleans.

Meanwhile, amidst such dire problems, enormous resources are being expended on the civic largesse of supporting the city's National League Football team.

What a mess.

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

More guilty pleas in gas trading-price reporting cases

Three former natural gas traders pleaded guilty yesterday in San Francisco to conspiracy to manipulate the price of natural gas in interstate commerce in connection with criminal cases that are the same as federal prosecutors have pursued in Houston against former local traders. This previous post contains information on the Houston cases.

The three former traders admitted in their plea agreements that they conspired to report fictitious trades to Inside FERC, a natural gas industry newsletter, from roughly July 1, 2000 through Nov. 1, 2000 in an attempt to manipulate the published index prices of natural gas in the direction that would benefit their companies -- Atlanta-based Mirant and Cincinnati-based Cinergy -- natural gas positions in the market at the time. All three defendants entered into cooperation agreements with the Department of Justice and face up to five years in prison.

The guilty pleas resolve three more of over a dozen cases that the Justice Department has been pursuing in San Francisco and Houston in regard to alleged manipulation of natural gas trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications such as Inside FERC use data from traders to calculate the index price of natural gas, which affects the level of profits that traders can generate. However, in each of these cases, it remains unclear in what context the allegedly false information was transmitted or whether the publication even used any false information. The government's theory of criminal liability is that it needs only to prove that fake trades were reported to the publications and not that the trades were actually published or affected the markets.

Most of the traders charged in these cases have pled guilty under cooperation agreements with the DOJ, but several others are fighting the charges and currently awaiting trial, including former Dynegy trader Michelle Valencia and former El Paso trader Greg Singleton. Jury selection in the case against Valencia and Singleton is currently scheduled to begin on July 5, 2006 at 9 a.m. in U.S. District Judge Nancy F. Atlas' court in Houston.

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June 19, 2006

Have you heard about Dwayne Wade?

Inasmuch as I'm somewhat ambivalent about the Houston Rockets, I tend not to follow the NBA Playoffs all that closely.

However, even while not following the playoffs closely, it's a bit hard not to realize that Dwayne Wade is something special.

If you haven't heard, after losing the first two games of the best-of-seven series, Wade has now led the Miami Heat to a 3-2 series lead over the Mavericks as the series shifts back to Dallas for the sixth game and, if necessary, the seventh.

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Dan Jenkins on professional golf and growing up in Texas

Although it was mildly interesting to watch Phil Mickelson, Jim Furyk and Colin Montgomerie's choking competition yesterday afternoon that handed the U.S. Open title to Geoff Ogilvy on an absurdly tricked-up Winged Foot Golf Club West Course, this Anthony Cotton/Denver Post interview of Clear Thinkers favorite Dan Jenkins is far more entertaining. Among Jenkins' gems are the following:

Q: Do you like professional golf now?

I like the majors. I don't care about the rest of it. It's boring. If you take away Tiger (Woods) and Phil (Mickelson), there's nothing. They're the only two superstars out there right now. There's no set decoration like there used to be, no 12, or 13 or 14 guys. It's just a bunch of people you don't care about. God forbid Tiger and Phil get hit by a truck, because I don't know what they'd have left. . .

Maybe it's just me, but I'm hearing [from] other people who don't care either. That's the best thing that's happened to the LPGA. Everybody likes Michelle Wie and Paula Creamer and all of them. You've got to have glamour, you've got to have excitement in any sport. This is the worst period in (men's) golf I've ever seen, in all of the thousands of years that I've been out here. [. . .]

I hate what equipment has done to the game. I'm old-fashioned. I just think style and technique should be more important than driving it 350 yards, making a putt and "See you on the next tee." That's what the tour game has become because of equipment. It makes great old courses outdated. You can't have a U.S. Open anymore without an extra course to store all the hospitality tents. I used to be able to drive up to the clubhouse and park like the players. Now, there are seven corporate hospitality guys who have my spot and I'm on a bus.

Q: You're so closely associated now with golf, but you have done a lot of the NFL and other sports.

My favorite sport, frankly, is college football. I'm a college football junkie, even though I'm associated with golf and like golf and have played it all my life. . . Golf and football are the two things I've covered all my life and the things I grew up with. If you didn't like football growing up in Texas, they just drowned you.

Read the entire interview. By the way, while on the U.S. Open, did anyone else notice that David Duval finished 11th in the tournament? Also, as you are placing Mickelson, et al's collapses yesterday in perspective, don't miss Johnny Miller's classic Golf Digest piece on choking and this play-by-play rendition of Miller's analysis of Mickelson's decision-making over the disastrous last two holes of the tournament.

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Remember the space shuttle?

Although seemingly already mothballed, NASA chief administrator Michael Griffin announced late last week that NASA will launch the space shuttle Discovery as planned on July 1. It will be only the second shuttle flight since the shuttle Columbia disintegrated over north Texas on February 1, 2003 during re-entry into the Earth's atmosphere.

As noted earlier here, Griffin proposed the shelving of the space shuttle program by 2010 even before he became NASA's chief administrator, and the latest mission will be the first of about 15 more flights between now and that projected cut-off date. The purpose of most of those missions is to continue construction and maintenance on the International Space Station and service the Hubble Space Telescope.

The Chronicle's Eric Berger -- who, by the way, is the best science blogger around -- speculates here that Griffin's patience for the space shuttle program is scant and that the upcoming Discovery mission is a "make or break" mission for the program. Consequently, if problems arise during any of the next few shuttle flights, then don't be surprised when Griffin terminates the remaining shuttle flights and moves on. As noted earlier here, it's time.

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Understanding the next business scandal

Covering local business scandals and all, there has not been much time to address certain regulators and media members' attempts to make the apparent widespread practice of backdating stock options (see this WSJ ($) chart of companies that engaged in the practice) as the next reason to bash business interests.

Inasmuch as the practice is really just another method of providing compensation to corporate executives, the issues surrounding the practice appear to be relatively straightforward -- whether the options were properly disclosed (if so, then no big deal; if not, then that's bad) and whether companies properly accounted for them. Clear thinkers favorite Stephen Bainbridge agrees while breaking down the issues pertaining to backdating options in this TCS Daily op-ed (blog post here):

It's the lack of disclosure that's the real problem with backdated options. Under tax regulations and stock exchange listing standards, shareholders generally must approve stock option plans. When soliciting shareholder approval of such plans, corporations tell the shareholders that the options issued pursuant to it will be issued with a strike price equal to the market price on the day issued. Backdating options breaks that promise and thus constitutes securities fraud. [. . .]

[But] . . . there's nothing inherently wrong with paying bonuses by even backdating an option contract, so long as proper corporate procedures were followed and the grant does not amount to a waste of corporate assets, . . .

[Thus,] the answer to backdating options is to be found in Louis Brandeis' famous aphorism that "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."

But even such a lucid analysis cannot stem the mining of claims against companies that attempted to maximize potential compensation through its option grants. As this NY Times article notes, it was standard practice during the 1990's for many tech companies -- including Microsoft -- to grant options at the time at which the company's stock price was the lowest for the year or at the lowest price in the 30 days after a new employee joined the company. In Microsoft's case, that meant granting options at the stock price's low price in July, when apparently everyone at the company was on vacation and not tending to the stock price. By the way, Microsoft disclosed and discontinued the practice in 1999 when it took a charge against earnings for the practice.

End of the story? Apparently not. Regulators and plaintiff's attorneys are already speculating that the practice created a perverse incentive for corporate executives to breach their duties to their company by allowing the company's stock price to decline during a certain time of the year when the option price was set or in the 30 days following the hire of a particularly important new executive. That dubious notion is already prompting Larry Ribstein to grab for the Advil:

This brought to mind the image of Microsoft executives mismanaging the company every July. "It's July," they must have been saying. "Time to write some bad code." I think I must have gotten some of that July software, sort of like Monday cars.

On the other hand, we've also heard a lot about executives driving the stock price up so they could cash in on their options. So maybe every July they just let the stock price do whatever it wanted to do.

On the third hand, remember that the big problem during this period was that everybody thought MS was making too much money, and getting the antitrust folks in on the act. So maybe MS was trying to get its executives to do a little worse so the company wouldn’t make so much damn money. At least in July.

On the fourth hand, given MS’s stellar stock performance during that period, giving executives the lowest July price would increase the payoffs, and therefore maybe the incentives, for exercises after price was fixed. So maybe some of that November software was enough better than the July software that it all balances out.

By now I've got a headache with these incentives.

Recoiling, Professor Ribstein zeroes in on the morality play that is really shaping up here:

But it might not be about incentives after all. It might be that it’s just not “fair” that executives get to, in a way, pick their price when the rest of us are stuck with fate. In fact, it's not fair that some people got to work for Microsoft in the 90s when the rest of us were teaching, or something.

Whatever the reasoning, I hope that our regulators understand that, although executive compensation is not perfect, regulating in response to every newsworthy imperfection is not going to make it better.

And, as if on cue, this Gretchen Morgenson/NY Times column ($) is the basis for this Professor Ribstein post explaining that, for certain media members and regulators, it's really not about the practice of backdating options at all -- it's really about the filthy amount of money that some executives make from them.

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June 18, 2006

This is a compromise on the Wright Amendment?

These previous posts have examined the hopelessly obsolescent Wright Amendment, which protects DFW Airport and its main airline -- American -- from competition that is beneficial to consumers by restricting Southwest Airlines and other discount carriers from flying passengers from Dallas' more consumer-convenient Love Field to most states. Despite the absurdly anti-competive and anti-consumer nature of the Wright Amendment, American has done a good job of lining up powerful politicians on both sides of the aisle to oppose repeal of the outmoded law. As this Ft. Worth Star-Telegram article reports, American's lobbying efforts appear to have paid off.

Rather than an outright repeal -- or at least a reasonable phase-out -- of the Wright Amendment, politicians and airline officials met Friday at DFW to talk about a "compromise" that would delay long-haul flights into Love Field for at least eight more years. This proposal flies in the face of the latest positive news from the exemption of a state from the Wright Amendment -- since Missouri was exempted from the Amendment in November and Southwest started flying directly from Love Field to St. Louis and Kansas City, airfares have decreased dramatically and passenger traffic to those cities increased by almost 45% percent in the first two months. But rather than passing along this obvious benefit to citizens wanting to travel to other locales, our politicians are talking about forcing consumers to wait until almost 2015 to enjoy this benefit of competition.

I can hardly wait to hear the rationalizations for that one. One benefit of publicity over the Wright Amendment is that it provides a clear view regarding the leadership qualities of Texas politicians. Although American has bought support of the Wright Amendment from both sides of the political aisle, it is interesting that most of the Amendment's supporters are Republicans, which is supposedly the pro-business and pro-competition party. So much for such myths.

Update: Mitch Schnurman has further analysis on the the skinny on the compromise, including Southwest's conclusion that GOP Rep. Joe Barton would have bottled up an outright repeal of the Wright Amendment.

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June 17, 2006

The Lord of Regulation flunks geography

According to this NY Times article, Eliot Spitzer needs to bone up a bit on his western New York geography.

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Skilling talks

In his first meaningful public comment since being convicted on 19 criminal charges, former Enron CEO Jeff Skilling agreed to this Wall Street Journal ($)/John Emshwiller interview in which he concedes, among other things, that his decision to testify before the SEC in the aftermath of Enron's collapse into bankruptcy provided prosecutors with the information (particularly Photofete) that they were able to use to undermine his credibility with the jury during his trial.

Inasmuch as Skilling made his decision to testify in front of the SEC and Congress against the advice of his counsel, one of the many legal ramifications of Lay-Skilling trial is that any future corporate executive confronted with a criminal investigation into his company's business will almost certainly assert the Fifth Amendment privilege in connection with any investigation and decline to provide the executive's perspective about what happened at the company. Thus, the prosecution's use of Skilling's bad memory about Photofete and his attempted Sept. 6, 2001 Enron stock sale reinforced a perverse incentive for business executives -- if an executive declines to assist in determining what really caused the business failure of the executive's company, then the chance of the executive being successful in what Larry Ribstein calls the lottery of corporate criminal trials improves. Some public policy, eh?

Meanwhile, WaPo's Carrie Johnson reports on Skilling's attempt to use a portion of the $60 million or so that the prosecution has frozen in connection with the criminal charges against him to pay his defense firm. By my estimate, the Lay-Skilling defense teams have now incurred a total of over $100 million in defending the charges against the two former executives. In the great waste of criminalizing corporate agency costs, the price of asserting innocence continues to increase.

By the way, Skilling and Lay's sentencing hearing has been postponed for six weeks to October 23.

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June 16, 2006

The exclusionary rule takes a serious hit

In one of first concrete signs of the erosion of limits on governmental misconduct toward U.S. citizens, this NY Times article reports on yesterday's controversial 5-4 U.S. Supreme Court decision in the Michigan "knock-and-announce" case, which raises troubling new issues about whether the "exclusionary rule" will survive the Roberts Court for constitutional violations by police, including Fourth Amendment violations of searching citizens' homes and seizing their property. A copy of the decision is here, and the SCOTUS blog has a good analysis of the Supreme Court's opinion here.

Make no mistake about it, the Supreme Court's decision is a full-blown attack on the traditional remedies for ensuring civil liberties in America. The decision clearly indicates that that Justice Scalia is intending a significant revision or casting aside of the exclusionary rule as a remedy for illegal governmental police conduct, perhaps best reflected by the opinion's naive trust placed in police officers to ensure Constitutional protections. Particularly troubling to me is Justice Scalia's dismissive attitude toward the "knock-and-announce" rule, not the least of which are the understandable terror and fear involved in having one's door beaten down in the middle of the night by armed and masked men, the disturbing predicament that a homeowner confronts in deciding whether the intruders are criminals or police and the fact that the high emotion of such a situation can lead police to make horrifying misinterpretations of harmless gestures, which often result in tragic consequences. Justice Scalia gallingly ignores those valid reasons for the knock-and-announce rule by contending that the reasoning behind the rule is simply "the right not to be intruded upon in one's nightclothes."

Yeah, right. Orin Kerr places the positive face on the decision here, while Cato's Mark Moller and Grits for Breakfast's Scott Henson echo my more ominous view of the decision.

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Rumblings at Dell

Things are not looking all that rosy these days at Austin-based computer powerhouse, Dell, Inc. While competitor Hewlett-Packard, Inc. is undergoing a revival of sorts, Dell's revenue growth has slowed considerably and profits have fallen. Not surprisingly, Dell's share price has steadily declined to around $25, a loss of about 40% in less than a year. Long gone are the heady days of the company's $60 share price in 2000.

Noting these problems, this NY Times article provides a good overview of Dell CEO Kevin B. Rollins' plan to reverse the downward trend at Dell. The seriousness of Dell's problems is perhaps best reflected by the fact that the company is questioning virtually everything in its business model, including the possibility of breaking its longtime exclusive alliance with major chip supplier, Intel. As the story notes, it's far from clear whether even Rollins' plan will revive Dell's dominance in the notoriously competitive PC manufacturing industry, so stay tuned.

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Checking in on the MARS platform

One of the enduring images of the catastrophic damage that last summer's hurricanes inflicted on Gulf Coast oil and gas production facilities was the picture to the left of Royal Dutch Shell PLC's MARS floating production platform (previous posts here and here), which was badly damaged by Hurricane Katrina. As this Washington Post article reports, Shell has finished repairing the huge platform, just in time for this year's hurricane season. The article goes on to provide a handy overview of the importance of the Gulf Coast oil and gas infrastructure for meeting the nation's energy needs and the efforts to bolster the ability of that infrastructure to weather the severe storms of hurricane season.

Despite the massive repairs, the main improvement in the MARS platform to protect it from another severe storm is decidedly low-tech -- stronger and twice as many clamps to hold the drilling rig to the platform. Those clamps work against vertical and horizontal forces and, during Katrina's category 4-5 winds (the storm hit shore as a strong cat 3 storm), three inch steel bolts holding the previous clamps were sheared straight through. Although the old clamps had survived many storms, Shell engineers believe that the new ones will work even better.

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The talented Mr. Graham

As noted earlier here, Houston has become the amateur baseball hotbed of America over the past decade, and no person is more responsible for that development than the coach of Rice University's fine baseball program, the remarkable Wayne Graham.

Coach Graham was already a local coaching legend in local circles when he took over the Rice program 15 years ago. Already an accomplished high school and junior college baseball coach (he developed such players as Roger Clemens and Andy Pettitte at San Jacinto Junior College amidst the petrochemical plants on Houston's southeast side), Coach Graham was 55 when he took the Rice coaching position, which was his dream job. Under Graham, Rice has won 11 conference championships in a row, gone to 12 NCAA regional tournaments and six Super Regional tournaments, and -- with this year's team -- have five appearances in the College World Series. Rice's 2003 NCAA National Championship in baseball was the school's first team national championship in any sport, an achievement made all the more incredible given Rice's high academic requirements and relatively small enrollment (less than 3,000 undergraduates).

Graham is now 70, but his real age is closer to 50 because of a rigorous workout regimen and a healthy diet. Thus, he has no intention of slowing down and, as this excellent David Barron/Houston Chronicle profile reports, don't be surprised if Graham is still coaching the Owls at the age of 80. Although Barron's profile captures the special nature of Graham well, this related Barron article passes along my favorite anecdote about Graham, which involves happy-go-lucky Stros star, Lance Berkman, who played for the notoriously no-nonsense Graham at Rice during the mid-1990's:

Berkman, meanwhile, is to Graham what Yogi Berra was to [legendary New York Yankees manager Casey Stengel] — certainly one of his best players, clearly one of his favorites (a picture of Graham, [Rice Athletic Director Bobby] May and Berkman dominates one wall of Graham's office at Reckling Park) and undoubtedly his most reliable source of unintended mirth.

Take, for example, the time against TCU when Berkman tried to track down a ball that came to rest inside a plastic bag in a pile of debris in the left-field corner.

Berkman managed to shake the ball out of the bag, but as he tried to relay the ball back into the infield, the wind blew the bag into the path of Berkman's throw. The ball made it about 10 feet, and the TCU batter had an inside the park homer.

"He (Graham) jumped out of the dugout and ran down the left-field line and told me I was the worst outfielder he's ever seen and turned around and ran back to the dugout as I'm trying to extract myself from a chain link fence that I had slid into trying to make the play," Berkman said. "But he never said another word about it."

"I still can't believe it," Graham said, shaking his head at the memory. "How does something like that happen?"

Read both of Barron's fine pieces about Graham, another of the many remarkable people who make Houston such a fascinating place to live.

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June 15, 2006

Has that been proof read?

I've been meaning to pass along the Securities and Exchange Commission's slick new full text search engine for regulatory filings. It's a very helpful resource.

On the other hand, as Paul Kedrosky notes, one of the unintended consequences of the new search engine is that management of publicly-owned companies may want to consider upgrading the proof-reading department.

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Prepping for the U.S. Open

The 2006 U.S. Open Golf Tournament begins today at New York's venerable Winged Foot Golf Club, so the following will provide you with some interesting reading while you enjoy this year's edition of golf's most challenging tournament:

This NY Times article describes how Phil Mickelson's recent success in major golf tournaments is largely the result of his team of advisors refining Mickelson's preparation for major golf tournaments;

A family of golf pros with strong connections to both Winged Foot and Houston provide helpful hints on surviving Winged Foot;

Nike is going to try and make us cry on Father's Day, which Jim Corrigan finds appalling;

Speaking of Tiger Woods, this NY Post article reports on Tiger's yacht, which he is using this week in lieu of a hotel while playing at Winged Foot, and includes Tiger's morning greeting to the gawking reporters ("It's a little early to be taking pictures out there, isn't it? Have a nice f- - -ing day.");

By the way, PGATOUR.com writers Joe Wojciechowski, Dave Shedloski and Brett Avery are following Tiger during his U.S. Open rounds and blogging about it here;

The Guardian's Lawrence Donegan reviews the brutal conditions at Winged Foot and includes this quote from Mickelson:

Phil Mickelson went as far to suggest the course was "on steroids". "I'm going to make a prediction," he added. "Someone will hit the wrong ball out of the rough this week. There are not hundreds of members' balls out there, but thousands, and you just can't see them even when you are standing over them. It is thicker and denser than any rough I have ever seen."

John Hawkins reports that some of the pros are not thrilled with the condition of Winged Foot's greens;

And, although not U.S. Open-related, don't miss this video of Fuzzy Zoeller's incredible hole-in-one a couple of weeks ago during a Champions Tour event in Des Moines.

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The art of free throw shooting

Almost lost amidst Dwayne Wade's heroics during the final six minutes of Miami's nailbiting win over Dallas in the third game of the NBA Finals the other night was Miami center Shaquille O'Neal's making two free throws down the stretch to help his team's comeback. For the free-throw challenged O'Neal, those free throws were nothing short of remarkable -- to that point in the series, he had made only four of 20 free throws.

Of course, poor free-throw shooting is nothing new for O'Neal. Although he is one of five best centers ever to play professional basketball (Russell, Chamberlain, Abdul-Jabbar, and Olajuwon are the other four), O'Neal would inarguably be the best of the bunch if he could shoot free throws close to as well as Abdul-Jabbar and Olajuwon did. Only Chamberlain among the greatest centers has a worse free throw shooting percentage than Shaq, and O'Neal (52.8%) may even go below Chamberlain's desultory 51.1% career free-throw shooting percentage before his career is over.

The art of free-throw shooting has always interested me, and I could probably go out and hit six or seven out of ten free throws today even though I have not shot one in several years. So, when I came across this latest article about the Miami coaching staff's attempts to help O'Neal with his free-throw shooting, it reminded me of a conversation that I had years ago about free-throw shooting early one morning on the driving range of Sweetwater Country Club in Sugar Land. The only other person on the range that morning happened to be a very good free-throw shooter, former Houston Rockets guard, Mike Newlin (87% career percentage).

Newlin had a solid 11-year NBA career, mostly with the Rockets and then with the Nets and Knicks for his last three seasons. He had impeccable fundamentals as a basketball player, and his free throw shooting style was close to perfect. At the time we found ourselves on the same driving range, I had never met Newlin, but I felt a connection to him because we had both come to Houston in 1972, my late father and I had watched him play many games in the early years of the Rockets in Houston and we had a number of mutual friends in the business community. So, before leaving the range to find my golfing partners and head for the first tee, I approached Newlin and introduced myself. He was extremely cordial and we spent several minutes chatting about our mutual friends and the early years of the Rockets in Houston.

During our chat, I observed to Newlin that he exhibited the best fundamentals in shooting free throws of any player that I had ever seen. Newlin, who is quite bright, had obviously had similar thoughts, but did not agree with me:

"Nope. I had the second-best fundamentals," he replied.

"Who had the best?" I inquired.

"Rick Barry."

Perhaps Shaq should listen.

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June 14, 2006

Best house deals are in Aggieland

This James Hagarty/Wall Street Journal ($) article reports on a recent analysis that ranks the Bryan-College Station area -- home of Texas A&M University -- as the most "undervalued" housing market in the country during this year's first quarter. In fact, eight out of the ten most undervalued markets are in Texas (Dallas and Ft. Worth are second and third, and Houston is fourth). Although such studies are usually accompanied by some hand-wringing from those who are concerned about the value of their home, the reality is that the availability of relatively cheap housing is one of the main drivers of Texas' economic growth over the past generation. Here's hoping that it continues.

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Hey FEMA, can you spare a dime?

So, you thought that the Federal Emergency Management Agency's response to the damage from Hurricane Katrina last year left much to be desired? Well, this NY Times article reports that a recent Congressional investigation has determined that the agency's relief effort was stellar in comparison to its fraud management policies:

As much as $1.4 billion in government disaster aid to victims of Hurricanes Katrina and Rita — nearly a quarter of the total — went to bogus or undeserving victims, a new Congressional investigation concludes. [. . .]

The improper or fraudulent payments went to a dizzying array of con artists or other undeserving recipients, according to the analysis by the Government Accountability Office, which is set to announce its findings at a hearing Wednesday.

In one case, a man stayed more than two months on the government tab at a hotel in Hawaii that cost more than $100 a night. At the same time, he was getting $2,358 in government rent assistance, even though he had not been living in the property he claimed was damaged in the storm.

Emergency aid was used to pay for football tickets, the bill at a Hooters in San Antonio, a $200 bottle of Dom Perignon, "Girls Gone Wild" videos, even an all-inclusive weeklong Caribbean vacation, the report says. More than $5 million went to people who had provided cemeteries or post office boxes as the addresses of their damaged property.

FEMA also provided cash or housing assistance to more than 1,000 prison inmates, totaling millions of dollars; one inmate used a post office box to collect $20,000. . .

In another case, 24 payments, totaling $109,708, were sent to a single apartment, where eight people each submitted requests for aid eight times, each time using their own Social Security numbers.

Another person collected 26 payments using 13 different Social Security numbers — a total of $139,000 — even though public records show the individual did not live at any of the addresses reported as damaged. [. . .]

Investigators concluded that fraudulent or improper payments probably ranged from $400 million to $1.4 billion, leading them to settle on $1 billion as their most likely estimate, representing about 16 percent of the distributed aid. [. . .]

Representative Michael McCaul (Rep. Tex.), who is chairman of the House subcommittee that led the inquiry, is not pleased:

"When you have federal and state prisoners applying for the taxpayers' money — while they are in prison — and then the disaster aid, that is a real assault on the American taxpayer," he said. "I don't have any tolerance for that."

Posted by Tom at 5:32 AM | Comments (2) | TrackBack (0)

A NYC subway attack injures a young Houstonian

This NY Times article reports on the random stabbing attack of 21-year old Houstonian, Christopher McCarthy, on a New York City subway at 110th Street and Central Park West yesterday afternoon. McCarthy, who was on a two-week vacation in New York City with his girlfriend, is in critical condition after undergoing surgery for multiple stab wounds to his chest. The attacker walked away after stabbing McCarthy and has not been apprehended.

Although always unsettling, subway violence in New York City is actually far less frequent now than in earlier eras. When Utah tennis pro Brian Watkins was murdered 16 years ago by a gang that attacked Watkins and his family on a NYC subway as they were on their way to dinner, Watkins was one of more than 2,000 people murdered in New York City that year. Last year, less than 600 murders occurred in New York City, the fewest in over 40 years.

Update: Looks as if NYPD has caught the likely attacker.

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June 13, 2006

Melvin and Howard redux

For anyone interested in Houston lore, a subscription to the Wall Street Journal is a must today as WSJ reporter Jonathan Karp weighs in with this front page article on the latest lawsuit of Melvin Dummar, the former Utah milkman who unsuccessfully claimed during a highly-publicized trial in 1978 that a handwritten "Morman Will" from reclusive billionaire and former Houstonian Howard Hughes entitled Dummar to over $150 million from the Hughes estate (Hughes died while flying to Houston in 1976 for medical treatment). Dummar claimed that the handwritten will was a reward for saving Hughes' life after Dummar found him lying alone one night on a desolate Nevada desert roadside about 150 miles north of Las Vegas. Dummar's story about the Mormon Will is the basis of the clever 1980 movie, Melvin and Howard.

Amidst that rich backdrop, Karp reports that Dummar is again after a chunk of the Hughes estate, albeit indirectly through two beneficiaries of the Hughes estate, Houstonians William Lummis and Frank Gay. Dummar's new lawsuit alleges that Lummis, a Hughes cousin and the main family heir, and Gay, a former Hughes executive, conspired to withhold information from the court in the 1978 trial in order to discredit the validity of the Morman Will. The 77-year old Lummis currently serves as a trustee for the nonprofit Howard Hughes Medical Institute and the 85-year old Gay was also a member of medical institute's board of trustees until recently.

Dummar's latest lawsuit is based largely on the testimony of a former Hughes pilot, who allegedly corroborates Dummar's allegation that Hughes had left Las Vegas to visit a brothel -- appropriately named the "Cottontail Ranch" -- near the spot where Dummar allegedly found Hughes in the Nevada desert. According to the pilot, the purpose of Hughes' visit to the brothel was to renew a regular tryst with "Sunny, a redhead who had a diamond in an upper incisor. 'You couldn't see it unless she smiled broadly,' [the pilot] recalls. 'She was the class of the field.'"

Read the entire article. New movie to follow.

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Owls are on their way to Omaha

For the fifth time in the past decade, the Rice Owls baseball team will play in the College World Series in Omaha, which begins this weekend. The Owls qualified for this year's CWS with a heart-thumping 9-5 victory over the Oklahoma Sooners in the rubber game of their three-game Super Regional series on Monday afternoon at Rice's Reckling Park. The Owls return to the CWS tournament in Omaha for the first time since 2003, when Rice won the tournament and was crowned national champion. The Owls first game in the CWS tournament this year is against Georgia on Saturday.

This year's trip to the CWS for the Owls is of particular interest to me because, several years ago while coaching youth baseball here in The Woodlands, I had the privilege of coaching Owls OF Jordan Dodson and Owls catcher Danny Lehmann, both of whom went on to become star players in the excellent high school baseball program at The Woodlands High School before enrolling at Rice. Somehow, these two fine young men were able to overcome my coaching to develop into excellent ballplayers. I'm thrilled for them and the entire Rice squad. Go Owls!

Posted by Tom at 5:30 AM | Comments (1) | TrackBack (0)

Rumblings from the jury room of the first Enron Broadband retrial

As noted in this earlier post, U.S. District Judge Vanessa Gilmore's decision to conduct the re-trial of former Enron Broadband executives Kevin Howard and Michael Krautz during the latter stages of the media-saturated Lay-Skilling trial was highly prejudicial to Howard and Krautz. As it turned out, the juries in both cases deliberated at the same time, and the Howard-Krautz jury was deliberating amidst the media firestorm on the Thursday before Memorial Day weekend when the Lay-Skilling verdict was announced. The following Tuesday, the Howard-Krautz jury returned a verdict convicting Howard and acquitting Krautz. Previous posts on this case are here, including this recent one on the closing arguments of the trial.

The dubious nature of the decision to conduct the Howard-Krautz trial during the Lay-Skilling trial is now becoming readily apparent. This John Roper-Purva Patel/Houston Chronicle article reports that Howard's defense team has filed a motion for a new trial that contains statements from two jurors and two alternate jurors in the Howard-Krautz trial alleging that the Howard-Krautz jury deliberations were seriously compromised and that certain jurors promoted a vindictive environment in the jury room "to fry" top Enron executives, including Howard. It does not appear that the Chronicle reporters had a copy of the motion when they prepared their article, so here is a download site for the motion and juror affidavits, which are bookmarked in Adobe Acrobat to facilitate ease of review. Among other things, the motion and affidavits confirm the following troubling allegations:

Jurors holding out for acquittal for Howard were threatened with physical harm from jurors pushing for conviction;

Contrary to Judge Gilmore's instructions, certain jurors regularly discussed the case between themselves during the trial and, after deliberations began, discussions among certain jurors took place outside the jury room;

One male juror asserted that he was an expert on Enron because he had read one of the books on the Enron scandal, and used information from the book in persuading jurors to convict Howard;

The jury in the Howard-Krautz trial deliberated in a room literally next door to the room used by the Lay-Skilling. When the Lay-Skilling jury agreed on a verdict, the loud applause and cheering from the Lay-Skilling jury room was readily apparent in the Howard-Krautz jury room; and

Without advising attorneys involved in the case, Judge Gilmore met with and answered questions from the jurors at least twice during deliberations, including immediately after the Lay-Skilling verdict was announced. According to the jurors quoted in Howard's motion, Judge Gilmore told the jurors after the Lay-Skilling verdict that they had to reach a unanmious verdict, leaving the holdout jurors with the impression that a hung jury was not an option. Moreover, one juror also advised the rest of the jurors that the hung jury in the previous Enron Broadband trial (a fact that was not brought up during the retrial) was a failure that would be emulated by jurors in the retrial if they also could not reach a verdict.

Although the allegations regarding Judge Gilmore's ex parte communications with the jury will likely put her on the defensive and prone to deny Howard's request for a new trial, the motion indicates that the Howard-Krautz trial probably should not have been conducted in Houston and, at very least, should never have been allowed to proceed during the Lay-Skilling trial. The Fifth Circuit -- which already has some issues with Judge Gilmore -- is likely to take Howard's appeal on these issues very seriously.

Posted by Tom at 4:33 AM | Comments (1) | TrackBack (0)

June 12, 2006

Stros 2006 Review, Part Four

Although the fourth of the Stros' ten segments of the 2006 season (prior 1/10th of a season posts are here) was not the most successful -- the Stros had to win five of their last six to finish 7-9 for the 16-game segment and 32-32 on the season to date -- it was certainly lively in other areas:

The Rocket returned to the club and even acquired a new nickname;

The Stros' best pitcher -- Roy O -- went on the 15-day disabled list after aggravating his back by attempting to pitch through a hamstring injury;

Stros manager Phil Garner looked as if he was gripping midway through the fourth segment of the season, but seemed to rebound in his decision-making recently; and

The Jason Grimsley Affair threatened to blow the lid off of Major League Baseball's performance-enhancing drug scandal.

Whew! Meanwhile, the 2006 edition of the Stros continued to exhibit traits of a .500 club after 40% of the season, but -- as with last season's club at this point in the season -- the Stros are showing signs that they could still make a playoff run.

It's interesting to compare last season's club at the same stage of the season with this one. At this point in the 2005 season, the Stros were nine games under .500 at 25-36 and had the worst hitting team in Major League Baseball by far. However, the club was beginning to win consistently despite the horrendous hitting behind a pitching staff that was well on its way to having the best performances by three starting pitchers on one team (Clemens, Pettitte and Oswalt) in the past 50 years of Major League Baseball. Over the balance of the season, the hitting improved enough (primarily due to Berkman returning from injury and Lane having a solid second half of the season) so that the outstanding pitching staff carried the club into the post-season and ultimately the World Series.

This season, despite their chronic hitting woes, the Stros are actually hitting much better than last season's club. The Stros have generated only six fewer runs to this point in season than an average National League club would have produced using the same number of outs (in other words, a -2 RCAA, explained here) compared to a -73 RCAA for last season's Stros at the same point in their season. Thus, while the 2005 club was the worst hitting team in the National League on this date last year, this season's club is smack dab in the middle of the 16 National League clubs.

On the other hand, this season's pitching staff as a group has not performed nearly as well to date as last season's staff -- the Stros' pitching staff currently ranks 14th in the National League in runs saved against average (RSAA, explained here). Consequently, the 2006 club's better hitting has allowed the team to post a much better record at this point in the season than last season's club, but the club's hitting is still not good enough to overcome the club's relatively mediocre pitching to generate the type of finishing kick that the 2005 club's pitching allowed that club to enjoy. Thus, as noted earlier here, the return of Clemens is likely to help, but the Rocket alone will not be enough for this club to turn it around and become a bonafide playoff contender. Some other things need to occur for that happen.

The club's hitting and pitching statistics to date are set forth below, and pdf's of the current hitting stats are here and the current pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia:

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

The club's hitting remains slightly below-National League average overall. 1B Berkman (19 RCAA/.388 OBA/.615 SLG/.1.003 OPS) and 3B Ensberg (16/.380/.562/.941) remain in the top dozen hitters in the National League this season and, absent injury, are on their way to All-Star seasons. 2B Bidg (1/354/.467/.821) continues to click along productively, while Mike Lamb (8/.402/.545/.947) and Chris Burke (2/.343/.424/.767) have made consistent contributions whenever they have played regularly.

The main problem for the Stros hitting-wise has been in the outfield, where only RF Lane (-3/.341/.403/.745) has come close to being even a National League-average hitter, while CF Taveras (-13/.320/.313/.633) and unintended LF singles-hitter Preston Wilson (-8/.310/.397/.707) are big drags on the lineup. Inasmuch as light-hitting SS Everett (-14/.272/.298/.570) is considered the best defensive player on the club, and over-performing but traditionally weak-hitting C Ausmus (-3/.369/.371/.741) is also considered by the Stros brass as a key defensive player, the Stros should limit Taveras and Wilson's play in favor of the more-productive Lamb, Burke and Bruntlett (0/.392/.388/.780) over the balance of the season. Everett and Taveras -- who are among the ten worst-hitting regular players in the National League -- should, absent injury to more productive players, never be in the starting lineup together.

Meanwhile, even though the pitching staff's overall performance to date has been lackluster, there are signs of hope. Despite his recent stint on the disabled list, Roy O (3.11 ERA/12 RSAA) remains one of the best starters in the National League and rookie Nieve (4.85 ERA/-3 RSAA) is beginning to show signs of becoming a reasonably consistent starter. Rodriguez (4.48 ERA/-1 RSAA) somehow continues to muddle along reasonably well despite an atrocious walk rate, and star relievers Lidge (4.85 ERA/-1 RSAA), Wheeler (4.73 ERA/-1 RSAA) and Qualls (3.79 ERS/2 RSAA) recently appear to be finding their rhythm after a spotty first third of the season.

However, problems still exist as veteran starter Pettitte (5.81 ERA/-13 RSAA) and rookie starter Buchholz (6.06 ERA/ -13 RSAA) are two of the worst ten pitchers in the National League this season in terms of RSAA (both have given up a horrendous 14 yaks to date), and it's never a comforting feeling when your only lefty out of the bullpen is Trevor Miller (4.86 ERA/-1 RSAA).

So, what's the most likely prescription for the Stros to end up in the playoff hunt this season? It's probably unrealistic to expect any meaningful increase in offensive production, but it's essential that the club at least maintain the current hitting level by playing combinations of Lane, Lamb and Burke in the outfield over Taveras and Wilson and spotting Bruntlett and Munson (-1/.315/.431/.746) for Everett and Ausmus. The bigger improvement should occur in pitching where the replacement of Buckholz with Clemens clearly elevates the starting rotation, while past performance indicates that Pettitte will not remain as bad as he has been to date this season. With Lidge, Wheeler and Qualls appearing to stabilize to their more typical productive performance levels, the improvement in the staff from Clemens and an improved-Pettitte should generate an above-average National League pitching staff to combine with an average or slightly below-average hitting attack. That should be good enough for the Stros to stay in the playoff race and -- inasmuch as the Cardinals (37-25) have injury problems with several of their key players -- a substantial improvement in the Stros' performance levels could even propel the club into the NL Central Division title race, although one or two key mid-season player acquisitions would probably be necessary to elevate the Stros to that level of contention.

The next 16-game segment of the season starts off reasonably well with a series at Wrigley against the Cubs (26-26) and then back home to Minute Maid at the end of this week for six games against the Royals (16-45) and the Twins (28-34). But the segment ends with a brutal three-city roadie against the rugged White Sox (38-24), Tigers (40-23) and Rangers (34-29), so another near .500-type record for the next tenth of the season would not be all that bad. However, the Stros finish the pre-All-Star Game break part of the season with seven games at home against the Cubs and Cardinals in early July, so that string of games could well determine whether this Stros club is a contender or a pretender in the competition for a playoff spot during the second half of the season.

Posted by Tom at 12:23 PM | Comments (0) | TrackBack (0)

The pressured ex-wife in the Milberg Weiss affair

This Justin Scheck/The Recorder article reports on the latest development in the criminal investigation into Milberg Weiss Bershad & Schulman -- the apparent willingness of the former wife of one of Milberg Weiss' favorite expert witnesses to testify that the firm -- and perhaps even name partners Melvyn Weiss and William Lerach -- improperly used money it recovered in class action securities fraud lawsuits to supplement her ex-husband's compensation for his work in prior cases.

The expert involved is John B. Torkelsen, a former financial analyst from Princeton, N.J., who made millions from this testimony in numerous cases as an expert on shareholder damages in Milberg Weiss class actions during the 1980s and 1990s. Torkelsen's ex-wife, Pamela, reportedly agreed to provide evidence against Milberg Weiss and former husband after she pled guilty last year in a Washington federal court to assisting in the theft of $1.9 million from a venture-capital partnership. The speculation is that Mrs. Torkelsen is a possible link to Weiss and Lerach because Mr. Torkelsen was an expert witness in a number of cases personally handled by Weiss and Lerach. Mrs. Torkelsen's sentencing in the Acorn matter has apparently been delayed for more than a year because of her cooperation in the Milberg Weiss investigation.

Meanwhile, it's getting a bit difficult to find a judge for the Milberg Weiss criminal case -- this New York Sun article reports that the fifth judge has recused himself from handling the case, while this NY Times article reports that Congressional Democrats are getting in gear to defend Weiss, who is a prominent Democratic Party fundraiser.

Posted by Tom at 5:27 AM | Comments (0) | TrackBack (0)

The mercurial Mr. Bailey

After Florida and Massachusetts disbarred well-known criminal defense lawyer F. Lee Bailey, a three judge panel of the federal district court in Massachusetts was presented with the issue of whether the court should discipline Bailey on a reciprocal basis. The panel did so, and Bailey appealed to the First Circuit Court of Appeals, which issued this interesting opinion that sets out the facts of the case that got Bailey in trouble, but then concludes that those facts are irrelevant because of the principle of reciprocal discipline.

Key tip of the opinion -- when reaching deals with prosecutors on behalf of clients, get them in writing.

Posted by Tom at 5:06 AM | Comments (0) | TrackBack (0)

June 11, 2006

Sports notes for the weekend

It's certainly been a busy weekend in the sports world, and a good bit of the action involves Houston-area teams.

First, Houston reinforced its status as the youth baseball hotbed of America this weekend as The Woodlands High School baseball team won the Texas 5A Baseball Championship over fellow Houston-area championship game participant, the Katy Tigers. The 38-1 Highlanders will conclude the season as the no. 1-rated high school team in the U.S. by Baseball America, a position that the team has maintained for most of the season. The Highlanders best player -- pitcher and shortstop Kyle Drabek -- was the Philadelphia Phillies first-round draft pick earlier this week in the Major League Baseball Draft of high school and college players.

Meanwhile, Houston's other no. 1-ranked baseball team -- the Rice Owls -- are just a win away from the College World Series after rolling over the Oklahoma Sooners in the first game of their best-of-three NCAA Super-Regional series at Rice's Reckling Park. The second game in the series takes place today at noon at Reckling.

Another remarkable performance radiated somewhat beneath the radar screen on a sports scene pre-occupied with baseball, NBA and Stanley Cup playoffs, French Open tennis, and the upcoming U.S. Open golf tournament. Xavier Carter -- a 6' 3", 190 lbs. sophomore sprinter for LSU who also plays wide receiver for the Tigers' football team -- put on the greatest performance in the history of college track and field on Saturday since the legendary Jesse Owens back in the mid-1930's. Carter became the first sprinter to win the 100 and 400 meters at the NCAA track and field championships Saturday, and then punctuated that incredible performance by anchoring LSU's winning 1,600-meter relay team. Combined with his anchor on LSU's winning 400 relay team the previous night, Carter shared in four NCAA event titles, the first person to do so since Owens won both short sprints, the 220-yard low hurdles and long jump for Ohio State in 1935 and '36. Carter won the 100-meter race in a school-record 10.09 seconds and then followed that performance with a 44.53 in the 400 only 30 minutes later. In so doing, Carter scored an incredible 40 of his team's 51 points in LSU's second-place finish (behind first place Florida State) in the NCAA Track and Field Championships.

In the more sanguine world of golf, Jim Furyk went on the disabled list this week by injuring himself gargling, while this Bob Verdi/Golf Digest interview examines David Duval's travails in attempting to regain Duval's stature as one of the PGA Tour's top players. Also, in the wish-I-had-time-to-do-that-department, don't miss this Wall Street Journal ($) article on the emerging number of senior amateur players who slide into retirement by playing in dozens of amateur tournaments around the country. One of the featured players in the article is Houstonian Mike Rice, who is the reigning US Senior Amateur champion.

Finally, speaking of the NBA Championship Series, although the focus is usually on the star players such as Shaq, Nowitzki, and Wade, David J. Berri -- the Cal State-Bakersfield economist who is a co-author of The Wages of Wins: Taking Measure of the Many Myths in Modern Sports -- notes in this NY Times article that it is actually the lesser-recognized players who often make the difference in the series.

Posted by Tom at 6:31 AM | Comments (0) | TrackBack (0)

June 10, 2006

The English and Germans are getting warmed up

As predicted in this earlier post, it didn't take long for English and German soccer fans to begin bashing each other amidst the World Cup matches. And this was before England's 1-0 victory over Paraguay today. By the way, the Chronicle's John Lopez is filing a series of interesting reports from the World Cup matches.

Posted by Tom at 10:18 AM | Comments (0) | TrackBack (0)

A possible big bank deal in the Valley

This Reuters article reports this morning that Madrid-based Banco Bilbao Vizcaya Argentaria SA ("BBVA") is considering an acquisition of McAllen, Texas-based Texas Regional Bancshares Inc., a holding company with with a market capitalization of $1.87 billion that is in the retail banking business under the name of Texas State Bank.

BBVA is Spain's second-largest bank that has traditionally focused on the remittance market in the U.S. where it facilitates the transfer of funds by immigrants to their home countries. Lately, BBVA has been expanding its U.S.-Mexican business operations -- its Bancomer unit is already Mexico's largest bank and it recently purchased Laredo National Bancshares for $850 million, so the possible acquisition of Texas State Bank's owner would constitute a further expansion of BBVA's U.S. business operations. BBVA is a big outfit, with a market cap of over $66 billion, net income of over $3.8 billion last year and over 90,000 people employees worldwide.

Texas Regional Bancshares is a regional bank located in Texas' Rio Grande Valley (wonderfully depicted in the movies Lonesome Dove and Lone Star) that has about 75 branches and $6.5 billion in assets based primarily in south Texas. In 2002, Texas Regional commenced an expansion plan in which it has bought small banks in the Houston, Corpus Christi and Dallas areas, which likely makes the bank even more attractive to BBVA. With the large immigrant populations in both Houston and Corpus, BBVA could use the Texas State Banks as the foundation of a substantial increase in its remittance business in Texas while also expanding its traditional banking operations in the state.

Posted by Tom at 6:48 AM | Comments (0) | TrackBack (0)

June 9, 2006

Ripples from the Grimsley Affair

Get used to it because the ripples from the Jason Grimsley Affair are already starting and may turn into pretty tasty waves soon.

It looks as if Grimsely has fingered Chris Mihlfeld, a Kansas City-based “strength and conditioning guru” (and the former Strength And Conditioning Coordinator for the Kansas City Royals baseball club) as referring Grimsley to a source from whom Grimsley obtained "amphetamines, anabolic steroids and human growth hormone." Mihlfeld has been Cardinals star Albert Pujols’ personal trainer since before Pujols was drafted by the Cardinals in the 13th round of the 1999 draft.

Meanwhile, as speculated in this previous post from over a year ago, this NY Times article reports that the perjury investigation into Barry Bonds is continuing to fester.

This is going to get very ugly. Quickly.

Update: Mihlfeld is denying that his name is connected to the drug probe that has ensnared Grimsley or that Pujols was involved in taking performance-enhancing drugs.

Posted by Tom at 9:04 AM | Comments (1) | TrackBack (0)

Ford and that pesky "B" word

Although somewhat lower on the radar screen than General Motors' more well-publicized troubles, Ford Motor Co. is reeling today after Fitch Ratings downgraded the company's credit rating (see also here) two notches to the highly-speculative single-B-plus level while analyzing how creditors might fare in a corporate reorganization of Ford under chapter 11. Despite the downgrade, Ford's rating is still higher than GM's credit rating, which is B3 by Moody's Investors Service and single-B by Standard & Poor's and Fitch.

Inasmuch as Ford (as with GM) continues to have a strong liquidity position (about $24 billion in cash and securities as of the end of the first quarter), a bankruptcy filing is probably not imminent even though Ford estimates that it will burn through about $5-6 billion of that cash in 2006. At the close of yesterday's New York Stock Exchange composite trading, Ford shares were down 2% to $6.66 while on the debt side, Ford's 7.45% bonds due in 2031 fell 3.5% to about 70 cents on the dollar, which translates into a yield of 11% that is slightly below the yield on GM's 8.375% bonds that mature in 2033.

In its analysis, Fitch reminds investors that companies with a single-B-plus rating end up in bankruptcy about 24% of the time within five years. In a hypothetical Ford bankruptcy case, Fitch estimated debt holders would get back 50% to 70% of their investment from Ford and 70% to 90% of their investment in Ford Credit Company.

Posted by Tom at 6:11 AM | Comments (0) | TrackBack (0)

Disney-Ovitz decision upheld

Professor Ribstein -- who was prescient in predicting the outcome of the corporate case of the decade -- can rest easy.

In a ruling issued yesterday afternoon, the Delaware Supreme Court upheld the Delaware Chancellory Court's decision dismissing the civil lawsuit brought by certain Disney shareholders against the board of Walt Disney Co. for approving the rather generous $140 million severance package paid to former Disney executive Michael Ovitz after Ovitz was effectively fired by his longtime friend and former Disney CEO Michael Eisner for essentially doing nothing during Ovitz's year as president Disney. A copy of the decision is here, and here are initial comments from corporate law scholars Professor Ribstein, Professor Bainbridge and Professor Smith.

Steven Schulman, the former Milberg Weiss partner who has bigger problems now than the loss in the Disney-Ovitz case, pursued the case on behalf of certain Disney shareholders and contended that the Disney board's decision-making process amounted to a series of sham "jam sessions" in which the board abrogated its responsibilities to Disney shareholders by rubberstamping the Eisner-supported severance deal for Ovitz. However, the Delaware Supreme Court upheld the Chancellory Court's decision that was critical of the Disney board, but concluded that Eisner and the other Disney directors acted in good faith in approving Ovitz's termination without cause and thus, were immunized from liability to shareholders regardless of whether approving the generous severance may have been a bad decision.

Posted by Tom at 5:24 AM | Comments (0) | TrackBack (0)

Scheduling conference today in the sad case of Jamie Olis

On the heels of the Fifth Circuit ordering the release from prison yesterday of two other business executives who have been subjected to the Justice Department's demonization of business in the post-Enron era, U.S. District Judge Sim Lake will conduct a scheduling conference this afternoon in Houston in the sad case of Jamie Olis in an effort to kick-start the resentencing of Olis that the Fifth Circuit ordered seven months ago after throwing out Judge Lake's original 24-year sentence of Olis.

Judge Lake, who has been preoccupied with a rather long trial in another case over the past several months, is not the type of judge to allow pending matters to linger on his docket, so expect him to use today's hearing to schedule a final resentencing hearing in the near future. The key issue in the resentencing is the amount of market loss attributable to the transaction on which Olis' conviction is based, and the prosecution has been dragging its feet since the resentencing was ordered in an apparent effort to buttress its untenable market loss theory upon which Judge Lake based the original sentence of Olis. Judge Lake has not yet tipped his hand on how he intends to view the market loss issue on the resentencing of Olis, so today's hearing may provide a forum for the judge to give the parties some direction for preparing the evidence on that key issue for the final resentencing hearing.

Posted by Tom at 4:33 AM | Comments (2) | TrackBack (0)

June 8, 2006

Fifth Circuit orders the release of Bayly and Furst in the Nigerian Barge case

As this earlier post anticipated, the Fifth Circuit Court of Appeals this morning ordered the release of former Merrill Lynch executives Daniel Bayly and Robert Furst pending disposition of the appeal of their controversial convictions in the Enron-related Nigerian Barge case. Another former Merrill executive convicted in the case -- William Fuhs -- was previously ordered released from prison by the Fifth Circuit on March 30. The fourth Merrill executive convicted in the barge case -- James Brown -- had his renewed motion for release pending appeal curiously denied summarily by the Fifth Circuit. Daniel Boyle, Enron's former vice president of global finance, was also convicted in the case and is serving a 46 month sentence, which he is not appealing. Former Enron in-house accountant, Sheila Kahanek, was the only defendant acquitted in the trial of the case.

As noted in these earlier posts, the plight of Bayly and Furst 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. Kudos to the Fifth Circuit for beginning to correct this monstrous wrong.

Bayly is represented on his appeal by a team of lawyers, including his lead trial counsel, Tom Hagemann and Marla Thompson Poirot of Gardere Wynne and Sewell in Houston, appellate specialists Lawrence S. Robbins, Gregory L. Poe and Alice W. Yao of Robbins, Russell, Englert, Orseck & Untereiner LLP in Washington, D.C., and Richard J. Schaeffer, Peter J. Venaglia, and Brian Rafferty of Dornbush Schaeffer Strongin & Weinstein, LLP in New York City. Furst is represented on appeal by John W. Nields, Jr. William L. Webber, Kyle S. Cohen and Sowmia Nair of Howrey, LLP's Washington, D.C. office.

Posted by Tom at 10:28 AM | Comments (0) | TrackBack (1)

The patriarch of Houston's First Family of Golf

In preparation for the next weekend's U.S. Open at venerable Winged Foot Golf Club in New York, Golf Digest's Bill Fields weighs in with this entertaining article on former Winged Foot head pro and former Houstonian, the late Claude Harmon (pictured on the left with his old friend, Ben Hogan). Claude -- who was a formidable PGA Tour player and teaching professional during his life -- was the father of the famous quartet of Harmon brother teaching professionals, Butch, Craig, Dick (see here also) and Billy. In addition to Claude, both Butch and the late Dick Harmon lived in Houston for a substantial part of their lives, and each of the Harmon brothers has been regularly rated among the best golf instructors in the U.S.

For the final decade of his life, Claude was the pro emeritus at Houston's Lochinvar Golf Club, where Claude's green jacket from winning the 1948 Master's Golf Tournament is still displayed prominently in the clubhouse's trophy case. As noted in Fields' article, Claude was an extraordinary golf talent who regularly beat Hogan in their daily games during the winter months in Florida and who tied for 3rd in the 1959 U.S. Open at Winged Foot, the best finish by a club pro in the U.S. Open other than Horace Rawlins' victory in the first U.S. Open in 1895.

Posted by Tom at 7:26 AM | Comments (0) | TrackBack (0)

Carlene R. Lewis, R.I.P.

Well-known Houston plaintiff's attorney, Carlene Rhodes Lewis, died on Monday at M.D. Anderson Hospital in Houston from the effects of ovarian cancer. The Houston Chronicle obituary on Ms. Lewis' life is here.

Ms. Lewis specialized in products liability cases, and she was at the forefront of developing the Vioxx cases against Merck. Ms. Lewis began investigating the cases against Vioxx in 2000 and, in August 2005, she was part of a team of three lawyers that won a $253.5 million jury verdict against Merck in Brazoria County district court, just south of the Houston metro area. Over 20 million people took Vioxx before Merck took it off the market in September 2004, and the company is now facing around 11,500 lawsuits by about 23,000 plaintiffs. So far, the plaintiffs and Merck have split the six cases that have gone to trial, and about a dozen other cases are scheduled for trial before the end of this year.

Ms. Lewis moved to Houston after finishing law school in 1984 and joined Sewell & Riggs, where she specialized in the defending product liability lawsuits. About five years later, she and her former Sewell & Riggs colleague, Houston attorney Daniel Goforth, formed their own firm and began pursuing plaintiff's cases. Over the past 17 years, Ms. Lewis was a respected and well-liked member of the formidable Houston plaintiff's bar.

A memorial service for Ms. Lewis will be held Friday, June 9, at 3:00 pm at Chapelwood United Methodist Church in Houston. The eulogy will be given by her long-time friend and colleague in various plaintiff's cases, Mark Lanier.

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

The Jason Grimsley Affair

This NY Times article reports on the criminal investigation into alleged illegal use of steroids and human growth hormone by journeyman Major League Baseball pitcher Jason Grimsley, who retired from the Arizona Diamondbacks yesterday after the media reported on the search of his home by federal authorities. Here is a pdf file of Special Agent Jeff Novitzky's affidavit (redacted of names of other MLB players involved) in support of the search warrant on Grimsley's home, and here is an NY Times profile on Grimsley. Novitzky has also been involved in the investigation of Barry Bonds' use of steroids and other related performance-enhancing drugs.

Prior to this latest development, Grimsley was most well-known in MLB circles for slithering through a ceiling to retrieve his Cleveland Indians teammate Albert Belle's corked bat from the umpires' room at Chicago's Comiskey Park after the umps had confiscated it during a 1994 game. However, Grimsley has apparently been the focus of the investigation for some time and, as noted in this earlier article of unverified allegations, the investigation could very well lead to the Stros clubhouse, as well as the clubhouses of most other MLB teams.

Grimsley has apparently made a statement to investigators in which he has named over 20 teams and team-related drug sources, and the contents of that statement will almost certainly be leaked in the upcoming days. Within MLB, the crossword puzzle of identifying the redacted names in Novitzky's affidavit is already going full blast, not only because many of the names are easily connected to Grimsley, but also because some are big MLB stars. As a result, the Grimsley Affair -- even more than the situation involving Bonds -- has the potential to blow the lid off MLB's ongoing public relations nightmare involving use of performance-enhancing drugs by its players.

Posted by Tom at 5:13 AM | Comments (0) | TrackBack (0)

June 7, 2006

More on the ripples of the 2005 hurricane season

This NY Times article reports on two recently-published Census Bureau reports that constitute the findings of the bureau's first study on the social, financial and demographic impact of the Hurricanes Katrina and Rita last summer on the Gulf Coast region:

After the twin barrages of Hurricanes Katrina and Rita last year, the City of New Orleans emerged nearly 64 percent smaller, having lost an estimated 278,833 residents, . . . Those who remained in the city were significantly more likely to be white, slightly older and a bit more well-off, . . . The bureau found that while New Orleans lost about two-thirds of its population, adjacent St. Bernard Parish dropped a full 95 percent, falling to just 3,361 residents by Jan. 1. [. . .] The black population of the New Orleans metropolitan area fell to 21 percent from 36 percent, the bureau found.

While the New Orleans area lost population, the Houston metropolitan area emerged with more than 130,000 new residents, many of them hurricane evacuees. Whites made up a slightly smaller percentage of Houston's population — 62.8 percent of the city in January compared with 64.8 percent last July, a month before Hurricane Katrina hit.

In Harris County, which includes Houston, median household income fell to $43,044 from $44,517, while New Orleans area's actually rose, to $43,447 from $39,793.

Interestingly, the reports debunk widespread speculation that the New Orleans evacuees who went to nearby Baton Rouge, where the population grew by nearly 15,000, were disproportionately poor. The evacuees who landed in Baton Rouge ended up being more middle-class, while the poorer evacuees ended up going to more distant cities, such as Houston.

Posted by Tom at 6:42 AM | Comments (0) | TrackBack (0)

The Rocket's new nickname

The Roger Clemens Family Traveling Show was in Lexington, Kentucky last night as the Rocket pitched three innings of a minor league game in preparation for returning to the Stros' rotation later this month. It will likely be the only game that Clemens pitches in this season that also features a wiper fluid promotion and a milking contest involving a ceramic cow.

By the way, Clemens' son, who plays third base for Lexington, has coined a new nickname for his father -- "Bernie Mac," the name of the actor who stars in the forgettable 2004 movie Mr. 3000, about a washed-up ballplayer who comes out of retirement to collect one last hit.

Posted by Tom at 6:20 AM | Comments (1) | TrackBack (0)

Never underestimate what can go on in the jury room

When you put a dozen of so strangers in a jury room together, weird things happen.

That's certainly been the case recently in Chicago, where the current big news is that the defense team for former Illinois Governor George Ryan is seeking a new trial based on jury misconduct after the jury convicted Ryan on all 18 counts of a federal corruption indictment in a six-month trial earlier this year (previous post here). Although jury misconduct motions are always longshots, based on news reports, this one has a better than typical chance if only a few of the allegations of juror misconduct turn out to be true.

In the Ryan case, the allegation is that one of the jurors looked up a definition of "good faith deliberations" in attempting to persuade a holdout juror that she was not deliberating in good faith. Inasmuch as the holdout was ultimately dismissed from the panel for unrelated reasons, the trial judge denied Ryan's first juror misconduct motion. However, Ryan's defense team is now demanding a new hearing into allegations that there was so much pressure put on the holdout -- and so many other jurors either lied in their jury questionnaire forms or did not follow the court's instructions -- that the jury deliberations were utterly skewed and a new trial is required.

Such conduct is a growing issue in high-profile trials as information about such trials is readily available to jurors who routinely work or engage in recreation on their computers each day. This is particularly important in a case such as Lay-Skilling, where pre-trial motions indicated widespread bias (see also here) against the defendants among prospective jurors. During the trial, several media outlets -- including the hometown newspaper, the Houston Chronicle -- covered the trial by innovatively blending traditional media reports and columns with blogging and podcasts. Although a valuable resource for the general public, such coverage could easily affect jurors who disregard the court's instruction not to read ongoing media reports about the trial. For example, before and during the Lay-Skilling trial, the Chronicle's Enron webpage prominently promoted the newspaper's business columnist's columns and blog that regularly ridiculed the defendants and called for their conviction, and also promoted regular blog posts from a former Enron Task Force prosecutor. It is certainly the media's perogative to cover a trial in that manner, but the potential effect of such coverage on the jury pool would seem to mitigate strongly in favor of a more liberal rule in favor of changing the venue of such trials than has traditionally been applied.

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

June 6, 2006

Lerach goes for a piece of the Kinder Morgan action

Plaintiff's lawyer William Lerach is already looking to make a handsome $1 billion fee as lead counsel in the main Enron class action securities fraud lawsuit. Now, he's looking for a little more from an Enron spinoff.

Yesterday, Lerach's firm filed a lawsuit (press release here) in state district court in Houston over the proposed management leveraged-buyout of Houston-based oil and gas pipeline operator, Kinder Morgan Inc. (previous posts here and here). A lawsuit filed last week in Kansas on similar grounds beat Lerach's lawsuit to the courthouse door in the race to be the first lawsuit to challenge the proposed leveraged buyout.

As one would expect, Lerach's lawsuit contends that KM's officers and directors violated state law by proposing a price of $100 per share, which it said was "grossly inadequate and unfair." Of course, that allegation is pure speculation at this point in that the proposed buyout is still subject to being outbid by a superior offer for the company. Expect the state court lawsuit to be removed by KM to federal court rather quickly, where it will likely rest fallow while either the proposed buyout or a superior proposal for the company is worked out.

Posted by Tom at 5:53 AM | Comments (0) | TrackBack (0)

Elk tells Lakeside and the USGA to shove it

Houston's Steve Elkington failed to qualify for next week's U.S. Open Golf Tournament at New York's venerable Winged Foot Golf Club during yesterday's sectional qualifying tournament at Houston's Lakeside Country Club, but at least he went out with a splash.

As this Steve Campbell/Houston Chronicle article reports, Elk left Lakeside yesterday before even teeing it up when U.S. Golf Association officials informed him that he could not wear metal spikes on his golf shoes while playing the golf course at Lakeside, which has a local rule that players may only use soft spikes (which cause less wear and tear on the greens) on the course. Inasmuch as the PGA Tour allows its members to use either metal or soft spikes in its golf tournaments and many other golf courses that the USGA uses for its qualifying tournaments have the same rule, Elk -- who is a notorious golf traditionalist -- told the USGA officials at Lakeside that adoption of a different rule at the Lakeside qualifier was wrong and left in a huff before his 8:50 a.m. tee time, leaving the USGA officials blathering about "a rule is a rule."

Quick tip to Lakeside -- it's not going to do any damage to your greens to allow players in one golf tournament to use metal spikes. Next time, waive the friggin' local rule for the tournament.

By the way, two college players -- Ryan Baca of Baylor and Ryan Posey of Oklahoma State -- earned the two Open spots at Lakeside by shooting sturdy 6-under-par 136's over the 36 hole qualifier.

Posted by Tom at 5:24 AM | Comments (7) | TrackBack (0)

The new Texans GM

Houston Texans' owner Bob McNair completed his overhaul of the team's management yesterday by naming former Denver Bronco's assistant Rick Smith as the second general manager in the Texans' five year history. Smith replaces Charley Casserly, who resigned last month amidst widespread criticism regarding the Texans' player personnel choices and a disastrous previous season. McNair began the overhaul earlier this year by firing head coach Dom Capers and replacing him with former Broncos offensive coordinator and Houston native, Gary Kubiak.

The hiring of Smith also completes an interesting change in management philosophy for McNair, who originally went with the strong GM management approach in hiring Casserly as the Texans' first employee. Casserly was the public face of the team's management, much more so then former head coach Capers. Although that approach placed most authority in football operations in Casserly's hands, it also sealed his fate as he became increasingly verbose with the media over the past season in attempting to deflect criticism over the team's horrifying performance. My sense is that Casserly's manipulation of the media during the team's horrendous season did not sit well with McNair, a classy man who does not appreciate such public posturing.

With the hiring of Smith, McNair has completed the adoption of the Broncos' management system in which the head coach has the decision-making authority on personnel matters and the GM serves in a support role. Under the Texans' new regime, it's clear that head coach Kubiak is calling the shots, just as Broncos coach Mike Shanahan does in Denver.

What's particularly interesting about the shift in the Texans' management philosophy is that Kubiak is getting far more power as an unproven coach than Capers ever received when he became the Texans first coach five years ago with a much more impressive resume than Kubiak. Capers took the expansion Carolina Panthers to the NFC title game in only their second season, and he was a successful NFL defensive coordinator before and after his tenure in Carolina. On the other hand, Kubiak's sole NFL coaching experience prior to receiving extensive authority under the Texans' new management approach is that of being the trusty sidekick to the Broncos' Shanahan, who delegated limited authority to underlings in regard to running the Broncos' offense.

In light of the foregoing, do you think the Miami Dolphins' defense -- which is now coached by Capers -- might be hitting with a little more, might we say, "enthusiasm" when the Dolphins come to town on October 1 to play the Texans?

Posted by Tom at 4:30 AM | Comments (3) | TrackBack (0)

June 5, 2006

Update on Roy O

Amidst the Stros' free fall over the past month, the worst news to arise to date is All-Star pitcher Roy Oswalt's back injury that forced him to miss a start on Sunday afternoon against the Reds. Major League Baseball injury expert Will Carroll passes along the latest information on Oswalt's back injury, which came on the heels of a pulled hamstring that Oswalt endured in his previous start:

There is no question in my mind that Roy Oswalt has a cascade injury. In the always-great Alyson Footer’s article at MLB.com, Oswalt all but says so himself. “I may have altered my mechanics,” he says, referring to what he did after straining his hamstring. Oswalt is now dealing with mid-back spasms, an unusual location. Elsewhere in the article, we get clues. Oswalt’s back only acted up when he threw curves, meaning that his mechanics remained altered into this session. Mid-back spasms usually involve some muscles rather than structural problems, so this isn’t as bad as it sounds. The Astros medical staff will have to stop the pain-spasm cycle, the Astros field staff will have to keep Oswalt from altering his mechanics, and Oswalt will have to listen. A decision on the DL won’t be made until mid-week and would follow an as-yet-unscheduled MRI.

The Stros have one of the best medical staffs in Major League Baseball, so Roy O's injury will be handled conservatively. But make no doubt about it -- this Stros club is barely a .500 team with Oswalt; the club is not close to being even a .500 club without him.

Posted by Tom at 2:04 PM | Comments (0) | TrackBack (0)

Remember those high prices for natural gas?

Remember those high natural gas prices of last year and the corresponding calls for more regulation of the oil and gas industry?

Well, after a hurricane season last year when prices skyrocketed to above $15 per British thermal unit and stored supplies were slashed as multiple storms played havoc with Gulf of Mexico production and storage facilities, U.S. supplies of natural gas are now so plentiful that the natural gas industry is running out of places to store it. Thus, despite the prospect of another active hurricane season, natural gas prices are down over 40% this year to $6.62 per BTU and likely will move even lower.

Rather than governmental intervention, the primary reason for the declining prices is the weather. As a result of a relatively mild winter, lower-than-expected demand for heating resulted in more plentiful supplies of natural gas this spring. Accordingly, over half of the estimated four trillion cubic feet of U.S. underground natural gas-storage capacity is already being used, which means that those facilities could be at near full capacity even before the first hurricane hits the U.S. mainland later this summer.

Meanwhile, Bill O'Reilly and attorneys general from several Midwestern states -- who last year condemned the big oil and gas companies and gas traders for manipulating prices and pushing up home-heating bills for all U.S. citizens -- have not yet explained how, with all their market power, those avaricious companies and traders could not prevent the current collapse of natural gas prices.

Posted by Tom at 6:02 AM | Comments (2) | TrackBack (0)

The Ken Lay narratives

On several occasions while covering the Lay-Skilling trial, I noted that the Enron Task Force prosecutors were presenting a fundamentally weak case in an effective manner. Quite a few commenters both here and on other blogs took me to task for that view, some of whom suggested that my defense bias rendered me incapable of appreciating the true strength of the Task Force's case.

So, it was with a small dose of vindication on Sunday that I read Alexei Barrionuevo and Kurt Eichenwald's NY Times article on the story behind the Enron Task Force's preparation and prosecution of the case against former Enron chairman, Ken Lay. According to Barrionuevo and Eichenwald's piece, Enron Task Force prosecutors such as John Hueston agree with me -- their case against Lay was so weak they had serious doubts whether they could even make one.

Barrionuevo and Eichenwald's article provides an interesting peek into the lengths that federal prosecutors will go to make a case against a person who the prosecutors have already concluded is a crook. But leave it to Larry Ribstein in this post on the Barrionuevo/Eichenwald article to nail the serious implications of the Task Force's motives and actions toward Lay:

Many people no doubt will get a warm feeling from the job our government servants have done in finally nailing the evil Lay. But as I said at the beginning, there’s an alternative narrative. The prosecutors were out to get Lay, who had already been convicted by public opinion just for being associated so closely with Enron, which of course journalists, filmmakers and other shapers of public opinion had already elevated into the symbol of whatever it was that went pop at the end of the big boom.

The prosecutors and journalists had a willing audience. Stupid and greedy investors, convinced they knew more than the market did and that gravity was suspended just for them, abetted by credulous analysts who didn’t think they had to ask questions, now needed somebody other than themselves to blame. The prosecutors looked long and hard and finally found Ben Glisan, whom the jury was primed to believe despite his questionable provenance. There were other potential witnesses with other potential stories, but the government was willing neither to free them from the threat of indictment nor grant them immunity.

Read Professor Ribstein's entire post. As Barrionuevo and Eichenwald note in their article, the case against Lay boiled down to the testimony of Ben Glisan and Andy Fastow, both of whom testified that they were telling Lay as early as mid-August 2001 immediately after he replaced Skilling that Enron was in far worse financial shape than the company was letting on to investors. The Task Force prosecutors molded this testimony into the securities fraud charges against Lay, contending that he continued to urge employees and investors to buy Enron stock even though he supposedly knew better.

Of course, Lay testified that neither Glisan nor Fastow said anything of the kind to him; indeed, Lay contended that they were advising him of exactly the opposite -- that the company's liquidity was as strong as it ever had been -- and he had substantial documentary evidence to back up his version of the events, such as Glisan's October 8, 2001 presentation to the Enron board. However, the Task Force iced other Enron executives who would have provided exculpatory testimony for Lay, so Lay was forced to go it alone in defending himself against Glisan and Fastow's allegations.

Thus, the case against Lay came down to an old-fashioned swearing match -- Glisan and Fastow, on one hand, and Lay on the other. That's why such a large part of the Task Force's cross-examination of Lay (see also here) focused on such things as PhotoFete and Lay's clumsy but legal use of his line of credit with the company. With Glisan and Fastow's testimony in hand, the Task Force simply had to cast Lay as a liar to the jury and they would win the swearing match.

Interestingly, Eichenwald's seminal book on Enron -- Conspiracy of Fools (Broadway 2005) -- actually suggests that it is Glisan and Fastow who are lying. On pp. 540-541 of his book, Eichenwald relates an amusing story about Enron's chief operating officer, Greg Whalley, meeting with Fastow and Glisan around October 20, 2001 when it was becoming clear that the market was turning on Enron after a series of Wall Street Journal articles had exposed Fastow's shenanigans with certain special purpose entities.

Whalley called the meeting with the two financial officers so that they could apprise him of Enron's liquidity position in the face of the quickly-unfolding crisis. Fastow began the meeting by assuring Whalley that the company was in very good liquidity position because it had $3.8 billion in available lines of credit. But then, under questioning from Whalley, Fastow and Glisan conceded that the company actually had only $1.5 billion in available liquidity. As Eichenwald relates, the meeting ended rather abruptly:

What the hell? Whalley stood up, disbelief etched on his face.

"You guys are out of your minds!" he said, turning to head out. "I walked in with $3.8 billion in liquidity, and I'm leaving with $1.5 billion."

[Whalley] shook his head. "I don't want to ask you another question. I don't think we can afford it."

So, how likely is it that Glisan and Fastow were telling Lay that Enron was a house of cards as early as mid-August when they began a meeting with Enron's chief operating officer on October 20th by assuring him that the company's liquidity position was in good shape?

Posted by Tom at 5:21 AM | Comments (1) | TrackBack (1)

A Quick Enron Reality Check?

As expected, the Conglomerate Enron online symposium last week generated over 15 interesting posts, including ones by the reliably insightful Larry Ribstein (see also here), Ellen Podgor, Don Langevoort, Lisa Fairfax, and Thomas Joo.

However, one of the final posts in the symposium particularly caught my attention. Moderator Gordon Smith passed it along from John Kroger, who served on the Task Force for a year or so in 2002-03, during which time he helped prosecute Arthur Andersen out of business and prepare the odious prosecution that placed four former Merrill Lynch executives in prison for arranging to have Merrill buy an asset from Enron that Enron may have improperly accounted for, although even that has never been proven.

Following his service on the Task Force, Kroger took a job as a law professor in Portland, from where he proceeded to publish a law review article, Enron, Fraud and Securities Reform: An Enron Prosecutor's Perspective. Kroger's resume reflects no apparent background in either structured finance or the private finance business sector, but that doesn't stop him in the article from, among other things, characterizing Enron's structured finance transactions as wholesale frauds and proposing that such risk-taking should be criminalized. For a more balanced view from experts in the field of structured finance regarding the economic and financial benefits of such transactions and Enron's use of them, see 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.

With that backdrop, Kroger wrote the following post on the Conglomerate Enron symposium:

"Here's a Quick Reality Check"

I am shocked at how skeptical most of these blog entries are. Of course, as a former prosecutor in the case, I am certainly biased. That said, here's a quick reality check. In 2000, 96% of Enron's reported net income and 105% of its reported funds flow came from accounting manipulation schemes, the vast majority of which clearly violated GAAP. At the same time, Enron managed to keep some $25 billion in company debt off its financial statements, hidden from investors. Lay told his employees to keep buying more Enron stock while he was secretly selling his own. Both men made millions spinning the socks off investors for a company that was, in the end, revealed as an empty shell. The jury heard months of testimony and concluded, quite reasonably, that the defendants knew precisely what was going on. In the United States, we don't always treat poor criminals and rich criminals alike, but we should. When people commit fraud, they should go to prison.

Using Kroger's post as a template, my reply is as follows:

I am shocked at how many of the blog entries presume that Lay and Skilling were involved in a massive fraud at Enron. Of course, as a defense attorney in various Enron-related civil actions, I am certainly biased. That said, here's a quick reality check.

In 2000, rather than allowing shareholders to suffer loss of value during a difficult post-stock market bubble period, Enron supplemented its net income and reported funds flow through innovative structured finance transactions that effectively hedged the risk of loss in many of its assets for the benefit of investors. Moreover, when the Enron board induced Lay to return to the Enron CEO position after Skilling's resignation in August 2001, he put his money where his mouth was — he used the entire board-approved $20 million bonus to invest in more Enron stock. Indeed, Lay made that bold investment in Enron even though he had already lost an enormous amount of his personal net worth in the first seven months of 2001 due to the decline in Enron's stock price, losses that he willingly incurred because he insisted that his personal portfolio remain disproportionately invested in Enron stock.

The jury heard months of testimony from primarily cooperating prosecution witnesses who had a substantial incentive to lie by implicating Lay and Skilling in crimes. After the prosecution effectively prevented witnesses with exculpatory testimony for Lay and Skilling from testifying, the jury concluded, quite reasonably, that Lay and Skilling were rich and the company they led went bust, so they must be guilty of some crime. In the United States, we don't always treat poor criminals and rich criminals alike, but we should. When business executives are accused of fraud, they should get a fair trial before they are sent to prison for life.

Posted by Tom at 4:17 AM | Comments (0) | TrackBack (0)

June 4, 2006

The Fifth Circuit's latest skirmish with SCOTUS over death penalty cases

Although the conflict flies below the radar screen outside legal circles, the Fifth Circuit Court of Appeals and the U.S. Supreme Court have been engaged in a caustic war or words (see articles here and here) over the past several years in regard to death penalty cases emanating from Texas courts. Based on the recent decision in Jackson v. Dretke, 05-70031 (5th Cir., May 30, 2006), it looks as if the Fifth Circuit judges are now getting testy with each other over such cases.

Jackson involves what type of mitigation of punishment evidence is a defendant entitled to propound to the jury during the sentencing phase of a capital murder case. Jackson admitted murdering his wife and two children, but his defense attorney sought to have the jury hear from Jackson's family and friends who did not want him to be executed. The trial judge denied the defense request and the Texas Court of Criminal Appeals upheld the decision. Jackson's habeus corpus proceeding in federal court followed, seeking what in death penalty appeal jargon is called a "certificate of appealability" ("COA") from the state courts' rejection of Jackson's request to have the jury hear the testimony of Jackson's family and friends.

In federal district court, U.S. District Judge John Rainey granted a summary judgment in favor of the state that Jackson did not satisfy the standard for a COA, effectively concluding that reasonable judges could not disagree with the state courts’ application of clearly established federal law. In upholding Judge Rainey's decision that Jackson is not entitled to a COA on the issue, the 2-1 Fifth Circuit majority decision by Judge Jerry E. Smith reasons that, even though the U.S. Supreme Court has previously ruled that the Constitution requires that a capital jury consider "any aspect of a defendant’s character or record . . . that the defendant proffers as a basis for a sentence less than death," the Supreme Court has not expressly concluded that the Constitution requires a jury to consider death penalty impact statements from friends and family. Thus, the majority narrowly concludes that Jackson cannot show that the state courts’ resolution is contrary to clearly-established federal law and, therefore, Jackson is not entitled to have his appeal considered on the merits.

In a vigorous dissent, Judge James L. Dennis contends that the majority improperly resolved Jackson’s claims at the COA stage and notes that the majority decision is at clear odds with the trend in Supreme Court decisions that broaden procedural safeguards for defendants in death penalty cases:

[T]he Supreme Court has required the liberal admission of mitigating faxtors in death cases that may be relevant to the deathworthiness or 'culpability' of defendants, and these holdings conflict with the idea that there are limited categories of admissible evidence in death cases to which evidence can be neatly fitted. [. . .]

If the value of the victim's life is permitted to be brought before the jury, however, then I see no option under Supreme Court jurisprudence but to permit the defendant to counter this evidence with evidence of the value of his own life.

Despite such apparent logic, the majority rejected Judge Dennis' reasoning. Moreover, inasmuch as Jackson's request for a COA should be rejected under Supreme Court guidelines only if reasonable jurists could not disagree over the state courts' application of federal law on the issue, the clear implication of the Fifth Circuit majority decision is that Judge Dennis is not a reasonable jurist.

My sense is that we have not heard the last word on this case.

Posted by Tom at 6:41 AM | Comments (0) | TrackBack (0)

June 3, 2006

Why bother with being a public company?

Following up on thoughts expressed in this post on the Kinder Morgan leveraged buyout from earlier this week, this Opinion Journal editorial (and related WSJ ($) article) note that the trend toward private equity financing is a direct result of management realizing that public equity has become too pricey in the regulatory maze of the post-Enron era:

Behind much of this trend is basic economics. Hedge funds, pension funds and endowments are all looking for new places to invest their mountains of cash, and private equity has been offering some impressive returns. Corporate management, meanwhile, far from running from these new barbarians at their gates, often see a financial upside. With capital abundant, the cost of borrowing low and return on equity soaring, why not?

But that's hardly the whole equation. At least part of the strength of private equity is a direct result of the problems besetting public markets. Public-to-private deals are in fact lengthy and costly and can lead to unpleasantness with shareholders--often via lawsuits. The fact that so many companies have nonetheless been willing to take the plunge speaks volumes about how eager they are to escape the increasing burdens of public-company regulation.

Sarbanes-Oxley has been the last straw for some, with its auditing and reporting requirements imposing major new costs, especially on smaller companies. This has already played a part in the remarkable slowdown in U.S. initial public offerings. Today's largest IPOs are taking place mainly on foreign markets, away from the reach of U.S. regulators. New York Stock Exchange CEO John Thain understands this as well as anyone, which is one reason for his $20 billion EuroNext purchase.

Thus, in its zeal to regulate away the risk of investing in public markets, government is making such markets less vibrant. And Larry Ribstein notes that this government-induced flow of investment capital into private equity isn't all that healthy, either, and then wryly adds:

I'm confident that we'll see that some excesses accompanied the boom in private equity, as they do every boom. In other words, there is some Enron of private equity waiting to happen.

When the scandal breaks, the politicians and the journalists will have their usual fun decrying the horrors of private equity. Watch for the Private Equity Reform Act of 2007. Everybody by then will have forgotten how all this was created by SOX, the child of the last scandal.

Is anyone really surprised that the government's solution is worse than the problem?

Posted by Tom at 4:55 AM | Comments (0) | TrackBack (0)

June 2, 2006

And you thought the Longhorn-Aggie rivalry was heated?

Texans enjoy their intense sports rivalries as much as anyone, but this clever Sarah Lyall/NY Times article notes that preparations for the upcoming World Cup soccer match between England and Germany indicate a rivalry on an entirely higher level:

They have been warned, as always, not to rampage through the streets, destroying things and attacking people. But as England's soccer fans prepare to visit Germany for the World Cup this month, another item has been added to their long "verboten" list: Don't mention the war.

"It's not a joke," Charles Clarke, then the home secretary, warned at a pre-World Cup briefing earlier this spring. "It is not a comic thing to do. It is totally insulting and wrong."

That means, basically, no getting drunk and goose-stepping in a would-be humorous manner. No Nazi salutes. No shouting "Sieg Heil!" at the referees. No impromptu finger-under-the-nose Hitler mustaches.

"Doing mock Nazi salutes or fake impersonations of Hitler — that's actually against the law in Germany," Andrin Cooper, a spokesman for the Football Association, which administers English soccer, said in an interview.

Even something as simple as wearing an ersatz German war helmet could violate German laws against inciting hatred and glorifying extremism, Mr. Clarke said at the briefing.

"The reason why the German Parliament passed these laws was because the era we are talking about was one of total horror and destruction in Germany," he continued. "Anyone who thinks it's entertaining to get involved in this sort of thing, I absolutely urge them not to do so."

The authorities in both countries have developed elaborate programs to ensure that England's fans behave themselves in Germany when the competition begins June 9. Some 3,200 people with histories of violence and hooliganism have been required to surrender their passports and are forbidden to leave Britain during the tournament.

Dozens of British officers are being dispatched to Germany to help keep order. Some English players have recorded advertisements exhorting the fans to respect their hosts, and fans' groups have arranged various communal activities with their German counterparts. One group plans to visit Auschwitz.

Placing the British fans' continued preoccupation with Germany and WWII in perspective, Lyall references one of the most brilliant episodes from the fine BBC comedy series from the 1970's, Fawlty Towers, starring John Cleese as Basil Fawlry, the wonderfully irascible owner of a small-town English hotel:

Britain's awkwardness on the subject was lampooned most famously in a television episode of "Fawlty Towers," when Basil Fawlty, the hotelier played by John Cleese, tries to attend to a group of German guests after suffering a concussion.

"Don't mention the war," [Basil] tells his staff, even as he descends into a xenophobic frenzy, repeating the Germans' lunch order of a prawn cocktail, pickled herring and four cold meat salads as "a prawn Goebbels, a Hermann Göring and four Colditz salads," and then high-kicking his way around the dining room, à la Hitler.

"So it's all forgotten and let's hear no more about it!" he says of Germany's wartime past. But somehow, he keeps bringing it up. When the Germans ask him to stop, Basil says that they started it.

"We did not start it," one [German guest replies].

"Yes, you did," [Basil retorts]. "You invaded Poland."

Posted by Tom at 6:35 AM | Comments (0) | TrackBack (0)

VE under the Enron microscope

With the announcement yesterday of Houston-based Vinson & Elkins' $30 million settlement of one of the myriad of lawsuits pending against the firm as a result of its representation of Enron, the WSJ's Peter Lattman notes this BusinessWeek Online article that reviews some of the evidence that the plaintiffs in the main Enron class action securities fraud lawsuit are marshalling against VE:

[P]laintiffs' lawyers are preparing to unleash a new volley of evidence on June 13 to support allegations that V&E should be liable for some of the $40 billion in investor losses resulting from the energy giant's collapse. [. . .]

[D]ocuments and transcripts reviewed by BusinessWeek indicate that V&E attorneys had doubts about the legitimacy of Enron's business practices. Sometimes they even made light of the company's aggressive accounting. At the end of 1997, as Enron scrambled to complete a series of deals aimed partly at burnishing its financials, it dumped a pile of paperwork on V&E. On Christmas Eve, Dilg sent an e-mail to buck up his beleaguered troops. It contained a poem, which read in part: "no sooner than you could say 'mark to market'/Our client's year end financials began to sparkle." That passage referred to Enron's use of mark-to-market accounting, which allowed it to recognize the entire revenues from a 20-year gas contract, say, in the first year.

In a 1999 voicemail that was forwarded to Dilg, V&E partner Boyd Carano expressed concern after learning that the now-notorious entity known as LJM, which was buying part of Enron's interest in a Brazilian power plant, was actually controlled by the company's chief financial officer, Andrew Fastow. "Basically, this is a fund that he set up in order to do these deals with Enron, where Enron pays him a 13 and then 25% return in order to get stuff off the balance sheet," he said. "Frankly, I don't approve."

In another voicemail, Carano told fellow V&E partner Mark Spradling that he had not been able to speak directly to Enron Chief Accounting Officer Richard Causey to get assurances that Enron had not secretly guaranteed Fastow's LJM investments. Instead, Carano had been forced to rely on the assurances of Kent Castleman, a lower-ranking employee. In his response to Carano's concerns, Spradling said: "I think the problem is that anything we do either calls into question the truthfulness of Kent Castleman or imbues this whole issue with our view that there may be fraud going on here" . . .

Given Sherron Watkins' highly-publicized testimony in the Lay-Skilling trial criticizing VE and publicity surrounding the firm's involvement in the the San Diego pension fund debacle, it has not been a pleasant past few months for VE. Moreover, the plaintiff's firms in the main Enron class action securities fraud lawsuit probably consider the $30 million that VE is paying to settle the Enron estate's lawsuit as the equivalent of a nominal "slip and fall" settlement payment. Thus, that settlement amount may not have much to do with the price of extracting VE from that even more troubling lawsuit.

As Lay and Skilling discovered, the societal morality play regarding Enron makes it enormously difficult to defend in a jury trial against allegations of wrongdoing involving the company. It's even harder when the defendent is a law firm, which juries generally don't mind hammering. VE remains in a tough spot, so stay tuned.

Posted by Tom at 5:06 AM | Comments (2) | TrackBack (0)

The shrinking of Milberg Weiss

As noted earlier here, the indictment of Milberg Weiss Bershad & Schulman is likely to put the firm out of business regardless of the outcome, although the firm is officially keeping a stiff upper lip and making a go of it.

Nevertheless, as the Arthur Andersen experience showed us, the odds of survival are long for a professional service firm under indictment. In that regard, Peter Lattman and Ashby Jones of the Wall Street Journal Law Blog have been doing a good job of keeping up with partner and client defections from Milberg Weiss, the latest of which is the New York State Common Retirement Fund's decision to seek replacement of Milberg Weiss as lead counsel in the Bayer AG class action litigation. This client defection comes on the heels of this Justin Scheck/The Recorder article that reports that several Milberg Weiss partners and associates have left the firm since the indictment, and that "competing class action plaintiffs firms say they're being bombarded with phone calls and resumes of Milberg lawyers seeking jobs."

Paragraph 83 of the indictment is probably the clincher in the decision of many lawyers and clients to bail out on Milberg Weiss:

Pursuant to Title 28, United States Code, Section 2461(c), Title 18, United States Code, Section 981(a)(1)(C), and Title 21, United States Code, Section 853, each of defendants MILBERG WEISS, DAVID J. BERSHAD, STEVEN G. SCHULMAN, and SEYMOUR M. LAZAR convicted under Count One of this Indictment shall forfeit to the United States any and all property, real or personal, which constitutes or is derived from proceeds traceable to such offense, including the following:

a. with respect to MILBERG WEISS, the more than approximately $ 216.1 million in attorneys’ fees obtained by MILBERG WEISS in the Lawsuits and litigation resolving the Lawsuits (the “tainted attorneys’ fees”).

A $216.1 million contingent forfeiture liability to the federal government has a way of inducing the search for greener pastures.

Posted by Tom at 4:38 AM | Comments (0) | TrackBack (0)

June 1, 2006

Score of the Year

I don't appreciate the finer points of soccer generally, but I must concede that this is the score of the year in any sport.

Hat tip to the ever observant Eric McErlain for the link.

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

Why Preston McAfee left UT

R. Preston McAfee is the J. Stanley Johnson Professor of Business Economics and Management at Cal Tech and a renowned expert on issues relating to pricing of goods and services.

Before going to Cal Tech, Professor McAfee was the Murray S. Johnson Professor of Economics and former Chair of the Department of Economics at the University of Texas at Austin. In this engaging lecture on how companies determine prices, Professor McAfee reveals that his decision to leave UT for Cal Tech was cemented when he received the following email from the UT administration regarding a message from the Texas Higher Education Coordinating Board:

From the Texas Higher Education Coordinating Board:

Your last name is your password. If you have questions or have forgotten your password, please contact the Coordinating Board.

Hat tip to Craig Newmark for the link to Professor McAfee's lecture.

Posted by Tom at 5:42 AM | Comments (0) | TrackBack (0)

The Conglomerate Enron Forum

On the heels of last week's jury verdict in the Enron Task Force's legacy case against former key Enron executives Ken Lay and Jeff Skilling, Gordon Smith, Christine Hurt and the rest of the blawgers over at the Conglomerate are hosting an online forum of legal scholars today and tomorrow to explore the issues relating to the use of criminal law as a corporate governance mechanism. In addition to Professors Smith and Hurt, Clear Thinkers favorites Larry Ribstein and Ellen Podgor are scheduled to participate, as well as University of Houston law professor and former law school dean, Nancy Rapoport.

Given the participants, this is likely to be a compelling discussion of the often troubling (and costly) implications of the government's increasingly-aggressive criminalization of corporate agency costs. Be sure to check it out.

Posted by Tom at 5:19 AM | Comments (4) | TrackBack (0)

The Rocket returns

Another segment in Houston's favorite reality show -- the Life and Times of Roger Clemens -- unfolded yesterday as the almost 44 year-old, indefatigable Rocket announced that he would return in a couple of weeks for his third season with the Stros and 23rd season of Major League Baseball. Clemens' career stats are here (pdf).

Clemens' performance during his two previous seasons with the Stros is the stuff of legends as the club reached the National League Championship Series twice, won one of those for the first time in the club's history, and reached the club's first World Series. Clemens was arguably the best pitcher in the National League during 2004, was even better than that for the first half of last season, but then nagging injuries prompted him to be much less effective down the stretch and during the 2005 playoffs. Although Clemens is still likely to be better than any of the pitchers on the Stros' staff other than Roy Oswalt this season, it's unlikely that his return will be enough to push this Stros club into the playoffs unless the club's hitters start generating more runs.

Assuming no injuries for Clemens, he will likely pitch between 140-150 innings over the remainder of the season. Assuming no dramatic drop-off in performance levels, Clemens will probably give up between 45-50 runs in those innings, which is probably about 25-35 runs better than the alternative pitcher (probably Fernando Nieve) would give up in those innings. That amount of run savings equates to between three and five extra wins for the Stros.

In a close race for a playoff spot, three to five extra wins is nothing to sniff at. Moreover, the Stros have an aging Major League roster and a farm system that is not stocked with strong hitters, so owner Drayton McLane and General Manager Tim Purpura realize that going for the gusto now is the best chance that the Stros will likely have to get back to the World Series any time soon. But adding Clemens doesn't address the Stros' chronic need for more hitting.

Clemens should help a pitching staff that is currently 15th out of the 16 National League pitching staffs in runs allowed, but that statistic is somewhat misleading because it is bloated by the troubles of the Stros' bullpen; the Stros' starters have actually been pretty good, currently sixth in the National League in terms of runs saved against average. On the other hand, the Stros are tied for ninth in the National League in on-base average and 14th in slugging percentage, and the club's corner outfielders -- Preston Wilson and Jason Lane -- have been performing at below replacement-level this season. The Stros' hitting woes are probably best summed up by the fact that Brad Ausmus -- one of the worst hitters among regular National League players over the past decade -- is the club's fourth-best hitting regular player so far this season. Ouch!

Thus, Clemens should help the Stros, but whether the club ends up in the middle of the race for a playoff spot come September depends not so much on Clemens, but on whether the Stros hitters can generate more runs. With non-hitters such as Wilson, Lane, Taveras, Everett and Ausmus regularly filling up over half of the Stros' lineup card, the prospects do not look promising.

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