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September 6, 2007

Loren Steffy's Enron myopia

steffy%20090507.gifHouston Chronicle business columnist Loren Steffy is a particularly vitriolic critic of former Enron executives Jeff Skilling and the late Ken Lay. Steffy convinced himself early on that Skilling and Lay had lied to investors about Enron, so he made a good part of his living for the past several years appealing to resentment and scapegoating rather than fair-minded analysis in covering Enron's demise.

Even the fact that the criminal cases against both Skilling (see also here) and Lay turned out to be rather weak made no difference to Steffy. He rarely, if ever, gave Skilling or Lay any credit for the enormous wealth that was created from their legacy of beneficial risk-taking. Stoking anger toward wealthy business executives is much easier than nuanced analysis of often complex markets and business transactions. Probably sells more newspapers, too.

So, against that backdrop, imagine my surprise when I came across this recent Steffy column in which he defends embattled securities fraud plaintiff's lawyer, Bill Lerach. As regular readers of this blog know, Lerach is in the cross-hairs of a federal criminal indictment for lying to federal judges and his firm's class clients about payments that his firm allegedly made to class representatives in certain of the cases that Lerach's firm and former firm (Milberg Weiss) handled. Despite these allegations, Steffy sees the good in Lerach's work:

Lerach and his lawyers have held countless executives accountable over the years. They've recovered billions for fraud victims, both individuals and, more recently, pension funds and institutions.

All of this, of course, has made Lerach wealthy, which fuels the criticism against him. [. . .]

Past mistakes may have caught up with him, and if they have, he must pay the price.

But for . . . thousands of other shareholders, those mistakes may tarnish Lerach's reputation, but his legacy remains unblemished.

As noted several times over the past year (most recently here), I also have doubts about the anticipated criminal case against Lerach, although not for the same reasons as Steffy. My radar system for abuse of prosecutorial power is always activated whenever the government's case is based on witnesses whose testimony has been bought and paid for.

But here's what gets me. Steffy balances Lerach's alleged lying to judges and his investor class-clients against the economic benefit of the recoveries his firm made on behalf of those investor-clients (many of those recoveries actually reduced the value of the companies that Lerach's clients owned, but that's another issue). However, Steffy excoriates Skilling and Lay for their alleged lying to investors despite the fact that the two former Enron executives created enormous wealth that dwarfs any economic benefit that Lerach's firm ever generated.

Thus, to Steffy, Lerach is Robin Hood who deserves some slack, while Skilling and Lay are greedy shysters who got what was coming to them. But in reality, what happened to Skilling, Lay and Lerach is far more complicated than that. Too bad that Steffy prefers his simple morality plays to analytical clarity that might actually lead his readers to understand that encouraging the type of risk-taking that Lay and Skilling promoted at Enron facilitates productive markets, employment growth and wealth creation.

Posted by Tom at September 6, 2007 12:10 AM |


I guess every witch hunt needs its Cotton Mather, and Loren Steffy has fulfilled that role well with regard to the Enron prosecutions. I remember, at one point during the Lay/Skilling trial, Steffy wrote on his blog that he had seen absolutely nothing during the trial that was exculpatory to Skilling! It makes you wonder if he had wandered into the wrong court room.

The good news is that, when someone eventually writes the true story of the Enron prosecutions and the tactics of the Enron Task Force, Steffy's columns and blog posts will make text book examples of how bias and shallow analysis can enable a witch hunt mentality.

Posted by: Evan Author Profile Page at September 6, 2007 10:26 AM

Loren Steffy and the Houston Chronicle have done so much damage. One might even be able to make the case that they are more left-wing than the New York Times! Let us hope that the Chronicle continues to lose readers. I do everything possible not to purchase a copy.

Posted by: Anonymous Author Profile Page at September 6, 2007 3:01 PM

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