This NY Times article provides an excellent analysis of the trial of Mikhail B. Khodorkovsky, who, until his arrest eight months ago, was the chief executive of Russia’s Yukos Oil, which he had transformed into one of Russia’s biggest and most shrewdly operated companies. He also had amassed a personal fortune of at least $15 billion. Here is an earlier post on Yukos’ financial problems.
The trial of Mr. Khodorkovsky is attracting widespread interest in Russia and around the world business community:

“This should be Russia’s O. J. trial and should be the most public and most important bit of jurisprudence in modern Russian history,” said Bernard Sucher, a Moscow investment banker, referring to the attention on the trial of O. J. Simpson in the United States. “Most people want to look deeply at what happened here in the 1990’s, and this is a chance to come to terms with how the country ended up the way it did at the end of the Yeltsin years.”

The charges against Mr. Khodorkovsky are essentially that he orchestrated Yukos’ bilking of the Russian government to the tune of several billion dollars worth of taxes. Surprisingly, however, the market is not viewing the ominous tax debt as a death sentence for Yukos:

Yukos shares still soared on Thursday and Friday, suggesting that investors believe some sort of deal will be struck, possibly one in which the Russian government receives a stake in the company in exchange for settling the tax case.
Many of the early privatizations in the 1990’s involved banks ostensibly lending money to industrial companies in exchange for controlling stakes, a widely derided program known as loans for shares. If the Russian government continues to assert itself with Yukos, then loans for shares may morph into shares for taxes, giving the Russian government a new foothold in the economy.

Some observors of the trial view it as a contest between competing visions for how Russia’s economic power will be wielded in the post-Communist era:

Although the standoff between the men has been widely characterized as political, economic factors also forced Mr. Putin’s hand. Last year, Mr. Khodorkovsky tried to sell a large stake in Yukos to an American company, Exxon Mobil, without consulting the Kremlin – at a time when oil was becoming a pivotal geopolitical and economic resource prized by Mr. Putin. Mr. Khodorkovsky had also tried to shop an oil pipeline deal with China, a move at odds with Kremlin policy. A senior Yukos official conceded in an interview in Moscow late last year that the confrontation between the two potentates was grounded in sharply differing visions of how to steer Russia’s economic might.
For now, Mr. Putin’s vision is winning out. He has made an example of Mr. Khodorkovsky, cracking down on him with all the remorseless determination of an old Soviet hand and winning the support of average Russians dismayed by the country’s inequities.
And the models that Mr. Putin appears to favor are the managed economies of countries like Chile, China and Singapore, which blend market forces with a strong state role. Those economies were spared the free-market fluctuations that ravaged some developing nations beginning in the late 1990’s – like Russia and Argentina, which were privatized hastily, before viable regulatory and legal structures were put in place as checks on hit-and-run profiteers.
“Khodorkovsky’s personal fate in this is not the big picture,” said Stephen M. Kotkin, director of the Russian studies program at Princeton. “The big picture is Russia’s oil and gas holdings.”

Dire predictions about financial fallout from Mr. Khodorkovsky’s imprisonment last fall have not proved true so far. Foreign investors have not fled Russia in droves, as Mr. Khodorkovsky’s Western advocates initially envisaged, and the country’s economy is robust and thriving. The government is running a budget surplus, runaway inflation has been tamed, and the gross domestic product has risen at a brisk pace. From 1998, when the economy unraveled amid a financial collapse, to the end of 2003, Russian G.D.P. rose 38 percent, according to the World Bank – a stellar performance by any standard.

I particularly like Professor Kotkin‘s analogy for what’s going on in Russian business these days:

Mr. Kotkin likens current Kremlin politics to a rugby scrum, with market reformers, hard-line security advisers and members of Mr. Putin’s inner circle all wrestling for the upper hand in policy making. Mr. Kotkin suggests that if market reforms gain greater traction in Russia, then the rule of law, over time, will supersede the security apparatus – though he cautions that this is unlikely “in Putin’s lifetime.”

Russian business politics as a rugby scrum. Read the entire article.

This Houston Chronicle story reports that the Enron Task Force plans to ask a grand jury to indict in the next two weeks Ken Lay on charges relating to the last few months he was CEO of Enron before the the company filed its December 2001 bankruptcy case.
The Houston-based grand jury has already heard five days of testimony this month, all focused on Lay. The witnesses have included Lay’s former chief of staff Steven Kean and ex-Enron General Counsel Jim Derrick.
The Chronicle reports that that prosecutors are focusing on the following events in regard to Mr. Lay:

∑Lay’s receipt of three memos or e-mails warning of financial trouble and fraud at the company within weeks of Jeff Skilling’s abrupt August 2001 departure as CEO.
∑His public statements to investors and analysts.
∑Lay’s attempt to find an alternative to having to substantially write down the “goodwill” or excess price paid for assets.
∑His trades of company stock for millions of dollars in company cash in those last months.

Lay is likely to be charged with some type of fraud, similar to the charges against pending against former Enron CEO Jeffrey Skilling and former Enron chief accountant Richard Causey. They are charged with insider trading, securities fraud, wire fraud, conspiracy and lying on Enron financial statements.

The federal Air Transportation Stabilization Board announced on Thursday that it has rejected Chicago-based United Airlines‘ application for a $1.6 billion federal loan guarantee, which is the foundation of the second largest U.S. airline’s current reorganization plan to emerge from its pending chapter 11 bankruptcy case. The ATSB concluded that “the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary.” The ATSB represents the Treasury Department, the Department of Transportation, and the Federal Reserve.
Nevertheless, the political pressure is already mounting to undermine the ATSB’s decision. House Speaker Dennis Hastert, R-Ill., said he favors reconsideration of United’s application. Moreover, United said in a statement that it will bring important modifications to its application and request reconsideration. Finally, United’s union members have been hammered with deep pay cuts during the reorganization, so Union leadership reacted angrily to the ATSB’s announcement.
In that connection, a reconsideration appears at least reasonably possible because the ATSB decision was a split vote. Treasury Undersecretary Brian Roseboro and Fed Governor Edward Gramlich voted no, while Transportation Undersecretary Jeff Shane voted to defer a decision to give the airline more time.
By all accounts, United’s new business plan was far superior to its previous ones. During its chapter 11 case, the company has cut its annual expenses by about $5 billion. However, the airline industry has continued to change rapidly during United’s chapter 11 case as a group of successful discount carriers now controls 25% of the domestic market. With their much higher costs, big airlines such as United have been losing billions of dollars a year by matching the discounters’ fares. Meanwhile, fuel prices have skyrocketed, making matters worse for the big boys.
The ATSB’s decision continues an admirable Bush Administration policy of being relunctant to bail out airlines. The ATSB was set up by Congress three years ago to handle the doling out $5 billion in direct grants to the industry and administering up to $10 billion in loan guarantees. At that time, the then-secretary of the Treasury and Federal Reserve Chairman Alan Greenspan criticized the idea of loan guarantees. The loan board received 16 applications for guarantees before the June 2002 deadline, and was tight-fisted in doling out aid. Eight applications were denied. The six that were issued amounted to about $1.5 billion.
The decision has no immediate effect on United’s operations in its pending chapter 11 case, which is a year and a half old now. Despite the political knashing of teeth over the ATSB’s decision, the decision is the correct one. Hopefully, the decision will stand and simply force the creditors with stakes in United’s survival to share the full economic risk of reorganizing United. As Professor Ribstein has articulated eloquently, risk of loss and threat of failure are powerful inducements to reorganize a big company the right way.