On the heels of the dramatic testimony that occurred late last week, this Chronicle article reports that Rex Shelby, former senior vice president of engineering and operations for Enron Broadband, yesterday became the first of the five defendants in the ongoing trial to take the stand in his own defense.
All of the five Enron Broadband defendants are expected to testify during the trial, which is a significantly different tactic than the defense team used in the previous Enron-related Nigerian Barge trial, the only other trial that has taken place involving former Enron executives. In that trial, only three of the six defendants testified and one of those — former Enron in house accountant Sheila Kahanek — was acquitted. All of the other five defendants in that case — including the only other Enron defendant (Dan Boyle) — were convicted.
Although not without risk, the defense move of having the defendants testify is sound. Juries in white collar cases almost always expect to hear what the defendants have to say and generally hold it against the defendants if they do not testify (even though they are instructed not to do so). The biggest obstacle that the defendants in the Broadband case have is attempting to explain the elephant in the courtroom — that is, the huge amount of money on Enron stock sales that Mr. Shelby and two of the other defendants made — and attempting to humanize the defendants by having them testify is an essential component of that explanation.

On the heels of Citigroup’s settlement last week, J.P. Morgan Chase & Co. elected to avoid the risk of being placed in the “last to settle” position that it found itself in the WorldCom class action securities fraud litigation and agreed to pay about $2.2 billion to settle claims against the firm in the Enron securities fraud class action.
The Enron securities fraud class action accuses a group of Wall Street banks and securities firms of misleading investors by facilitating Enron transactions that removed billions of dollars of debt that allegedly should have been reported on the firm’s public financial statements. The lawsuit specifically claimed JP Morgan underwrote Enron securities, lent more than $1 billion to the company, and syndicated more than $4 billion of bank loans for Enron while the bank’s analysts were issuing allegedly false positive reports about the company.
Combined with the Citigroup settlement and previous settlements of lesser amounts (here, here and here), the JP Morgan settlement pushes the total amount of settlements in the Enron class action over $5 billion and ever closer to the $6 billion standard that the settlements in the WorldCom class action established.
JP Morgan’s settlement is not surprising given what happened in the WorldCom litigation, in which the firm and its counsel were heavily criticized by analysts and investors for waiting until the courthouse steps to settle. JP Morgan settled that case for $2 billion, but that was reportedly $630 million more than it would have had to pay had the firm settled earlier.
The Citigroup and JP Morgan settlements ups the price of poker on the remaining institutional defendants in the Enron class action, which include Merrill Lynch & Co., Credit Suisse Group’s Credit Suisse First Boston, Barclays PLC, Toronto-Dominion Bank, Royal Bank of Canada, Royal Bank of Scotland Group PLC and Goldman Sachs Group Inc. Plaintiffs counsel in the litigation has publicly stated that they are seeking $40 billion in damages in the case, but the pace and size of settlements indicates that the total amount recovered will be far south of that amount. Nevertheless, the total amount of settlements will certainly be higher than the WorldCom settlement total and, thus, will establish a new record for the highest amount recovered in a U.S. securities fraud class action against financial institutions.

Predicting the lifespan of popularity for a demagogue is a risky business, but recent mainstream media pieces certainly indicate that New York AG (“Attorney General” or “Aspiring Governor,” take your pick) Eliot Spitzer‘s fifteen minutes of fame as the nation’s self-appointed Lord of Regulation may be coming to an end. Here are the posts from over the past year and a half that catalog Mr. Spitzer’s relentless self-promotion campaign at the expense of business interests.
First, this NY Times article from this past weekend reviews Mr. Spitzer’s resounding loss in the Sihpol case, where Mr. Spitzer had sought to put away for 30 years a young broker who simply was following orders in doing his job. It’s never a good sign for a business regulator such as Mr. Spitzer when the NY Times — not exactly on par with the Wall Street Journal’s editorial page as a supporter of business interests — suggests that his tactics are overreaching.
Meanwhile, in this Tech Central Station op-ed, Dominic Basulto points out what is really going on:

It is perhaps all too obvious why Spitzer has preferred to use headline-grabbing tactics, intimidation and the threat of criminal prosecution to achieve his ends rather than depend on the U.S. legal system. After all, Eliot Spitzer is not just campaigning against financial wrongdoing on Wall Street — he is also campaigning to become the future governor of New York in 2006. His Spitzer2006.com Web site may not state it outright, but he is trying to leverage his crusade against the most corrupt of Wall Street practices to win over the hearts and minds of New York voters. Sound familiar? To some extent, it’s the same strategy that Rudy Giuliani used to campaign for New York City Mayor nearly fifteen years ago. A few more setbacks in the courtroom, though, and New York voters may view Spitzer only as an over-reaching political opportunist.

Finally, in this OpinionJournal op-ed, Kimberly Strassel reports that Mr. Spitzer’s well-publicized case against former New York Stock Exchange chairman Richard Grasso and NYSE board member Kenneth Langone (previous posts here) is not looking particularly rosy, either. In fact, it’s looking downright baseless:

The AG charges in his suit that Mr. Grasso’s compensation was not “reasonable”–that directors awarded him money based on “incomplete, inaccurate and misleading” information; and that Mr. Grasso influenced his awards. Mr. Spitzer is also suing former compensation committee head Ken Langone–on grounds that he misled directors about the true size of the compensation package–as well as the Exchange itself.
But [more than 1,000 pages of interviews with more than 60 former and current NYSE directors and staff, as well as third parties that Mr. Spitzer attempted to exclude from the lawsuit] refute much of this. Key directors admit that they knew exactly what they were doing in paying Mr. Grasso as they did, and continue to defend their actions.

In the end, Ms. Strassel asks the $64,000 question about the Grasso lawsuit:

Does it serve the interests of the NYSE? Or does it fuel, instead, the political Odyssey of Mr. Spitzer?