Sunday, August 25, 2002

And now, from the sublime to the ridiculous. Every time I comment on Robert Musil's latest Enron fantasy, as surely as night follows day, there quickly comes an enraged response, jam packed with even more egregious nonsense. It's half the fun. Since this time, for a change, he's deigned to link to the post to which he's responding, I should probably comment.

As usual, he's got a lot to say, much of it deceptive at best. Starting with this:

Mr. Kopper's guilty plea is quite clearly based on events entirely unknown to Enron's critics at the time of its bankruptcy filing.

Kopper's plea is based on his role in several sleazy partnership deals, most of which, particularly Chewco (which Kopper managed) are described in meticulous detail in the Powers Report, the Enron board's official report on the shenanigans. The Powers report details Kopper's roles in the Chewco and LJM deals, and makes a specific note of the multimillion-dollar "unauthorized and unjustifiable financial windfall" which Kopper's dealings secured for him, at the company's expense. The Powers report wasn't released at the time of the bankruptcy filing, but it has been public since February, and for most of that time, Musil has been abjectly in denial about the pattern of fraud and misconduct which it reveals, which goes well above Kopper.

Musil also falsely claims that the Chewco scheme "concerned less than $9 Million" and that the unraveling of the scheme did not affect Enron's credit rating. Again, flat wrong: the point of the scheme was to keep $700 million of debt off Enron's books, and the restatement which put that debt back on the books lead directly to a reduction of Enron's credit rating, contributing greatly to the company's death spiral. (To be fair, Musil has a point about the silliness of the three percent ownership rule which Chewco violated --- the source of the $9 million sum --- but it doesn't work in his favor. To claim that Chewco was independent of Enron, when Enron owned 98.5% of it, is ridiculous. If Enron's stake were only 97%, it would still be ridiculous --- Enron would still control substantially all Chewco's assets, and be on the hook for substantially all its debt, which both should properly appear on Enron's balance sheet. The "three percent" accounting rule that says otherwise is, in effect, condoning fraud, so long as it pays lip service to FASB rules. And the rocket scientists at Enron couldn't even manage the lip service).

Beyond that, Musil displays his usual selective quotation and creative manner of reading comprehension. Seeing a statement in an AP report which appeared in The New York Times that

...former executive Michael Kopper's plea said that in at least three partnerships he and others tried to skim millions not for the good of the company, but for themselves.

he goes into a hermeneutic seizure trying to read in a suggestion that Enron's partnership games did not involve intent to cook the books. But the Powers report and the court filings are explicit in saying there was both --- as is the Times' own more careful reporting and news analysis, which speaks of multiple levels of fraud.

To sum up, we have selective quotation, misleading attribution, and outrageous conclusions, all wrapped up in badly written English --- exactly what you'd expect from a Sokalesque test of the credulity of the blogsphere. Which is clearly not what Musil's up to, or he would have declared victory and withdrawn long ago. But his blog has been performing that test since its inception whether he means to or not --- and it's amazing how many people who ought to know better have flunked.

(As a footnote --- the court filings aren't entirely old news. For instance, they add one new partnership, RADR, to the menagerie. But to my eye, there's only one really interesting item --- the kickbacks which Kopper and others apparently provided to Fastow as a condition for being cut on the lucrative, risk-free "Friends of Enron" deals. But that's not central to the charges against Kopper. Instead, it's a dagger aimed straight at ex-CFO Fastow, implicating him in schemes which he cannot possibly explain away as legitimate, aggressive accounting treatments.

In a way what's more interesting is what doesn't appear --- there's very scant mention of Enron officers higher than Fastow. It's hard to believe the prosecutors don't have any relevant evidence; the Powers report describes the board as knowing about at least some of the suspect partnerships, particularly LJM, and then utterly failing to supervise his management of the resulting conflicts of interest --- conspicuously failing, for instance, to follow its own procedures. As a party to the LJM deals, Kopper presumably has something to say about this --- but the prosecutors, so far, are holding those cards close to their chests. It seems they want to flip Fastow first...)


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