on 21 January 2014
I was lucky! Rex Shelby was not!
Cara Ellison's fascinating, deeply troubling, but well-written account
of the Enron Broadband trials in her new book Blogging Enron, The
Enron Broadband Story, will really annoy and should scare the dickens
out of you.
It is a story of government lies, a guilty-until-proven-innocent media
bias, Big Brother, judicial incompetence, and most importantly
prosecutorial misconduct. The bad guys and women were the Department
of Justice (DOJ) prosecutors and the biased judge. Until I see
evidence to the contrary, I will refer to it as the Department of
Rex Shelby unfortunately became the poster child for the ravages of
this abuse. It could have been me.
Rex is about my age. We both have degrees in Math and Computer
Science. We both spent time in the Air Force (he reached Captain - I
only made it through the second year at the United State Air Force
Academy.) But he continued down the technology route where I moved on
to the energy and ultimately energy trading business.
Let's go back to January 20, 2000. It was the annual Enron Analyst
Conference (for those that reported on the company in the financial
community) at the Hyatt Regency in Houston.
Rex had been with Enron for just a few months (after the acquisition
of Modulus Technologies). I had worked for the company for six plus
I would soon to be appointed Enron Europe CEO in May, 2000 (I was the
Enron Europe President and COO at the time). We were both
hard-working, honest innovators at Enron, like the vast majority of
our Enron colleagues.
I made a short presentation (I was one of 19 speakers) about Enron
Europe early in the morning (lucky for me the stock did not move much
during my talk as this would have put a much bigger target on my
forehead.) But despite my inability to "move the needle" on the stock
price, it was a day I will never forget. (It increased my net worth
substantially. I admit that I care more about putting money in the
bank than Rex does.)
About an hour after my presentation, Louise Kitchen who was heading up
a big project: "Enron Online", gave a terrific presentation about an
exciting innovation in the energy world. Enron Online was an online
trading platform where Enron offered the best price to buy and the
best to sell for commodities all over the world. This definitely got
the audience's attention; it moved the needle.
Back to Rex. He had prepared two separate two-minute video
presentation for the January 20, 2000 Enron analyst conference in
Houston. Only one of the videos was shown. Rex did not make a
prepared presentation but was there to host Sun Microsystems
executives and then participated in the Enron Broadband Services Q&A.
The Enron Broadband presentation started energizing the room (unlucky
for Rex). By the end of the day the Enron stock had risen by 26% - in
just one day.
In the next couple of days Rex exercised and sold his vested stock
options and I exercised and sold about 15-20% of mine. It turns out
that Rex and I would have made much more money if we had waited later
in the year when the price hit a peak of $90 on Aug 23. After the
2001 Analyst Conference (a year later) the price was in the low $80's
and after that I sold another 15-20% of my shares as well. When the
stock price started heading down later in 2001 (remember the dot.com
bubble), I started kicking myself for not having sold it all. I was
lucky I didn't.
Unlike Rex, I was never dragged into the Houston witch trials. I hope
that I would have had the courage to hold my head up high with as much
perseverance and integrity as Rex and his codefendants. I think I
would have. But I will never know for sure - and hope to never find
This book does an outstanding job of laying out the government's abuse
of these defendants and all the travesties in the process:
1) The first federal prosecutor on the case John Kroger, admitted
in his book Convictions (please don't bother buying it) that the Bush
Administration was pressuring the DOI (that's not a mistake -
remember, I have replaced the word Justice with Injustice) to "get
scalps quickly". In the same book, Kroger said: "Here, the end - the
ultimate convictions of Ken Lay and Jeff Skilling - appeared to
justify our questionable tactics." In this case "questionable" is a
euphemism for dishonest and unethical.
2) The judge was over her head and refused to act as a fair and
impartial referee. In Judge Vanessa Gilmore's first book in 2010 she
accurately describes herself as a "Judicial Diva". I don't know about
you but if I am the defendant in a trial for my life, I want a tough,
fair and knowledgeable judge not an opera singer.
3) The notion that the Enron defendants could get a fair trial in
Houston where virtually every poll showed that 85% of the population
expressed a view that any Enron defendant charged was automatically
guilty and should be convicted, was ludicrous. The judge denied the
defense motion without comment.
4) I used to think the power of the government to cut deals with
some defendants in order to get convictions of others made sense.
This book will convince you otherwise. The way the DOI threatened 200
unindicted coconspirators with indictments in order to encourage
selective memory and outright lies will absolutely disgust you.
5) The prosecution did nothing to protect the physical evidence
of the Enron Broadband Operating System even though the DOI's major
thesis was that it didn't exist or if it did that it didn't work very
6) The government withheld evidence and sometimes delayed handing
over evidence for so long that it became useless for the defense. How
effective would you be if you have to screen thousands of emails the
night before a big trial?
7) Once the government did not receive a single guilty decision
on 200 counts in the trial they were bound and determined to force the
defendants to a second trial despite their constitutional protections
against double jeopardy. Judge Gilmore would have let them get away
with this. The Court of Appeals would have let the prosecution
trample the defendants' rights. Thankfully the US Supreme Court
unanimously said "no" in the case of Scott Yeager. This should have
been the end of the fight for Rex Shelby but it wasn't. And it was
too late for Joe Hirko who had decided the government would never stop
pursuing him and settled for a 16 month prison sentence.
8) The cost of putting on a defense is in the millions and
sometimes 10's of millions of dollars. No money - no defense. It also
takes virtually all of the defendant's time to engage and participate
in the process - for Rex Shelby that was nine long years. So unless
one is so wealthy and can afford not to work for a decade, he is up a
creek (in a federal penitentiary) without a paddle. The technical
legal term is "screwed". And of course the way the prosecution draws
up the indictments and overcharges everyone, if one is convicted then
he/she is facing life in prison. No wonder so many copped a plea.
Only about 3% of those indicted by the DOI go to trial - the other 97%
are convicted via plea deals.
I hope that if I faced this kind of personal crisis, I would have
worked as hard, kept my head as high, and persisted with my underlying
integrity as the defendants in this case did. I can't say that I might not have slipped; but after reading
this saga, I have recommitted to those principles.
Thanks Rex Shelby! Thanks Scott Yeager! Thanks Joe Hirko! And thanks
Cara Ellison for all the comprehensive research and caring enough to
actually dig into the details, ask the right questions and not going
along with the mob.