Hopefully, justice will deal with Enron’s smart guys

The long-awaited Enron trial began Monday with a warning from the judge that jurors were not to see themselves as the avengers of all the hurt the company’s collapse inflicted on thousands of workers, retirees and the city of Houston.

He might have thrown in West Coast utility ratepayers as well, because that constituency suffered as much as anybody at the hands of Enron and other energy companies that squeezed hundreds of millions of dollars out of our pockets.

None of the charges against former chairman and chief executive officer Ken Lay or former CEO Jeff Skilling relate directly to the extortion inflicted on businesses and individuals in our region. Fortunately, federal prosecutors have already obtained guilty pleas from two principal instigators of those crimes. Tim Belden and John Forney, traders who worked out of Enron’s Portland office, have already pleaded guilty to one count of conspiracy to commit wire fraud. Both face up to five years in prison at sentencing. Forney will be fined the greater of $250,000 or his gross take from his trading activity. Belden agreed to forfeit $2.1 million he socked away while socking it to “Grandma Millie,” as one Enron trader so callously described his victims.

Belden, Forney and others at Enron orchestrated “Fat Boy,” “Death Star,” and other schemes to game West Coast electricity markets. “Forney’s Perpetual Loop,” for example, exported power purchased in California at regulated prices, then imported the energy back into the state at deregulated prices. Federal regulators estimated these flim-flams earned Enron $1.8 billion in 2000-2001. That money was all that kept the company afloat as a few analysts and journalists finally tumbled to the enormity of the accounting fictions Lay, Skilling and others had perpetrated.

Enron was not a $68 billion global energy behemoth. It was a global fraud.

The trial, expected to last four months, will drill into the shenanigans of Lay and Skilling as they and co-stars like Andrew Fastow struggled to conceal Enron’s true financial condition. Some speculate the very complexity of their schemes may overwhelm jurors. More likely, they will understand the simple fact that the buck stops at the top. They will see, too, that those at the top made sure they collected their bucks by liquidating stock while their employees had their 401(k) holdings frozen. Individual pensions worth $1 million were worthless almost overnight. Lay, meanwhile, got away with $217 million, Skilling with $89 million.

If this corporate trial of the century — 20th or 21st , you choose — holds any interest at all, you can get a very good shorthand overview of the whole, sickening history by checking out the newly released DVD of “Enron — The Smartest Guys in the Room.” The film contains documentary footage of Enron’s history interspersed with commentary by some of the participants, and some of the witnesses. Among the more interesting segments recounts an earlier seamy chapter in Enron’s history.

In 1987, a pair of company oil traders in New York diverted company money into their own accounts, destroyed trading records, and kept two sets of books. Lay dissuaded Enron’s board from firing the two, arguing they were making too much money for the company. Six months later, bad trades by the two put Enron on the wrong end of $1 billion in trades, a sum that would have bankrupted the company. Lay, suddenly, is shocked by their activities.

Fast talking by then-executive Mike Muckleroy, one of the commentators in “Smartest,” cuts the loss to $140 million, saving Enron. The traders are fired, and plead guilty to conspiracy to defraud. Lay, apparently, learned nothing.

The film also notes the administration of George W. Bush turned a blind eye to Enron’s trading activities despite pleas from West Coast officials. “Kenny Boy” Lay had longstanding ties to the Bush family. A Federal Energy Regulatory Commission headed by Bush appointee Patrick Wood could have capped electricity prices early on in the crisis of 2000-2001, but did nothing while prices went up as much as one hundred-fold. When FERC finally stepped in, the market collapsed. Enron’s death spiral began.

In a few months, it may be over. If there is justice, Lay and Skilling will join some of their cohorts in jail. Smart guys, like Mafia wise guys, belong in the slammer.