"Technical" Creative Accounting & Investment Psychology

From Enron Trial Watch:

Call it an Enron "metadata" moment -- that's when the testimony gets so dull the courtroom clears. In the Nigerian barge case an expert testifying on metadata -- the stuff encoded on computer files that show its origins and other details -- set the standard for dullness. Eyes glazed and attorneys joked about it the rest of the trial.

Accounting professor and million-dollar consultant Jerry Arnold rivaled that this afternoon. The guy's an easy act to follow. His discussion of accounting rules and opinions FAS 121, FAS 5 and APB 18 left only one journalist in the courtroom that typically has one dozen to two dozen. The jury panel, a remarkably alert bunch as always, did spend some time pulling on their lips, checking their nails, staring at the ceiling, staring at the wall and staring into space.

"I'm surprised there are as many people still in the courtroom," said Arnold, who has done this 50 times and knows the mesmerizing power of accounting rules.

There have been other Enron-related low points in trials. The Arthur Andersen case had some dull moments. There were a lot of accountants talking about accounting. But they did talk about shredding too.

The first Broadband trial was so tedious for weeks on end the judge said she started drinking coffee and jurors, lawyers and journalists alike napped.
One jargon-prone witness in that case actually enthusiastically said "Whether it be MPLS over ATM, whether it be precedent bit over IP..." Believe me, you don't want to know.

Lay lawyer Shawn Cleveland Tuesday gave a nod to the lack of excitement. "I'm sure they're enjoying your fine work," Cleveland said to Arnold of the jury's pleasure. Arnold's experienced response: "Thank you counselor but I'm not sure I'd use the word enjoy."

This type of testimony bodes well for the defense of Ken Lay and Jeff Skilling. In cases of immense technical complexity, unless there's a strong emotional reason for people to care, much of the time the jury feel they either do not understand the case well enough to pass a guilty verdict or that the nature of the case is so obscure it would be unjust to pass one.

Had the prosecution been able to try Lay and Skilling four years ago, with the crash of the equity markets still very fresh in the mind of many people, the above testimony would not have seemed nearly as boring - instead, most would be trying to make sense of it, picking it apart and analysing what they could.

But there has been a critical change in the mindset of many over the last five years: wheras previously the mentality was very much that it was the fault of chief executives of bankrupt companies for losing their many shareholders' once multitudinous paper net worths, there is almost a resignation today in public thinking that everyone, in some way or another, ended up getting a little to greedy and that we all got what we deserved.

This subtle transfer and sharing of the blame could well end up being the wild card for Lay and Skilling.