Former Enron CEO Jeff Skilling Gets His Prison Term Reduced By 10 Years

Reuters/Richard Carson

Former Enron CEO Jeff Skilling (R) listens as his attorney Daniel Petrocelli talks to reporters.

$('.icon-tooltip').tooltip();The former chief executive of Enron, jailed for his role in the collapse of the energy giant, could be free before the end of the decade after he was given a shorter sentence as a result of an agreement with prosecutors.

Jeff Skilling, who was originally sentenced to more than 24 years in 2006, was resentenced to 14 years at a court in Houston on Friday.

A federal judge signed off on an agreement between Skilling and federal prosecutors, under which he will drop his appeal and forfeit $40m in assets seized by the government.

Skilling was given the longest sentence of any executive involved in the 2001 collapse of Enron, once one of the world's largest energy companies. The company's fall was one of the biggest business scandals of the decade, costing thousands their jobs and wiping out billions for shareholders and pensioners.

In May 2006, Skilling was convicted on 19 charges including conspiracy, insider trading, securities fraud and making false statements to auditors. U.S. district judge Sim Lake sentenced Skilling to 292 months — more than 24 years — in prison.

The founder of Enron, Kenneth Lay, was also found guilty of multiple counts of conspiracy and fraud. He died of heart failure six weeks after the trial ended.

An appeals court ruled in 2009 that Skilling had been the victim of misapplied sentencing guidelines, a ruling that made inevitable a reduction in his sentence. Skilling's resentencing was delayed for years, however, as he fought to overturn his convictions. He has consistently maintained his innocence.

In 2010 the supreme court ruled one of Skilling's convictions was flawed and that prosecutors had overreached themselves using the "honest services" fraud law. But that decision did not lead to a retrial, as Skilling had hoped. In May prosecutors brokered a deal with Skilling to reduce his sentence in return for the end of his appeals and an agreement to forfeit the seized assets.

Enron's collapse wiped out more than $2bn in employee pensions, $60bn in Enron stock and cost thousands their jobs. The $40m seized by the government will be distributed to victims of Enron's fraud.

"The investigation and prosecution of [Skilling] has been ongoing for more than 10 years," the agreement stated. "The government has invested extraordinary resources into this case during a lengthy investigation, pre-trial litigation, trial and extensive post-trial litigation before the District court, the Fifth Circuit Court of Appeals and the Supreme Court. In the absence of this agreement, the parties anticipate substantial ongoing litigation. By the terms of this agreement, [Skilling's] convictions will become final."

This article originally appeared on guardian.co.uk

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PRESENTING: The Bubble With No Name Yet

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SCHWAB: Every Bond Investor Needs To Know These 5 Things

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

5 Things Every Bond Investor Needs To Know (Charles Schwab)

Bond funds have recently been awash with redemptions. And recent signals from global central banks have created a rout in markets and U.S. Treasury yields have climbed over 50 basis points since May. In this environment Kathy Jones, Rob Williams and Collin Martin of Charles Schwab write that there a few things bond investors need to know. 

1. "Tapering is not tightening, and the Fed may not change policy until later this year, but an increase in interest rates is warranted on the prospects of less QE down the road." 2. "Riskier assets are being repriced." 3. "Markets may be overreacting, but breaking up is hard to do." Investors reaching for yield often end up having to liquidate their positions in the early stage of a shift to higher rates. 4. There are opportunities in higher yields. 5. Go over your fixed income portfolio to make sure that the bonds you own match up to your investment goals.

Abnormal Returns Crowdsources A Summer Reading List For You (Abnormal Returns)

Abnormal Returns reached out to some independent finance bloggers and asked them for some good financial books they read in the past year. Here are some of the bloggers and their recommendations. 

Here are five books that Robert Seawright of Above the Market recommended. 1. Forecast by Mark Buchanan 2. The Storytelling Animal: How Stories Make Us Human by Jonathan Gottschall 3. Investing: The Last Liberal Art byRobert G. Hagstrom 4. The Signal and the Noise by Nate Silver 5. The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J Mauboussin. Find the complete list at Abnormal Returns.

The Most Important Chart In The World According To Aswath Damodaran (Business Insider)

Business Insider reached out to some of Wall Street's brightest for their most important charts. NYU professor Aswath Damodaran sent over a chart of equity risk premiums in the U.S.

"My point is a simple one. Stocks looks reasonably priced only because the treasury bond rate is at historic lows. If the Fed loses its ability to con markets into keeping rates low (and it is a con game), stocks have nowhere to go but down. (For those who are skeptical, look at Japan)."

Business Insider

FINRA Will Conduct More Background Checks On Arbitrators (The Wall Street Journal)

The Financial Industry Regulatory Authority (FINRA) will conduct more background checks on arbitrators, according to The Wall Street Journal. This comes after a lawsuit alleging that arbitrator Demetrio Timban, who presided over a dispute brought by Athena Venture Partners against Goldman Sachs, had been indicted in New Jersey for practicing law without a license. 

FINRA previously only conducted a background checks on arbitrators when they first applied, now arbitrators will be subject to annual checks.

Treasury Bonds No Longer Provide A Hedge To The Stocks In Your Portfolio (Walter Kurtz)

"The last time short term correlation between treasuries and US equities turned positive was at the beginning of Fed's QE2 in 2010. At the time both equities and treasuries rallied in anticipation of the new stimulus," writes Walter Kurtz of Sober Look.

"Now we are back to positive correlation, except this time the reverse is taking place (at least in terms of expectations). Treasuries no longer provide the hedge for equities portfolios that the markets have become accustomed to (see discussion). It may take another crisis to send the correlation back into negative territory."

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Yes, The Average American Should Care About 'The Taper'

You may have heard on your car radio or on television last night after you came home from work that the stock market had a bad day, dropping about 2.5%.

Probably the newscaster said something about it being a reaction to the Federal Reserve Bank's announcement that it expects to "taper" its purchases of long term bonds in the near future.

While the daily gyrtions of the stock market are not worth getting excited about, IF the "taper" happens, it likely will affect you.

Let me explain why.

First of all, let's put the stock market decline of the last two days in perspective. Here's a daily graph of the S&P 500 since the beginning of this year:

The Bonddad Blog

Note that the market rose almost 20% since January 1. Even with the 5% selloff over the last 2 days since Bernanke confirmed that the Fed intends to start "tapering" soon, it is still up over 10% for the year.

While I don't presume to read traders' (or trading computers') minds (see Barry ritholtz' note this morning about ex post facto rationalizations), generally speaking there is concern that the "taper" of long term bond purchases will cause bond yields (the percent of interest paid on them) to rise. When bond yields rise, the market price to purchase or sell those bonds falls.

When most traders expect prices to fall in the future, what do they do? They sell the assets now, causing prices to fall immediately, rather than in the future! That's exactly what has happened over the last month, as shown in this graph of the yield on the 10 year US treasury bond for the last year (keep in mind that yields going up means prices going down):

FRED

This is a sharp move, although as we'll see in the next graph, from a longer-term perspective, it is little more than a blip. That being said, there's a pretty good chance that last summer's low in long term interest rates may be the lowest you will ever have seen in your whole life.

The reason average Americans should care about the "taper" is that higher interest rates on bonds also means higher interest rates on things like mortgages. One of my constant points on this blog for the last several years has been that households' refinancing of their mortgage debt at lower and lower rates has put more money in their pockets for spending and for paying down debt.

This next graph is an update of one from Mortgage News Daily that I've run a number of times over the last couple of years, comparing the amount of mortgage refinancing (yellow) with mortgage interest rates (blue):

The Bonddad Blog

The graph starts in 2008 at the depths of the recession. Note that refinancing was at its low ebb. Since then and especially in late 2011 and 2012, with record low mortgage rates refinancing has boomed.

At the far right of the graph you can see the last month's spike in mortgage rates, and the steep decline in refinancing back to mid-2011 levels.

Simply put, the more the "taper" causes interest rates to rise, the less refinancing of mortgages we will see. We'll probably also see a decline in the amount of purchases of new homes as well, since purchasers will also be faced with higher mortgage rates.

And mortgage refinancing has been one of the most important reasons why the economy has continued to move forward in the last few years, despite the stagnation in real wages, which is what is show in this next graph of average hourly wages divided by consumer prices to give us "real hourly wages":

FRED

Real hourly wages have improved over the last 12 months, but they are still below where they were all through 2009 and 2010.

So average Americans should care about the "taper." To the extent it causes interest rates to rise, interest rates you pay on any new debt are likely to go up. Refinancing of old debt will pretty much vanish. Further, at 7.5% unemployment, it is unlikely that real wages are likely to appreciate significantly, to say the least! Interest sensitive sectors of the economy, like home building, will likely deteriorate. With manufacturing already stagnant, the likelihood of falling into a new recession next year increases greatly (remember that interest rates are a long leading indicator, and increases tend to take a year or more to be felt in the real economy).

Finally, let me point out that in the above analysis, I am being like the Ghost of Christmas Future in "A Christmas Carol." I am not showing you what will be; only what might be. All of those bonds I mentioned above, being sold by traders? Other traders bought every single one. There are some people who think the upward move in interest rates is overdone, and they see a buying opportunity. In other words, there is no certainty that the Fed "taper" will cause interest rates to move higher than they already have. Even more importantly, Bernanke premised the "taper" on unemployment moving to 7% or below. If the economy slows because of anticipated or real higher interest rates, we won't see unemployment moving under 7%, and then the Fed is likely to reconsider and not "taper" at all! In other words, it could be a self-unfulfilling prophecy.

But the ultimate conclusion remains that average Americans are deeply and negatively affected by rising interest rates (not to mention what it means for interest paid on new national debt). If the "taper" means a rise in those rates, average Americans should be aware and should care.

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Pre-Market Gains Are Evaporating

Already today is not looking that pretty.

After yesterday's big losses, there was a bounce this morning.

That bounce is evaporating a bit.

The market is still set to open with gains, but they're really meh.

From Yahoo Finance:

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Devon’s MLP Plans Fall on Deaf Ears

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And Just Like That, The Market Rally Is Gone

After two huge stock market sell-offs, some traders were speculating that we could see a "dead cat bounce" today.

But so far, the bounce has been pretty unremarkable.

After trading up 100 points at the open, the Dow has lost all of its gains. All three major stock market benchmarks have gone into the red.

Recent volatility in the markets appeared to be triggered on Wednesday afternoon when Federal Reserve Chairman Ben Bernanke suggested that the Fed could soon begin to taper, or gradually reduce, its extraordinary stimulative bond-buying program, aka quantitative easing.

For those who missed it, here are Bernanke's exact words:

"Going forward, the economic outcomes that the Committee sees as most likely involve continuing gains in labor markets, supported by moderate growth that picks up over the next several quarters as the near-term restraint from fiscal policy and other headwinds diminishes. We also see inflation moving back toward our 2 percent objective over time. If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear."

These comments were immediately followed by a surge in interest rates and a collapse in the stock markets, two trends which appear to be continuing into today.

The 10-year Treasury yield is currently at 2.5%, the highest levels since 2011.

In an unprecedented move, the St. Louis Federal Reserve published a statement this morning articulating the concerns of Fed President James Bullard, who disagreed with how Bernanke communicated tapering.

President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed.  The Committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store.  President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement.

In addition, President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy.  President Bullard feels strongly that state-contingent monetary policy is best central bank practice, with clear support both from academic theory and from central bank experience over the last several decades.  Policy actions should be undertaken to meet policy objectives, not calendar objectives.

It's still early in the day.  Maybe things will turn around.

Google Finance

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