Enron's "Project Truman": Unraveling a Universe of Masterful Illusions

The Truman Show is Jim Carrey's greatest acting moment and one of Peter Weir's greatest directorial moments.  In this first reality TV show from which all current variants have been spawned, Jim Carrey plays Truman Burbank, an unwanted baby who's been adopted by T.V. Corp. to play the lead role in a world that everyone in the world, but him, knows has been staged. 

But what do The Truman Show and Enron have in common?  More than one might think.  Apparently between August 2001 and December 2001, Enron considered engaging Goldman, Sachs & Co. to explore--as Goldman described it in recent Court filings--"options for the company in response to declines in its stock price and perceived takeover vulnerability and to consider the company's need to prepare for hostile takeovers and sale transactions that might improve its balance sheet."

Goldman's adversaries in litigation allege in this complaint that Enron's $1 billion prepayment of short-term commercial paper within 5 weeks of the bankruptcy filing at face value (instead of the junk market price they were really worth) was both a preferential and a fraudulent transfer (Goldman got about $300 million).  They also disputed Goldman's innocuous description of its discussions with Enron, preferring instead to characterize them as "discussions of a potential engagement under which Goldman would serve as a consultant to advise Enron on ways to stave off the pending financial debacle." 

Curiously, the nickname Goldman pinned on the project was "Project Truman.Deal nicknames often say a lot about the nature of the deal, and given that Enron was by any measure the greatest financial illusion in corporate history, attaching the moniker "Project Truman" on the potential engagement is a telling premonition of trouble afoot.  Still, no one yet has fessed up to who chose that nickname for the project--or why.

Notably, the only reference to "Project Truman" in any actual substantive document produced in the litigation to date is in these "Discussion Materials" that were distributed at a "Project Truman" lunch meeting that Ken Lay and Andrew Fastow had scheduled with Goldman in Woodland, Texas for September 6, 2001, just five days before the tragedy of 9/11 sent the financial markets into a tailspin and effectively dried up whatever liquidity remained at Enron.

On page 6 of the Discussion Materials, the bold-faced-boxed-word "Truman" rests atop a decision tree detailing Enron's "next steps" after "Truman."  Based on the discussion at page 5 of the materials entitled "What Message Do You Deliver to the Street," the boxed reference to "Truman" sure looks like a convenient tag for the preceding page's 12-point Truman-esque bubble-bursting "message to the street."  The Goldman decision tree under the bold boxed word "Truman" suggests that once "Truman" confronts reality, one should first measure the effect of that reality check on "credit stability."  If the effect is positive (or "yes"), then continue to the next level down and determine whether "establishing counterparty confidence" can be achieved.  Conversely, if the effect on credit stability is negative (or "no"), then say sayonara to Enron in a "quick sale."  For his part, Fastow had this to say about the Project Truman meeting with Goldman, which was quite a different spin on the meeting than Lay recounted at trial.

Back now to the avoidance litigation over the pre-bankruptcy payoff of the junk commercial paper.  In February of this year, a few of the defendants in this protracted litigation (docket here) requested from Goldman all documents relating to Project Truman.  Goldman respectfully declined, arguing that it was irrelevant.  The defendants moved to compel production (joined by the Enron litigation trust).  Goldman objected and the movants replied (as did Enron).

Judge Arthur Gonzalez (a former 13 year veteran schoolteacher in New York's public schools who won the equivalent of the "Bankruptcy Judge Lottery" by having been randomly selected to be the presiding judge -- at the same time -- over the two largest bankruptcies of all time: Enron and Worldcom), took little time to decide this discovery dispute.  Just nine days after about 800 pages in briefs and exhibit attachments had been finally submitted, he issued this ruling granting the motion to compel production, concluding:

light of (1) the discovery posture of this case following a denial of a motion to dismiss and motion to stay discovery; (2) the broad definition of relevance articulated in Fed. R. Civ. P. 26, (3) the overall relevance of the Project Truman materials to the issues of Goldman’s agency and good faith, and (4) the acknowledged lack of burden on Goldman to produce such material, this Court finds that the motion to compel is warranted.

Judge Gonzalez also rejected Goldman’s suggestion for an in camera review of the materials, stating:

Such review is more appropriate in circumstances involving privileged or confidential information. The Court agrees with the Movants that a court’s in camera inspection “is no substitute to full disclosure to, and review of the disputed materials, by a litigant’s counsel, who is best positioned to know the party’s strategy and assess the relevance vel non of the information contained within the disputed materials.

Of course, my theory on why Truman was selected as the nickname for the deal is complete speculation.  But considering that the movie had been released three years earlier, and only two years earlier on video, perhaps the movie was still fresh in the mind of a Goldman deal kingpin looking for a creative--and apt--nickname for the bursting of the greatest financial illusion in corporate history.  Time will tell.

© Steve Jakubowski 2007

Written By:MICKEY On November 29, 2007 4:08 AM

Fall from grace