Blame it on the “vultures.” That was part of the defense outlined by attorneys for Ken Lay and Jeff Skilling during opening statements of their trial Tuesday.The vultures in this case are short sellers. To hear defense attorney Mike Ramsey tell it, short sellers destroyed Enron for a quick profit.
The short sellers themselves, of course, see it differently.
“In the Enron drama, one of the few players who were wearing white hats were the short sellers,” says Jim Chanos, president of New York-based Kynikos Associates. Chanos began selling Enron’s stock short in November 2000 after he scoured its financials and grew suspicious of its low rate of return on capital.
So, who are these shadowy villains who lurk in the recesses of the market?
In simple terms, they’re contrarians. They invest in a stock because they believe it will fall. They borrow shares and sell them at the current market price. They later buy new shares to replace the ones they borrowed, hoping the price has fallen in the interim. The difference between the borrowed price and the payback price is their profit.
They are, in other words, people who make money betting against the inherent optimism of business. As such, they are not well liked by executives and even many other investors. That makes them easy scapegoats for management failure.
It was another short seller, Richard Grubman of Highfields Capital Management, who drew the infamous expletive from Jeff Skilling during a conference call in April 2001. That call was replayed in court on Thursday afternoon.