[This essay draft was written by Rex Shelby shortly after he was interviewed by FBI agents in August 2002. At that time, Rex, who was the former VP of Engineering at Enron Broadband Services (EBS), thought the essay might be an interesting piece for the (now defunct) “State Lines” section of the Houston Chronicle newspaper where he had published an essay earlier in the year. However, before Rex could finalize and submit the essay, he was indicted by the U.S. Justice Department on multiple counts of criminal wrongdoing. At the time Rex wrote this essay, he had no idea that he would eventually be indicted and spend nine years of his life battling the U.S. Government.]

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The Watchmen

On the evening of August 15, 2002, two FBI agents knocked on the door of my apartment in Houston. I had just come back from an exercise run on the dirt trail around Rice University, so I was still in my jogging clothes. When I opened the door, the agents held out their badges and introduced themselves — I remember thinking how it was just like a scene out of a movie. The agents looked solemn and professional. Even though it was a hot evening, the agents were dressed in suits, and after I invited them into my apartment, they never took off their jackets.

The agents said that they wanted to ask me a few questions about my time at Enron, specifically the time I had spent as an employee of Enron Broadband Services, Enron’s communications venture, commonly referred to as EBS. They told me that they were talking to lots of former employees as part of a general information-gathering effort. I wondered at the time why in the world the agents had not called me first to arrange the meeting, or at least to confirm that I was indeed at home and able to meet with them. It was disconcerting to suddenly see FBI agents at my door without any previous notice or contact.

Even given the importance and visibility of Enron’s bankruptcy, I was surprised that the agents were interested in talking with me. I had only spent about eighteen months at EBS back in 1999 and early 2000, the start-up period of that business, and I certainly had never seen anything that was illegal there. However, like everyone else who had ever spent any time at Enron, I had opinions about what I had experienced there. So under most circumstances I would have been happy, even a bit flattered, to be asked by the federal investigators to provide my perspective on Enron. However, the unannounced appearance of the agents and their stoic demeanor was anything but a pleasant surprise. Nonetheless, I sat down with the agents in my apartment, and I answered their questions in a meeting that lasted about three hours.

The agents’ questions did not seem to me to be focused on any particular topic, and my answers were equally impromptu and off-the-cuff. Still, by the end of the meeting, I felt that I had provided the agents with some background information on Enron’s broadband efforts that might be useful to them as they continued to gather facts. When the agents left, they thanked me for my openness and my willingness to spend time with them.

A couple weeks later, I was told that I should hire an attorney because some of the members of a federal task force were potentially interested in investigating me further.

I simply do not have the words to describe the shock I felt at that news. I have never had more than a traffic ticket in my life, and I had no concept of what it meant to be involved in a federal criminal investigation — it was simply unimaginable to me. I had no idea even how to search for a proper attorney. Fortunately, I quickly received assistance from helpful friends. But as I think back on those initial days, I remember feeling like I had been shanghaied to a strange world where normal logic and reason no longer applied.

I spent most of my waking moments during those first weeks thinking back on my time at Enron. What could I possibly have done that would be of interest to federal investigators? I could not think of anything unprofessional or unethical, much less illegal, that I had done during my brief time at EBS. Could I have done something wrong unintentionally of which I was not even aware? Had I said something to the agents that made them distrust me? Had someone else said something unfavorable about me to the federal agents? Since the federal investigators never offered an explanation of their interest or intent, I had no clue as to what I should do.

What was really ironic to me is that it was only by a stroke of happenstance, unfortunate happenstance as I now view it, that I ended up spending time at Enron at all. I landed at Enron because a small Houston-based software company, Modulus Technologies, was acquired by an Enron-owned communications start-up company, Enron Communications Inc., just before Christmas in 1998.

Back in 1994, when I joined Modulus Technologies as part of its management team, I was the fourth employee of that newly started venture. At that time, we could only afford to rent one windowless room in an old building in Rice Village, a small business area near Rice University, as our office. Modulus had a software technology, called middleware, that could be used by programmers to build software applications which needed to operate over networks. Like all new business ventures, the success of Modulus was a long-shot. But I was an experienced entrepreneur, and I jumped into the venture fully aware of the risks and optimistic that my partners and I could build a successful company.

And, in fact, Modulus beat the odds. Over the next five years, working pretty much seven-days-a-week, the Modulus team grew the company from nothing to a business with a market value of tens of millions of dollars. And we did it the “old-fashioned” way. We did not take venture capital, and we did not incur large debt; instead, we financed the business ourselves, first out of our own pockets and then from sales of our software products. I and other managers deferred much of our salary in the early days in order to provide time to get the business going. And we never missed a payroll, even though there were many times during the first couple years of the business when I and my partners met the payroll out of our own pockets. If Modulus had failed, all of us would have been left with nothing at all, including nothing in our personal bank accounts.

But Modulus did not fail. We grew our company slowly and steadily, adding employees and expanding office space only after we secured the customer revenue to cover each additional expense. Our conservative approach eventually yielded benefits for Modulus — by the beginning of 1998, our fifth year of existence, we were receiving attention from other technology companies with potential interests in acquiring Modulus. And after lots of discussion, we were getting close to an agreement with one of the big California technology firms in Silicon Valley. Then, at the eleventh hour of our Silicon Valley negotiations, we were contacted by Enron Communications Inc., or ECI as its employees called it.

The ECI story was intriguing to the Modulus team. In 1998, ECI was a brand-new communications start-up venture with only a few dozen employees and an exciting approach to the communications business. It was launched as a spin-off from Portland General Electric, a utility company in Portland, Oregon which had been recently acquired by Enron. So Enron, in effect, served as the venture capital supplier to ECI even though, at the time, Enron considered ECI to be a side venture with no direct connection to its core businesses.

Consistent with a high-tech start-up model, all ECI employees received ECI stock. This ECI stock was not publicly traded and would become valuable only if the employees were able to build a successful company which they could, at some point in the future, spin off from Enron as a stand-alone entity. And, important to the Modulus team, Enron was largely a passive investor in ECI, not involved in the day-to-day operation of the business. So, to the Modulus team, ECI looked like a classic high-tech venture, with lots of risk, but with good initial financing and an innovative business plan. After lengthy and difficult negotiations, the acquisition of Modulus by ECI was completed in December 1998.

The early months of 1999 were exciting and productive times for ECI. I made a temporary move to Portland to help coordinate ECI’s engineering functions while we worked hard to recruit additional technical talent from the communications industry. When I think back on the year 1999, it is amazing to me how much the ECI employees achieved in such a short time with relatively limited resources. We were pioneering technologies, such as cloud computing and software applications embedded in the network, that we believed would change the industry. The company seemed to be on track in those early months.

But, ironically, this early success by ECI also sowed the seeds for the events that would send the company in a new and, at least for me, a less intriguing direction.

By the summer of 1999, the early achievements of ECI had caught the attention of Enron’s corporate management in Houston. Enron management had apparently become enamored with the promise of the communications industry, and, at the end of June 1999, they announced that ECI had become a “core Enron business”. What Enron management said this meant is that ECI would now get more attention and “help” from Enron; what it actually meant operationally is that ECI soon received an overwhelming influx of Enron employees who transferred to ECI from other Enron businesses. In particular, the management ranks of ECI quickly became dominated by people from Enron’s various commodity trading businesses. In addition, all ECI employees lost their ECI stock and received, in its place, Enron Corp. common stock or stock options. Much of the promise and entrepreneurial culture of the independent high-tech start-up, which had been the origin of ECI, was lost when the company became “core” to Enron Corp.

This overnight “takeover” of ECI by Enron was depressing to me and, as I was told, to most of the early ECI employees. Although the remaining months of 1999 were extremely productive ones for ECI, the changes in the company culture became more obvious over time. The center of gravity of the new ECI quickly shifted from Portland to Enron headquarters in Houston. And although most of the old ECI employees tried hard to adjust to this new situation, a number of them left the company over the next several months. Still, ECI grew rapidly as new employees came on board, and eventually the company was renamed Enron Broadband Services or EBS.

I lasted just over twelve months after ECI became a core Enron business. I found myself in frequent disagreement with the new management over various business directions, particularly in the early part of 2000. In my case, the disagreements were purely over business and professional issues; I never saw anyone at ECI or EBS commit an illegal act. My overarching concern at the time was that the people entering EBS from other Enron businesses, while bright and enthusiastic, simply had no communications or high-tech experience. While they meant well and tried hard, they simply lacked the knowledge to make consistently good business decisions in the communications industry. And, true to the Enron culture, they were often too self-assured to listen to the counsel of people who had actually worked in high-tech companies. This combination of ignorance and over-confidence was an unfortunate mix for EBS because it led EBS management and employees to work on too many (albeit, often innovative) projects simultaneously instead of focusing on a few core activities during those formative start-up days.

To be fair, the tremendous promise of bandwidth trading, a concept that the new managers brought with them from the other Enron businesses, seemed to more than compensate for their shortcomings as technologists. Enron traders believed that EBS had the opportunity to rationalize the unbalanced supply and demand of bandwidth by encouraging the formation of a commodity-like bandwidth market, very much as it had done with energy commodities such as natural gas and electric power. I personally had no background in the trading business, so I could not really evaluate the potential of a bandwidth commodity market. However, I knew that trading was a core Enron skill, and, therefore, I largely accepted the traders’ projections for that business. But since I personally had no interest in the trading part of the business, which was clearly dominating EBS management mindset by 2000, I decided to depart from EBS that year.

When I left EBS in 2000, I was disheartened to have lost the old ECI. It was not that I believed EBS was on a path to failure, but rather that it was now a very different company than the one I had originally joined. I also regretted that I had agreed to the acquisition of Modulus by ECI back in 1998 and that the ex-Modulus employees were now stuck in a company that they never would have joined if they had been able to foresee Enron Corp.’s “acquisition” of ECI.

But, despite these regrets, I eventually chalked the events down to experience and moved on from Enron to my next venture. And EBS was not a topic I thought much about anymore until those federal agents came to my door in the summer of 2002.

I understand now that my experience with the agents was not at all unusual. I have read in the press that a large federal task force is permanently assigned to Enron, that it is eager to get at the top Enron management, and that it is willing to use “tough” tactics to get what it wants. I have been told that federal investigators have informed as many as a couple dozen ex-EBS employees that they are “targets” of the federal investigation in an effort to encourage them to talk about their experiences at Enron. Apparently the investigators hope that these people know something incriminating about some senior Enron managers and feel that they need to be “pressured” in order to talk honestly with the members of the federal task force.

I have no way of confirming this information, and I really have no idea of the motivations behind the actions of the federal investigators. I just hope that much of what I have heard about the task force tactics is not correct. I cannot believe that federal investigators are willing to terrorize dozens of people on the hope that one or two of them might know something of value. Given the number of people who were hurt by Enron’s disintegration, it is genuinely painful to consider that many of these people could be bruised yet again by the tactics of the federal investigators. If there are people at Enron who are guilty of criminal behavior, then I, perhaps more than most, will be delighted when the federal investigators bring them to justice. However, I have to believe that intimidation is not the best way to encourage ex-Enron employees to cooperate with the task force.

This experience has already changed me. I have never cared much for big business — this is one of the reasons I have been an entrepreneur. And, in the past, I always felt that the federal government was on my side against potential big business excesses. In fact, as a former officer in the U.S. Air Force, I always felt a kind of protective kinship with the government. Now, frankly, I am as uncertain about the motivations and practices of the government as I am of big business. Both institutions appear equally capable of stepping, albeit unintentionally, on the very people they should be serving.

I assume that, by now, the federal investigators have gathered enough facts to know that I am not of interest to them. But now that I have seen how a federal task force can operate, I still worry about the process of these federal investigations and about the public’s acceptance or lack of knowledge of them. I am disheartened when I hear Congressmen, politicians, and citizens on the street make comments that brand all ex-Enron workers as greedy or evil people. I understand now that the danger of this kind of unthinking comment is that it encourages, perhaps even pushes, federal investigators to wield their immense power in ways that can cause injury to the innocent.

And I am reminded again of that well-known Roman phrase, “Quis custodiet ipsos custodes” — “Who watches the watchmen?”. My experience with Enron and the subsequent questionable activites of the federal task force has shown me that, in this free country, the ultimate answer to that question must be: “You and I”.

Rex Shelby
January 19, 2003

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[Rex Shelby was indicted by federal prosecutors in May 2003, a few months after he drafted this essay. Rex was “the last man standing” among the various Enron defendants, the person who fought the U.S. Justice Department the longest before finally settling his case in March 2011. You can read about the struggles of Rex and other EBS executives in the book, Blogging Enron: The Enron Broadband Story by author and blogger, Cara Ellison.]

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