Calpine Imploding

This provides a classic example of the debt market, which has been pricing bad news into the company's borrowings for about two months -- light years ahead of the equity market. What equity analysts overlooked throughout this process was that the company was always in the hands of the debt holders.

With a market capitalization of under $1 billion, and more than $17 billion in debt, the equity side of the equation was essentially worthless, regardless of the outcome of this trial. Recently trading at $1.46, the stock is down some 55% since August.

Signs of Stress

There were obvious warnings signs that something was not right at Calpine:

• CEO Peter Cartwright has been a big seller of the stock.

• Two members of the board have defected, including Jeffrey Garten, a member of the audit committee.

• The company misstated its EBITDA results in its third-quarter earnings release.

• Capacity utilization has been well below historical standards.

• The company has been selling off EBITDA-generating assets in order to meet required debt repurchases.

• The indenture trustee, Wilmington Trust, was named on the lawsuits against Calpine.

• The company backed away from its targeted $3 billion debt-reduction plan.

Despite all of that, a handful of equity and debt analysts have remained upbeat on Calpine's prospects to turn itself around.

It is also interesting to note that at its current quote, CEO Peter Cartwright saved himself about $1.7 million by selling stock at $3.22 a share, delivering highly positive chatter within days of two board members defecting, and the company received a letter from the Bank of New York saying it wouldn't release money from the trust account for natural gas proceeds due to bondholder complaints about the use of proceeds.

Despite regulator attempts to level the playing field, it's hard to make a case that anything has changed since Enron, when you've seen something like this go unchecked for so long.

Calpine has not yet commented publicly on how it plans to proceed following this ruling. But I don't believe any investors will really care what the company has to say.

In my past conversations with company spokeswoman Katherine Potter, among others, I was often directed to better understand what they were trying to tell me. But I never got the sense the company had a handle on its own reality when I tried to get my arms around their defense.