The Five Dumbest Things on Wall Street This Week

1. Timeshare

Five years after the collapse of Enron, Ken Lay and Jeff Skilling are headed for jail.

A federal jury in Houston convicted the former Enron chiefs Thursday. Jurors found the men guilty of fraud and conspiracy in the energy trader's 2001 collapse. A Sept. 11 sentencing will decide whether they spend the rest of their lives in prison.

Despicable as Lay and Skilling are -- what with the lying, the pumping-and-dumping, the outrageous pay -- perhaps the most galling thing about the scandal was their defense at the trial.

"This is not a case of hear no evil, see no evil," Skilling lawyer Daniel Petrocelli insisted in February, The Wall Street Journal reports. "This is a case of there was no evil."

Somehow, though, jurors seem to have noticed the guilty pleas entered by more than a dozen other Enron defendants -- many of whom ended up testifying against Lay and Skilling.

So come Thursday, Petrocelli was promising a vigorous appeal and rationalizing the jury's decision. "They saw it their way," he said.

For his part, Skilling said it's time to "go back and think this thing through."

He'll have plenty of time for that where he's going.

Dumb-o-Meter score: 95. "This closes the door on the poor-monkey defense," former Securities and Exchange Commission chief Harvey Pitt told CNBC.

To view Colin Barr's video take on Enron's entry in Five Dumbest this week, click here .

2. Freefall

XM Satellite's ( XMSR) star keeps falling.

This year the satellite broadcaster has been scolded by backers, sued by music companies and probed by regulators. Its shares have lost almost half their value.

Yet this week the news actually got worse. The stock hit a multiyear low after XM fell behind rival Sirius ( SIRI) in their two-way race for users -- and then tried to weasel out of responsibility for its poor performance.

XM conceded Wednesday that it won't hit its own year-end subscriber and revenue forecasts. That's bad enough, given the industry's growth obsession. But even worse was XM's explanation.

"The satellite radio category has seen an overall softness at retail during the second quarter to date," CEO Hugh Panero claimed.

Panero did admit that XM was late in rolling out some new radio models. Yet the "overall softness at retail" somehow seems to have eluded Sirius, which promptly reaffirmed its own subscriber target.

"We continue to experience dramatic growth and strong demand for our service across our retail and automotive OEM channels," Sirius CEO Mel Karmazin said in a release later Wednesday.

Meanwhile, XM cautions that the going could get even rougher. "XM is currently working through regulatory and legal challenges," the company said Wednesday, "the resolution of which could affect future product availability and operating results, and require us to review this revised guidance."

We can't wait to hear what excuse they cook up then.

Dumb-o-Meter score: 93. XM earlier blamed a failed acquisition on regulatory red tape. What next? Will the timing of the July Fourth holiday take them by surprise?

3. Lemon Tree

The Vonage ( VG) IPO got slammed.

This week, the Holmdel, N.J., Internet phone company held its long-awaited initial public offering. Vonage raised $531 million, making it the biggest Internet IPO since Google ( GOOG) scored $2 billion in August 2004, Thomson Financial said.

But comparisons to Google, which gained 18% on its opening day and never looked back, quickly evaporated when Vonage stock opened on the New York Stock Exchange. Vonage shares plunged 13% Wednesday -- giving its IPO the biggest opening-day drop this year -- and slid another 13% Thursday, dropping below $13.

Of course, there are other differences. Where Google mints money, Vonage incinerates it. Where Google stands above its Net search rivals, big competitors are crushing Vonage. And where Google fatuously pledged to do no evil, Vonage is making no promises.

Founder Jeffrey Citron, who still owns 31% of Vonage, agreed in 2003 to pay $22.5 million to settle charges that he illegally manipulated Nasdaq's small-order trading system for personal gain. Citron didn't admit to any wrongdoing, but Vonage warned in its prospectus that would-be customers might have some issues with his run as the former owner of daytrading firm Datek.

"We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters," Vonage said.

One other risk is that insiders, who hold more than three-quarters of the stock, might want to get out. Some 124.5 million of Vonage's 155 million shares are "restricted securities" subject to a 180-day lockup, the prospectus notes. "We expect," Vonage says, "many of these shares will be sold when these lock-ups expire."

Assuming there are any buyers, that is.

Dumb-o-Meter score: 90. Can't say Vonage left any money on the table, anyway.

4. Fannie Covering

Fannie Mae ( FNM) got slapped around again this week.

The mortgage giant agreed to pay $400 million to settle a long-running investigation of its accounting. Regulators at the Office of Federal Housing Enterprise Oversight (OFHEO) issued a 348-page report accusing the company of having an "arrogant and unethical corporate culture."

Fannie, which had commissioned a more mealy mouthed report, assures investors the arrogance is now behind it. "We have all learned some powerful lessons here about getting things right and about hubris and humility," CEO Daniel Mudd said in a statement Tuesday. "We are a much different company than before. But we also recognize that we have a long road ahead of us."

Just how long that road might be came out in a New York Times piece on the Fannie mess. The OFHEO report said that as operating chief under former CEO Frank Raines, Mudd "listened as employees expressed concerns about Fannie Mae's accounting practices during an informal 2003 meeting, but in the view of the regulator, did not adequately follow them up," the Times reported Wednesday.

"I absolutely wish I had handled it differently," Mudd told the Times in an interview.

That's more than you can say for Raines. He was finally forced out of Fannie in December 2004 after the Securities and Exchange Commission ruled once and for all that the company's accounting was wrongheaded. But to this day, Raines sees himself as one of the good guys.

Raines "promised in October of 2004 that he would hold himself accountable if it was determined that Fannie Mae misapplied accounting rules," thunders a Tuesday afternoon statement from his lawyer. "When the SEC made that determination in December of 2004, he made good on his promise, retiring early and ending his long career at Fannie Mae."

Not a moment too soon, obviously.

Dumb-o-Meter score: 85. Ah, Frank Raines: Promises, promises.

5. Team Building

Juniper ( JNPR) didn't just get swept up in the options backdating probe this week. It got downright carried away.

The Sunnyvale, Calif., networking outfit said Monday it got a request from the U.S. attorney in Brooklyn for information on its stock-option grant practices. Prosecutors and the SEC have made similar inquiries at almost two dozen companies in the last month, including giants like UnitedHealth ( UNH) and Caremark ( CMX).

Regulators are looking into the possibility that stock options could have been timed or backdated to maximize their value to company executives. Most companies have been content to say when they got their letter and that they intend to cooperate.

But Juniper, whose shares have lost a third of their value this year as its sales growth has faded, was less guarded. Why, you could almost hear a Juniper pep rally getting under way at the end of Monday's press release.

"Juniper is a quality company whose success is the byproduct of an unwavering commitment to customers, employees, partners and shareholders," CEO Scott Kriens said in the Monday morning statement. "This will not change. We will remain focused on our business objectives while we respond to these inquiries."

You go get 'em, Scott.

Dumb-o-Meter score: 80. Maybe you're not part of the "in" crowd till you get one of these letters.

In our award-winning effort to enrich the reader experience, the Five Dumbest Things Lab now scores each item using our proprietary Dumb-o-Meter. This cutting-edge technology employs a finely calibrated, 100-point scale measuring sheer Dumbness, as calculated via a closely guarded secret formula.

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