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| Volume No. 1 Issue No. 22 - Friday, May 31, 2002 |
Jones Murphy Speaks Out
He began as an astrophysicist and ended up making millions for his clients on Wall Street.
by: Thomson
Fontaine
Jones
Murphy was on Sunday June 2, featured on the front page of the business section of the New York Times. In a sensational story entitled "A Collision on Risks of Energy Trading", Murphy related to the New York Times Neela Banerjee how he repeatedly warned Blake Herndon, director of risk management at the Williams Companies, that its energy trading risks were excessive. Williams's stock price has fallen 71 percent in the last two years, from a high of $48.77 to about $11.00
In August 2000 Williams Companies, the second-largest owner of natural gas pipelines in the United States hired Murphy as director of emerging products at its Tulsa Oklahoma headquarters, to help manage its trading risks. At the time, Murphy was promised wide latitude to develop financial instruments to manage the credit, currency and interest rate risk that the company encountered in trading. If not properly managed, those risks could lead to hundreds of millions of dollars in losses. The company has over 12, 000 employees and in 2001 recorded sales of over $11 billion.
Before moving to Tulsa, Murphy worked on Wall Street as an assistant vice president for the hybrid derivatives group at Bank of America where he managed accounts for some of the biggest names on Wall Street like Goldman, Sachs. During his time on Wall Street, Murphy was one of only a handful of black executives occupying such a position.
An Astrophysicist trained at the California Institute of Technology, Murphy was wooed away from the archaic world of Astrophysics to the high stakes world of money and finance on Wall Street. As an astrophysicist, he concerned himself with researching black holes and attempting to figure out the origins of the universe, and on Wall Street he was helping companies hedge their risks by the use of complicated financial instruments while making these companies millions of dollars in the process.
The son of Jones Murphy Sr (former teacher at the St. Mary's Academy) and Edna Murphy (a former General Consul at the Dominican Embassy in New York), Murphy attended the St. Mary's Academy and the Sixth Form college in Roseau before simultaneously receiving the Island Scholarship, the University of the West Indies scholarship award and several scholarship offers from universities across the United States. Considered a "whiz kid", Murphy migrated to the US in 1981 to pursue studies in physics, mathematics and chemistry. He later settled on astrophysics.
Murphy revealed to the New York Times that Williams Companies succeeded in driving up natural gas prices in California by cornering the market. The California attorney generals office is investigating whether natural gas prices were manipulated during the state's energy crisis, which stretched from the summer of 2000 into 2001.
Since the demise of Enron, the company has taken pains to assure investors that it is on a firm footing and that it is nothing like Enron. Murphy however contends that the company is engaging in some of the same accounting practices that brought down Enron.
In e-mail messages sent to top management long before Enron was in the news, Murphy and other employees warned management that the company had to reduce its trading risks with companies like Enron. His advice was however dismissed.
In a now famous e-mail warning Williams to hedge its risks in several California gas companies, Murphy wrote: "We're getting up to over a year now, and this money has cost us something like 50 million interest costs on funding the 800 million hole in our balance sheet. I would have hedged that risk for much less than a 50 million bonus, honest".
Again, the company failed to take his advice and several gas companies went bankrupt. In an October 8, 2001 presentation to the company, Murphy indicated that Williams Companies was owed $812 million by California utilities. When Enron collapsed, it owed the company more than $91 million.
In December 2001, the Enron scandal had captured the attention of the US public, and there was now an increased focus on utility companies. The company offered Murphy a demotion, and when he declined he was fired. It was not clear what action Murphy was pursuing against the company, if any, nor was it clear what were the effects on the company in the wake of his revelations to the New York Times.
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