Message-ID: <30226044.1075841120265.JavaMail.evans@thyme> Date: Thu, 24 Jan 2002 07:34:21 -0800 (PST) From: sarah.palmer@enron.com To: sarah.palmer@enron.com Subject: Enron Mentions (major papers only) -- 01/24/02-01/23/02 Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Palmer, Sarah X-To: Palmer, Sarah X-cc: X-bcc: X-Folder: \ExMerge - Martin, Thomas A.\Deleted Items X-Origin: MARTIN-T X-FileName: tom martin 6-25-02.PST Kenneth Lay Resigns as Enron Chairman Probe: Creditors panel urges the move= so new managers can oversee reorganization. Los Angeles Times, 01/24/2002 Enron Chief Quits Under Pressure And Calls Inquiries a Distraction The New York Times, 01/24/2002 Enron's Lay Resigns as Chairman, CEO --- Panel Appointed by Court Had Reque= sted Change; Interim Chief Is Sought The Wall Street Journal, 01/24/2002 Lay quits top post at Enron=20 Creditors asked for resignation=20 Houston Chronicle, 01/24/2002 Enron Chief Quits As Hearings Open; Lay Scheduled to Appear on Hill Feb. 4 The Washington Post, 01/24/2002 Loss booked as unit profit, memo claims=20 Houston Chronicle, 01/24/2002 Accounting for Enron: Congress Probes Shredding by Andersen --- Executives = Are Subpoenaed To Testify Before Panel In House in Enron Case The Wall Street Journal, 01/24/2002 ENRON'S COLLAPSE: THE OVERVIEW WIDE EFFORT SEEN IN SHREDDING DATA ON ENRON'S AUDITS The New York Times, 01/24/2002 THE NATION THE ENRON INQUIRY Andersen Memo Cites Objections Los Angeles Times, 01/24/2002 Enron Audit Fee Raises Some Brows Los Angeles Times, 01/23/2002 ENRON'S COLLAPSE: GAUGING THE ASSETS Plaintiffs Ask: Just How Deep Are the Pockets At Andersen? The New York Times, 01/24/2002 ENRON'S COLLAPSE: THE OFFICE Morale and Occupancy Are Low At the Headquarters in Houston The New York Times, 01/24/2002 ENRON'S COLLAPSE: THE CRITICS Sharpton, in Houston, Calls Attention to the Workers The New York Times, 01/24/2002 Sharpton urges aid for investors=20 Houston Chronicle, 01/23/2002 Taking Stock of Enron The Wall Street Journal, 01/24/2002 ENRON'S COLLAPSE: RETURNS UNDER SCRUTINY Senate Finance Panel Wants Tax Information From Enron The New York Times, 01/24/2002 ENRON'S COLLAPSE: POLITICAL MEMO In Personal Anecdote, Some See New Distance Where Others See New Strategy The New York Times, 01/24/2002 ENRON'S COLLAPSE: FADING NEST EGGS Labor Dept. Reviews Ban On Stock Sale The New York Times, 01/24/2002 Labor probes 401(k) lockdown=20 Houston Chronicle, 01/23/2002 Beware the 401(k) Gamble: Enron workers aren't the only ones rolling the di= ce with retirement savings. But efforts to limit investment in employer sto= ck meet bitter resistance. Los Angeles Times, 01/24/2002 How to Predict The Next Fiasco In Accounting And Bail Early The Wall Street Journal, 01/24/2002 Bush Official Cites Losses On Sales of Enron Stock; Army Secretary Had Been= A Company Executive The Washington Post, 01/24/2002 Accounting for Enron: Bush's Plan to Name Accounting Veterans To SEC Raises= Some Eyebrows in Congress The Wall Street Journal, 01/24/2002 Accounting for Enron: Insurance Companies Cut Sales Of Once-Plentiful Suret= y Bonds The Wall Street Journal, 01/24/2002 Accounting for Enron: Pension Funds, Not Lawyers, Drive Holder Suits The Wall Street Journal, 01/24/2002 Sales to Ex-Enron Customers Help Dynegy Profit Rise 36% Los Angeles Times, 01/24/2002 Accounting for Enron: Dynegy's Fourth-Quarter Net Fell 27%, Weighed Down by= Costs Related to Enron The Wall Street Journal, 01/24/2002 Congress Fought Changes to Accounting Rules Over Past Decade The Wall Street Journal, 01/24/2002 Damn the delete key U.S. News & World Report, 01/28/2002 Man on the Hot Seat U.S. News & World Report, 01/28/2002 Leaving well enough alone U.S. News & World Report, 01/28/2002 Congress's Enron Challenge The Washington Post, 01/24/2002 All Enron Cards on the Table The Washington Post, 01/24/2002 A Gift To the Democrats The Washington Post, 01/24/2002 A Crash Course In Lobbying The Washington Post, 01/24/2002 Letters to the Editor The Enron Mess: Outrage, and Then? The New York Times, 01/24/2002 Enron's Shell Game Shouldn't Taint Markets Los Angeles Times, 01/24/2002 Oblivious to a Strong Smell Los Angeles Times, 01/24/2002 LOU DOBBS MONEYLINE; CNNfn CNNfn: Moneyline News Hour, 01/23/2002 Poor Kenny Boy=20 WorkingForChange.com, 01/23/2002 ______________________________________________________________________ Financial Desk THE ENRON INQUIRY Kenneth Lay Resigns as Enron Chairman Probe: Creditors panel urges the move= so new managers can oversee reorganization. NANCY RIVERA BROOKS; DAVID STREITFELD; LEE ROMNEY TIMES STAFF WRITERS 01/24/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company HOUSTON -- Kenneth L. Lay was ousted Wednesday from Enron Corp., the Housto= n company that he spent 15 years building into the world's largest energy t= rader only to watch it crumble amid allegations of financial trickery.=20 Enron announced it is beginning a search for a turnaround specialist to sav= e what is left of what was once the nation's seventh-largest company, but w= hich now holds the dubious distinction of having filed the largest-ever ban= kruptcy petition. Lay said his decision to resign as chairman and chief executive was reached= in cooperation with Enron's board and the 15-member creditors' committee s= elected as part of Enron's bankruptcy proceedings. Enron filed for bankrupt= cy protection Dec. 2, listing more than $50 billion in assets and more than= $31 billion in debts.=20 The bank-dominated creditors' committee had been pushing for Lay's resignat= ion so that new managers could oversee Enron's attempt to reorganize and re= pay the money it owes, sources familiar with the situation said. The decisi= on was reached Wednesday morning during a board meeting with Enron's far-fl= ung directors checking in by telephone.=20 "The creditors just want a green-eyeshade guy who gets their money back for= them," one source said.=20 Lay will remain a director of the company.=20 "I want to see Enron survive, and for that to happen we need someone at the= helm who can focus 100% of his efforts on reorganizing the company and pre= serving value for our creditors and hard-working employees," Lay said in a = statement. "Unfortunately, with the multiple inquiries and investigations t= hat currently require much of my time, it is becoming increasingly difficul= t to concentrate fully on what is most important to Enron's stakeholders."= =20 Lay, 59, has been named in more than 50 lawsuits, and his company's disinte= gration is being investigated by several congressional committees, the Just= ice Department and the Securities and Exchange Commission.=20 That Lay was tossed out comes as less of a surprise than the leisurely time= it took to do it, Enron watchers said.=20 Lay held on as a series of damaging financial disclosures about murky off-b= alance-sheet partnerships and overstated earnings hammered Enron's stock pr= ice, wiping out billions of dollars of investor holdings and the retirement= savings of Enron employees.=20 Lay survived a failed last-ditch merger attempt with cross-town rival Dyneg= y Inc., which fled claiming that it hadn't realized the depths of Enron's t= roubles. He lasted as Enron's debt plunged to junk status and lenders turne= d their backs, causing an all but fatal cash crunch that pushed Enron into = bankruptcy.=20 But the heat rose in the last few weeks with revelations that Lay and other= Enron executives contacted Bush administration officials late last year se= eking help for the flailing company, that Lay was touting the stock to empl= oyees and urging them to buy shortly before Enron announced its worst quart= er in corporate history, that Lay was warned in August by a company vice pr= esident of a possible corporate implosion if details of the off-balance-she= et transactions became known and that documents were shredded by Enron empl= oyees and those of its auditor, Andersen.=20 "For whatever value remains in Enron to be realized, Lay's resignation was = necessary," said Edward Muller, an investor in energy ventures and former p= resident of Irvine-based Edison Mission Energy. It was necessary because "L= ay's presence, with an obvious personal interest, stood in the way of decis= ions being made to realize value for creditors and move the organization fo= rward."=20 Prudential Securities analyst Carol Coale said the decision comes too late = and is likely to play poorly on Wall Street.=20 "When Wall Street was calling for Ken Lay's head, it was early in the game,= " said Coale, who is based in Houston and has followed Enron closely. "Wall= Street thought that would be the responsible thing for the board to do. Bu= t at this point, it makes him look guilty."=20 "I don't think the market's going to react favorably to that," she said, no= ting that the company's stock took a steep plunge when CEO Jeffrey Skilling= resigned abruptly in August. Enron, which little more than a year ago trad= ed at nearly $90 a share on the New York Stock Exchange, closed Wednesday a= t 34 cents in over-the-counter trading, down 9.5 cents. Lay's resignation w= as announced after markets closed.=20 The reaction from Enron employees, current and former, was bitter.=20 "It was bound to happen," said Maritta Mullet, a former 10-year employee wh= o lost nearly half a million dollars in would-be retirement benefits. "I'm = surprised he's been able to face up to all these people and stay in there s= o long.=20 "I feel terribly betrayed by him," added Mullet, who said Lay was "blushing= over with how good everything looked" in a September online chat with empl= oyees.=20 That enthusiasm cost her and others dearly.=20 Rumors had swirled in recent days that a new management team was about to b= e named, perhaps to be led by Jeffrey McMahon, Enron executive vice preside= nt and chief financial officer. McMahon was named to those posts in late Oc= tober, replacing Andrew Fastow, who helped engineer the off-balance-sheet p= artnerships that greased Enron's slide into bankruptcy.=20 McMahon was treasurer in 2000 and reportedly objected to the conflicts of i= nterest caused by Fastow's twin roles as Enron chief financial officer and = manager of two of the partnerships. McMahon then moved to a small Enron sub= sidiary but was brought back in a futile attempt to calm investors.=20 With Lay's departure, McMahon would be the only remaining member of Enron's= three-person office of the chairman. The third member, Enron President Law= rence Greg Whalley, is leaving Enron to run the trading operation that Enro= n is selling to UBS Warberg in a noncash profit-sharing deal.=20 Enron officials have touted the pending sale of the company's trading opera= tion to UBS as the beginning of a new future. The deal was blessed by the U= .S. Bankruptcy Court on Friday, and UBS has already extended job offers to = 640 Enron employees.=20 Still, if Enron management believes the company can move forward more smoot= hly and reorganize without Lay, Mullet and others are doubtful.=20 "I didn't think the company could survive with him staying. But I don't thi= nk the company can survive either way," she said. "I don't see what's left.= "=20 "It's about time," said one former Enron vice president who spent four year= s at the company. "I think he's entirely culpable. He knew what was going o= n. He was responsible. He was captain of the ship."=20 The former vice president, who asked not to be named, said the board of dir= ectors has been passive and should have acted sooner.=20 "I was wondering when they were going to get around to it. I've been shocke= d that the [Bankruptcy] Court allowed the same management to stay in place.= It seems like the shredded documents were the last straw."=20 One current Enron finance executive said, "Good. Now they can start cleanin= g house. He's a great guy, but he fell asleep at the wheel a bit. There has= to be someone taking some responsibility here, and he's chairman."=20 Enron spokesman Mark Palmer said he did not know what kind of retirement pa= ckage Lay was being given, but noted that any agreement would have to be ap= proved by the Bankruptcy Court.=20 Lay earned hundreds of millions of dollars at Enron, primarily through lucr= ative stock options in recent years.=20 In 2000, Lay exercised options worth $123.4 million, according to Enron fil= ings with the Securities and Exchange Commission. His base salary that year= was $1.3 million, and he was given a $7-million bonus.=20 At the end of 2000, Lay held 5.1 million options worth $257.5 million, and = an additional 1.5 million options worth more than $100 million that were sc= heduled to vest in coming years, according to the SEC documents.=20 However, the plunge in Enron's stock price probably renders any unexercised= options worthless.=20 Lay received a $3.6-million bonus in January 2001. The company has not rele= ased figures relating to his 2001 salary and option grants.=20 *=20 Contributing to this story were Times staff writers David Streitfeld and Le= e Romney in Houston and Walter Hamilton and James Flanigan in Los Angeles. PHOTO: Attorney William Lerach represents Amalgamated Bank and other client= s that say they lost millions in Enron investments.; ; PHOTOGRAPHER: Reuter= s; PHOTO: Rusty Hardin, attorney for Andersen, speaks to reporters in Houst= on after a court hearing related to shredding of Enron documents.; ; PHOTOG= RAPHER: Reuters=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section A ENRON'S COLLAPSE: THE CHAIRMAN Enron Chief Quits Under Pressure And Calls Inquiries a Distraction By JIM YARDLEY and JOHN SCHWARTZ 01/24/2002 The New York Times Page 1, Column 6 c. 2002 New York Times Company HOUSTON, Jan. 23 -- Kenneth L. Lay resigned this evening as chairman and ch= ief executive of the Enron Corporation under pressure from outside creditor= s, nearly two months after his company filed for one of the largest bankrup= tcies in the history of American business.=20 Mr. Lay, 59, suggested in a statement that he had decided to resign ''in co= operation'' with the court-appointed creditors committee that is overseeing= the bankruptcy proceedings. He said the various federal inquiries into Enr= on's collapse were too large a distraction as he tried to resuscitate the c= ompany he has led since 1986. ''I want to see Enron survive, and for that to happen we need someone at th= e helm who can focus 100 percent of his efforts on reorganizing the company= and preserving value for our creditors and hard-working employees,'' he sa= id in a statement released by the company.=20 ''Unfortunately,'' he added, ''with the multiple inquiries and investigatio= ns that currently require much of my time, it is becoming increasingly diff= icult to concentrate fully on what is most important to Enron's stakeholder= s.''=20 Mr. Lay will remain on Enron's board. The creditors committee is searching = for a specialist in reorganizing companies to join Enron and serve as actin= g chief executive as soon as possible.=20 Thomas A. Roberts, a lawyer for Enron in New York, said that Mr. Lay had be= en discussing the possibility of resigning since early December. Mr. Robert= s said that a representative of the creditors committee had called him Tues= day night. ''The creditors committee really thinks Ken should think about s= tepping down as an officer and employee of the company,'' he said.=20 Mr. Roberts then called Mr. Lay at his home about 10 p.m. Tuesday. ''I pass= ed that along and said, 'We probably need to think about this.' We talked a= bout it awhile, and he said he was going to get something to eat and talked= with his wife,'' Mr. Roberts said.=20 The two men talked again the next morning; Mr. Lay said that he would conve= ne a conference call among the directors later that morning. Mr. Roberts wa= s included in that call.=20 During the call, Mr. Lay gave a synopsis. ''He said the time had come for h= im to resign as an officer of the company so that somebody could get in the= re and work on rebuilding it because his time was going to have to be dedic= ated to all of these investigations that were taking place,'' Mr. Roberts s= aid.=20 Mr. Roberts said that it was very important that Mr. Lay was staying on as = a board member because ''he will continue to be available to advise the com= pany.''=20 The resignation of Mr. Lay comes after a string of recent revelations that = have raised questions about the conduct of Enron's top executives, includin= g Mr. Lay himself. Disclosures by Congressional investigators have shown th= at Mr. Lay helped create and oversee some of the financial arrangements tha= t helped lead to Enron's collapse.=20 In August, he was warned in a private memorandum from a company vice presid= ent that Enron's accounting practices could bring down the company.=20 Yet even as he was selling his own shares of Enron stock in September and O= ctober, he was reassuring employees that the company would rebound and enco= uraging them to buy. His lawyer has said Mr. Lay was selling not because of= lack of confidence in Enron but because he faced margin calls as investmen= ts in his personal portfolio declined in value.=20 Mr. Lay will now face scrutiny for his role in Enron's collapse from federa= l investigators and Congressional committees. On the day he resigned, the c= ompany that he had once helped develop into the nation's largest energy tra= der was instead a half-empty tower in which two floors were secured by fede= ral agents.=20 A White House spokeswoman, Jeanie Mamo, said, ''This doesn't change the pre= sident's focus, which is on the ongoing criminal investigation and on the p= olicy reviews to protect people's pensions.''=20 Mr. Lay had been a popular leader as Enron grew the last 15 years into an e= nergy giant that he transformed, Cinderella style, from an unglamorous gas = pipeline company. He was considered by peers as a man of big ideas, a crusa= der for free markets and a risk taker in the Texas wildcatter tradition. Bu= t while he was busy befriending the nation's most powerful politicians, ere= cting one of the tallest buildings in Houston and pledging $100 million to = put Enron's logo on the city's new ballpark, the little things were turning= out to be Mr. Lay's big problems.=20 One after another, disclosures spilled out of his company in recent months:= off-balance-sheet partnerships had hidden billions in debt; years of Enron= 's reported profits had been exaggerated. The stock price, once at more tha= n $90 a share, tumbled to less than a dollar. A flood of lawsuits resulted = as retirement systems, shareholders, former employees and others said that = Enron's failure to disclose its accounting flaws amounted to a violation.= =20 ''He fell on his sword,'' said John Olson, an energy industry analyst here = who was a lone skeptic about Enron when the company was flying high. ''It w= as probably the right thing to do. Given the climate of opinion in Houston,= and where the company is in attempted recovery, this is probably in the be= st interests of everybody.''=20 Mr. Lay hoped at first that he could avoid filing for bankruptcy when he en= tered into merger talks with Dynegy, his Houston rival. But that deal fell = apart, spawning more lawsuits and hard feelings, and leaving Enron with lit= tle choice but to file for Chapter 11 bankruptcy. On Dec. 3, the company la= id off more than 4,000 workers and was vilified in the hometown where he wa= s once thought to be a mayoral candidate.=20 There is no question that Enron employees did benefit over the years when t= he stock price soared, as did Mr. Lay. He has collected more than $300 mill= ion since 1989, mostly through exercising stock options.=20 In Texas, he was first known as a friend and supporter of former President = George Bush. But when George W. Bush ran for president in 2000, Mr. Lay gai= ned a national reputation as one of the ''pioneers,'' the top fund-raisers = who gave more than $100,000 to Mr. Bush's presidential campaign. In all, En= ron along with Mr. Lay have given more than $600,000 to Mr. Bush's politica= l campaigns dating back to his first failed run for Congress in West Texas.= =20 Enron did not limit its contributions to Mr. Bush. The company has made don= ations to nearly two-thirds of the members of Congress and much of the Repu= blican establishment in Texas. Photo: Kenneth L. Lay, Enron's ex-chief. (F. Carter Smith/Corbis Sygma)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's Lay Resigns as Chairman, CEO --- Panel Appointed by Court Had Reque= sted Change; Interim Chief Is Sought By Mitchell Pacelle and Rebecca Smith Staff Reporters of The Wall Street Journal 01/24/2002 The Wall Street Journal A3 (Copyright (c) 2002, Dow Jones & Company, Inc.) Kenneth L. Lay resigned as chairman and chief executive of Enron Corp., the= company announced last night, less than 24 hours after the court-appointed= creditors committee requested his removal.=20 The beleaguered company and the creditors committee are now searching for a= chief restructuring officer to also serve as interim chief executive, the = company said. The company has launched a separate search for a new chairman= . The committee, which consists of 15 Enron creditors, had contacted the comp= any's lawyers at about 9 p.m. Tuesday to request Mr. Lay's resignation and = the appointment of a restructuring officer to take over running the company= , according to Thomas Roberts of Weil Gotshal & Manges, counsel to Enron. M= r. Roberts said he relayed the request to Mr. Lay, who offered his resignat= ion to Enron's board at a meeting late yesterday morning. Mr. Lay will rema= in on Enron's board.=20 "I want to see Enron survive, and for that to happen we need someone at the= helm who can focus 100%" on the reorganization, Mr. Lay said in a prepared= statement. "Unfortunately, with the multiple inquiries and investigations = that currently require much of my time, it is becoming increasingly difficu= lt to concentrate fully on what is most important to Enron's stakeholders."= =20 In recent weeks, Mr. Lay worked tirelessly to find some way to end the cris= is that drove into bankruptcy the company he built. Beginning in 1985, Mr. = Lay took a second-tier gas-pipeline company, formed through the merger of H= ouston Natural Gas and InterNorth Inc., and forged it into the nation's big= gest energy trader. Enron became a tireless proselytizer for deregulation a= nd competitive markets, reflecting Mr. Lay's belief in open markets honed a= s a Ph.D. economist at the Federal Energy Regulatory Commission and a colle= ge economics professor.=20 The company is already talking to a couple of people about the chief-execut= ive position, and has drawn up a lengthier list of people to approach about= the chairman position, according to someone familiar with the process.=20 While a final decision about Mr. Lay's fate rested with Enron's board, the = position of the creditors committee carries considerable weight in the bank= ruptcy process. Under bankruptcy law, after a company files for Chapter 11 = bankruptcy-court protection, as Enron did Dec. 2, the fiduciary responsibil= ity of its board expands from shareholders to include all creditors.=20 Mr. Roberts said Mr. Lay had been considering resigning "off and on" since = before Christmas.=20 Mr. Lay had stepped down as chief executive in January 2001, only to return= to the job after his successor, Jeffrey K. Skilling, abruptly resigned in = August as the company's stock was falling. Mr. Lay also agreed to step down= if Dynegy Inc. had completed its proposed acquisition of Enron, which unra= veled as Enron's problems mounted in November.=20 In the wake of damaging allegations about the destruction of Enron-related = documents, and reports of Mr. Lay's sales of tens of millions of dollars of= Enron stock in the past year as the company's condition deteriorated, ther= e was a growing sense on the creditors committee that he wasn't the best ma= n to run the company as it tries to maximize recoveries to creditors, accor= ding to people familiar with the committee's deliberations.=20 Many creditors are worried that Enron's assets may be worth far less than t= hey initially had hoped, meaning creditors are likely to receive far less t= han the billions of dollars they are owed.=20 In response to criticism, Mr. Lay has indicated he wasn't fully aware of th= e details of the controversial partnerships whose disclosure led to major f= inancial losses and, even worse, to a loss in investor confidence in Enron.= But Mr. Lay was present at board meetings where some of the partnerships w= ere approved and where a waiver of the company's conflict-of-interest polic= y was discussed to enable former Chief Financial Officer Andrew Fastow to r= un them.=20 As the partnerships came under public scrutiny, Mr. Lay defended them in in= terviews, saying the transactions were fully vetted and approved by the boa= rd and had been done to benefit Enron.=20 Given controversy swirling around Mr. Lay and other top Enron executives, i= t is hardly surprising that creditors would question his future.=20 There is ample precedent for the forced departure of top executives of comp= anies that have filed for bankruptcy. In November, Linda Wachner, longtime = head of Warnaco Group Inc., was replaced as chief executive officer by a tu= rnaround expert after she lost the support of creditors in bankruptcy proce= edings.=20 If a company's board doesn't accede to the wishes of the creditors committe= e, bankruptcy law gives creditors further leverage to force a company's han= d.=20 Creditors can file a motion asking the court to appoint a trustee to run th= e company, supplanting the top executive and the board. To gain such relief= , creditors must prove gross mismanagement or fraud by current management. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Lay quits top post at Enron=20 Creditors asked for resignation=20 By LAURA GOLDBERG=20 Copyright 2002 Houston Chronicle=20 Jan. 24, 2002, 8:45AM Ken Lay resigned Wednesday as chairman and chief executive officer of Enron= at the request of the committee representing the company's creditors.=20 "I want to see Enron survive, and for that to happen we need someone at the= helm who can focus 100 percent of his efforts reorganizing the company and= preserving value for our creditors and hard-working employees," Lay, 59, s= aid in a statement released Wednesday night. "Unfortunately, with the multi= ple inquiries and investigations that currently require much of my time, it= is becoming increasingly difficult to concentrate on what is most importan= t to Enron's stakeholders."=20 The committee representing creditors in Enron's bankruptcy told Lay Tuesday= night he had become a distraction and must step aside because of the many = allegations being leveled at the company, a source close to Enron said Wedn= esday night.=20 Lay, who will stay on the board of directors, oversaw the company's growth = from a staid pipeline business into an energy powerhouse that dealt in natu= ral gas, electricity and other commodities.=20 After a decline that began early this year, the company finally collapsed i= n October amid charges it had improperly inflated revenues and concealed de= bt by using questionable accounting techniques. Thousands of employees were= put out of jobs and still more lost their retirement savings.=20 Thomas A. Roberts, a corporate lawyer helping oversee Enron's reorganizatio= n, said Lay had been considering stepping down since before Christmas.=20 Lay couldn't be reached for comment.=20 He is scheduled to testify Feb. 4 before the Senate Commerce Committee. Enr= on spokesman Mark Palmer said he did not think Lay has changed plans to do = so.=20 Palmer said he was unsure whether Lay would be receiving any severance.=20 The creditors committee apparently didn't object to Lay remaining on the bo= ard of directors, who Palmer said had asked Lay to stay on to help with the= restructuring. Lawyers representing the creditors committee couldn't be re= ached Wednesday night.=20 The board and creditors committee are in the process of selecting a "restru= cturing specialist" to serve as acting chief executive officer. The board, = itself the target of lawsuits, will soon select a new chairman.=20 Lay notified remaining Enron employees of his resignation in an e-mail sent= Wednesday night. He told them he was proud of what Enron and its employees= had accomplished over the years and praised them for the help they had giv= en to other employees and their communities.=20 In Washington, U.S. Rep. Ken Bentsen, D-Houston, said Lay's announcement wa= s "no great surprise when you consider the fact that he had lorded over a c= ompany that collapsed as a result of what appears to be great mismanagement= , if not fraud."=20 "I don't think he had any other choice but to step aside," he said, adding = that he doesn't expect Enron to be resurrected.=20 "I've been highly skeptical of whether we would ever see Enron rise again,"= Bentsen said. "The chairman and CEO (Lay) ultimately has to take responsib= ility for that."=20 House Majority Whip Tom DeLay, R-Sugar Land, said he is focused on finding = out what happened at Enron.=20 "It's been a very hard time for too many Houstonians," he said. "This doesn= 't change that fact, nor the fact that we still need answers."=20 Arthur Andersen spokesman Patrick Dorton declined to comment on Lay's depar= ture. Andersen was the accounting firm for Enron before the collapse.=20 Houston Chronicle reporters Karen Masterson and Patty Reinert contributed t= o this report from Washington.=20 A Section Enron Chief Quits As Hearings Open; Lay Scheduled to Appear on Hill Feb. 4 Dan Morgan and Peter Behr Washington Post Staff Writers 01/24/2002 The Washington Post FINAL A01 Copyright 2002, The Washington Post Co. All Rights Reserved Kenneth L. Lay resigned yesterday as chairman and chief executive of Enron = Corp., caught between unrelenting pressures from the energy company's credi= tors and a circle of federal and congressional investigators pursuing the r= easons for Enron's collapse late last year.=20 Lay, 59, who founded the Houston company in 1986 and presided over its surg= ing growth as an energy trader in the late 1990s, submitted his resignation= around noon in a conference phone call with the company's board of directo= rs. He will remain on the board. His resignation, on the eve of two congressional hearings, had been sought = by a committee of major creditors who hold veto power over Enron's Chapter = 11 bankruptcy reorganization. "You work for the creditors. The creditors wa= nted someone else," said one Enron official.=20 Lay's departure came a day after FBI agents moved into Enron's headquarters= tower to investigate charges of widespread shredding of corporate document= s after government investigations of Enron had begun. Agents said they foun= d a trash can containing shredded material and sealed off the area. Documen= t destruction at Enron and its outside auditing firm, Arthur Andersen, will= be a key focus of today's Capitol Hill hearings.=20 Yesterday, people familiar with an investigation into shredding of Enron-re= lated documents at Andersen's Houston office said scores of employees were = involved. Ken Johnson, spokesman for the House Energy and Commerce Committe= e, said it was "many" people, not just a few. Others familiar with the situ= ation say all those involved were on Enron's audit team in the Houston offi= ce, or were technical employees directed by the Enron team.=20 A friend and major political backer of President Bush, Lay formed Enron by = combining two natural gas pipeline companies and transformed it into a powe= rful supplier of gas and electricity. In the 1990s it created a vast, compl= ex energy and commodity trading operation marked by increasingly elaborate = outside partnership structures that are a central focus of the Enron invest= igations.=20 Lay is scheduled to make the first appearance by a senior Enron executive b= efore congressional panels investigating his company's demise at a Senate h= earing Feb. 4. He also is a lead defendant in lawsuits by Enron shareholder= s and former employees. Their lawyers charge that Lay and other company exe= cutives enriched themselves through sales of Enron stock while misleading i= nvestors and employees about the company's rapidly deteriorating financial = condition last year.=20 "I want to see Enron survive, and for that to happen, we need someone at th= e helm who can focus 100 percent of his efforts on reorganizing the company= and preserving value for our creditors and hardworking employees," Lay sai= d in a statement.=20 After filing the largest bankruptcy petition in U.S. history Dec. 2, Enron = is trying to sell assets, settle its debts and survive as an energy produce= r and distributor. Although the company laid off about 4,500 employees from= its headquarters staff, it has about 19,000 employees worldwide at energy,= pipeline and water supply installations, the company said.=20 "It was becoming increasingly difficult for Ken to concentrate fully on wha= t is most important to Enron's stakeholder" -- the bankruptcy reorganizatio= n, said Enron spokesman Mark Palmer.=20 "Ken had considered the possibility that he might want or need to step down= back before Christmas," said Enron's chief outside corporate lawyer, Thoma= s A. Roberts of Weil, Gotshal & Manges. A representative of Enron's credito= rs committee called Roberts on Tuesday to say that Lay should consider resi= gning and after Roberts and Lay discussed it, Lay resigned.=20 Today's hearings are being conducted by the Senate Governmental Affairs Com= mittee, which is looking into financial and regulatory issues surrounding E= nron's collapse, and the oversight subcommittee of the House Energy and Com= merce Committee, which is looking into alleged document destruction by Arth= ur Andersen.=20 A White House spokeswoman, Jeanie Mamo, said the resignation does not chang= e the president's focus. "It is on the criminal investigation, which will c= ontinue, and on the policy reviews to protect people's pensions," she said.= =20 Governmental Affairs Committee Chairman Joseph I. Lieberman -- a pro-busine= ss Democrat from Connecticut with an eye on his party's 2004 presidential n= omination -- has summoned former Securities and Exchange Commission chairma= n Arthur Levitt Jr. and other witnesses to testify about financial and regu= latory issues.=20 Rep. W.J. "Billy" Tauzin, (R-La.) chairman of the House Energy and Commerce= Committee, said yesterday he had moved the investigatory hearing ahead of = one planned by the full committee to examine Enron's financial activities a= nd relationships because it was urgent "to get to the bottom of this."=20 "We cannot do our work if people are going to destroy documents," he said.= =20 Andersen recently admitted that the company's audit team last October destr= oyed thousands of documents and e-mails resulting from its audit of Enron a= fter learning that the SEC was looking into Enron's accounting practices.= =20 Rep. James C. Greenwood (R-Pa.), who chairs the subcommittee on oversight a= nd investigations, said Andersen agreed late yesterday to provide a senior = partner to answer questions about policies and procedures regarding documen= ts. Andersen attorney Nancy Temple and Michael Odum, who was on the Anderse= n team at Enron, will appear under subpoena.=20 Greenwood said they would be questioned about when they became aware that E= nron or Andersen might face litigation or an SEC probe, and how this affect= ed their handling of relevant documents.=20 David B. Duncan, who led Andersen's audit of Enron, has also been ordered t= o appear. His attorneys have told the committee he probably will refuse to = testify by invoking his right against self-incrimination. Duncan previously= spoke to committee investigators, but not under oath.=20 Lieberman has labeled the Enron story a "corporate scandal," and indicated = he wants to use the hearings to explore the role of the SEC, the Department= of Energy and other oversight agencies.=20 Under Lay, Enron was a leading political advocate for natural gas and elect= ricity deregulation, courting allies in Washington and state capitals with = intensive lobbying and generous contributions. Enron made $1.9 million in p= olitical contributions between 1999 and 2001, according to a campaign spend= ing watchdog group, the majority of it to Republicans. Lay, other Enron exe= cutives and the company itself contributed more than $220,000 to Bush's pre= sidential campaign.=20 As Enron was unraveling last fall, Lay tried to win help from the Bush admi= nistration, contacting Commerce Secretary Donald L. Evans and Treasury Secr= etary Paul H. O'Neill in October. The Cabinet officials said they turned do= wn Lay's requests for assistance in holding off a pending downgrade of Enro= n's credit rating -- a critical issue for the heavily indebted company.=20 Lieberman has avoided direct criticism of the White House's ties to Lay and= other Enron figures, saying he has seen no indication of illegal activity.= That caution, say political observers, reflects many Democrats' concerns a= bout the risks of appearing overly partisan, especially if congressional in= quiries turn up no evidence of White House wrongdoing.=20 The central question Lay faces now is what he knew about Enron's deteriorat= ing financial condition last year. Lay and other top executives professed t= hat the company's future was bright at a time when its foreign energy proje= cts were losing money and a crucial Internet networking venture was failing= .=20 In August, Enron Vice President Sherron Watkins warned Lay directly that th= e company faced a threat of accounting scandals because of its use of outsi= de partnerships and investment entities to conceal debts and exaggerate rev= enue, she said. Enron asked another outside law firm, Vinson & Elkins, to i= nvestigate the charges, but said nothing about Watkins's warning.=20 Two months later, Enron revealed the first of a worsening series of account= ing violations and errors, the Securities and Exchange Commission launched = an inquiry, and the company's final collapse began.=20 Thousands of Enron shareholders have lost retirement savings in Enron stock= and Lay has become a focus of their anger.=20 "I believe he cares very much for the jobs that have been lost and the pain= that's been done," Roberts said. "It's been extraordinarily difficult. He'= s held up very well."=20 Like dozens of others in Congress serving on committees involved in the inv= estigation, Lieberman has received political donations from accounting comp= anies, including Andersen's political action committee. The New Democrat Ne= twork, a campaign group he co-founded to support the election of centrist D= emocrats, also has received $14,500 from the Andersen PAC and $15,000 from = Enron's PAC since 1997, according to PoliticalMoneyLine, an independent mon= itoring group.=20 As a Republican loyalist, Tauzin is expected to keep attention focused on t= he corporate misdeeds of Enron and Andersen, and away from Enron's ties to = the GOP. He has made clear he will not join Rep. Henry A. Waxman (D-Calif.)= in using the investigations to highlight the ties between President Bush, = some of his top aides and Enron.=20 Waxman "is carrying on a very partisan fight and trying to make this into a= political deal," said Tauzin. "It isn't."=20 Over the years, campaign groups controlled by Tauzin have received large su= ms from the accounting industry, including Andersen. But those who have fol= lowed Tauzin's career say that won't necessarily affect how he proceeds.=20 Born in the tiny southern Louisiana town of Chackbay, he grew up in a popul= ist political culture that often viewed big corporations with as much suspi= cion as big government. He was elected to Congress in 1980 as a Democrat, a= nd switched to the GOP in 1995.=20 On the powerful Energy and Commerce Committee, Tauzin developed close conne= ctions to the telecommunications, energy and accounting industries. In the = mid-1990s, for example, he worked for securities litigation reform that lim= ited lawsuits against accounting firms. In 2000, he battled against a propo= sal by the SEC's Levitt for far-reaching reforms of the accounting industry= that would have prevented firms from maintaining lucrative consulting cont= racts with companies they audit. Andersen had such contracts with Enron.=20 But the same year, Tauzin led an aggressive investigation of the role of Fo= rd Motor Co. and Firestone in accidents involving Ford Explorer vehicles. T= hat resulted in legislation strengthening tire safety rules.=20 "Friend or foe, our committee is going to go after anyone who has done some= thing wrong," said Tauzin. "I'm not interested in the political friendships= . We're going to treat everyone the same."=20 Tauzin's investigators were the first to arrive at Enron headquarters in Ho= uston to gather documents. Among the items they found was the Watkins lette= r warning Lay of accounting problems.=20 Tauzin said yesterday he would keep an open mind on whether it might be nec= essary to institute some of the changes in the accounting industry that Lev= itt proposed -- and he opposed -- in 2000.=20 "If the regulatory balance is wrong today, then we need to rebalance it," h= e said.=20 Sens. Christopher J. Dodd (D-Conn.) and Jon S. Corzine (D-N.J.), both membe= rs of the Banking Committee, said yesterday that they are drafting legislat= ion that would prevent accounting firms from offering both audit and consul= ting services to the same client. Sen. Barbara Boxer (D-Calif.) has said sh= e will introduce similar legislation.=20 Staff writers Susan Schmidt, John Lancaster and Kathleen Day contributed to= this report. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Loss booked as unit profit, memo claims=20 By MARY FLOOD and TOM FOWLER=20 Copyright 2002 Houston Chronicle=20 Jan. 24, 2002, 12:41AM Enron reported a profit at its energy-services business last year by moving= the unit's huge losses onto the books of another corporate division, a for= mer Enron employee says.=20 The allegations of questionable Enron accounting were made Aug. 28 by forme= r Enron Energy Services employee Margaret Ceconi in a five-page memo to Cha= irman Ken Lay and the board of directors slightly more than three weeks aft= er she and others in her department were laid off.=20 Her allegations echo those made just a few days before by Sherron Smith Wat= kins, Enron's director of corporate development, in a memo to Lay. But whil= e Watkins criticized the accounting treatment of several peripheral off-the= -books entities, Ceconi's e-mail zeroed in on a part of the company that ha= d been ballyhooed as an important growth engine.=20 Ceconi, 41, now working at a Houston consulting firm, said she had been lur= ed to Enron early in the year after spending four years at GE Capital in Da= llas, where she was senior vice president, by promises of $800,000 to $1 mi= llion in salary.=20 That, she said in her memo, was simply a "fraudulent" way to attract her an= d others to Enron, and symptomatic of the widespread corporate dishonesty d= isplayed in its accounting and other business practices.=20 "Lying was rewarded in the culture at Enron," she said. "Fraud is fraud. Bu= t there was a kind of blind loyalty there."=20 At Enron Energy Services, or EES, actual losses of at least $500 million we= re moved to another sector of Enron to make EES appear profitable, the memo= says.=20 Ceconi said the losses were hidden in Enron Wholesale Services, the company= 's highly profitable and well-established trading arm.=20 Mark Palmer, spokesman for Enron, would not discuss specifics in the memo, = which he said was "obviously from a disgruntled employee."=20 Of the EES losses, he said, "these are serious allegations. They are the ki= nd of allegations that should be made to government officials if she believ= es that."=20 "Enron touted EES as deserving a premium value on Wall Street," said Carol = Coale, an analyst with Prudential Securities Research. She and other analys= ts said that hidden EES losses not only would have been seen as a material = disclosure by investors before Enron declared bankruptcy, they could still = be relevant.=20 "If it comes out that earnings are compromised with funky accounting at EES= that could affect the (bankruptcy) reorganization plan as it is right now.= " Coale said some EES contracts are still seen as viable assets.=20 Ceconi, who has a degree in accounting, said she had asked the Securities a= nd Exchange Commission questions about the practices while still at the com= pany and, after being laid off, informed the agency of actual problems.=20 SEC spokeswoman Christi Harlin in Washington, D.C., said the agency cannot = comment on whether it received a complaint or what was done.=20 Ceconi's e-mail is replete with the personal criticism of mid- and upper-le= vel managers that might be expected from a disgruntled employee.=20 But her attorney, Demetrios Anaipakos, said she wrote it not out of anger b= ut out of a sense of obligation to company management and federal regulator= s.=20 "She had a good faith concern that Enron may have been violating various SE= C rules and regulations and well as various accounting standards," Anaipako= s said.=20 The e-mail is less specific about the accounting practices than Watkins' me= mo, which also mentioned concern about "valuation issues" at EES, one of th= ree surviving divisions at Enron.=20 Ceconi's says, "EES has knowingly misrepresented EES' earnings. This is com= mon knowledge among all the EES employees, and is actually joked about. But= it should be taken seriously."=20 Ceconi, who was vice president at a Houston bank before going to Dallas, sa= id in the memo that it was to "everyone's amazement" that EES, despite its = huge losses, reported a profit in the second quarter of 2001.=20 A fellow employee at EES, asking not to be identified, confirmed Wednesday = that the people who worked there could not understand how EES could report = a profit, and that there were constant rumors that losses were being hidden= .=20 Ceconi's e-mail began, "One can only surmise that the removal of (Chief Exe= cutive) Jeff Skilling was an action taken by the board to correct the wrong= doings of the various management teams at Enron. However, based on my exper= ience at this company, I'm sure the board has only scratched the surface of= the impending problems that plague Enron at the moment. ... "=20 Noting problems in various Enron interests around the world, she said, "Obv= iously the board has (its) hands full at the moment, ... Some would say the= house of cards (is) falling. You are potentially facing shareholder lawsui= ts, employee lawsuits ... heat from the analysts and the newspapers."=20 EES was formed to help companies manage and reduce their energy costs. By s= ecuring fixed prices through long-term contracts, EES helped customers main= tain predictable supplies at stable costs. It also provided energy audits a= nd helped companies improve their energy efficiency.=20 It made a breakthrough in 1997, when the Archdiocese of Chicago agreed to l= et EES manage its energy needs by buying natural gas to heat 1,000 schools,= churches and other facilities.=20 The division didn't begin to report profits until late in 2000, but then re= venues steadily improved. In the first quarter of 2001, it reported profits= of $40 million. In the second quarter, $60 million in profit was reported = earned on more than $7 billion in contracts.=20 Ceconi said those profits were surprising given that many contracts had to = be renegotiated to Enron's disadvantage. Many of the assumptions made by En= ron when structuring the deals did not pan out, she said, causing losses fo= r Enron on the first day of the contracts.=20 In its bankruptcy filing, EES lists $2.5 billion in assets, mainly its cont= racts with companies and organizations, and $2.1 billion in debts. The two = largest unsecured creditors are Enron subsidiaries -- Risk Management & Tra= ding Corp., which is owed more than $126 million; and Enron North America, = owed $107 million.=20 Bala Dharan, accounting professor at Rice University, said it is possible C= econi could be right and the losses were moved, legally, into another entit= y.=20 "But," he added, "if investors were misled as they tried to make a section = of the business look profitable when it wasn't, that could cause great conc= ern."=20 Accounting for Enron: Congress Probes Shredding by Andersen --- Executives = Are Subpoenaed To Testify Before Panel In House in Enron Case By Wall Street Journal staff reporters Tom Hamburger and Jeanne Cummings in= Washington and Rebecca Smith in Los Angeles 01/24/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) WASHINGTON -- Enron Corp.'s chief auditor at Arthur Andersen LLP warned the= energy-trading giant against putting "misleading" information in a news re= lease about third-quarter earnings last October, according to a memo that t= he auditor wrote for his files.=20 But David Duncan's concerns were ignored, according to the memo, one of two= on the subject obtained by investigators for the House Energy and Commerce= Committee, which opens hearings on Enron and Andersen today. The first memo of Mr. Duncan, who has since been fired, is dated the day be= fore Enron's earnings announcement on Oct. 16. He writes that Enron's repre= sentation "could potentially be misunderstood by investors."=20 Specifically, he warned that Enron's claim of $1.01 billion of "nonrecurrin= g" charges falsely allowed the company to tell investors that it was "on tr= ack" to meet strong earnings growth in 2002.=20 In an e-mail response to concerns raised by Mr. Duncan, a Chicago lawyer fo= r Andersen, Nancy Temple, appeared to ignore the crux of his misgivings abo= ut Enron's actions and, instead, suggested he make changes to his memo. Amo= ng other things, she recommended that he delete her name from the memo sinc= e it "increases the chances that I might be a witness, which I prefer to av= oid."=20 Both the auditor and lawyer will appear today before a House Energy and Com= merce subcommittee. The hearing was initially set to discuss document destr= uction at Andersen, but aides to committee Chairman Billy Tauzin, a Louisia= na Republican, said they expect that the newly obtained memos about the Enr= on news release between Mr. Duncan and Ms. Temple will spark unanticipated = questions.=20 The lawmaker who called the hearing, Oversight and Investigations Subcommit= tee Chairman James Greenwood (R., Pa.), said 80 Andersen employees were ins= tructed to destroy documents related to the auditor's work for Enron. He sa= id he planned to ask Ms. Temple whether she was aware of document destructi= on while visiting Houston in late October, a time that shredding was going = on.=20 Meanwhile, Army Secretary Thomas E. White, a former Enron executive, disclo= sed that he had spoken with former Enron colleagues on 30 occasions in the = past seven months. He said he met with Enron President Lawrence "Greg" Whal= ley on Oct. 4, weeks before the company began seeking government help to wa= rd off bankruptcy. All of the contacts were "personal in nature" and involv= ed conversations about "the general financial condition of Enron," he said,= but no one asked him to intercede on the corporation's behalf.=20 Three Andersen executives have been subpoenaed to testify about the matter = today before the Oversight and Investigations Subcommittee, one of several = congressional panels looking into the collapse of the Houston energy-tradin= g concern.=20 Mr. Duncan will refuse to answer questions, citing his Fifth Amendment righ= ts against potential self-incrimination, his lawyer said. The subcommittee = plans to ask Mr. Duncan a single question as a formality and then excuse hi= m, said one person familiar with the negotiations with House officials.=20 Once Mr. Duncan is dispatched, the star witness is likely to be Ms. Temple.= Mr. Duncan has cited an Oct. 12 e-mail reminder from her of the firm's doc= ument-disposal-and-retention policy in explaining his actions. Rep. Greenwo= od said she will be questioned about that e-mail as well as reports that sh= e visited the Houston branch of Andersen in late October, after a Securitie= s and Exchange Commission investigation of Enron had been announced.=20 Andersen Chief Executive Officer Joseph Berardino managed to avoid the emba= rrassing spectacle of being subpoenaed to testify against his will, thanks = to some late-night negotiations between his representatives and the House E= nergy and Commerce Committee staff. Mr. Berardino's representatives agreed = that he would testify in the near future and to send the company's managing= director of professional standards, Dorsey Baskin Jr., in his stead at the= hearing today.=20 The Senate Government Affairs Committee also opens its hearings on Enron to= day with a much broader inquiry into systemic explanations for Enron's fail= ure. Former SEC Commissioner Arthur Levitt is expected to discuss his unsuc= cessful efforts to ban accounting firms from auditing companies with which = they have consulting contracts. Andersen had lucrative consulting contracts= with Enron while auditing the company's books, a common practice in the in= dustry, and Enron's accounting practices are at the center of investigation= s into its collapse.=20 The disclosures from Army Secretary White came in a letter responding to qu= estions from Democratic Rep. Henry A. Waxman of California, a chief adminis= tration antagonist on Enron issues.=20 "Since joining the administration, no one has asked that I intercede with a= nyone, in any way, for the benefit of Enron Corp. Further, I have not done = so," Mr. White wrote to Mr. Waxman. He said his contacts with former collea= gues were congratulatory in nature in June, after he took his new post, and= became sympathetic later as Enron's situation deteriorated in the fall.=20 Mr. White said he had two discussions about Enron's collapse with Defense S= ecretary Donald Rumsfeld in early November and with Secretary of State Coli= n Powell on Dec. 12. Both of those conversations were focused primarily on = the concern of Mr. Rumsfeld and Mr. Powell about "my personal well-being. M= y response in both cases was that I had suffered significant personal losse= s, but that I would persevere," Mr. White said.=20 Mr. White offered limited details of his own significant financial losses i= n Enron's collapse. Though he didn't say exactly how much he lost, Mr. Whit= e said he was still in the process of divesting when Enron went into its do= wnward spiral. Stock that was selling for $50 a share when Mr. White began = selling in June was valued at $12.85 on Oct. 30, the date of his last sale,= of 86,709 shares. Mr. White also said the company has stopped paying him h= is retirement benefits.=20 The army secretary reports one conversation with Kenneth Lay, on Sept. 10, = that Mr. White said he initiated in order to wish Mr. Lay well in his new p= ost as Enron's Chief Executive Officer. Mr. Lay resigned from his posts las= t night.=20 ---=20 Journal Link: Listen as House and Senate committees open hearings on the de= mise of Enron Corp., in the Online Journal at WSJ.com/JournalLinks, by arra= ngement with Hearings.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 National Desk; Section A ENRON'S COLLAPSE: THE OVERVIEW WIDE EFFORT SEEN IN SHREDDING DATA ON ENRON'S AUDITS By RICHARD A. OPPEL Jr. 01/24/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company WASHINGTON, Jan. 23 -- Scores of people who worked at Arthur Andersen's Hou= ston office were involved in the destruction of documents related to the En= ron Corporation, the chairman of one of the Congressional subcommittees tha= t will begin hearings Thursday on Enron's collapse said today.=20 The chairman, Representative James C. Greenwood, Republican of Pennsylvania= , head of the House Energy and Commerce oversight subcommittee, said invest= igators for the subcommittee had determined that document shredding was wid= espread and that up to 80 people had received orders to destroy papers. He = said it called into question Andersen's attempts to blame rogue employees f= or the episode. The hearings on Thursday will be Congress's first public exploration into t= he Enron collapse, the largest corporate Chapter 11 bankruptcy filing in Am= erican history.=20 Tonight, Enron's chairman and chief executive, Kenneth L. Lay, announced hi= s resignation, saying the many investigations into the company's collapse w= ould require too much of his attention.=20 Last week, Andersen, one of the Big Five accounting firms, fired the lead p= artner on the Enron account, David B. Duncan, saying he orchestrated widesp= read document destruction shortly after learning of a government investigat= ion into Enron's finances.=20 But Mr. Greenwood expressed skepticism about that account. ''Do you believe= that 80 Andersen employees were directed by Mr. Duncan to violate an expre= ss provision of policy by Andersen in the face of yet another investigation= , and none of them picked up the phone and called their superiors and said,= 'This doesn't seem right'?'' he asked. ''The question we need to get to is= , Were there instructions from above.''=20 Other people close to the investigation said they doubted that the number o= f Andersen employees was as high as Mr. Greenwood's estimate, but they said= it was a much larger group than the company had suggested. Mr. Duncan is e= xpected to appear under subpoena at the energy and commerce subcommittee he= aring, but he plans to invoke his Fifth Amendment right against self-incrim= ination, his lawyer said today. Mr. Duncan, will ''rely on his Constitution= al right not to testify'' unless he is given immunity, his lawyer, Robert G= iuffra, told the committee in a letter today.=20 Also today, Congressional investigators made public a memo Mr. Duncan wrote= last October saying he expressed concerns about the way in which Enron was= about to disclose huge losses from controversial dealings that investigato= rs believed played a significant role in the company's collapse. The disclo= sure, he said, was misleading to investors and possibly illegal.=20 On Oct. 16, Enron disclosed that it lost $618 million during the third quar= ter and that it would have to reduce its net worth by $1.2 billion, partly = because of dealings with investment partnerships that had been headed by An= drew S. Fastow, who was then the company's chief financial officer. At the = time, the company said the losses were the result of one-time losses, leavi= ng the impression that the company could weather the bad quarterly results.= =20 But two days earlier, Mr. Duncan warned the company's chief accounting offi= cer, Rick Causey, that the way the company planned to disclose the informat= ion might be ''misconstrued or misunderstood by investors,'' according to a= memo Mr. Duncan wrote to his files on Oct. 15 that was made available to C= ongressional investigators. However, the press release Enron issued the nex= t day was ''essentially the original presentation,'' Mr. Duncan wrote.=20 Mr. Duncan said in his memo that he had warned Mr. Causey that the Securiti= es and Exchange Commission initiates enforcement actions against companies = that issue financial information that is ''materially misleading.'' He said= the company should rewrite its earnings report and bring in lawyers to ass= ure that its statements were not false.=20 One week later, officials in Andersen's Houston office began to shred Enron= -related documents on a massive scale, even though Enron had just disclosed= that the Securities and Exchange Commission had begun an investigation int= o its finances. Andersen fired Mr. Duncan last week, saying he had ordered = the destruction of the Enron papers.=20 An Andersen spokesman, Charlie Leonard, characterized Mr. Duncan's memo as = routine and said it reflected internal debates about accounting issues that= occur between auditors and corporate executives. He added: ''It looks like= that with the exception of some inappropriate phrasing, Mr. Duncan was doi= ng what he was supposed to.''=20 Tonight, an Andersen official repeated the firm's assertion that Mr. Duncan= 's actions, aided by other partners in the Houston office who were demoted = or placed on leave last week, had not been sanctioned.=20 ''The one glaring fact here is that David Duncan, with full knowledge of an= S.E.C. investigation, initiated a massive document destruction campaign,''= official said.=20 The hearings that begin on Thursday, which will eventually involve 10 diffe= rent committees, could lead to changes in pension, tax, securities and acco= unting laws, though many experts are skeptical how far lawmakers will go. P= ast efforts to tighten laws in these areas, particularly auditing standards= , have been beaten back by industry lobbying.=20 The fall of Enron has touched off a scramble in the capital to assign blame= and avoid the taint of the company's prodigious political donations.=20 Some Democrats in Congress see the Enron case as a windfall that could dent= President Bush's lofty public approval ratings. But many Democrats are als= o vulnerable because the company spread its largess so widely and the accou= nting and regulatory practices that led to Enron's collapse took place unde= r Democratic and Republican administrations.=20 In the House, the Energy and Commerce subcommittee will cross-examine three= senior Arthur Andersen officials about why the firm destroyed Enron docume= nts after learning about an S.E.C. investigation into the company's finance= s.=20 Also, the Senate Governmental Affairs Committee will examine whether govern= ment policies failed and what new legislation is needed. The first witness = will be Arthur Levitt, the former S.E.C. chairman whose efforts to tighten = auditing standards two years ago were derailed by opposition from Congress.= =20 Separately, Representative John Conyers Jr. of Michigan, the ranking Democr= at on the House Judiciary Committee, formally asked the Justice Department = to appoint a special counsel to investigate Enron, arguing the case ''repre= sents one of the largest corporate frauds in the nation's history'' and cit= ing the large campaign donations Enron has provided to President Bush over = the years and the large number of senior administration officials who worke= d for or invested in the company.=20 A Justice Department official said that he had not seen Mr. Conyers's lette= r and that officials were still proceeding with their criminal investigatio= n.=20 Also today, the Senate Finance Committee asked Enron to turn over tax retur= ns for the past 16 years, in a letter sent by the committee chairman, Max B= aucus, Democrat of Montana, and the ranking Republican, Charles E. Grassley= of Iowa. Their request follows the disclosure in The New York Times last w= eek that Enron used almost 900 subsidiaries in tax-haven countries and othe= r techniques to pay no income taxes in four of the last five years.=20 In an interview, Mr. Greenwood said Mr. Duncan had sought immunity for his = testimony but had been rebuffed. Justice Department officials are worried t= hat grants of immunity made by Congress might hamper their criminal investi= gation of Enron and Andersen.=20 Investigators had asked Andersen's chief executive, Joseph F. Berardino, to= appear, but Mr. Berardino said he would be willing to attend on a later da= te. Instead, Dorsey Baskin, a senior technical expert at Andersen, will tes= tify. Two other Andersen officials -- Michael C. Odom, a partner in Houston= , and Nancy Temple, an in-house lawyer in Chicago -- are scheduled to testi= fy.=20 While the House subcommittee hearing will focus on Andersen's document dest= ruction, attention will turn later to the reasons for Enron's flawed accoun= ting. In Mr. Duncan's memo, the auditor says Andersen had expressed serious= reservations about Enron's accounting, particularly the company's descript= ion of large losses as ''nonrecurring,'' or one-time, charges.=20 Andersen had advised Enron that its use of the term ''could potentially be = misunderstood by investors,'' Mr. Duncan's memo states. ''We pointed out th= at such items are, more often than not, included in normal operating earnin= gs in'' financial statements that are put together using generally accepted= accounting practices.=20 The next day -- the same day Enron disclosed the earnings press release tha= t Mr. Duncan objected to -- Ms. Temple, who had been involved in discussing= the matter with Mr. Duncan, sent an e-mail message to Mr. Duncan and other= s at the firm suggesting that language be deleted from the memo ''that migh= t suggest we have concluded the release is misleading.''=20 A copy of the message showed that Ms. Temple appeared to be worried about p= otential litigation on Enron's finances and she sought to remove her name f= rom the list of people who received the document: ''If my name is mentioned= it increases the chances that I might be a witness, which I prefer to avoi= d.''=20 Ms. Temple's lawyer did not return a telephone call for comment. Mr. Leonar= d, the Andersen spokesman, said Ms. Temple was simply worried about waiving= attorney-client privilege. Her reference to not concluding that the press = release is misleading reflects her understanding that auditors ''don't have= a right or responsibility to pass judgment on press releases,'' only forma= l financial statements, he added.=20 Mr. Duncan, 42, has told investigators that he was only destroying document= s in keeping with an Oct. 12 e-mail message from Ms. Temple that emphasized= that they follow a policy requiring some documents be destroyed. Mr. Dunca= n has told investigators he stopped shredding after Ms. Temple ordered it h= alted Nov. 9.=20 While Andersen officials have sought to blame Mr. Duncan and other employee= s in Houston office for the destruction of the documents, investigators are= skeptical and want to probe why the firm waited more than two weeks after = Enron disclosed the S.E.C. investigation to order the shredding stopped.=20 Mr. Greenwood said that in interviews with committee investigators, Mr. Dun= can stated that on at least two occasions before Oct. 12, Ms. Temple asked = him, ''How are you on compliance with the document-retention on Enron?''=20 ''Did she really mean that,'' Mr. Greenwood asked, ''or did she mean, 'How = are you doing on getting rid of the documents?''' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION THE ENRON INQUIRY Andersen Memo Cites Objections EDMUND SANDERS; RICHARD SIMON TIMES STAFF WRITERS 01/24/2002 Los Angeles Times Home Edition A-17 Copyright 2002 / The Times Mirror Company WASHINGTON -- A fired executive with Enron Corp.'s accounting firm, Anderse= n, warned the energy trading company that some of its public statements mig= ht mislead investors, a memo obtained Wednesday shows.=20 As Enron was preparing to make the first public disclosure of its financial= problems, David B. Duncan, the Andersen partner who oversaw the Enron acco= unt, advised Enron that language in its news release "could be misconstrued= or misunderstood by investors," according to an Oct. 15 memo written by Du= ncan. Duncan is expected to be called to testify today at the first congressional= hearing to examine why Andersen destroyed thousands of documents related t= o the Enron account. Andersen, claiming Duncan acted against orders in shre= dding documents, fired him last week.=20 Duncan has contended that Andersen executives in Chicago were aware of Enro= n's problems and that he was singled out as a scapegoat.=20 On Oct. 16, Enron reported a $1.2-billion charge against shareholder equity= . In his memo a day earlier, which he prepared for his files and copied to = Andersen attorney Nancy Temple, Duncan said he raised objections to Enron's= characterization of some of the charges as "non-recurring" in a company ne= ws release. He noted that the Securities and Exchange Commission had been c= racking down on companies that improperly used the term.=20 Temple wrote back and suggested that Duncan delete her name from the memo d= ue to a concern that the reference to Andersen's legal department might be = viewed as a waiver of attorney-client privilege.=20 "If my name is mentioned, it increases the chances that I might be a witnes= s, which I prefer to avoid," Temple wrote on Oct. 16, according to a copy o= f her e-mail.=20 Duncan, who was fired by Andersen for allegedly orchestrating the destructi= on, has pointed to an "unusual" Oct. 12 e-mail from Temple, reminding emplo= yees to abide by the company's policy for deleting old files.=20 Sources close to the Enron investigation say the new memos show that Anders= en was concerned in mid-October about its own legal liability in the Enron = scandal, including the possibility that Temple might later be called as a w= itness.=20 But the company did not advise its workers to preserve Enron documents unti= l Nov. 9, after it was subpoenaed by government investigators.=20 An Andersen spokesman called the memos standard and appropriate. He said Te= mple didn't want a reference to her conversations with Duncan because they = were covered by attorney-client privilege.=20 An attorney for Duncan declined to comment on the memo.=20 But in a contentious opening salvo to the government's burgeoning inquiry, = Duncan plans to refuse to testify today before the House Energy and Commerc= e Committee.=20 The public standoff between Duncan, who wanted immunity in exchange for his= testimony today, and the committee, which refused his request for a tempor= ary postponement of his appearance, are the first examples of what Washingt= on experts predict could be several months of finger-pointing and legal man= euvering.=20 "He's flying from Houston to Washington to assert the 5th [Amendment] and l= eave," said Duncan's attorney, Robert J. Giuffra Jr.=20 In a letter to the committee Wednesday, Giuffra expressed frustration that = the committee would not allow Duncan to postpone his testimony in order to = review two boxes of Andersen documents that were not provided to him until = Tuesday.=20 He also noted that it was unusual to require a potential witness to appear = before a congressional committee and be sworn in, merely to invoke his cons= titutional right to refuse to testify. Duncan had offered to provide the co= mmittee with a sworn statement invoking the 5th Amendment in lieu of appear= ing at the televised hearing.=20 "Most of the time, these things are worked out," said Jack Blum, a Washingt= on attorney and former Senate investigator. "But if the effect you want is = drama, you bring them in to take the 5th."=20 Committee spokesman Ken Johnson noted that Duncan spent 4 1/2 hours talking= to committee investigators behind closed doors.=20 "All we're asking is that he provide the same information to the committee = under oath."=20 The committee also planned to subpoena Andersen Chief Executive Joseph F. B= erardino but reportedly has agreed to allow an Andersen partner, Dorsey Bas= kin, to come in Berardino's place.=20 The Senate Governmental Affairs Committee, which Sen. Joseph I. Lieberman (= D-Conn.) chairs, is also holding hearings today, focusing primarily on issu= es related to the SEC, pensions, investor confidence, derivatives trading a= nd the energy market. Former SEC Chairman Arthur Levitt is the primary witn= ess.=20 *=20 Times staff writers Eric Lichtblau, Janet Hook and Nick Anderson in Washing= ton contributed to this report. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk Enron Audit Fee Raises Some Brows JERRY HIRSCH TIMES STAFF WRITER 01/23/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company The fee Enron Corp. paid the Andersen accounting firm to audit its books wa= s one of the richest in corporate America, a fee that reflects the complexi= ty, and possibly the risk, inherent in the job.=20 Enron paid Andersen $25 million for the year 2000 audit, a figure higher th= an all but one of the companies in the Dow Jones industrials that reported = their audit fees. The average charge among the blue chips was just $9 milli= on, according to a review of such fees by The Times. It also was large compared with the fees other energy companies paid their = accountants, even Andersen. In a review of fees listed in Securities and Ex= change Commission filings, The Times found that audit contracts averaged $3= million at nine large energy companies, including Andersen clients Mirant = Corp., UtiliCorp United Inc., Dynegy Inc. and Calpine Corp.=20 Andersen's fee was a red flag to some experts and critics who say it could = have clouded the company's judgment as it examined Enron's tangled financia= l structure. The high fee no doubt reflected the difficulty of the audit, b= ut it also may have hinted that Enron's finances contained unknown risks. I= ndeed, Andersen executives debated internally whether the audit and other f= ees would be perceived as a breach of the firm's independence.=20 An Andersen spokesman defended the fee, saying it reflected the size and co= mplexity of Enron.=20 "This was a very sophisticated business," Andersen spokesman David Tabolt s= aid. "The fee is set by the scope of the audit and the kind of people that = have to be brought in to do the work. There are a whole lot of factors that= go into it."=20 Tabolt said the audit fee was in line with those of Enron's peers--the top = 10 companies in the Fortune 500. But even by that standard, the fee was lar= ge.=20 The nine other companies at the top of that list paid an average of $14.5 m= illion for their audits. Only Citigroup Inc., the nation's largest financia= l services company, paid more than Enron: $26.1 million.=20 Even if Enron were looked at as a financial services company, the fee it pa= id was unusual. The Times examined the fees of seven large financial servic= es companies--including Citigroup, American International Group, Goldman Sa= chs Group Inc. and Bank of America Corp.--and found that the average audit = charge was $15.5 million.=20 Several accounting professors and industry insiders said the high fees coul= d be an indicator of the complicated nature of the Enron audit or the perce= ived risk of the account.=20 "The relationship between a client and its auditors is a complicated thing = because auditors get paid by the client but are supposed to be independent,= " said Rick Antle, an accounting professor at the Yale School of Management= .=20 "If you tell your client 'no' too many times, you don't have a client. But = if you go along with everything they suggest, you could end up in jail," sa= id Antle, who added that there is insufficient information yet to determine= whether the high fees Andersen collected influenced its judgment.=20 However, critics of the accounting industry say the fees Enron paid Anderse= n--including an additional $27 million for consulting work--and the scandal= arising from the audit highlight problems that include the independence of= auditors and how the business is marketed and sold.=20 They argue that the fee clouded the minds of auditors, who were loath to en= danger Andersen's contract by forcing Enron to adhere to stricter financial= standards.=20 The audit--and its failure to more fully disclose internal conflicts of int= erest of Enron executives, billions of dollars in hidden debt and hundreds = of millions of dollars in losses--is now the subject of multiple federal in= vestigations.=20 Even top Andersen executives debated the propriety of the fees it was colle= cting from Enron--which, including the consulting work, reached $1 million = a week.=20 In a meeting almost a year ago, a group of the firm's top partners on the E= nron engagement and at Andersen headquarters in Chicago discussed "whether = there would be a perceived independence issue solely considering our level = of fees," according to a Feb. 6 internal e-mail summarizing the meeting.=20 The partners estimated that the combined take on the Enron audit and consul= ting contracts could reach $100 million annually. Ultimately the partners d= ecided that they were not troubled by such a figure "as long as the nature = of the services was not an issue."=20 The amount a firm charges for accounting services can be a warning sign for= audit problems, said Mark Cheffers, who operates the AccountingMalpractice= .com Web site.=20 Certainly, the Enron fee was large enough to have the potential to color th= e judgment of the firm's staff, Cheffers said.=20 But there is equal danger at the other end of the scale, where low audit fe= es are designed to gain an accounting firm entry to a large company so it c= an sell a host of profitable consulting and other services, Cheffers said.= =20 Companies only last year began disclosing what they paid auditors, and ther= e is not enough information yet to interpret what differences in fees mean,= said Lawrence Revsine, a Northwestern University accounting professor.=20 "We can't say that when there is a $25-million audit versus a $15-million a= udit, something rotten is afoot here, but we will be able to as more inform= ation about audit fees comes out now and it is studied," he said.=20 Revsine said researchers will look at how differences in a company's number= of locations, employees, complexity of transactions and other factors can = affect an audit.=20 Audits are intended to provide independent verification that a company is g= iving investors an accurate picture of its finances and that it is followin= g consistent and generally accepted accounting rules and standards.=20 Enron's downfall, caused in part by the accounting treatment of a series of= partnerships and ventures affiliated with the Houston energy trader, has t= hrown thousands of employees out of work and has cost the company's pension= ers and investors billions of dollars in stock value losses.=20 Yet it would be a mistake to assume that all audited financial statements g= o through the same type of scrubbing and are comparable, said Ira Solomon, = who heads the accounting department at the University of Illinois.=20 For example, two identical companies with the same level of sales and cost = structures could have different profit figures based upon the way they cons= truct their financial statements. The cost of inventory can be calculated b= y two methods that yield different results in the short term. Each approach= is an accepted practice, and each produces a different profit figure, Solo= mon said.=20 J. Terry Strange, vice chairman, assurance and advisory services, for accou= nting firm KPMG, which audits Citigroup, said it makes sense that financial= services companies pay higher audit fees than other companies.=20 "The size of the fee is directly related to the size, and more importantly,= the complexity of the enterprise being audited," Strange said. "Financial = services companies are, generally speaking, the most complicated businesses= . The reason they are complicated is that they are in the financial risk bu= siness.=20 "So risk enters into [calculating an audit fee]--the nature of risk that th= e enterprise takes and the amount of work that must be done to become comfo= rtable that the auditor understands and agrees with the accounting and beli= eves that the enterprise has controls in place to manage the risk they are = taking," he said.=20 By those standards, it would make sense that Enron would be an expensive au= dit. The company in many ways operated as a financial services business, de= veloping new trading mechanisms and markets for everything from energy to t= elecommunications services--in the process inventing transactions that were= new to the business world.=20 With that came high risks.=20 "Clearly this was a very high-risk client. They were doing things in an ind= ustry that had never been done before," said Randolph Beatty, dean of USC's= Leventhal School of Accounting.=20 But Andersen spokesman Tabolt said the company does not build a "risk premi= um" into its audit fees.=20 Each of the five largest accounting firms conducts the audits of 2,000 to 3= ,000 publicly traded companies in the United States, according to the Publi= c Accounting Report, an industry newsletter. They so dominate the business = that the No. 6 firm in the country, BDO Seidman, has only 325 SEC-reporting= clients.=20 Although companies occasionally change auditors for such reasons as fees or= arguments or service issues, most companies stay with the same auditor for= years, occasionally putting their contracts out to bid.=20 Certain firms specialize in industries. Andersen, which audits only two of = the 30 companies that make up the Dow Jones industrial average, has a large= energy business practice. PricewaterhouseCoopers specializes in large comp= anies and audits 14 of the Dow 30.=20 Times staff writer Ralph Frammolino in Chicago contributed to this report. PHOTO: Andersen attorney Rusty Hardin addresses reporters outside a Houston= courthouse. Congressional investigators will call on senior executives of = the accounting firm for their testimony this week.; ; PHOTOGRAPHER: Reuters= =20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: GAUGING THE ASSETS Plaintiffs Ask: Just How Deep Are the Pockets At Andersen? By JONATHAN D. GLATER 01/24/2002 The New York Times Page 1, Column 2 c. 2002 New York Times Company The growing stack of lawsuits against Arthur Andersen, which audited Enron'= s financial statements, raises the question of just how much could the firm= really afford to pay out.=20 In the latest suit, filed yesterday in Federal District Court in Houston, E= nron employees argue that the accounting firm helped hide Enron's true fina= ncial condition and contributed to losses of more than $1.3 billion from th= eir retirement funds. Federal and Congressional investigators, along with legions of plaintiffs' = lawyers, are engaged in a fierce and competitive search for evidence of wro= ngdoing at the accounting firm in its dealings with Enron, the Houston ener= gy trader now in bankruptcy court. Andersen, after all, could conceivably s= atisfy at least some of Enron's creditors.=20 It is not easy to determine how much Andersen is worth or how much it could= pay to satisfy the various lawsuits if it loses or chooses to settle. But = claims of more than $1 billion, as identified in yesterday's suit, could co= me dangerously close to wiping out the firm, said independent analysts who = track the industry.=20 In public statements about the impact of Enron's collapse Joseph F. Berardi= no, Andersen's chief executive, has emphasized that the firm's clients are = standing by it and that its employees are trying to focus on the firm's wor= k. ''We are meeting with our clients every day,'' Mr. Berardino said on ''M= eet the Press'' on Sunday. ''Our clients know what we really stand for, and= our clients are standing by us because we do great work.''=20 Like the other Big Five accounting firms, Andersen is a private partnership= and does not have to disclose much information about its financial conditi= on.=20 ''They like to be under the radar screen,'' said Arthur W. Bowman, editor o= f Bowman's Accounting Report.=20 Some general information has been amassed by accounting industry analysts a= nd lawyers who have been involved in litigation against the Big Five firms.= =20 Andersen's first line of defense is its insurance. While that amount is a c= losely guarded secret -- plaintiffs' lawyers would dearly love to know how = much coverage an accounting firm has so that they could settle lawsuits for= the full amount of the policy -- some of the firm's peers described, in ge= neral terms, what that insurance looks like.=20 Big accounting firms generally have an outside insurance policy of $100 mil= lion to $300 million. That policy would come with a sizable deductible, too= -- probably $50 million to $100 million. Above that, some firms self-insur= e, for example by setting up ''captive'' offshore subsidiaries that sell in= surance back to the parent firm. (Setting up such a company offshore confer= s certain benefits on the subsidiary, like a smaller required capital inves= tment by the parent.)=20 Until June 1998, the Big Five firms pooled insurance funds, so that a big i= nsurance payout by one firm could affect another. That system is no longer = in effect and would not be invoked in any Enron-related lawsuits because th= ey have all been filed well after 1998, said executives at a big firm.=20 Next would come the firm's capital, a figure very difficult to determine. P= artnership capital is the result of payments made by the a ners. Consulting= partners may be compensated differently from auditing partners, as are dif= ferent partners in different cities. But when an auditor is first promoted = to partner, he must pay a portion of his compensation into the firm, essent= ially buying a stake in the company. That first payment could amount to nea= rly all of his compensation, probably $150,000 to $250,000 a year. In later= years, those partners would probably plow a smaller portion of their compe= nsation back into the firm to cover operating expenses.=20 The firm's capital base, consisting of assets, like furniture, computers an= d offices, and cash, might total $1.5 billion to $2 billion, said accountan= ts familiar with the Big Five, but plaintiffs' lawyers said that liquidatin= g the firm would be difficult. The firm could also draw on lines of credit = from lenders for some unknown amount, while it rebuilt capital. Some analys= ts said, however, that partners were more likely to choose to disband than = to try to rebuild a depleted capital base with loans or their own money.=20 The firm could raise money by selling off business lines, said Melvyn I. We= iss, whose law firm, Milberg Weiss Hynes Bershad & Lerach, is one of severa= l that have filed suits against Enron executives and Andersen. ''Maybe they= can sell the firm, or pieces of it,'' he said.=20 Because Andersen is a limited liability partnership, it is unlikely that an= y plaintiff could collect from a partner's personal assets, unless that par= tner was directly involved in wrongdoing that led to the firm's liability. = For example, partners intimately involved in the Enron account could concei= vably be found personally liable in a shareholder lawsuit, lawyers said.=20 ''It's unclear where the chain of liability would end,'' said David J. McCa= be, a lawyer at Willkie Farr & Gallagher in New York. ''But clearly the par= tner who was responsible for supervision'' would be at risk, he said.=20 Of course, Andersen's ability to survive depends on how it fares in lawsuit= s as well as how its business does. It is too early to tell whether clients= are jumping to some of the firm's rivals, though some other big firms say = that they have picked up a smattering of Andersen clients.=20 The other risk to the firm is a loss of personnel as the Enron scandal drag= s on. While many headhunters said they had not yet seen a flurry of resumes= , Dean McMann, chief executive of the Ransford Group, which advises account= ing firms, said he had received more than 1,000 e-mail messages and phone c= alls from Andersen employees curious about the job market for them.=20 ''The only reason you want to know what's happening in the market is you wa= nt to be in the market,'' Mr. McMann said. ''It's not a very good market ri= ght now.'' Photos: Sonia Garcia, who lost her job at Enron, seeks work during the rush= hour in Houston. At Enron's headquarters, debris from some of the shredded= documents bears dates and the word ''Raptor,'' the name of one of the off-= balance-sheet partnerships. (Photographs by James Estrin/The New York Times= ) Chart: ''Arthur Andersen at a Glance'' The company was founded in 1913 by= Arthur Andersen, a university professor, in Chicago. OFFICES: 390 in 84 co= untries EMPLOYEES: More than 85,000 (About 4,700 partners) TOP FIVE CLIENTS= : Merck, Enron, Texaco, UtiliCorp United, Freddie Mac TOP EXECUTIVES: Chief= executive: Joseph F. Berardino Managing partners: Thomas L. Elliott III, K= ay G. Priestly, Philip A. Randall, Xavier de Sarrau 2001 REVENUE BY AREA (i= n billions) North America -- $4.5 Asia Pacific -- $1.2 Central Europe, Midd= le East, India and Africa -- $0.4 Western Europe -- $2.9 Latin America -- $= 0.4 PROBLEMS THE FIRM FACES Litigation is coming quicker than expected from= Enron shareholders and creditors. Corporate clients may decide against ret= aining Andersen as their auditor. The Connecticut attorney general has sugg= ested that Andersen be barred from practicing in the state. Graph tracks re= venue since 1994. (Source: Company reports)(pg. C8)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE OFFICE Morale and Occupancy Are Low At the Headquarters in Houston By DAVID BARBOZA 01/24/2002 The New York Times Page 1, Column 4 c. 2002 New York Times Company HOUSTON, Jan. 23 -- Inside the glass-sheathed 50-story Enron headquarters h= ere, the televisions that once carried news and financial channels in the e= levators have been turned off. ''ETV is under construction,'' the monitors = now read.=20 ''They don't want to make people more nervous than they are already,'' expl= ained one former executive who has visited the building since he was laid o= ff in December after the company filed for bankruptcy protection. ''It's ve= ry, very grim.'' This is the new face of the Enron Corporation, once the world's biggest ene= rgy trader but now a skeleton of its old self. Not long ago, 7,000 people w= orked for the company in downtown Houston. Now only about 4,000 of the fait= hful are left. Entire units have been decimated; whole floors are practical= ly deserted.=20 For weeks after the filing, Keith Couch had the 27th floor virtually to him= self. People would stop by and notice the lone figure tapping away at a key= board. They would laugh, giggle and point at the rows of empty desks that s= uggested a neutron bomb had been set off.=20 ''It's been dead here for a while,'' said Mr. Couch, 34, who works in the i= nformation technology group at Enron and has since moved to a more populate= d floor. ''It's not like being in a funeral, but it's quiet -- real quiet,'= ' he said. ''The place I used to work isn't here anymore.''=20 These days, Enron is being carved up; its accounting is being scrutinized b= y litigants, and its corridors are even being prowled by F.B.I. agents, pho= tographing documents and hoping to prevent important information from reach= ing the shredding machines.=20 Two days after a former employee gave lawyers a box full of shredded financ= ial documents, the kind of papers the company warned people not to destroy,= both Enron and the F.B.I have stepped up security. The 19th and 20th floor= s, which once housed the accounting offices and even some employees from Ar= thur Andersen working on internal auditing, are now under guard. Stairway a= ccess was sealed on Tuesday.=20 This is the humbled face of the new Enron, beleaguered, embattled and under= siege. Legions of class-action lawyers are in town meeting at the Four Sea= sons Hotel, drafting new strategies on how to pull valuable financial docum= ents out of the building. And government investigators of all types are als= o here, combing through the financial ruins of a company that rose to No. 7= on the Fortune 500 list, albeit because of revenue that some now say was i= nflated.=20 The media hordes come and go, often straddling all corners around 1400 Smit= h Street, where a giant ''E,'' tipped on its side as a corporate emblem, se= nds a dual message about a company that once defied gravity and now relucta= ntly succumbs to it.=20 ''People are nervous about being there,'' said a former executive who has k= ept in touch with friends and colleagues inside the building. ''They still = feel guilty about being there.''=20 This was once the home of the old- economy company that went new economy --= a dot-com energy company that acted like a Wall Street trading house and b= oldly told competitors they were ''dinosaurs'' and Enron was going to eat t= heir lunch.=20 Today, Enron cannot afford the new $200 million 40-story corporate tower un= der construction across the street. It was supposed to relieve the congesti= on in the main headquarters tower . Now, the company is moving employees ov= er from 3 Allen Center, a nearby tower where it has long housed other worke= rs.=20 ''It definitely feels empty,'' said one worker who asked not to be named. '= 'You feel a lot of things are missing. And morale is kind of low.''=20 Enron recently sold off its profitable energy and power trading group to UB= S in exchange for promises of about a third of the pretax profits. Soon Enr= on will also lose the natural gas pipeline that Dynegy is to get after the = failed merger between the companies.=20 Away from its headquarters, many companies acquired by Enron along the way = are trying to conduct business as usual. But it isn't easy. Portland Genera= l Electric, a utility that serves northern Oregon, has not been forced to l= ay off any of its 2,700 employees. But with the Enron stock price in the ba= sement, so are many employees' retirement hopes.=20 ''I've been climbing poles and doing line work since 1966,'' said Roy Rinar= d, 54, whose 401(k) plan once was worth as much as $472,000. ''Now I'm sitt= ing here with basically $12,000 to show for it.''=20 Mr. Rinard said the uncertainty hanging over the utility's future made it h= ard to focus on work. ''Everyone is concerned about the direction we're goi= ng, whether we're going to be broken apart and separated or remain an intac= t utility,'' he said.=20 The broadband unit, which was supposed to offer high-speed telecommunicatio= ns services, came unglued even before Enron's Chapter 11 filing. Nine month= s ago, it employed about 1,000 people. Now, there is virtually no one in th= e unit. The trading floor for another unit, Enron Global Markets, is idle -= - a room of computers but no heads.=20 The average passer-by might not notice anything unusual from outside the En= ron headquarters, but inside the building seems less cramped. This afternoo= n, a little coffee shop on the ground floor, which used to be crowded at 4 = p.m. with chattering and deal-making employees, had just two patrons.=20 ''The elevators used to be so crowded,'' said Jeff Snyder, 24, a former emp= loyee who has gone back into the building recently. ''Now you get one and y= ou ride by yourself.''=20 One can see a pleasant but more stoic look on the faces of Enron people.=20 Many remember that just months ago there was an energy about the place. The= re was the fast pace, the giddiness of riding with a company whose stock we= nt to the moon in 1999 and 2000.=20 A giant banner hanging in the Enron lobby had proclaimed, ''From the World'= s Leading Energy Company to the World's Leading Company!'' After Sept. 11, = it was replaced by an American flag; and that was probably a good thing bec= ause by now it would serve only as a daily reminder of how grossly overconf= ident the company once was.=20 Down in the lobby, where security guards carefully keep unwelcome visitors = at bay, an electrified ''E'' inside the lobby still twirls, and the ticker = showing Enron's stock price is still aglow. But today, the price of Enron's= stock, which has been delisted from the New York Stock Exchange, scrolled = across at 34 cents a share, down 9 cents.=20 The new Enron is filled with people moving into what is now its lone buildi= ng to fill the gaps. On many floors, there is no receptionist and there are= empty cubicles.=20 Of course, Enron still has three major natural gas pipelines, it still owns= Portland General Electric (though it is being sold), and it still has Enro= n Wind and Enron Energy Services, which delivers energy to commercial and i= ndustrial companies.=20 But the legal department was chopped, and so were human resources, accounti= ng, tax and corporate services. And fewer people are on hand to field news = media calls.=20 ''We just moved; we got smaller,'' said Mark Palmer, an Enron spokesman. ''= We had 27; now we have 7.''=20 More than 100 Arthur Andersen people have departed, some before and some af= ter Enron said this month that it would fire the company as its auditor.=20 To lighten up the place, Elicia de la Cruz had a baby shower in the payroll= department today. Coming out of the building this afternoon, her friend Pa= uline Sanchez said the shower had brought some smiles.=20 ''It was a nice change,'' she said.=20 Still, life goes on. The credit union is open, and so is a small supermarke= t where workers can get fresh deli meats. The health club was closed for a = while but is now open again, though the $10 monthly membership fee has been= increased to $25.=20 Representatives of the news media are eager to get into 1400 Smith Street. = Some chase Enron employees to their cars. Not long ago, a photographer paid= an Enron employee to smuggle in a camera to photograph the place. Security= seized the camera.=20 The people who are photographing, though, are agents from the F.B.I., who t= oday were on the 19th and 20th floors. ''It's kind of weird,'' one Enron em= ployee said. ''They say we're exhibit No. 102.''=20 The company used to give regular video updates on the building under constr= uction next door, even with skits by the ''building guy.''=20 ''The joke was,'' one employee said, ''that the building guy would be repla= ced by the bankruptcy guy.'' Photo: The 19th and 20th floors, which once housed Enron's accounting offic= es and even some employees from Arthur Andersen, are now under guard. (Jame= s Estrin/The New York Times)(pg. C6)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE CRITICS Sharpton, in Houston, Calls Attention to the Workers By MICHAEL BRICK 01/24/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company HOUSTON, Jan. 23 -- The Rev. Al Sharpton pulled up to RJ's Rib Joint this a= fternoon to meet with local ministers, a state representative, an N.A.A.C.P= . official and a victim of the Enron collapse.=20 Local television cameramen were waiting under the veranda. The three palm t= rees looked a little out of place. ''I'm here because I'm very concerned about the employees and the investors= ,'' Mr. Sharpton said. ''As the investigation goes forward, somebody needs = to step forward and call on the government to bail out the victims.''=20 Then the cameras turned on Mary Behn, the Enron victim. The local ministers= shepherded her inside to a private dining room to prepare for a full-blown= news conference. Just about everyone but Mr. Sharpton tried the ribs. Mr. = Sharpton stuck to the chicken. A couple dining in the main room did not ini= tially recognize him as he passed by, they said, because he had lost so muc= h weight.=20 The Enron debacle has made Houston the center of a certain kind of temporal= universe, and Mr. Sharpton has recognized an unusual opportunity for his b= rand of social criticism.=20 So has the Rev. Jesse L. Jackson, who said in a telephone interview that he= would arrive in Houston Thursday night and conduct several meetings with f= ired workers under the auspices of his Operation PUSH organization.=20 Mr. Jackson said he would remain here through Friday, in hopes of meeting w= ith Kenneth L. Lay, Enron's chief executive. ''I think one thing that Ken L= ay and President Bush should agree on is that these workers need to be made= whole,'' he said.=20 There has been talk of the two ministers jostling for pre-eminence on issue= s of social justice; all that Mr. Jackson's local representative, William-P= aul Michael, would say on that score about Mr. Sharpton's visit was, ''it's= interesting that he is here just before reverend's here.''=20 So Mr. Sharpton has a one-day head start on Mr. Jackson.=20 After lunch, Mr. Sharpton escorted Ms. Behn before the cameras to tell her = story. She worked at Enron for 15 years. She is a single parent with a chil= d in college. Her stock is worthless and she has no income.=20 ''We want to be able to start our lives over again,'' she said. ''We thank = Mr. Sharpton for allowing himself to be present to help.''=20 And Mr. Sharpton had one last point to make.=20 ''The laryngitis that the leading Democrats have had on this issue to me is= frightening,'' he said. Democrats and Republicans alike plan numerous hear= ings into Enron's collapse, with one scheduled Thursday in each house of Co= ngress.=20 Mr. Sharpton and local ministers plan to bring other former Enron employees= and stockholders to a meeting next week and then to Washington, but for no= w they have just Ms. Behn. Mr. Sharpton said that because everyone was focu= sed on the investigation, the workers' troubles were being overlooked. Many= of these workers do at least have savings and job prospects.=20 Still, said Michael P. Williams, the pastor of the Joy Tabernacle here and = one of the ministers who met with Mr. Sharpton, ''people define themselves = by what they do -- when you stop being that, after 15 years, after 20 years= , that's a big blow.''=20 Back in the private meeting room, as everyone was finishing sides of potato= salad (Mr. Sharpton opted for the baked potato), the Rev. James W. E. Dixo= n said that former Enron workers in his church were asking for advice about= their careers and their assets.=20 Mr. Sharpton said the workers deserved remuneration because regulation fail= ed. And he sees his own opportunity here, too.=20 ''As I explore running for president,'' he said, ''it is interesting that n= one of the other candidates have been here.''=20 Told that Mr. Jackson will be here Thursday, he said: ''Maybe. But he isn't= running for president.'' Photo: The Rev. Al Sharpton was in Houston yesterday to discuss Enron. From= left, Al Edwards, assemblyman; Mr. Sharpton; Mary Behn; the Rev. Samuel Gi= lbert; the Rev. James Dixon; and the Rev. Michael P. Williams. (James Estri= n/The New York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Sharpton urges aid for investors=20 By S.K. BARDWELL=20 Copyright 2002 Houston Chronicle=20 Jan. 23, 2002, 11:55PM The government failed to protect investors from the downfall of Enron and t= herefore should find money to help those who lost their savings in the corp= oration's collapse, the Rev. Al Sharpton said Wednesday.=20 "Somebody must stand up" for those people, Sharpton said at a news conferen= ce on the steps outside Enron. "There must be a commitment by the governmen= t to bail them out."=20 If the government can afford to bail out airlines and other struggling corp= orations, he said, "they can certainly find money for victims who would not= have been victimized if the government had protected them."=20 The Rev. James Dixon, president of the Texas chapter of the National Action= Network, and Larry Green, district director for U.S. Rep. Sheila Jackson L= ee, D-Houston, also attended.=20 Sharpton, president of the National Action Network, said he came to Houston= after talking with Dixon about the effect of Enron's collapse.=20 "The ripple effect in the community is huge," said Dixon, of Houston's Comm= unity of Faith Baptist Church. He noted scores of families in his and other= churches who have suffered critical financial wounds in the wake of Enron'= s collapse.=20 Green said Jackson Lee was in Washington Wednesday, introducing legislation= to ensure a disaster like Enron's collapse will never happen again.=20 Sharpton and Dixon have scheduled a town hall meeting for 7 p.m. Wednesday = at Community of Faith Baptist Church, 1024 Pinemont.=20 REVIEW & OUTLOOK (Editorial) Taking Stock of Enron 01/24/2002 The Wall Street Journal A18 (Copyright (c) 2002, Dow Jones & Company, Inc.) The first two of at least eight Congressional hearings on Enron kick off to= day, an embarrassment of political riches. We're as curious as anybody to l= earn what was going on behind Enron's accounting kimono, but in the meantim= e we've been taking a peek ourselves at other parts of the company's anatom= y.=20 In particular, we've looked into the alleged problems with Enron's pension = plan, the source of much hot populist rage. What we've learned is that, at = least in this part of the Enron debacle, the reality isn't nearly as awful = as some of the headlines. Consider some of the facts: -- Enron's pension plans followed standard practices of most big, publicly = traded firms. Enron offered several arrangements -- from employee stock-opt= ion plans to defined benefits -- but the one that has everybody outraged is= its 401(k).=20 Enron's employees could set aside up to 15% of their pretax salary in a 401= (k), up to the IRS limit of $10,500 last year; they could put the cash into= one of 20 different investment vehicles, including mutual funds and a brok= erage account. Workers controlled this money in their own self-directed acc= ounts and were free to switch among investments or even cash out (with a ta= x penalty).=20 Enron had about 24,000 workers world-wide before bankruptcy and about half = of them participated in the 401(k). So we're talking about 11,000 employees= and a plan with about $1 billion in total assets, of which from $500 milli= on to $600 million was invested in Enron stock.=20 -- Enron also matched up to half of these worker contributions, up to 6% of= base pay. But it matched in Enron stock, and employees were required to ho= ld this matched stock until age 50. That limitation has come in for critici= sm, but keep in mind the stock was free. Some politicians want to stop comp= anies from matching in stock, but the danger is that they then won't match = at all.=20 This arrangement is also fairly typical of big plans. About half match with= company stock and half with cash. General Electric's plan offers a cash ma= tch, for instance, but about three-quarters of its workers use that money t= o buy company stock.=20 -- Contrary to the headlines, Enron employees were not forced to watch help= lessly as the value of their stock cratered, trapped by a malicious "lockdo= wn."=20 A lockdown, more properly a "transaction suspension period," occurs when co= mpanies change record keepers. Transactions are barred for a time so the ne= w record keeper can verify account accuracy and make a reconciliation. Lock= downs can last anywhere from a few days to two months, depending on the siz= e of the plan, its complexity and the sophistication of the record keepers.= Last year, 24,000 private investment plans changed record keepers.=20 Most important, Enron notified employees of the coming lockdown several tim= es -- first by mail and then by four separate e-mails. Enron shares were st= ill trading in the $30 range at this time, when workers had ample opportuni= ty to sell. The lockdown itself started Oct. 26 and ended Nov. 13, so worke= rs were locked out for only 11 stock-trading days. And during that time Enr= on's stock fell from $15.40 to $9.30, a rather small decline for a stock th= at had already lost almost 70% of its value during 2001.=20 -- 401(k) plans do not promote dangerously undiversified portfolios. Divers= ification is an important financial tool, permitting investors to reduce ri= sk without reducing expected returns. In long-term financial planning, it m= akes excellent sense to hold a portfolio that is diversified across a range= of assets.=20 But diversification is also a highly individual thing. Strategies depend mo= stly on age; a person nearing retirement should hold fewer risky assets tha= n one starting a career. But after adjusting for age, all assets should be = considered together. For example, a person who is heavily invested in real = estate might want to achieve balance by a single-minded approach in other v= ehicles, like ginning up her 401(k) for equities.=20 That doesn't mean holding 100% of equities in company stock is a great idea= . But then again if the rest of an investor's equity portion is well-divers= ified, such a concentration isn't crazy. In hindsight, a 100% concentration= in Microsoft made a lot of sense and lot of millionaires. A 100% concentra= tion in Enron also made sense for a while; from January 1998 to January 200= 1, Enron's shares increased fivefold.=20 -- Enron's 401(k) experience does not indicate that the plan is fiendishly = flawed and government must step in to correct it. If workers knew Enron's t= rue condition, they would no doubt have declined to invest in company stock= in their self-directed accounts. The problem is that they didn't know the = true condition of Enron, but then neither did the credit rating agencies, v= arious federal overseers, stock analysts, auditors and (possibly) even much= of its senior management. This was a failure in truth-telling and truth-fe= rreting out and it was system wide.=20 All of which means that while the Enron pension story is tragic, it's more = about specific corporate blunders and wrongdoing than it is about flaws in = pension law or in 401(k)s. It's certainly no excuse for Congress to lobotom= ize a private pension system that has given millions of Americans a comfort= able retirement. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: RETURNS UNDER SCRUTINY Senate Finance Panel Wants Tax Information From Enron By DAVID CAY JOHNSTON 01/24/2002 The New York Times Page 7, Column 1 c. 2002 New York Times Company The Senate Finance Committee yesterday asked Enron to disclose its corporat= e income tax returns.=20 In a letter to the chief financial officer of Enron, Senator Max Baucus, De= mocrat of Montana, who is chairman of the committee, and Senator Charles E.= Grassley of Iowa, the ranking Republican, said ''it is critical that the p= ublic and the Congress have a more informed understanding of the activities= and transactions related to Enron's tax returns and pension programs.'' The New York Times reported last week that Enron paid no taxes on its profi= ts in four of the last five years and was eligible for $382 million of refu= nds. Enron created 881 partnerships in the Cayman Islands and other tax hav= ens, most of which also have strict bank secrecy laws, actions the Finance = Committee plans to examine in hearings that may begin as soon as March.=20 Vance Mayer, an Enron spokesman, had no comment.=20 Several leading tax lawyers said they saw no benefit to Enron in making its= tax returns public.=20 Mortimer Caplin, the Kennedy administration's tax commissioner, said, ''I w= ould try to resist them as much as I could if I was representing Enron.''= =20 Six other Washington tax lawyers, some of whom represent Enron or its credi= tors, agreed. ''Disclosure would just lead to more questions, and that won'= t help Enron,'' said one of the lawyers, who insisted on anonymity.=20 Federal law allows the Senate Finance Committee, the House Ways and Means C= ommittee and the Joint Committee on Taxation to inspect any tax return, but= requires that they do so in closed session. The committees are not allowed= to disclose what they glean from tax returns, and for that reason, some co= mmittee tax experts refuse to inspect actual returns. Disclosure of informa= tion on the returns is a felony.=20 The letter from the two senators took note of their committee's authority t= o inspect the returns in closed session. They said their request was a cour= tesy ''to allow Enron an opportunity to provide the public a better underst= anding of the events at Enron.''=20 Mr. Baucus, in an interview, said that he hoped Enron would decide ''to wor= k on a solid constructive basis with the committee.''=20 ''This is not a witch hunt,'' Senator Baucus said. ''I want to get the fact= s and work with the company if they want to work with us.''=20 He said that if a closed-door review of the income tax returns showed that = Enron had complied with all tax laws, he would then focus on changing those= laws so that corporations could not eliminate income taxes through the use= of partnerships in tax havens. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: POLITICAL MEMO In Personal Anecdote, Some See New Distance Where Others See New Strategy By RICHARD L. BERKE 01/24/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company WASHINGTON, Jan. 23 -- To listen to President Bush, it was almost as if an = epiphany involving his mother-in-law drove him to turn on the Enron Corpora= tion, his most generous political benefactor. In assailing Enron on a trip = Tuesday to Belle, W.Va., Mr. Bush said, ''My own mother-in-law'' lost all o= f her investment when the company's stock collapsed.=20 But people close to Mr. Bush said his mother-in-law, Jenna Welch, served as= a convenient device for him to distance himself from the Enron debacle and= to appear more empathetic to its investors and employees than to the wealt= hy business executives who escaped the Enron collapse with flush bank accou= nts. White House officials insisted that there was no change of emphasis -- or h= eart -- and noted that Mr. Bush's newly disparaging comments about Enron, a= nd his mother-in-law's experience, came in response to reporters' questions= .=20 ''This was definitely not a predetermined strategy shift of any sort,'' sai= d Dan Bartlett, Mr. Bush's communications director. ''It's the same thing h= e's been saying in private meetings and conversations with staff for the pa= st month.''=20 Yet other advisers to Mr. Bush said the president had recently discussed wi= th Karen P. Hughes, his counselor, and a tight circle of aides, that he nee= ded to move more aggressively -- and in a much more public way -- to distan= ce the White House from Enron and its chief executive, Kenneth L. Lay.=20 They said Mr. Bush was in part responding to many of his friends in Texas w= here, in the words of one adviser, ''This has really put a gash in the fabr= ic of the community.'' More pragmatically, they said polling for the Republ= ican Party has shown that Mr. Bush's relationship to energy companies is on= e of his biggest vulnerabilities.=20 In addition, they said, the White House did not want to end up too much on = the defensive, as often happened when controversies swirled around Presiden= t Bill Clinton. Already, Congressional Republicans appeared to be moving ah= ead of Mr. Bush by announcing that they were returning their Enron donation= s -- while the president was still expressing remorse over the collapse.=20 ''It changed the terms of the debate to Bush's family being a victim,'' Sco= tt Reed, a Republican strategist, said of Mr. Bush's remarks, ''and for the= first time it gives the Republicans the high ground on the Enron mess. I w= as with a lot of Democrats at lunch today, and they saw it as a turning poi= nt.''=20 An outside adviser to Mr. Bush said, ''They don't want Bush to appear to be= aloof and focused only on the big financial problems of Enron.''=20 Other Republicans were more skeptical, suggesting that Mr. Bush's hasty ret= reat from his friendship with Mr. Lay -- and his fresh outrage over Enron -= - was transparent.=20 A longtime Bush adviser said: ''He doesn't necessarily turn on people but h= e cuts them off. This is cut and run.'' He added, ''It was a little gratuit= ous invoking his mother-in-law.''=20 Yet by mentioning his mother-in-law, Mr. Bartlett said, the president under= scores that he is sympathetic to the personal and financial havoc brought o= n by Enron's collapse.=20 ''It shows that he does understand that the typical investor and the everyd= ay employees of Enron were really hurt by this,'' he said.=20 Specifically, Mr. Bush told reporters on Tuesday: ''What I'm outraged about= is that shareholders and employees didn't know all the facts about Enron. = My own mother-in-law bought stock last summer, and it's not worth anything = now. If she had known all the facts, I don't know what her decision would h= ave been made, but she didn't know all the facts. And a lot of shareholders= didn't know all the facts.''=20 Still, it can be treacherous for presidents, or would-be presidents, to try= to personalize problems of ordinary Americans to their own lives. Al Gore'= s citing of the price of his mother-in-law's arthritis medicine backfired. = (He said she paid nearly three times as much for it as the same medicine us= ed by his ailing dog, Shiloh.) And the audience burst into laughter at a pr= esidential debate when President Jimmy Carter said he chatted about nuclear= weaponry with his daughter, Amy.=20 ''This is very dangerous for the president,'' said Stanley Greenberg, a Dem= ocratic pollster. ''I don't know that the president can attack Enron and be= plausible or authentic. It will not take away the close relationships betw= een Enron and Arthur Andersen and the administration. It will look like hyp= ocrisy.''=20 Asserting that Mr. Bush did not suddenly bring up the anecdote about his mo= ther-in-law, Mr. Bartlett said he first heard the president mention it at a= private meeting of the White House economic team on Jan. 10. He also said = that had the response been orchestrated, there would have been no need for = Ms. Hughes to call him at the White House from West Virginia to seek more d= etails about Ms. Welch's $8,000 Enron investment.=20 ''When Karen called me from the road, she said, 'Can you get the details on= the Enron stock?' '' Mr. Bartlett said. ''We didn't have the details. It's= not something we had all in the can. We had to call the accountant.'' (In = fact, after gleaning new details, White House officials ended up correcting= Mr. Bush on the timing of his mother-in-law's investment.)=20 Beyond the political imperatives, White House advisers said Mr. Bush has be= en affected by the concerns expressed by many of his closest friends in the= energy business.=20 ''He's hearing from all kinds of people in Texas on this thing,'' said a cl= ose friend of Mr. Bush. ''You can't be in the Houston community without see= ing the devastation, and those stories are getting out.''=20 Some advisers to Mr. Bush said he did not act sooner to denounce Enron beca= use he and his aides were inundated with questions about ties between the a= dministration and Enron officials.=20 To reinforce Mr. Bush's determination to side with the stockholders and Enr= on employees, Mr. Reed said the president's mother-in-law should join inves= tors who are suing Enron.=20 ''The logical next step for the White House is to have the mother-in-law jo= in this class-action suit,'' Mr. Reed said. ''That's the way to cement this= baby.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: FADING NEST EGGS Labor Dept. Reviews Ban On Stock Sale By JO THOMAS 01/24/2002 The New York Times Page 6, Column 6 c. 2002 New York Times Company HOUSTON, Jan. 23 -- The Labor Department is reviewing whether the Enron Cor= poration acted properly when it told its employees they could not sell Enro= n shares in their retirement accounts at a time when the shares' value was = evaporating, agency officials said today.=20 Specifically, investigators are reviewing the actions of everyone who was r= esponsible for administering the company's 401(k) retirement savings progra= m. Enron employees who were laid off after the company filed for bankruptcy la= st month say in a class- action lawsuit that their rights were violated by = a ''lockdown'' that prevented them from selling their shares after the comp= any announced a third-quarter loss of $638 million, causing the stock to tu= mble.=20 Ann L. Combs, the assistant secretary of labor in charge of the Pension and= Welfare Benefits Administration, which oversees and enforces federal laws = governing employee pensions and health plans, said that 20,795 Enron employ= ees held $2.1 billion in the company's 401(k) plan at the end of the year 2= 000, 63 percent of which was in Enron stock.=20 At that time, 7,600 people held another $1 billion worth of Enron stock as = part of the employee stock ownership plan, Ms. Combs said, and 20,000 peopl= e were enrolled in a defined-benefit pension plan, with assets of $270 mill= ion that are federally guaranteed and not involved in the bankruptcy. Some = employees could have belonged to more than one program.=20 ''This investigation will take time,'' Ms. Combs said today. ''It involves = collecting tens of thousands of documents, interviewing people, and trying = to make sure we've nailed down all the facts.''=20 The secretary of labor, Elaine L. Chao, said her agency had begun investiga= ting Enron two weeks before it filed for bankruptcy protection on Dec. 2, a= nd she vowed today to do what she could to protect workers ''who have seen = their retirement savings evaporate.''=20 Speaking at a briefing in Washington, linked by telephone to reporters acro= ss the nation, Ms. Chao said she was working with Donald Evans, the commerc= e secretary, and Paul H. O'Neill, the secretary of the Treasury, to recomme= nd to President Bush changes in the laws that are intended to protect worke= r benefits.=20 Her agency is looking into the possibility of civil and criminal violations= at Enron, she said.=20 Enron maintains that it sent letters to all employees on Oct. 4 -- 12 days = before the third-quarter loss was announced -- saying accounts would be fro= zen starting Oct. 29 while the administration of the plan was switched to a= new company. Enron says the change was planned for months and lasted only = 10 days, a period in which the stock fell $3.83.=20 But e-mail messages released by Eli Gottesdiener, a lawyer in Washington wh= o represents some employees, include a Sept. 27 message to all employees sa= ying that the lockdown would begin on Oct. 19 and last about a month. Mr. G= ottesdiener has said that the e-mail message misled employees so that they = did not sell shares in a week in which the stock fell $10.65. Enron shares,= which were above $90 in August 2000, are now worth less than 50 cents.=20 Ms. Combs said such freezes ''are very common'' when plans change recordkee= pers. But those responsible are required to protect the participants and be= neficiaries, she said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Labor probes 401(k) lockdown=20 Officials look into blocked stock sales=20 By DAVID IVANOVICH=20 Copyright 2002 Houston Chronicle Washington Bureau=20 Jan. 23, 2002, 10:04PM WASHINGTON -- The Labor Department's probe into the Enron debacle has focus= ed on a period when participants in the company's 401(k) retirement plan we= re barred from selling their Enron stock, Labor Secretary Elaine Chao said = Wednesday.=20 It is important, Chao said, that the government "protect Enron workers who = have seen their retirement benefits evaporate."=20 Employees, ex-employees and retirees were unable to sell some of their Enro= n shares for 10 days in late October and early November, at a time when the= stock price was nosediving.=20 The regulators' task will be to determine whether the company's decisions w= hen handling the 401(k) plan were prudent and reasonable.=20 Enron spokesman Vance Meyer declined to comment on the department's investi= gation, except to note that the company first notified the plan participant= s in early October, 3 1/2 weeks before the "blackout" period.=20 Labor Department officials began looking into the company's collapse on Nov= . 16, when regulators first became concerned Enron might be headed to bankr= uptcy.=20 Labor officials would not say Wednesday when they expect to complete the pr= obe, although Ann Combs, the assistant secretary for the Pension and Welfar= e Benefits Administration noted: "This investigation will take some time."= =20 Plan participants were blocked from selling their shares because Enron had = hired a new administrator to handle the record-keeping for the retirement s= avings plan.=20 The period -- also called a lockdown -- was supposed to facilitate a smooth= transition when Chicago-based Northern Trust Co. turned over records to th= e new administrator, Lincolnshire, Ill.-based Hewitt Associates.=20 "It was a transition that was in the works for months," Meyer said.=20 Lockdowns are not uncommon when companies change plan administrators, Labor= officials said Wednesday.=20 On Oct. 4, 2001, Enron officials told employees the lockdown period would b= egin on Sunday, Oct. 28, and continue until Nov. 20. But with the stock pri= ce falling, Enron employees started pressing management to alter its plans.= =20 In an e-mail to employees on Oct. 25, the company's benefits department not= ed: "We have been working with Hewitt and Northern Trust since July. We und= erstand your concerns and are committed to making this transition period as= short as possible without jeopardizing the reconciliation of both the plan= in total and your account in particular."=20 Company officials were able to cut short the transition period, although ma= ny participants complained they received no notice that the blackout period= had been abbreviated.=20 Enron contributed stock amounting to 50 percent of the contributions each e= mployee made to the plan, up to 6 percent of salary. Under the company's 40= 1(k) rules, only those employees aged 50 and over could sell those matching= shares.=20 During the lockdown period, no Enron stock in the 401(k) plan could be sold= , even stock employees had bought on their own.=20 Some employees have complained they had their entire life savings invested = in Enron stock and lost everything when the energy and trading giant tumble= d into bankruptcy court.=20 At the end of 2000, nearly 21,000 current and former Enron employees partic= ipated in the company's 401(k), the Labor Department said. About 63 percent= of the $1.6 billion worth of assets in the plan at that time were invested= in Enron stock, the vast majority of which were non-matching shares employ= ees had purchased on their own.=20 Enron also offered two other retirement plans, a more traditional, defined-= benefits pension plan and an employee stock-ownership plan.=20 At the end of 2000, about 20,000 current and former employees participated = in the pension plan, with assets of about $270 million, none of it invested= in Enron shares.=20 About 7,650 were enrolled in the stock-ownership plan. At the end of 2000, = their shares were worth about $1 billion.=20 Federal regulations require that companies offering traditional, defined-be= nefit plans invest those funds in a diversified portfolio. No more than 10 = percent of a plan's funds can be invested in a particular stock.=20 Congress, however, specifically excluded 401(k) employee contribution plans= from those rules. In the wake of the Enron debacle, lawmakers now are cons= idering whether to force employees to diversify their 401(k) portfolios as = well.=20 Also on Tuesday, a group of Enron employees filed suit in federal court in = Houston accusing a slate of Enron executives, as well as the accounting fir= m Arthur Andersen, Enron's outside auditor, of racketeering.=20 By conspiring to hide Enron's true financial position, the suit alleges, th= e Enron executives and Andersen caused employees to lose their retirement f= unds.=20 A group of four Enron employees first filed suit last fall. On Tuesday, ano= ther 96 employees added their names to that complaint and raised the racket= eering allegations for the first time.=20 The employees are hoping to have their case certified as a class action.=20 Steve Berman, an attorney representing the employees, said the workers coul= d not sue Enron itself, since the corporation has already sought protection= from its creditors under Chapter 11 of the U.S. Bankruptcy Code.=20 Among those named in the suit are Enron Chairman Ken Lay, who resigned Wedn= esday, former CEO Jeffrey Skilling and former Chief Financial Officer Andre= w Fastow. The suit also names David Duncan, Andersen's lead partner on the = Enron account.=20 Meyer declined to comment on the suit. A spokesman for Andersen declined im= mediate comment.=20 A hearing in the case is scheduled for Feb. 25.=20 Financial Desk COLUMN ONE Beware the 401(k) Gamble Enron workers aren't the only ones roll= ing the dice with retirement savings. But efforts to limit investment in em= ployer stock meet bitter resistance. PETER G. GOSSELIN TIMES STAFF WRITER 01/24/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company WASHINGTON -- Until recently, the flood of millions of working people into = the stock market, principally through their retirement accounts, was hailed= as evidence that Americans at all economic levels can make it on their own= .=20 Then Enron Corp. collapsed, throwing thousands out of work and destroying t= he retirement nest eggs of thousands more. While investigators search for c= lues of foul play, Washington is rushing in with legislative fixes--includi= ng proposals to limit how much company stock can go into retirement account= s. For many, it is too late. The collapse of Enron's retirement arrangements i= s only the latest in a series of similar financial fiascoes during the last= decade. But hundreds of thousands, perhaps millions, of Americans continue= to shoulder the same kinds of risk borne by Enron workers before their sav= ings evaporated.=20 "We're fooling ourselves if we think Enron is a scandal that doesn't have a= nything to do with the rest of us," said Norman P. Stein, a member of the L= abor Department's employee retirement advisory council and a University of = Alabama law professor. "What happened to Enron workers could happen to you.= "=20 The reason is a sea change in how Americans make financial provisions for t= heir old age. Working people have turned the stock market into their retire= ment system, and themselves, rather than their corporate employers, into re= tirement money managers.=20 Individuals are now responsible for making the basic investment decisions f= or half the nation's non-Social Security retirement savings, rather than ha= ving those decisions made the old-fashioned way--by employers who promise b= enefits no matter what.=20 That is up from a little more than one-third in the early 1990s. Individual= s, together with big institutions, have pumped more than two-thirds of the = nation's $10 trillion-plus in public and private retirement savings into st= ocks.=20 So when the stock market takes off, as it did in the late 1990s, so does Am= erica's retirement system. And when it tumbles, as it has in the last two y= ears, so do retirement savings.=20 "We have a system that has succeeded in amassing a formidable pool of capit= al and providing retirement benefits to millions of people," said J. Mark I= wry, who as benefits tax counsel for the Treasury Department until last yea= r was one of the most powerful regulators of the retirement system in Washi= ngton.=20 "On the other hand, the self-direction of investments has shifted the risk = of retirement investment from employers to employees, and many workers have= ended up assuming imprudent amounts of it."=20 They often have done so without even knowing what they did.=20 Retirees Look Back at Costly Errors=20 Bill Quinlin certainly didn't.=20 The 65-year-old Robstown, Texas, resident retired from Enron several years = ago, after nearly three decades as a gas pipeline operator, to care for his= dying mother. He had nearly all his retirement savings, save a small pensi= on and Social Security, in 25,000 shares of Enron stock.=20 When the stock was at its height at better than $80 a share and Quinlin was= a paper millionaire, a friend suggested he sell some of his holdings.=20 But Quinlin said he could not bring himself to do it, largely because the p= lace was being run by Kenneth L. Lay, Enron's longtime chairman, who resign= ed late Wednesday.=20 Lay had saved a utility where Quinlin once worked. And the executive had co= me down every year or so while Quinlin was at the Corpus Christi pump stati= on to take the men out for barbecue.=20 "I thought that guy walked on water," Quinlin said recently of Lay. "Why, i= f he walked in here this minute, I'd probably sit right down and talk to hi= m." Quinlin's shares have gone from being worth about $2 million to a coupl= e of thousand.=20 Roger Boyce said he didn't understand the risks he was shouldering either, = even though he is sophisticated in financial matters.=20 The 67-year-old Minneapolis-area resident retired from Enron in March 2000 = after almost two decades as a benefits executive and another decade as a sa= fety and security manager.=20 Boyce said he was well aware that the world of retirement savings was chang= ing when Enron stopped offering old-fashioned pensions in the late 1980s an= d replaced them with plans such as 401(k) accounts, to which it contributed= fixed amounts of stock, but made no promise of what benefits employees cou= ld expect when they retired.=20 "I knew I had to manage these accounts, and I was aware the best protection= was diversification" out of Enron stock and into other stocks and mutual f= unds, he said.=20 But Boyce ended up pumping about two-thirds of his retirement savings into = Enron because of the company's rapidly rising stock. In any case, he reason= ed, with the company in so many lines of business it represented a diversif= ied investment all on its own. Even if one business line failed, another wo= uld take its place.=20 "I know a normal person's question is: 'How stupid could you be?' " But it = was difficult to resist, he said.=20 Like Quinlin, Boyce saw his Enron stock tumble almost $2 million in value. = He and his wife, Marilyn, have been forced to scrap the idea of setting up = trusts for their six grandchildren.=20 "It's very tough to swallow," he said.=20 It used to be that employees relied for retirement income on pensions in wh= ich employers managed the funds, promised retirees a "defined benefit" and = kept excess profits or losses to themselves. The shift to 401(k)s, IRAs and= employee stock ownership plans--in which employee contributions are define= d but benefits are left to market forces--is usually portrayed as part of a= titanic struggle between an old, dying, paternalistic, industrial order an= d a new, freedom-filled, entrepreneurial economy. And, in part, it has been= just that.=20 "When we first tried to sell the idea of the 401(k) to Bethlehem Steel in 1= 981, they said, 'You don't understand; it's part of our culture to take car= e of our people,' " recounted Ted Benna, a Bellefonte, Pa., consultant who = is widely considered the "father of the 401(k)."=20 "That paternalistic attitude has been blown away" by new technology, global= ization and Reaganite politics, he said.=20 The only problem with the old-versus-new portrayal is that it overlooks two= crucial facts. The first, as even Benna will concede, is that 401(k)s and = similar accounts were not originally intended to replace traditional pensio= ns and grew in a piecemeal fashion. The second is that it was government ta= x subsidies, as much as market forces and individual choice, that produced = the new accounts. According to a variety of regulators and lawmakers, that = gives Washington a big responsibility for making sure they are run well.=20 "Society has a lot riding on people's retirement savings," said Sen. Barbar= a Boxer (D-Calif.), who co-sponsored legislation to restrict the proportion= of company stock such as Enron's in retirement accounts. "We're paying for= them with big tax breaks."=20 Indeed, the tax break for pensions and retirement savings is the very bigge= st that Washington offers, topping such giants as the mortgage interest ded= uction and the employer tax exclusion for employee health insurance, and am= ounting to about $100 billion a year.=20 "Uncle Sam is the largest single investor in the retirement system and has = a legitimate interest in how it works," said Iwry, the former Treasury offi= cial.=20 Only it didn't work in the case of Enron. And, according to critics, it cou= ld fail in the same way at some of the nation's other big companies.=20 In the investment world and at the casino, putting most of your chips on on= e color--or most of your money in one stock--is a gamble.=20 Before the fall, fully 60% of the money in Enron's 401(k) plan was in Enron= stock. But that hardly qualified the company for the top slot when it come= s to packing retirement plans with company stock.=20 At consumer goods giant Procter & Gamble, the portion of P&G stock in the u= nusually generous retirement plans exceeds 90%, according to D.C. Plan Inve= sting, a financial newsletter. At Coca-Cola and General Electric, it is abo= ut 80%. At McDonald's and Home Depot, it is just below 75%.=20 "The single-largest source of excessive risk for employees in retirement pl= ans is undue concentration in employer stock," Iwry said.=20 Investment Industry Balks at Reform Efforts=20 Most congressional proposals for what to do about the problem run along one= of two lines: imposing limits on the amount of company stock allowed in pl= ans or encouraging more investor education. Key critics, including 401(k) i= nventor Benna, say that neither will work. In the case of stock limits, eve= n some of the authors concede the measure falls far short of what is needed= .=20 Boxer and Sen. Jon Corzine (D-N.J.) want to impose a 20% cap on company sto= ck and reduce the tax break that companies would get when they contributed = stock instead of cash. A similar House bill would reduce the cap to 10%.=20 Both proposals have met with howls of protest from the investment industry,= which argues that individuals should have the right to invest their money = as they see fit.=20 Boxer is well acquainted with the argument; many of the same objections wer= e raised when the California Democrat tried to win similar restrictions aft= er floor retailer ColorTile Inc. went bankrupt five years ago, wiping out e= mployees' 401(k) savings. Her measure was eventually so watered down it mad= e almost no difference.=20 By contrast, the investment industry enthusiastically supports a bill by Re= p. John A. Boehner (R-Ohio) that would encourage companies and 401(k) provi= ders such as mutual fund groups to offer education and financial advice by = limiting their liability if their advice turns out to be bad.=20 Boehner acknowledged that his measure could pave the way for conflicts of i= nterest such as mutual funds advising employees to buy the fund's products.= But he said the danger could be limited by requiring that the conflicts be= disclosed. He asserted that there were no parallels with Enron and others = encouraging workers to invest in the companies' own stock.=20 "The lesson of Enron is diversify, diversify, diversify," Boehner said. "Wh= at we've got to do is get that across to people by giving them broader know= ledge and access to advice." Critics say the Boehner bill is an invitation = for trouble.=20 Old-fashioned "defined benefit" plans follow diversification rules that go = beyond company stock and a requirement that retirement savings be converted= to an annuity, or fixed annual payment, when people retire to ensure that = they don't outlive their own finances and end up in poverty.=20 To date, no lawmakers, even sharp critics, have publicly proposed giving th= e same kind of protections to 401(k)s and the "defined contribution" world.= =20 The reason is clear: Such restrictions would fly in the face of the individ= ual choice that has made 401(k)s so popular.=20 But there are signs that some people are beginning to move in that directio= n.=20 Corzine, for example, said last week that the cap he and Boxer are proposin= g for company stock should be extended to all assets in 401(k) plans so tha= t individuals could not put more than 20% of their retirement savings in an= y one investment. Benna is pushing a plan to give companies new protections= against employee lawsuits over retirement accounts if firms agree to effec= tively direct employees' investment options to a few prearranged diversifie= d portfolios.=20 "Nobody likes to say it, but people who don't know the difference between s= tocks and bonds are being asked to pick particular ones," said Stein, the A= labama law professor. "People are being given too many decisions to make."= =20 During the late 1990s when the stock market was climbing 20% and 30% a year= , such views would have been dismissed out of hand. But with stocks stumbli= ng, the country under assault and polls showing Americans increasingly conc= erned about "personal security," some believe there is a chance for change. PHOTO: Retired Enron manager Roger Boyce, with his wife, Marilyn, saw his c= ompany stock plummet almost $2 million in value.; ; PHOTOGRAPHER: JANET HOS= TETTER / For The Times; GRAPHIC: Retirement Tables Turned / Los Angeles Tim= es;=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Heard on the Street How to Predict The Next Fiasco In Accounting And Bail Early By Cassell Bryan-Low and Jeff D. Opdyke Staff Reporters of The Wall Street Journal 01/24/2002 The Wall Street Journal C1 (Copyright (c) 2002, Dow Jones & Company, Inc.) So you're not a Wall Street analyst or professional short seller. Still, yo= u do have some tools at hand for avoiding being caught in a stock that suff= ers an accounting blowup.=20 While the highly publicized accounting problems at collapsed energy-trading= firm Enron are just the latest in a series of corporate accounting scandal= s, there are numerous warning signs that skeptical investors use to protect= their money, and some are straightforward enough for individual investors = to follow. "After Enron, investors realize they have to question every financial state= ment they get," says Murray Stahl, director of research at Horizon Research= , a New York investment-research firm. If nothing else, the Enron debacle "= will make the issue of accounting very important in the future."=20 Short sellers -- bearish investors who try to profit from a stock's decline= by selling borrowed shares in hopes of replacing them with shares bought l= ater at a lower price -- see no shortage of occasions where their hard-nose= d approach to financial analysis will come in handy. Thanks to factors such= as stock incentives for executives and auditors collecting fees for consul= ting, "accounting now is worse that it ever has been," says Marc Cohodes, a= partner at Rocker Partners, a New York hedge fund.=20 Here are some red flags that such professional investors watch out for to g= uard against potential trouble down the road:=20 Invoices Increasing, Sales Slipping: If a company's accounts receivables ar= e growing faster than sales, that signals some concerns about the quality o= f the sales. Among other things, swelling accounts receivable could indicat= e "channel stuffing," or overselling to distributors to pad short-term fina= ncial results.=20 Similarly, if inventories are growing faster than sales, that could signal = a company isn't able to sell inventory as quickly as originally believed. D= epending on the type of inventory, there might be the added risk of the inv= entory becoming obsolete, resulting in write-downs.=20 In 1998, Sunbeam, a maker of household consumer products, restated earnings= downward for six previous quarters. The company, which had seen a surge in= accounts receivable, acknowledged that the original revenue had been prema= turely booked, and it cited a variety of other accounting moves that were n= ecessary to restate. Sunbeam had inflated sales of such things as barbecue = grills by offering retailers low prices and easy cancellation terms, promis= ing, say, to hold the grills in Sunbeam's warehouses for later delivery.=20 Dubbed a "massive financial fraud" by the Securities and Exchange Commissio= n, the company filed for bankruptcy reorganization in February 2001.=20 Concentrate on Cash: The cash-flow statement tracks all the changes that af= fect a company's cash position, be it cash flowing in from debt and stock o= fferings, or cash flowing out in the form of dividends. It can also serve a= s an indicator of potential chicanery inside a company's accounting.=20 A telltale sign of trouble is negative cash flow from operations while the = company's so-called Ebitda (earnings before interest, taxes, depreciation a= nd amortization) is positive. Short sellers note that in such a case, a com= pany could be using accounting gimmickry to make its business look healthie= r than it really is. If operating cash flow is negative, in reality the com= pany is consuming cash rather than generating it, as its Ebitda figure woul= d suggest.=20 Risky Returns: At the end of the day, what makes a stock move is its return= on capital -- how much profit a company generates off the assets it employ= s, such as its cash, inventories and property, plants and equipment.=20 Most financial statements break apart a company's operations to show invest= ors which segments generated which portion of sales and profits. By isolati= ng individual segment returns, says one short-selling analyst, investors ca= n determine where earnings are coming from and whether they seem fishy. A f= ew simple calculations can reveal a lot.=20 Consider Mirant, an energy peer of Enron. As part of its balance sheet, the= Atlanta company shows assets and liabilities "from risk management activit= ies," both current and noncurrent. Subtract the liabilities from the assets= , the analyst notes, and Mirant has $80 million of equity in that business.= As part of the footnote attached to those balance-sheet items, Mirant note= d that it generated essentially $221 million off those assets during the th= ird quarter.=20 That kind of stunning return, about 275%, is hard for any company to sustai= n, raising questions about the likelihood that such strong performance can = be maintained indefinitely. The same analysis shows the other segments had = far more humble returns. A Mirant financial expert wasn't available to comm= ent.=20 It's All Relative: Often, a company's financial statements will include a "= related-party transactions" section, pointing to dealings with its own offi= cers or related companies. Maybe the company has loaned money to its office= rs to buy company stock, or cash to an affiliate to buy products from the c= ompany.=20 Either way, investors should be aware of the potential pitfalls. Some short= sellers say these dealings can signal that a company thinks of corporate c= ash as belonging to management and not the shareholders, and thus is more f= reewheeling with it than a more conservative company is. Enron may be a cas= e in point; its downward spiral into bankruptcy-court protection started as= investors focused on nettlesome related-party transactions involving the t= hen-chief financial officer.=20 Recurring Nonrecurring Charges: Another red flag, according to Nathaniel Gu= ild, a partner at Short Alert, a research firm in Charlotte, N.C., is the p= ractice of repeatedly labeling restructuring and other charges as "nonrecur= ring," "one-time" or "unusual," when they aren't truly one-off expenses. Be= cause most analysts ignore such charges in their earnings models, this can = create a cloud of smoke that obscures the company's true earnings power. "Y= ou can write off anything, in any fashion," Mr. Guild maintains. "There is = very little regulation in that area."=20 Consult the Consulting Fees: The case of Enron also has focused the spotlig= ht on the issue of auditor independence. Thanks to new rules introduced by = the Securities and Exchange Commission, companies now are required to discl= ose how much they pay their auditors not just for auditing, but for nonaudi= ting work as well. The question investors should ask themselves, says Rocke= r Partners' Mr. Cohodes, is how independent an auditing firm can be that is= getting paid as much or more for consulting services as it is for auditing= . "It is a huge conflict," he contends. In the Enron example, the company i= n 2000 paid Arthur Andersen $25 million in audit fees and $27 million for n= onaudit work, including consulting.=20 ---=20 A Section Bush Official Cites Losses On Sales of Enron Stock; Army Secretary Had Been= A Company Executive Ellen Nakashima Washington Post Staff Writer 01/24/2002 The Washington Post FINAL A10 Copyright 2002, The Washington Post Co. All Rights Reserved Army Secretary Thomas E. White, the highest-ranking Bush administration off= icial to come from Enron Corp., has told colleagues in the administration t= hat he suffered "significant personal losses" as he sold his Enron stock to= comply with his government ethics agreement, according to a letter release= d yesterday.=20 The Jan. 22 letter, which White wrote in response to a query by Rep. Henry = A. Waxman (D-Calif.), was released by Waxman's office. In the letter, White listed sales of 405,710 shares of stock between June 1= 3 and Oct. 30 at prices ranging from $50 to $12.85 a share. Though the sale= s yielded $12.1 million, he said he told Secretary of State Colin L. Powell= and Defense Secretary Donald H. Rumsfeld that he "had suffered significant= personal losses, but . . . would persevere."=20 Among administration officials, White had by far the largest holdings in En= ron stock and stock options. The financial disclosure form he filed last sp= ring revealed that he held $25 million to $50 million in stock and a simila= r amount in options at that time. Bush senior adviser Karl Rove and Charlot= te Beers, undersecretary of state for public diplomacy, reported the next h= ighest holdings: $100,000 to $250,000. The government requires disclosure o= nly within broad ranges.=20 White took office May 31. According to an agreement he signed and filed wit= h the Office of Government Ethics, he pledged to divest himself of his Enro= n stock and options within 90 days.=20 In an interview yesterday, he said that he had sought and received an exten= sion, which expired Nov. 20, and that he has sold all his Enron stock. In h= is letter to Waxman, he said he had renounced his options.=20 White spent 11 years as an Enron official, leaving last spring as vice chai= rman of Enron Energy Services. His salary, according to his disclosure form= , was $5.5 million a year. He also reported that, at the time he filed his = disclosure, he owned a condo in Aspen, Colo., worth $5 million to $25 milli= on and a similarly valued condo in Naples, Fla. According to property recor= ds, he currently owns a waterfront penthouse in Georgetown that he bought f= or $5.5 million last June.=20 When White left Enron, he received a $1 million severance payment and $13 m= illion in payment for stock appreciation rights, also known as "phantom sto= ck."=20 "We appreciate Secretary White providing the information," said Waxman, ran= king minority member of the House Government Reform Committee. "We intend t= o review it.=20 In his letter, White also said that he had had "brief" conversations with P= owell on Dec. 12 and with Rumsfeld on Nov. 10. Both men were concerned only= with the impact Enron's bankruptcy would have on his "personal well-being,= " he said.=20 White also said that he had had 29 phone conversations or meetings with Enr= on Chairman Kenneth L. Lay and other Enron officials beginning last June, b= ut that at no time was he asked to intervene on behalf of the failing compa= ny.=20 In an interview yesterday, White said that he thought Enron's collapse was = a tragedy. "I worked there for 11 years, and I have a good many dear friend= s that were a part of the corporation that I got to know well," he said. "T= he economic damage done to them and their wives and their families is tragi= c. So that's where my principal concern is."=20 Staff writer Bill Miller and researchers Madonna Lebling and Lynn Davis con= tributed to this report. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accounting for Enron: Bush's Plan to Name Accounting Veterans To SEC Raises= Some Eyebrows in Congress By Scot J. Paltrow Staff Reporter of The Wall Street Journal 01/24/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) President Bush's plan for a Securities and Exchange Commission dominated --= for the first time ever -- by commissioners with close ties to the account= ing industry is raising concerns in Congress in the wake of Enron Corp.'s c= ollapse.=20 The accounting failures that helped precipitate the collapse have made refo= rm of accounting-industry oversight the biggest issue immediately facing th= e SEC. But if the president's previously announced plans are fully carried out, th= ree of the five SEC commissioners will be individuals with close profession= al ties to Big 5 accounting firms. Yesterday, the president made a recess a= ppointment of two commissioners, including Cynthia A. Glassman, a principal= at Ernst & Young LLP. His nomination in December of Paul Atkins, a lawyer = and partner at PricewaterhouseCoopers, to a seat on the commission is still= pending in the Senate. SEC Chairman Harvey Pitt, who took office last year= , until then was an attorney for all the Big 5 firms as well as the industr= y's main trade association, the American Institute of Public Accountants.= =20 Even without the eventual approval of Mr. Atkins, Mr. Pitt and Ms. Glassman= together will make a majority for the time being, as there are two vacanci= es remaining on the commission. The only other sitting commissioner is Isaa= c Hunt, a holdover from the Clinton administration, who became Mr. Bush's s= econd recess appointee yesterday.=20 The recess appointment, made while Congress isn't in session, enabled the p= resident to bypass the usual process of Senate approval. Ms. Glassman will = be able to serve until the end of this year. The move drew swift condemnati= on from Democrats in the House and Senate, even though the White House soug= ht to blunt criticism by pairing the move with the recess reappointment of = Mr. Hunt, a Democrat.=20 People close to the Senate Banking Committee say the Atkins nomination is i= ncreasingly likely to face close scrutiny and potential opposition because = of his ties to the industry.=20 A spokesman for Sen. Jon Corzine (D., N.J.), former co-Chief Executive of G= oldman Sachs and a member of the Senate Banking, Housing and Urban Affairs = Committee that will vote on the Atkins nomination, said the senator faulted= the administration for bypassing the hearing process for Ms. Glassman's ap= pointment. He said Sen. Corzine "has concerns about putting on the board th= is concentration of people who have the same background, especially since t= he chairman himself was a lawyer representing the accounting industry."=20 The timing of the president's choices is putting the White House in an unco= mfortable position as new disclosures have been made almost daily about aud= its of Enron by Arthur Andersen LLP and shortcomings in accounting regulati= on. Anne Womack, White House press secretary, said the president is going a= head with his choices and denied that he has any desire to pack the commiss= ion with industry partisans.=20 Ms. Womack said [Ms.] Glassman "has an extensive background as an economist= " and with the Federal Reserve Board, in addition to her five years most re= cently with Ernst & Young. Mr. Atkins "has experience with accounting firm = but also has served on SEC before," she said, and Mr. Pitt, she continued, = "brings a legal background. Put these things together and you represent all= the relevant disciplines that come before and are affected by SEC."=20 The White House said it made the recess appointments because the large numb= er of vacancies on the commission made it imperative to get a commissioner = in place at least temporarily.=20 But several prominent experts on the SEC said the president's moves are sur= prising in view of the Enron developments. Alan R. Bromberg, professor of s= ecurities law at Southern Methodist University in Dallas said, "It's very q= uestionable in my mind," adding "It looks me like life is going to be a lot= easier for accountants with this commission."=20 Ms. Glassman and Mr. Atkins weren't available for comment. An Ernst & Young= spokesman said the firm played no role in suggesting Ms. Glassman's nomina= tion to the White House, adding, "She's not going there to represent us in = any way." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accounting for Enron: Insurance Companies Cut Sales Of Once-Plentiful Suret= y Bonds By Christopher Oster Staff Reporter of The Wall Street Journal 01/24/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) A combination of a weak economy, Enron Corp.'s problems and significant los= ses from the Sept. 11 terrorist strikes have led the insurance industry to = sharply reduce sales of once-plentiful and cheap surety bonds. Rates on man= y of the bonds they still do sell have soared 50% to 1,000%, analysts said.= =20 Surety bonds are issued by insurers to companies that want to guarantee per= formance or payment in a business transaction, to assure the companies' bus= iness partners that the concerns will complete the transactions. Without th= at assurance, some business grinds to a halt. The insurance industry's unwillingness to issue surety bonds is hitting har= dest those businesses that themselves are being hit by the recession. A pri= me example is Kmart Corp., which cited its inability to secure such bonds a= t a reasonable price as a factor leading to its decision to file this week = for bankruptcy-court protection. Kmart used surety bonds to guarantee the p= ayment of claims under its workers' compensation insurance program, as well= as other liabilities that the company self-insured against.=20 But insurers are less willing to provide surety bonds to these companies fo= r such purposes because of the heightened risk, in a sluggish economy, that= the companies will need to draw on them.=20 "When you go into a recession, companies are going to go into default," sai= d Don Watson, managing director at Standard & Poor's insurance ratings grou= p. Mr. Watson expects companies with deteriorating credit quality to have a= n increasingly hard time obtaining surety bonds, which many consider vital = to continuing business.=20 The property-casualty insurance industry is unwilling to extend itself beca= use it is sitting atop claims from the Sept. 11 terrorist attacks that are = expected to top $40 billion, or about one-fourth of the capital base of com= mercial property-casualty insurers. A company's capital base is particularl= y important in the surety-bond business because regulators require large am= ounts of capital to back such bonds.=20 On top of this, the bankruptcy-court filing by energy-trading firm Enron la= te last year could lead to potentially large payouts on surety bonds that w= ere in place to guarantee the supply of oil and natural gas by Enron to var= ious parties. Several insurers have announced exposure to Enron losses, inc= luding Chubb Corp., which said it has $220 million of such exposure.=20 In a recent report, insurance broker Willis Group Holdings Ltd. said insura= nce companies are "more likely to allocate capital to property-casualty lin= es of business that present the prospect for higher returns" than do surety= bonds. The report notes that the availability of surety bonds for self-ins= urance and other types of financial guarantees "will be severely curtailed,= if written in the market at all." In the past year alone, the number of su= rety reinsurers has dropped to 12 from 16. Several primary surety-bond writ= ers have exited the business.=20 Like nearly all lines of property-casualty insurance, surety-bond prices fe= ll in the 1990s as insurers competed fiercely for premium dollars. Underwri= ting became lax because in some cases claims might not be paid for years an= d insurers assumed they could turn a profit by investing the premiums in th= e soaring stock market.=20 "The business had gotten very cheap," said Mark Reagan, chief executive of = the construction practice of broker Willis Group Holdings Ltd. Underwriting= manuals suggest premiums of $20 per $1,000. But "companies were getting bo= nds for $1.25 for $1,000 of coverage."=20 The most obvious impact will be on the construction industry. Contractors b= uy surety bonds to ensure the completion of their work. "It's going to furt= her limit or inhibit commercial property development, which will be a furth= er drag on the economy," said S&P's Mr. Watson. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accounting for Enron: Pension Funds, Not Lawyers, Drive Holder Suits By Richard B. Schmitt Staff Reporter of The Wall Street Journal 01/24/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) Lawyers for Enron Corp. shareholders marched into a Houston court with grea= t show this week with a box full of shredded documents carted out of Enron = headquarters by an ex-employee.=20 The disclosure made good theater, but it also reflects a little-noticed cha= nge in the world of shareholder litigation. Such suits were once driven by = lawyers who raced to the courthouse to be first to file so they could contr= ol the case and collect the biggest fees. Now, the suits are being driven b= y pension funds, like the one administered by the Regents of the University= of California that hopes to become the lead plaintiff in the Enron shareho= lder case. As a condition of hiring their lawyers, the Regents required that Milberg W= eiss Bershad Hynes & Lerach commit dozens of lawyers, investigators and for= ensic accountants, among others, to the case. "They demanded a level of att= ention that is unprecedented," said Darren Robbins, a Milberg Weiss partner= in San Diego.=20 The result: Milberg Weiss, a firm that was once widely criticized by busine= ss groups for doing little work on behalf of shareholders, has done 100 int= erviews with potential witnesses and hired dozens of professionals to pore = over evidence it has collected -- all before a judge even decides whether t= he firm's client will be named lead plaintiff and it will get the job of le= ad lawyer.=20 Ironically, all this has come about because of a 1995 law aimed at putting = the likes of Milberg Weiss on a short leash. Previously, under class-action= rules, practically any investor who lost money in a stock could be a plain= tiff. The result was a system that some companies viewed as legalized extor= tion, where they settled even nuisance claims to avoid the costs of litigat= ion. The law changed the game by boosting the needed proof in such cases an= d by giving investors with the largest losses first crack at controlling th= em.=20 Now, the lawyers are having to be salesmen, courting new business, with glo= ssy presentations at institutional-investor conferences and competing in be= auty contests staged by the investors to pick lawyers. "They are in hot pur= suit of these clients," said Richard Koppes, former general counsel of the = California Public Employees' Retirement System and currently a lawyer in th= e Sacramento, Calif., office of Jones, Day, Reavis & Pogue. "It is a new ma= rket for them, and they recognize that."=20 Shareholder litigation was new terrain for the California Regents, which de= spite managing $54 billion in pension assets, had never headed up a big sec= urities-fraud action before. That changed when it lost nearly $145 million = investing in Enron.=20 The two sides hooked up after the university treasurer heard a presentation= by Milberg Weiss partner William Lerach at an invitation-only investor con= ference. Officials invited Mr. Lerach to make a pitch for the Enron suit at= a private meeting last month. Several other firms also made unsolicited bi= ds for the work. "The university came to believe that Milberg Weiss had the= resources and the will to make a substantial rather than a symbolic recove= ry," said Lloyd Lee, a lawyer for the university in Oakland.=20 Some class-action specialists say the involvement of large investors will m= ake it more difficult for defendants like officers and directors of Enron t= o resolve cases. "Plaintiffs' lawyers used to settle pretty quickly," said = Tracy Nichols, a partner with Holland & Knight in Miami. "Now, they have an= institutional client looking over their shoulders, saying, `How hard are y= ou going to push for me?"' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Business Desk Sales to Ex-Enron Customers Help Dynegy Profit Rise 36% From Bloomberg News 01/24/2002 Los Angeles Times Home Edition C-3 Copyright 2002 / The Times Mirror Company Dynegy Inc. said fourth-quarter profit rose 36%, partly boosted by electric= ity sales to former customers of insolvent Enron Corp.=20 Profit from operations climbed to $144 million, or 41 cents a share, from n= et income of $106 million, or 32 cents, a year earlier. Revenue fell 13% to= $8.74 billion. Dynegy's power sales more than doubled last quarter from a year earlier, an= d costs from canceling its bid for rival Enron were less than expected, exe= cutives said. Dynegy's stock gained after earnings matched analyst estimate= s, rising $1.25, or 5.4%, to $24.55 on the New York Stock Exchange. Shares = fell 26% last quarter and had dropped 54% in the last year.=20 Dynegy's trading and marketing profit rose 58% last quarter from a year ear= lier, boosted by business from customers trying to lock in gas and electric= ity prices. North American gas sales rose 14%.=20 Dynegy wrote off $51 million, or 14 cents a share, in the quarter for its t= rading business with Enron, which filed for bankruptcy last month. Other co= sts included $7 million, or 2 cents a share, to end its bid for Enron in No= vember and $9 million, or 3 cents, for severance costs related to its Illin= ois electric utility. That made net income $77 million, or 21 cents a share= .=20 The company had said Enron costs might reach $125 million. Dynegy will pay = a $65-million dividend over two years to Chevron Texaco Corp. for its parti= cipation in the Enron bid.=20 ChevronTexaco owns 27% of Dynegy and provided $1.5 billion to Dynegy for it= s $23-billion bid. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accounting for Enron: Dynegy's Fourth-Quarter Net Fell 27%, Weighed Down by= Costs Related to Enron Dow Jones Newswires 01/24/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) HOUSTON -- Dynegy Inc.'s fourth-quarter net income fell 27%, hurt by exposu= re of its energy trading operations to fallen rival Enron Corp., as well as= acquisition-related costs including its aborted acquisition of Enron late = last year.=20 Dynegy posted net income of $77 million, or 21 cents a share, compared with= $106 million, or 32 cents a share, a year earlier. The results were depressed by a $78 million pretax charge stemming from ene= rgy trading deals with Enron, which filed for bankruptcy-court protection i= n December. In addition, Dynegy took a $10 million pretax charge for costs = related to its canceled $9 billion acquisition of Enron. Restructuring at D= ynegy's Illinois Power Co. unit resulted in a $15 million pretax charge, wh= ile merger-related costs from the February 2000 acquisition of Illinova Cor= p. also came to $15 million. A special dividend associated with stock issue= d to ChevronTexaco Corp. in November cost $3 million.=20 Revenue dropped 13% to $8.74 billion from $10 billion.=20 Still, Dynegy said the quarter benefited from strong earnings from its whol= esale energy network segment, led by increases in North American gas volume= and total power sold. The company noted, however, that its liquids and tra= nsmission and distribution segments were hurt by mild weather and the econo= my.=20 After excluding nonrecurring items, Dynegy said its earnings amounted to 41= cents a share -- in line with analysts' expectations as reported by Thomso= n Financial/First Call. "The results illustrate how the company's diverse e= nergy delivery network is capable of generating solid earnings even in the = most turbulent market environment," said UBS Warburg analyst Jay Yannello.= =20 At 4 p.m. in New York Stock Exchange composite trading, Dynegy rose $1.25, = or 5.4%, to $24.55.=20 For the full year, net income rose 29% to $648 million, or $1.90 a share, u= p from $501 million, or $1.48 a share, a year earlier. Revenue rose 43% to = $42.24 billion from $29.45 billion.=20 Dynegy said it has begun a previously announced capital-restructuring plan = by issuing $748 million of common stock to ChevronTexaco and by reducing it= s capital spending budget to $1.2 billion from $1.7 billion. The company re= affirmed its lowered 2002 earnings estimate of $2.26 a share and estimated = first-quarter earnings of 41 cents a share. Dynegy trimmed its outlook for = 2002 last week from $2.30 a share to reflect the stock issuance to ChevronT= exaco. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Politics & Policy Congress Fought Changes to Accounting Rules Over Past Decade By Michael Schroeder and Greg Hitt Staff Reporters of The Wall Street Journal 01/24/2002 The Wall Street Journal A20 (Copyright (c) 2002, Dow Jones & Company, Inc.) WASHINGTON -- As Congress opens a slew of hearings about Enron Corp.'s coll= apse, outraged lawmakers who are pointing fingers about bad accounting migh= t well beware of fingers pointing right back.=20 House and Senate interrogators are questioning how the energy-trading compa= ny's financial mess could escape auditors' detection. But they shoulder som= e of the blame: Congress, including some of Enron's most vocal critics ther= e, routinely opposed significant new accounting rules over the past decade. Lynn Turner, head of Colorado State University's Center for Quality Financi= al Reporting and a former chief accountant at the Securities and Exchange C= ommission, cites several attempts to improve accounting standards throughou= t the 1990s that Congress fought. One effort, in particular, would have str= engthened the authority of the Financial Accounting Standards Board, an ind= ependent rule-making body.=20 The standards board has come under blistering attacks each time from compan= ies who press Congress not to require new accounting disclosures. "Pressure= s from some members of Congress have unfortunately led to compromises that = I don't believe were always in the interest of investors," Mr. Turner says.= =20 Some prominent past critics of the standards board are playing a different = tune. Beyond zeroing in on Enron's own longtime auditor, Arthur Andersen LL= P, Congress intends to explore whether to toughen requirements for how comp= anies are audited and what information must be disclosed to investors.=20 Consider Rep. Richard Baker, the Louisiana Republican who chairs a House su= bcommittee on capital markets, securities and government-sponsored enterpri= ses. At a hearing last month, Mr. Baker asked an SEC official whether "we n= eed better disclosure or accounting standards that give investors the real = picture?" And later, expressing dismay about Enron's misleading disclosures= , he asked Andersen's chief executive, Joseph Berardino, if authorities nee= d to impose penalties for improper disclosure "so severe that it ain't wort= h the risk?"=20 Yet Mr. Baker was a strong opponent of a standards board proposal, that rec= ently was approved, that requires companies to better disclose their use of= derivatives; those are investments pegged to the underlying value of asset= s, such as commodities or currencies. The standard board's new rules seek t= o ensure that corporate financial statements accurately reflect those risks= .=20 Mr. Baker called hearings about the proposal after banking regulators and i= ndustry groups objected that the standards board hadn't adequately consider= ed earnings volatility that the derivatives disclosure might cause for comp= anies -- particularly banks, the biggest users of derivatives.=20 When the standards board pressed ahead, Mr. Baker introduced a bill to allo= w public companies to object to proposed accounting principles in federal c= ourt. He described his proposal "as a legislative remedy to a flaw in the p= rivate sector process for developing financial accounting standards."=20 Though the Baker bill was unsuccessful, the pressure from Congress led the = standards board to issue new, less stringent disclosure standards, which ha= ve recently taken effect. "Rep. Baker plans to address existing accounting = problems," Rep. Baker's spokesman, Michael DiResto, said yesterday.=20 The SEC, which oversees the standards board, also has frequently been caugh= t in a cross-fire from Congress, which it has complained makes it harder to= impose needed regulations. The derivatives proposal, for instance, sparked= a row about the independence of the standard board's standard-setting proc= ess -- and in particular about whether the SEC and former SEC Chairman Arth= ur Levitt improperly pushed the proposal forward.=20 Sen. Phil Gramm, the lead Republican and former chairman of the Senate Bank= ing Committee and a frequent critic of the standards board and the SEC, acc= used Mr. Levitt of telling business representatives not to testify before C= ongress on the derivatives issue. A Senate official later retracted his all= egation. Mr. Gramm, a Texas Republican and the Senate's second-largest reci= pient of Enron political contributions, has said he will skip any Enron-rel= ated hearings; his wife was on Enron's auditing board.=20 In a 1997 speech, Mr. Levitt said he found the attacks on the standards boa= rd's process and its proposals "alarming." He added, "Critics are focusing = too much on lobbying the decision-making process and not enough on thoughtf= ul, substantive input into that process."=20 Sen. Joseph Lieberman, the Connecticut Democrat who chairs the Senate Gover= nmental Affairs Committee, opens a hearing today into Enron's collapse. Amo= ng the questions he says he is probing: "Why did Enron's auditors allow the= company to overstate its profits for four years by over a half a billion d= ollars, using what now appear to be very questionable accounting practices?= "=20 But Mr. Lieberman, the former Democratic vice-presidential nominee and a 20= 04 presidential prospect, is a longtime critic of the accounting board, and= he has rallied opposition to its proposed rules more than once. Recently, = he challenged one to overhaul the accounting for corporate mergers and acqu= isitions, an issue of importance to the high-tech industry. In the fall of = 2000, amid the tight presidential race, Mr. Lieberman joined with a biparti= san group of 13 senators in a letter urging the standards board to postpone= consideration of the changes until Congress reconvened in 2001.=20 The letter, among other things, claimed the accounting changes "will make m= ergers and acquisitions very difficult for high-technology companies." In t= he House, California Reps. Christopher Cox, a Republican, and Calvin Dooley= , a Democrat, introduced a bill for a one-year moratorium on the standards = board proposal.=20 The proposal called for new disclosures on mergers and acquisitions. Compan= ies cried foul, complaining the change would reduce their earnings. Under p= ressure from Congress, the standards board backed off, but still required n= ew accounting that gives investors more information about the true initial = costs of acquisitions and how to track the investment over time.=20 Lieberman spokesman Dan Gerstein said such activity by the senator stemmed = from concern that government bureaucracy was out of touch with the real-wor= ld impact of its proposal. "They are not democratically elected or accounta= ble," he says. "In extreme circumstances, it's incumbent on Congress to ste= p in."=20 Similarly in 1994, Sen. Lieberman was a leading figure in a bipartisan grou= p of legislators who opposed a proposed change in accounting for stock opti= ons. The change would have required that a company's current earnings refle= ct the value of future stock options. Blocking the change was a big priorit= y of the high-tech community in Silicon Valley, where growth-oriented firms= had made a regular practice of conferring stock options on executives and = employees in lieu of direct compensation.=20 With the technology industry growing in clout along with its campaign donat= ions for both political parties, the industry's concerns were well-received= on Capitol Hill. The Senate voted 88-9 for a Lieberman resolution urging t= he accounting board to back off. It did.=20 "This was not just Joe Lieberman and a couple other folks out on a lark," s= ays Mr. Gerstein, the spokesman. The senator "felt a compelling need to int= ervene," he adds, given the potential impact of the proposal on an importan= t sector of the economy.=20 The accounting board has had its defenders in Congress, such as Michigan De= mocrats John Dingell in the House and Carl Levin in the Senate. Mr. Levin i= n 1994 resisted the congressional efforts to influence the accounting board= rule on stock options, and argued that the Lieberman resolution "would put= the Senate on the record as opposing honest accounting."=20 Now Mr. Levin is paired with Mr. Lieberman at the Governmental Affairs Comm= ittee, working to probe Enron's collapse. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Money & Business; Digital Domain Damn the delete key Randall E. Stross 01/28/2002 U.S. News & World Report 26 c Copyright 2002 U.S. News & World Report. All rights reserved. To: Kenneth Lay, chairman and CEO, Enron Corp.=20 From: Lucifer Public Relations Crazy busy, huh? Won't take but a sec. Ever hear of E-mail-management softw= are produced by Omniva Policy Systems? It performs an amazing trick: With a= single click, a company's E-mail disappears irreversibly. No matter where = in the world it happens to be, even if it is sitting on disks in a vault at= the Securities and Exchange Commission. Mission impossible? Naw, the E-mai= l files don't actually vaporize. It works this way: When an E-mail message = is created, Omniva encrypts it before sending and retains the key, which ca= n be set to expire automatically after a certain number of days. When a rec= ipient opens a message, the E-mail software checks with Omniva to make sure= that the key hasn't expired. When the message is "deleted," it is the key = that is deleted, which renders the messages permanently unreadable. Here's = how Omniva's Dave Marvit puts it: "We're empowering people to have conversa= tions that go away." You think the folks at Arthur Andersen would be intere= sted, too?=20 Here's the beauty part: It's perfectly legal. Companies can delete all E-ma= il--without first archiving--as long as it's done as a matter of routine an= d before being the subject of a particular criminal or civil investigation.= That's why attorneys who specialize in "risk management" tell their client= s to purge all E-mail after 30 days. And why leave it to fallible individua= ls to clean house regularly? Omniva's software makes the cleaning automatic= , eliminating "the devastating liability created by casual comments archive= d permanently."=20 Whaddya think about an endorsement deal with Omniva? Their Web site feature= s the woes of companies that didn't "manage" their E-mail. Bridgestone/Fire= stone found itself in a world of hurt, according to Omniva, because of thos= e undeleted E-mail messages showing that the company was aware of the tire = safety issues. The result--of the E-mail that surfaced, not the defects--wa= s "a deluge of bad press and questioning by lawmakers." You're sayin', "Tel= l me about it!"=20 If you find yourself in court, and some snotty federal prosecutor waves you= r own E-mail in your face, you've got lots of company, buddy. Remember when= the richest guy on the planet was on the witness stand and had an E-mail p= rintout shoved under his nose: "Did you write this, Mr. Gates, on or about = Jan. 5, 1996?" He had to hem and haw and feign befuddlement, all because th= e King of All Software hadn't installed software in his own company that wo= uld have made those embarrassing conversations "go away." So don't beat you= rself up too hard, Ken. Next time, you'll know the drill: Never delay, dele= te away!=20 TO: Harvey Pitt, chairman, SEC=20 FROM: John Q. Public, Enron shareholder=20 I hate to take you away, even momentarily, from The Case, but I would like = to pull one good thing out of this towering fiasco: elimination of the loop= hole that permits publicly traded corporations to routinely destroy the ele= ctronic files that document the conduct of their business. I'm not talking = about the panicky throw-everything-overboard document purging at Arthur And= ersen last October; I'm talking about the corporate policies that mandate r= egular cleaning out of E-mail boxes, every 30, 60, or 90 days, at millions = of corporate offices. That E-mail may prove to be critically important mont= hs, perhaps years, later when investigations into malfeasance are initiated= . The law should require that all internal communications be preserved perm= anently for later retrieval.=20 When the SEC was founded in 1934, business was conducted on paper, which is= cumbersome and expensive to handle, copy, and store. Given the technology = of the day, it was natural that the SEC required that publicly traded compa= nies submit mere summaries of financial performance, not the full corpus of= memos and correspondence. But technology has advanced, business now takes = place in an electronic medium, and most communication consists of text that= takes up infinitesimal storage space. The cost of preserving millions of r= ecords is now negligible. Using tape backup, the cost of storing 400,000 E-= mail messages is about $1. And using a concept called single-instance stora= ge, the costs of archiving an entire firm's correspondence shrinks still mo= re dramatically because only the original full-text copy and a list of the = recipients are stored, not the 1,000 identical copies floating around the c= ompany.=20 Existing commercial software can automatically preserve in a centralized ar= chive all the mail purged from individual boxes, but companies need the SEC= to make its preservation a matter of law, not choice.=20 It may be too late for us Enron victims, but let's modernize our oversight = of publicly traded companies so that future malefactors will have reason to= pause, knowing that the documentary record of their actions cannot after t= he fact be erased. Picture: No caption; Drawing: No caption (ILLUSTRATION BY PETER HOEY FOR US= N&WR)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Money & Business Man on the Hot Seat Christopher H. Schmitt; Megan Barnett; Julian E. Barnes; Kit R. Roane 01/28/2002 U.S. News & World Report 20 c Copyright 2002 U.S. News & World Report. All rights reserved. To an uncanny degree, Andy Fastow mirrors the growth of Enron Corp. As the = Houston-based energy giant rocketed to fame as a supernova of the "new econ= omy," Fastow, its chief financial wizard, soared upward with it, crafting t= he complex partnership deals that in a short 10 years turned a sleepy pipel= ine outfit into the seventh-largest corporation in America. Now, with Enron= in flames, having erased$67 billion in the largest bankruptcy in history, = Fastow, a onetime Master of the Universe, is the most wanted man in corpora= te finance, the target of untold lawsuits and unchecked rage.=20 Like the junk bond and savings and loan debacles before it, the Enron colla= pse is fast becoming a signature scandal. Its impact is felt in thousands o= f layoffs, the implosion of retirement savings, and possible criminal charg= es for massive accounting and securities fraud. Last week's developments al= one were the stuff of corporate fiction: An Enron executive warned Chairman= Kenneth Lay months ago of her worries about the partnerships Enron used to= keep hundreds of millions of dollars in debt off its books. Enron's auditi= ng firm, Arthur Andersen, fired its lead auditor when it was learned that A= ndersen destroyed documents after an investigation had begun. Then Enron fi= red Andersen. The head of the Securities and Exchange Commission, until rec= ently stroking the accounting industry, proposed a new oversight body. Busi= ness leaders speculated openly about whether Andersen would survive. Through it all, the man everybody wanted to talk to was Fastow, a 40-year-o= ld, trombone-playing M.B.A. who made at least $30 million from the Enron pa= rtnerships while small investors lost their shirts. Fastow, who remains rel= atively secluded in his expensive Houston home, has frustrated investigator= s by balking at an SEC subpoena and dancing a fandango with congressional i= nvestigators. The seclusion ritual appears to be of a piece with Fastow's y= ears with Enron. In his spacious top-floor office, surrounded by original, = expensive art, Fastow has maintained an extraordinarily low profile over th= e years, granting few interviews, a virtual unknown even to many Enron empl= oyees.=20 Yet, while some Enron officials say Fastow chafed at Enron's corporate swag= ger, he was, in many ways, a product of it. Many at Enron thought the compa= ny and its executives could do no wrong, and, some colleagues believe, so d= id Fastow. It was in part because he was presumed a financial genius that t= he board approved his machinations without adequate questioning. "He was a = master politician; the board loved him," says a former employee. Others who= did challenge him landed on his enemies list, objects of his occasionally = volatile temper. In the company's annual "rank and yank" performance review= s, in which the employees who scored lowest were fired, Fastow shone. But s= ome former colleagues say he also used the reviews to reward allies and tak= e revenge on those who crossed him.=20 Hyperventilating. Fastow was hired at Enron to drum up oil and gas deals, b= ut his bosses quickly realized his talent for packaging the financing for n= ew deals and restructuring other deals already on the books. Despite his ti= tle, Fastow never really played the CFO role at Enron. Typically, chief fin= ancial officers are a company's main envoy to Wall Street, walking a fine l= ine between husbanding the firm's finances and hand-holding big players lik= e analysts and institutional shareholders so important to setting the stock= price. But Fastow developed surprisingly little presence on the Street. "O= rdinarily, the CFO is hyperventilating and pontificating at analyst confere= nces," says John Olson, an analyst for Sanders Morris Harris. "[Fastow's] r= ole was sitting in the backroom coming up with those partnerships."=20 The details of those partnerships, which played a pivotal role in Enron's u= ndoing, are truly complex. But the bottom line is this: In their pure form,= such partnerships are helpful in arranging financing or attracting investo= rs for a particular project, and they can minimize taxes. In Enron's case, = they became a vehicle for keeping huge amounts of corporate debt off the bo= oks Enron presented to the world. That was important because too much debt = makes borrowing more expensive. For Enron, that would mean lower profits, a= nd as a Wall Street darling, that would not do.=20 The problems with the partnerships, according to attorneys now suing the co= mpany, are that in creating them, Enron would contribute company stock or o= ther assets, which would essentially be used to secure big loans. It's not = supposed to go both ways; the assets can't serve dual roles as reserves for= the partnership and collateral for a loan. Critics also point to a conflic= t of interest. Fastow was part of the partnerships but also an executive of= Enron. As the partnerships did business with the company, Fastow's loyalti= es were inherently torn. Moreover, Enron guaranteed profits for the entitie= s. If the targets were missed, Enron would make up the difference, typicall= y through issuance of new stock. That would put more stock in circulation, = potentially depressing the price.=20 Mutants. By the time Enron filed for bankruptcy, the company listed more th= an 3,500 partnerships, often with complex links to other entities or unknow= n parties. "They just mutated into something virtually unrecognizable," say= s Olson. "Investors didn't know if they were investing in widgets or in an = Indonesian coffee plantation." As early as 1997, some executives were chall= enging Fastow, only to see their criticisms pushed aside. "I said, `I don't= care if Arthur Andersen has passed off on this or if the board of director= s has approved it. It does not pass the smell test,' " said one former Enro= n employee. "That was not a politically astute thing of me to say." At a co= mpany meeting last October, Vice President Jim Schwieger pressed Lay about = the partnerships; Lay responded by ending the meeting. Later that day, Fast= ow approached Schwieger, shook his hand, and offered to sit down and answer= any questions. The next day, Schwieger says, Fastow was gone.=20 Enron itself seems to be positioning Fastow as the fall guy, suggesting tha= t the partnerships were Fastow creations that he failed to explain thorough= ly. But U.S. News has learned that Fastow, who is represented by high-profi= le attorney David Boies, is beginning to push a two-tiered defense. Althoug= h Fastow declined to comment, his allies argue that the partnerships were c= reated with the support and backing of Enron. Thomas Bilek, a Houston attor= ney who represents investors, said that Enron employees say Fastow has docu= ments establishing the involvement of other company executives in the finan= cial house of cards.=20 Fastow is also likely to contend that the problem with the partnerships lie= s not in their creation but in how they were accounted for. A source close = to Fastow argues that his responsibilities were limited to acquiring capita= l from outside investors and that he had no authority over accounting for t= hem. That responsibility, Fastow maintains, fell to Richard Causey, Enron's= chief accounting officer. Yet several former employees said Fastow created= the partnerships precisely so they could be accounted for off the books. A= lawyer for Causey said his client did nothing wrong.=20 "A sound plan." Fastow was hardly the rogue operator Enron paints him to be= , other officials say. One former executive recalls that sign-offs from the= legal department to the accounting department were required on the deals. = "It wasn't just an automatic," the employee says. Others say Fastow made no= secret of his activities. Michael Klein, a friend and independent oil and = gas producer, says Fastow discussed partnerships with him. "He told me it w= as a sound business plan that was approved and encouraged by Enron," Klein = recalls. Even Enron's law firm, given a limited mission to examine some of = the transactions, reports that company executives blessed the deals at the = center of the controversy, known as the LJM partnerships. Says one employee= who worked in the finance group: "Andy never pulled the trigger on the fin= al decision at LJM." That, the employee says, required former CEO Jeffrey S= killing's approval.=20 Fastow created his new financial order in Houston after leaving the shadow = of the old. The middle of three brothers, he spent his early childhood on L= ong Island before moving to New Providence, N.J., a middle-class suburb of = New York. In high school, Fastow displayed a progressive flair while servin= g his senior year as student representative to the state board of education= , proposing that teaching of contraception be made mandatory in public scho= ols.=20 Regular newspaper reading as a child helped develop his interest in finance= . He went to Tufts University for a degree in Chinese and economics. There,= he met his wife-to-be, Lea Weingarten, from a prominent Houston family. Gr= aduate business school was at Northwestern University outside Chicago, wher= e he concentrated on finance. Not long ago, Fastow was a proud son of each = institution, someone to be mined for generous alumni donations. By last wee= k, the schools were reluctant to provide any information on him.=20 While attending business school at night, Fastow worked at Chicago-based Co= ntinental Bank Corp., one of the nation's biggest banking companies. At the= bank, he found ways to morph existing assets into new sources of cash, ski= lls he would put to use at Enron.=20 The father of two young sons, he is a onetime pilot and a decent tennis pla= yer, coaches youth sports, and has been a patron of contemporary arts, even= donating pieces for display at a trendy Houston gallery. Property records = show he bought a 68-acre spread in Vermont in 1998, and he is now building = an 11,500-square-foot home in one of Houston's finest neighborhoods. Fastow= has also contributed to charity, forming his own private foundation. Unlik= e Lay, Fastow has been temperate politically, with only $3,200 in donations= to President Bush and a Texas congressional candidate topping his list.=20 Through his ordeal, Fastow has had devoted supporters. "This is a man of in= tegrity and honesty," says Ned Rifkin, a friend who until recently was dire= ctor of the Menil Collection, the museum to which Fastow lent his art. "I j= ust pray this isn't damaging to their family." Rabbi Shaul Osadchey, who of= ficiated at Fastow's wedding, calls Fastow a mensch, the Yiddish term for a= man of good character and sound values.=20 But many investors hurt by the company's collapse have been clamoring to ma= ke Fastow pay. "Fastow broke a trust," says Enron veteran Maritta Mullet, w= ho says the company's collapse cost her $500,000. In a way, he already is p= aying. One of the charities Fastow has supported, a Houston center that hel= ps the homeless, is now seeing former Enron employees apply for help with t= heir rent. Picture: PAPER TRAIL. Investigators from the House Energy and Commerce Comm= ittee review Enron documents provided by fired Arthur Andersen partner Davi= d Duncan. (CHARLIE ARCHAMBAULT FOR USN&WR); Pictures: REVERSAL OF FORTUNE. = Fastow with his wife, Lea, in costume at Houston's Contemporary Arts Museum= . Above, Fastow with attorney David Boies (MIKE SEGAR--REUTERS); Picture: P= LAYERS. Clockwise from left: Richard Causey, Enron's chief accounting offic= er, at Enron headquarters; David Duncan; and Sherron Watkins, the Enron emp= loyee who warned Chairman Kenneth Lay months ago about accounting irregular= ities (LEFT: PAM FRANCIS; TOP RIGHT: CNN / AP)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Nation & World; The National Interest Leaving well enough alone Michael Barone 01/28/2002 U.S. News & World Report 19 c Copyright 2002 U.S. News & World Report. All rights reserved. Washington has been all atwitter about the possibility that the Enron colla= pse will cause a political scandal for the Bush administration. We are remi= nded over and over that Enron generated more political contributions for Ge= orge W. Bush than any other company, and the subtext of many of the news st= ories is that the Bush administration must have done Enron some favors in r= eturn. But there is no evidence that it did. By trying to fit Enron into th= e familiar scandal template, the media are missing larger, more important l= essons.=20 There is no dispute that Enron officials contacted Treasury Secretary Paul = O'Neill, Treasury Under Secretary Paul Fisher, and Commerce Secretary Donal= d Evans seeking help as Enron stock plunged. Former Clinton Treasury Secret= ary Robert Rubin, now a top executive of Citigroup, which loaned Enron $800= million, asked Fisher whether he should call the bond-rating companies to = question their downgrade of Enron's credit. The response in each case was the same: No. Nor did Enron get what it wante= d in public policy. The biggest change Enron sought--limits on carbon emiss= ions, so that it could make money running emissions-trading markets--was fi= rmly opposed by the administration. Editorial writers are already busy cluc= king that the Enron case shows the need for campaign finance reform. It sho= ws just the opposite: With this administration, at least, campaign contribu= tions bought nothing--not even access: O'Neill, Fisher, and Evans would hav= e taken the calls of top officials of the nation's No. 7 company even if it= hadn't given hefty campaign contributions.=20 Broken laws? Democrats with presidential ambitions like Connecticut Sen. Jo= seph Lieberman are still talking about digging for evidence showing that th= e administration did something for Enron. Other Democrats, including Califo= rnia Rep. Henry Waxman, complain that the Bush administration didn't do eno= ugh for Enron shareholders. A more sensible approach is being taken by a Mi= chigan Democrat, Sen. Carl Levin. His investigation is focusing on whether = Enron and its auditors broke the law and whether laws or accounting standar= ds should be changed to protect investors and make markets work properly.= =20 The Bush administration's refusal to intervene on Enron's behalf, like its = refusal to intervene massively in Argentina's economic crisis, is an exampl= e of how its policies differ from those of the Clinton administration. In 1= 995, Rubin put together a $52 billion loan guarantee package for Mexico, wi= thout support from Congress. In 1998, the Federal Reserve Bank of New York,= supported by the Clinton Treasury Department, provided $3.6 billion to bai= l out Long-Term Capital Management, a hedge fund. Both bailouts seemed to w= ork well: Mexico's economy and Long-Term Capital recovered. Creditors who m= ight have gotten nothing did well.=20 But such bailouts create what economists call moral hazard: If creditors be= lieve they're going to be bailed out, they will extend credit profligately,= which will lead to more bankruptcies and financial crises. The Mexico bail= out may have contributed to the 1997 East Asian financial crisis, and the L= ong-Term Capital bailout may have contributed to the Enron bankruptcy. The = Bush administration's actions--or inactions--on Enron and Argentina will re= duce moral hazard and make lenders and investors think twice about where th= ey put their money.=20 Of course, the facts in Mexico and Argentina, Long-Term Capital and Enron a= re not precisely the same, and you can construct an intellectually defensib= le position for both administrations' actions. Even so, they seem to reflec= t a difference in temperament between the two parties. When a Democrat as i= ntelligent as Henry Waxman suggests that the government somehow should have= acted to protect the share price of a single company, one must suspect tha= t his temperament, not his intellect, is speaking.=20 For Democrats are temperamentally inclined to believe that government shoul= d act to help people who are hurting, while Republicans are more inclined t= o let markets take their course. The Clinton administration actively promot= ed foreign investments by U.S. companies, including Enron, after it contrib= uted to Democrats. The Bush administration seems less inclined to do so. Th= e media are chortling that the Enron collapse will hurt Bush by showing how= cozy he is with big business. But an administration disinclined to interve= ne in the marketplace is likely to be less popular among beleaguered CEOs a= nd less affected by campaign contributions than one that is always eager to= help. Picture: No caption; Pictures: Violence in Buenos Aires: no bailout for Arg= entina's economy (ARIAS / SIPA)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Congress's Enron Challenge 01/24/2002 The Washington Post FINAL A20 Copyright 2002, The Washington Post Co. All Rights Reserved CONGRESS BEGINS grappling with Enron today. The Senate Governmental Affairs= Committee will hear testimony from regulatory experts; a House subcommitte= e will hear about the shredding of documents by Arthur Andersen, Enron's au= ditor. It is hard to overstate the importance of these and other hearings t= hat Congress will convene over the next few weeks. The scandal gets steadil= y murkier, with news of document destruction at Enron compounding the impre= ssion that some people at the company had no respect for legality. Moreover= , the scandal spotlights a complex list of regulatory failures, ranging fro= m weak oversight of auditors to inadequate pension safeguards to the comple= te lack of federal supervision for many of the derivative financial instrum= ents traded by non-bank companies.=20 The need for leadership from Congress is especially strong, because the exp= ert agencies that might usually be out in front are dithering. Harvey Pitt,= the chairman of the Securities and Exchange Commission, shows little incli= nation to strengthen oversight of auditors; indeed, his weak gesture on thi= s issue last week has prompted all five members of the respected Public Ove= rsight Board to resign in protest. The Commodity Futures Trading Commission= , which ought to monitor the swaps and other "over-the-counter" derivatives= traded by non-bank firms much as financial regulators currently inspect th= e books of banks, shows no inclination to press for this authority. Both co= mmissions are plagued by vacancies as well as leaders who seem reluctant to= act. Somebody needs to push them. The Senate is starting off on the right foot by hearing from Arthur Levitt,= the former chairman of the Securities and Exchange Commission, and Lynn Tu= rner, the SEC's former chief accountant. Messrs Levitt and Turner are both = rightly outraged by the lax state of audit regulation. Auditors who sign of= f on fraudulent financial statements are seldom punished properly for the s= erious damage that they cause to ordinary people's savings. And despite a s= tring of audit failures, the profession has repeatedly fought off attempts = by Mr. Levitt and other reformers to toughen oversight -- not least by dona= ting generously to members of Congress, who in turn have opposed tough regu= lation. In the wake of Enron, this needs to change. The Senate should liste= n carefully to its first witnesses today and frame reform accordingly.=20 Enron's failure poses one central question. If this company issued make-bel= ieve accounts, why should anyone believe that dozens of other companies are= n't practicing the same deception? Unless Congress can close the regulatory= loopholes that permitted Enron's fall, there will be more corporate implos= ions. Millions of innocent savers will get hurt. And the nation's vaunted c= apital markets will forfeit the public trust that allows them to function. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial All Enron Cards on the Table Henry A. Waxman 01/24/2002 The Washington Post FINAL A21 Copyright 2002, The Washington Post Co. All Rights Reserved Talk cards with any good poker player and the discussion will soon turn to = "tells": the unintended signals other players give that reveal whether they= hold good hands or bad.=20 Last week, the Bush administration gave its clearest "tell" yet that it doe= sn't like its Enron hand. In response to my inquiries about contacts betwee= n administration officials and Enron executives, a senior White House offic= ial warned: "Waxman risks transforming himself into the Dan Burton of the D= emocrats." This unusual jab wasn't meant as friendly career advice. Republican White H= ouses rarely throw gratuitous insults at senior Republican members of Congr= ess like Mr. Burton, the chairman of the Government Reform Committee. To ma= ke sure the message wasn't lost, the White House press secretary later call= ed my efforts a "partisan waste of taxpayer money."=20 These blunt personal attacks signal a high level of White House anxiety: It= s strategy is to discredit me and make other Democrats nervous about invest= igating Enron's influence on White House policies.=20 What's especially odd is that these attacks are coming even though I've bee= n careful not to make any accusations about the president, the vice preside= nt or any of their staff. Having seen the mistakes of Republican investigat= ions into the Clinton administration at close range, I have no interest in = repeating the pattern of accuse first and investigate later. A better way i= s to ask for relevant information before reaching conclusions.=20 For the past two months my staff has been conducting a broad inquiry into E= nron's collapse. We've been trying to learn how thousands of American famil= ies were robbed of their financial security. As a minority member of the Ho= use, I can't call hearings or issue subpoenas, but a Web tip line has been = surprisingly helpful in identifying parts of the puzzle.=20 What offends the White House are the questions I have been asking about Enr= on's contacts with administration officials. While the investigation into E= nron shouldn't be driven by politics, no area -- including Enron's politica= l activities -- should be off limits.=20 The Bush administration wants to wall off its relationship with Enron from = congressional inquiry. In essence, it argues that the president has a const= itutional right to block investigation into the influence of special intere= sts on White House policy. The administration has even rebuffed the efforts= of the General Accounting Office to learn what actions Enron requested fro= m the vice president's energy task force, forcing GAO to consider the unpre= cedented step of suing the White House.=20 Some facts are coming to light nonetheless. Enron was the administration's = biggest campaign contributor. The company's lobbyists met secretly and repe= atedly with the vice president's energy task force. The final energy plan c= ontained 17 provisions that Enron wanted.=20 Last April, Enron CEO Ken Lay met with Vice President Dick Cheney, urging h= im to oppose price relief in the California energy crisis. The next day, th= e vice president called the Los Angeles Times and argued against price caps= . Two months later, the vice president raised Enron's concerns about the Da= bhol power plant with a senior official from India.=20 Lay weighed in with the White House director of personnel about appointment= s to the Federal Energy Regulatory Commission. The president later nominate= d candidates apparently supported by Lay. Lay also called Office of Managem= ent and Budget Director Mitch Daniels to lobby for the repeal of the corpor= ate minimum tax. The administration subsequently endorsed the House-passed = stimulus bill, which repealed the tax and gave Enron a $254 million windfal= l.=20 Because all the facts are not yet in, congressional Democrats have carefull= y refrained from alleging that the White House took specific actions becaus= e of Enron's lobbying. But the White House is wrong to hide behind this rea= sonable restraint as a justification for resisting congressional inquiries = about Enron's extraordinary access.=20 It's also appropriate to ask the administration questions about its reactio= n to Enron's collapse. Treasury Secretary Paul O'Neill and others made the = right call in not bailing Enron out. But had Secretary O'Neill initiated an= expedited investigation into the conduct of Enron executives, he could hav= e discovered in October that they had cashed out $1 billion in stock and th= at Enron employees were in a 401(k) "lock-down." Even then, it might have b= een difficult for the administration to take steps to mitigate the harm to = Enron employees and other victims, but no one even tried.=20 It's time for the administration to draw a new hand. It should begin with c= omplete disclosure of all the Cheney energy task force records. Just as imp= ortant is a full accounting of all administration contacts with Enron repre= sentatives. Nothing else will resolve legitimate questions that deserve exp= lanation -- or fulfill the new approach that George W. Bush promised to bri= ng to Washington.=20 The writer is a Democratic representative from California. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial A Gift To the Democrats Mary McGrory 01/24/2002 The Washington Post FINAL A21 Copyright 2002, The Washington Post Co. All Rights Reserved On the basis of "things are seldom what they seem," especially in matters r= elating to Enron, you should know that CEO Kenneth L. Lay is not from the L= one Star State. He may sound like the quintessential high-handed, high-flyi= ng Texan, given to overwhelming people and brooking no opposition. But the = man who purchased everyone who might stand in his way was born and educated= in Missouri and did not hit Houston until 1970, when he took a PhD in econ= omics at the University of Houston.=20 Texan Robert Strauss, who has known Lay casually for many years, says he "d= oesn't fit the caricature of the self-promoting tycoon" -- the kind who usu= ally does what he did: "He's quiet and well-mannered, with an air of refine= ment about him. And I find it strange I should say this, because I am incen= sed at what he did." Since he rocked the world's financial markets with the biggest bankruptcy i= n history, Lay has been in one of his many mansions. We can't expect to see= him here until Feb. 4, when he appears before a Senate Commerce subcommitt= ee chaired by Byron Dorgan.=20 He made monkeys of his monitors all the way: the Washington regulators, the= Wall Street analysts, the congressional watchdogs, the Manhattan investmen= t bankers, and the auditors, Arthur Andersen, who served Enron in the dual = capacity of consultants and accountants, and whose legerdemain relieved the= company of the tedium of paying taxes.=20 The high-finance scene today looks like a beach where there's been an oil s= pill and creatures stumble out of the water, their wings plastered to them = by the slick. No one has a plausible explanation for why they were still te= lling the public to buy, buy, buy when Enron was sinking fast. Newspaper an= d television screens throb with accounts of the heartbroken who trusted Lay= when he told them, in the face of other warnings, that all would be well.= =20 Even Houston, proud, polluted capital of the oil "bidness," is a little ash= amed. The town wears the Enron brand. The whole U.S. attorney's office had = to bow out of the fraud case of the century because all were involved with = Enron in one way or another. The FBI has taken over the job of interrupting= the shredding parties at the stricken headquarters. It wouldn't have known= about them except for a woman named Maureen Castenada, a former employee. = There are no good guys yet in Enron, only good women: Ms. Castenada and She= rron Watkins, who told Lay that "legal is not right."=20 After a week of dodging queries about his former pal and benefactor -- Kenn= eth Lay was President Bush's number one contributor -- the president wheele= d around and joined the forces of outrage, thankfully recording a victim in= his own family, his mother-in-law.=20 Republicans are nervous as they try to depict Enron as an isolated case of = capitalism gone mad and the serene balance of the market place torn up by a= rogue company. They are aware, though, that some of their cherished projec= ts have been endangered: parts of the president's economic stimulus bill, w= hich, according to the Congressional Research Service, would have awarded E= nron $254 million in "corporate alternative minimum tax credits" -- a gift = few members of Congress, even those blessed with the bipartisan benefaction= s of Kenneth L. Lay, would be inclined to give.=20 As for the Democrats, they have been handed a backdrop for the congressiona= l campaign that they hardly know what to do with. They have been given a pe= erless chance to show the truth of what they have always said about the Rep= ublicans -- that they favor government of the corporations, by the corporat= ions and for the corporations. They have scheduled 10 congressional hearing= s, which is obviously too many. They might try to whittle the number down b= y excluding members who received Lay bounty, such as Sen. Joe Lieberman. Th= ey could blow it.=20 Presidential strategist Karl Rove suggested at the Republican National Comm= ittee meeting that he understood the dimensions of the problem, by suggesti= ng that GOP candidates could run on the coattails of the commander in chief= . Democrats cried foul. House Democratic leader Dick Gephardt howled "shame= ," a strident response to what was really only politics -- Democrats didn't= hesitate to run on Bill Clinton's golden economic record, did they? And if= George W. Bush can't talk about the war for fear of offending Democrats, w= e've entered new realms of political correctness.=20 For Democrats to wail that they have supported the war -- they have not dar= ed to open their mouths without praise for the president's prowess -- sound= s self-righteous and self-pitying. They could spend their time better by fi= guring out how to use the present the gods have handed them -- and what to = ask Ken Lay when they finally see him. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Style ART BUCHWALD edc A Crash Course In Lobbying Art Buchwald 01/24/2002 The Washington Post FINAL C02 Copyright 2002, The Washington Post Co. All Rights Reserved If nothing else, Enron's difficulties have not only given us a lesson in Ec= onomics 101, but they also have told us how Washington operates.=20 All the people in the Enron mess have played their roles -- from the execut= ives in the company and their accounting firm to the lawyers who served the= m so well. But none of them could accomplish what they did without the Wash= ington lobbyists. They are the ones who protect companies from a government= that cannot be trusted. Lobbyists are just like you and me, and they put on their golf shoes one fo= ot at a time.=20 You have to be qualified to be a lobbyist. Many, but not all, are recruited= from Congress. They have decided they are fed up with politics and want to= make some big money for a change, or have lost an election and are not fit= to do anything else.=20 Lobbyists are very friendly people. They call lawmakers and administration = officials by their first names: "Ted," "Terry," "George." Theirs is the onl= y profession, except for the FBI, that makes house calls.=20 The job of the lobbyist is to stop a law that will hurt his clients and lob= by for a bill that will make everyone rich.=20 This is an example of how it works: The Hidden Valley Gas and Energy Co. ha= s ex-senator Glad Handle on its payroll to lobby for the company in Washing= ton. Glad Handle is a Republican, and he replaced ex-congressman Taylor Blu= ewhistle, a Democrat, who was fired after Al Gore lost the election.=20 Glad moves among the Capitol, the White House and any agency that can affec= t Hidden Valley business.=20 Let's say Congress wants to pass a law forbidding Hidden Valley to deliver = natural gas and smoke cigarettes at the same time.=20 What Congress doesn't know is that Hidden Valley owns a cigarette company a= s well as a gas company. Banning smoking near a gas plant will seriously hu= rt its tobacco business.=20 Glad invites Sen. Carl Fiddle to the Burning Tree country club. Fiddle is i= n charge of the Smoking and Energy Committee. He is greeted warmly by Handl= e, who says, "Remember when we filibustered an equal rights bill together?"= =20 They play 18 holes, and then Glad asks Fiddle, "How's the election campaign= going?"=20 "We could use $100,000 in soft money to buy sweat shirts for our volunteers= ."=20 Glad takes out his checkbook and says, "Why didn't you say that before?"=20 Sen. Fiddle replies: "You're a lobbyist, so we hated to ask you for somethi= ng. If we take your money, what can we do for you?"=20 "Nothing much. If you want to hold up the Anti-Smoking Gas Bill in committe= e, that would be fun."=20 "It's done."=20 "What about getting the oil rights to West Point?" Glad asks.=20 "I know the person at EPA you should ask for."=20 Glad says, "Can I buy you a beer?"=20 "You know, Glad, that's against Senate rules."=20 (c)2002, Tribune Media Services http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Enron Mess: Outrage, and Then? 01/24/2002 The New York Times Page 26, Column 6 c. 2002 New York Times Company To the Editor:=20 Among the startling revelations in the Enron mess is that Enron paid no fed= eral corporate income taxes for four of the last five years (front page, Ja= n. 17). Congress should investigate to see if this is common among major corporatio= ns. If it is, it should be remedied by eliminating the loopholes that let i= t happen.=20 MICHAEL J. ZIMMER=20 Evanston, Ill., Jan. 21, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Enron Mess: Outrage, and Then? 01/24/2002 The New York Times Page 26, Column 6 c. 2002 New York Times Company To the Editor:=20 It is sad that it has taken a scandal to propel campaign finance reform to = the top of the House of Representatives' legislative agenda (''A New Rallyi= ng Cry for Reform,'' editorial, Jan. 22). The money that Enron gave over th= e years to politicians of both major parties is tainted. A comprehensive debate on the House floor and then a vote to pass the Shays= -Meehan bill will help show America and the world that democracy still prev= ails here. It is essential that we win the war at home against corruption i= n politics.=20 PAUL L. WHITELEY SR.=20 Louisville, Ky., Jan. 22, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Enron Mess: Outrage, and Then? 01/24/2002 The New York Times Page 26, Column 6 c. 2002 New York Times Company To the Editor:=20 President Bush has tried to personalize the Enron situation by citing his m= other-in-law's loss of $8,000 through the devaluation of Enron's stock (fro= nt page, Jan. 23). While I feel sorry for Jenna Welch, Laura Bush's mother, she has a very ric= h family to help her through any trying times, while the Enron employees li= kely do not. The president may believe that he is empathizing with them, bu= t really he is not. Mr. Bush is personalizing a situation that is truly dev= astating to others.=20 MARY MACELVEEN=20 Sound Beach, N.Y., Jan. 23, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Enron Mess: Outrage, and Then? 01/24/2002 The New York Times Page 26, Column 6 c. 2002 New York Times Company To the Editor:=20 Re ''In Shift, Bush Assails Enron Over Handling of Collapse'' (front page, = Jan. 23): President Bush says he is ''outraged'' that Enron misled its employees and = investors, including his mother-in-law, who, he said, lost more than $8,000= when its stock collapsed.=20 Would it be appropriate for Mr. Bush to return the more than $700,000 in co= ntributions that Enron bestowed on him since 1993? I think that it would.= =20 To me, it seems that such a return of money (already undertaken by some mem= bers of Congress) should be a no-brainer for a self-described ''compassiona= te conservative'' like President Bush.=20 HUGH WELBORN=20 Tappan, N.Y., Jan. 23, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 California; Editorial Pages Desk Enron's Shell Game Shouldn't Taint Markets 01/24/2002 Los Angeles Times Home Edition B-16 Copyright 2002 / The Times Mirror Company Re "Enron Got Its Money's Worth," Commentary, Jan. 22: So Robert Scheer bel= ieves that the way to develop an energy policy is without industry input. I= thought that the Clinton administration tried that with health care. The r= esults were spectacular, were they not? Any energy plan would be controvers= ial, but if I were going in for brain surgery I wouldn't want my gardener t= o perform the operation.=20 The Clinton administration, eight years in office, had ample opportunity to= develop an energy plan, as imports skyrocketed, but refused because there = was no political upside in so doing. Making electricity a commodity was Enron's objective. Its officials failed = miserably and perhaps criminally, but they were on the right track. Futures= markets are the way to provide the lowest possible electricity prices.=20 The market works for all but someone like Scheer.=20 Jerry Andersen=20 Pacific Palisades=20 *=20 Your Jan. 19 editorial ("Enron's Far-Reaching Web") conveyed the impression= that (a) I was in some sense on the take from Enron and (b) I hid that inv= olvement. Both impressions are totally false.=20 In 1999 I briefly served on Enron's advisory board. I ended that connection= when I agreed to write for the New York Times in the fall of 1999.=20 I also disclosed that past relationship the very first time I mentioned Enr= on, in a column sharply criticizing the company's role in California's ener= gy crisis, in January 2001.=20 Enron paid members of its advisory board $50,000 for attendance and present= ations at two meetings (one of mine was canceled at the last minute), each = spanning two business days. This payment, as a daily rate, was if anything = somewhat less than I was regularly receiving for presentations to other com= panies: At the time, as an expert on international financial crises, I was = in high demand as a speaker.=20 Your editorial quotes my remark that the board "had no function I was aware= of." This was self-deprecating humor: I later wondered whether the board w= as of much direct value to the company. However, I devoted as much time and= effort to my presentations as I would have for any other corporate event.= =20 Given how scrupulously I have followed the strict conflict-of-interest rule= s at the New York Times, and how tough I have been on Enron this past year,= I am astonished that the Los Angeles Times would imply that I had any ethi= cal lapses.=20 Paul Krugman=20 Columnist, New York Times=20 *=20 Re your editorial: Enron's strategy in achieving its energy objectives thro= ugh public policy was quite simple.=20 In effect, the company decided that if you can't buy one influential politi= cian, then the next best strategy was to attempt to buy them all. The amusi= ng part of this debacle was for how little money so many thought to be smar= t, intelligent politicians and public policy officials and others settled.= =20 Nevertheless, Enron was quite successful in achieving its energy goals.=20 Chance Williams=20 South Pasadena=20 *=20 So Bush's chief economic advisor was a paid consultant to Enron, Bush's ene= rgy policy was dictated by his old friend and paymaster, Enron Chairman Ken= neth Lay, and Bush appointees to the Federal Energy Regulatory Commission w= ere vetted by Enron.=20 Bush brings Enron economics and Enron morality to the White House--God help= America!=20 Kevin Jones=20 Los Angeles=20 *=20 The "shell game" existence of Enron makes me wonder: What if, instead of ha= nding out millions to politicians and selling off inflated stock, Enron exe= cutives had actually used the money Enron took from investors to develop--h= eaven forbid--renewable energy plants? What if politicians couldn't be boug= ht and actually used their positions to work for, as the Constitution provi= des, "the general welfare"?=20 Lynda Unterthiner=20 Rancho Mirage Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 California; Editorial Pages Desk Oblivious to a Strong Smell 01/24/2002 Los Angeles Times Home Edition B-16 Copyright 2002 / The Times Mirror Company Energy giant Enron's conduct has been so egregious that even President Bush= , a personal friend of just- resigned company Chairman Kenneth L. Lay, has = finally felt compelled to denounce the corporation's alleged defrauding of = employees and outside investors. If politicians are starting to return dona= tions from Enron to assure the electorate that Congress isn't bought and pa= id for, then drastic measures surely need to be taken to reassure investors= as well.=20 Unfortunately, Securities and Exchange Commission Chairman Harvey Pitt is t= aking exactly the opposite course. The giant Andersen accounting company is= under intense scrutiny for its auditing in the Enron debacle. Instead of p= ushing for reform, however, Pitt is dismissing the need for it, claiming "t= here is nothing rotten with the accounting industry." Pitt has called for creating an oversight board. The five-member board curr= ently responsible for ethics oversight has resigned, and its head, Charles = Bowsher, a former U.S. comptroller general, has denounced Pitt's proposals = as too friendly to the industry that is supposed to be monitored. The new o= versight board would apparently be largely controlled by the industry's Ame= rican Institute of Certified Public Accountants.=20 Pitt, as the head regulator of financial markets, has come up with some coz= y proposals that are astonishing. But they are less so considering that Pit= t, a lawyer, had as clients the five biggest U.S. accounting firms, includi= ng Andersen, as well as the American Institute of Certified Public Accounta= nts. Unless he changes course, he will be unable to restore investor confid= ence that fair and open audits are taking place.=20 Despite Pitt's claims, there is a lot that is rotten in the accounting indu= stry. It appears that Andersen did not just wink at Enron's end run around = the law; Andersen may have abetted it. Though Andersen is reported to have = shredded paperwork, memos have surfaced showing that auditors were aware of= Enron's enormous manipulation of its reported earnings, which were really = losses, and did nothing to expose it. On the contrary, because auditors can= also be consultants to the companies they are supposed to monitor, the inc= entive is for them not to blow the whistle. Andersen, for example, received= $27 million from Enron for consulting work.=20 Congress needs to pass a law that would create an oversight board that woul= d have enough power to police the industry effectively. It also needs to ma= ke it illegal for auditors to work in any capacity for corporations other t= han auditing. That would help end the smell from the accounting industry th= at Pitt is pretending doesn't exist. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business LOU DOBBS MONEYLINE; CNNfn Kathleen Hays, Tim O`Brien, Allan Chernoff, Kelly Wallace, Jonathan Karl, C= hristine Romans, Greg Clarkin, Jonathan Aiken, Jamie McIntyre, David Grange= , Steve Young, Fred Katayama, Wolf Blitzer 01/23/2002 CNNfn: Moneyline News Hour (c) Copyright Federal Document Clearing House. All Rights Reserved. ANNOUNCER: Tonight on LOU DOBBS MONEYLINE: The latest on the Enron scandal.= And accounting oversight board votes itself out of existence. We`ll hear f= rom an accounting group on how that affects plans to clean up the industry`= s image. Boeing (URL: http://www.boeing.com/) CEO Phil Condit tells us why = he`s optimistic about his company`s future despite a 79 percent plunge in p= rofits. A leading economist tells us why he feels the recession is over and= why the recovery has begun.=20 American Taliban John Walker returns home and the Pentagon stops sending de= tainees to Cuba. General David Grange joins us. This is LOU DOBBS MONEYLINE for January 23. Sitting in for Lou Dobbs, Kathl= een Hays.=20 KATHLEEN HAYS, CNNfn ANCHOR, LOU DOBBS MONEYLINE: Good evening, here are th= e latest developments in the Enron scandal. Enron today postponed a meeting= with employees because of what the company called a media frenzy. The SEC`= s accounting oversight board, all five members, quit. And David Duncan, the= fired Andersen auditor, wants immunity before he tells Congress what he kn= ows about document shredding. Tim O`Brien is in Washington tonight with mor= e.=20 Tim, what can you tell us on the latest developments?=20 TIM O`BRIEN, CNNfn CORRESPONDENT: Well, the developments are breaking out a= ll over. Amid reports that Enron was continuing to destroy documents as lat= e as last week, a federal judge in Houston conducted a hearing. As we speak= , he is about to rule on to best protect those documents.=20 Lawyers for investors and former employees are urging they be placed in cus= tody of a court-appointed trustee. Again, we are expecting a ruling within = minutes. Meanwhile, there were other developments on a number of other fron= ts today.=20 (BEGIN VIDEOTAPE)=20 (voice-over): Enron employees were supposed to get a briefing today about t= heir future with the company, but it was canceled. CEO Kenneth Lay, explain= ing to employees in an e-mail, we don`t want to subject you to the media fr= enzy that would certainly surround such a meeting, so we have decided to po= stpone it.=20 Employees were told the meetings would be rescheduled for another time. On = the political front, questions linger about Enron`s possible influence on t= he president`s energy program. Senate Majority Leader Tom Daschle, joined t= he chorus of Democrats calling on Dick Cheney, who chaired the president`s = energy task force, to explain his meetings with Enron executives.=20 SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: I think we all have to be very fo= rthcoming here and I think it`s important in this case that the vice presid= ent, like everybody else, provide the information required.=20 O`BRIEN: To date, there has been no evidence that anyone in the administrat= ion acted improperly in the Enron collapse. In fact, some of Enron`s most i= mportant beneficiaries have also lost money. Texas Senator Phil Gramm and h= is wife, Dr. Wendy Gramm, say they lost around $686,000 in the Enron demise= . Enron had showered the senator, a champion of deregulation, with campaign= contributions. And Dr. Gramm, an economist, serves on Enron`s board of dir= ectors. Her deferred compensation was lost when Enron declared bankruptcy.= =20 And finally, reverberations from last week`s recommendation by Harvey Pitt,= the chairman of the Securities and Exchange Commission, for a new regulato= ry agency to oversee the accounting profession.=20 (END VIDEOTAPE)=20 That didn`t sit well with the public oversight board, a five-member commiss= ion that already oversees ethics and disciplinary issues. All five members = have resigned, saying Pitt`s new agency would render their work irrelevant.= Pitt has now written back, urging the members to reconsider, saying his pr= oposals would in fact strengthen the oversight board, not weaken it -- Kath= leen.=20 HAYS: Tim, in regards to Harvey Pitt`s role in proposing a new kind of over= sight board, is there any talk in Washington that maybe Mr. Pitt has been t= oo close to some of the big players, the big 5 accounting firms are his cli= ents, the AICPA, the association of accountants, one of his clients, what`s= the talk down there on that?=20 O`BRIEN: Well not only those, also he represented Arthur Andersen when he w= as in private practice before joining the Securities and Exchange Commissio= n. Some Democrats say that`s a conflict of interest and he should recuse hi= mself. Legally it really isn`t, because you can`t identify the views expres= sed by a lawyer on behalf of a client with the lawyer himself.=20 Harvey Pitt is the first to say he has another client now, it is the United= States America and there is no conflict. However, he has indicated that he= will step back from the investigation. The SEC ordered the investigation, = he`s in charge of the SEC but he is not going to participate in the probe.= =20 HAYS: OK, Tim, thanks for the report.=20 Starting tomorrow, Congress gets down and dirty on the Enron scandal. Sever= al committees begin their investigations into the biggest corporate collaps= e ever. Allan Chernoff reports on the battle for witnesses before a subcomm= ittee of the House Energy and Commerce Committee.=20 (BEGIN VIDEOTAPE)=20 ALLAN CHERNOFF, CNNfn CORRESPONDENT (voice-over): A behind-the-scenes strug= gle between David Duncan, the fired Andersen Partner, who oversaw the Enron= audit and the subcommittee on oversight and investigation.=20 Subcommittee chair, James Greenwood:=20 REP. JAMES GREENWOOD (R), PENNSYLVANIA: We subpoenaed him. He still doesn`t= want to come. He wants immunity. We are not going to grant him immunity. H= e wants to take the 5th, and we are telling him to come in tomorrow. If you= want to take the 5th Amendment that`s your constitution right, but do it a= t the hearing, and if you don`t do it we reserve the right to cite you for = contempt of Congress.=20 CHERNOFF: A source close to Duncan says he will appear and simply will invo= ke the 5th Amendment protection against self-incrimination.=20 His attorney had argued to the subcommittee that "Mr. Duncan has not yet ha= d access to all the documents necessary for him to prepare for a formal hea= ring."=20 REP. BILLY TAUZIN (R), LOUISIANA: I think he needs to be there to explain w= hy he was willing to give us 4.5 hours of testimony and wouldn`t go public = with the same testimony. But, he has his rights, and we`ll respect his righ= ts.=20 CHERNOFF: According to Andersen it was Duncan who ordered employees at the = Houston office to shred and delete Enron-related documents. Duncan has told= congressional investigators he was only following company orders, in the f= orm of a memo reminding the engagement team of our documentation and retent= ion policy, written by Andersen attorney Nancy Temple. She will testify.=20 Of particular interest to the subcommittee, an October 23 Andersen e-mail a= ddressed to David Duncan and other executives discussing a conference call = agenda which included the SEC, legal representation, and response to SEC.= =20 Andersen says Duncan had directed the document disposal at a meeting on Oct= ober 23. Andersen`s chief executive, Joseph Berardino, who testified before= Congress in December, fought off the subcommittee`s request. Instead, the = Chicago headquarters is sending executive Dorsey Baskin, who oversees the f= irm`s policy on audit and work papers.=20 (END VIDEOTAPE)=20 A demoted Andersen executive Michael Odom also is scheduled to testify befo= re the subcommittee. Now, on the Senate side, Senator Lieberman`s Governmen= tal Affairs Committee will be looking into the question of what Washington = might have done to protect investors and businesses from the Enron fallout = -- Kathleen.=20 HAYS: Thanks Allan. I`m sure you are going to be a very busy man tomorrow.= =20 *** With Congress back in session, economic stimulus, the recession and Enron a= re shaping up as the biggest items on the congressional agenda. Jonathan Ka= rl joins us with more from Capitol Hill. Hi, Jon.=20 JONATHAN KARL, CNN CORRESPONDENT: Hey, Kathleen. And Congress is picking up= right where it left off last year, the question of economic stimulus, what= they can do to get the economy going.=20 Right now the Republicans as we speak are over in the Capitol building, mee= ting, on the Senate side, trying to think about how to respond to Senator T= om Daschle`s latest gamut.=20 Daschle has put on the table a possible proposal on economic stimulus that = boils down to this: He says Democrats would give up much of the spending th= at was in the Democratic stimulus plan last year, in exchange for the Repub= licans giving up many of the tax cuts they had in their proposal.=20 What you are left with, basically, is this: Extend unemployment benefits, a= lso rebate checks for low-income taxpayers who did not get tax rebate check= s last year, and the third item would be some modest tax breaks to encourag= e companies to invest in new equipment. Making the case for that, Daschle c= ame out today and used a new verb, perhaps a new addition to the English la= nguage. The verb is "to "Enron." He was criticizing the Republicans, talkin= g about deficits, and then he used the verb "to Enron."=20 This is what he had to say.=20 (BEGIN VIDEO CLIP)=20 DASCHLE: I don`t want to Enron the people of the United States. I don`t wan= t to see them holding the bag at the end of the day just like Enron employe= es have held the bag. I don`t want to destroy their Social Security system.= I don`t want to destroy their Medicare system. I don`t want to destroy the= ir ultimate ability to look with confidence at their retirement.=20 (END VIDEO CLIP)=20 KARL: So, you see a sign that while the Democrats are saying they don`t wan= t to politicize the upcoming Enron hearings, clearly Democrats see the pote= ntial to try to talk about Republican economics as a kind of Enronomics, wh= ich is another term we have heard used by Democrats up here on Capitol Hill= .=20 And also, Kathleen, at the top of the show, you heard Tim O`Brien talk abou= t how Senator Phil Gramm`s wife, Wendy Gramm who is on the Enron board, los= t some 600,000 in her 401(k) when the Enron stock went south.=20 Well, another little bit of news on Senator Gramm. Senator Gramm tells CNN = that he will recuse himself from all matters directly related to the invest= igation of Enron here in Congress. Gramm is saying that he will continue to= talk about issues related to Enron, such as pension reform and changes in = the rules that govern accounting companies. But he will recuse himself in a= nything directly related to the investigation of Enron given that his wife,= Wendy Gramm, is on their board -- Kathleen.=20 HAYS: Thanks for the report, John, and for the new verb "Enron." Jonathan K= arl on Capitol Hill.=20 Still to come tonight, we`ll tell you why your safe deposit box may not be = as safe as you think it is, and why it may not be insured.=20 The nation`s mayors are concerned with keeping our cities safe. We`ll tell = you how homeland security chief Tom Ridge plans to help.=20 And Boeing`s profits are down. The year ahead looks bleak. And yet the comp= any`s CEO is optimistic. He`ll tell us why.=20 ANNOUNCER: Next, Kathleen talks with Phil Condit, CEO of Boeing.=20 (COMMERCIAL BREAK)=20 HAYS: The accounting industry`s reputation has been devastated by the Enron= scandal. The SEC has proposed a new panel to police the industry, that dec= ision has been applauded by the American Institute of Certified Public Acco= untants. The group`s president and CEO, Barry Melancon, joins us now. Welco= me.=20 BARRY MELANCON, PRES. & CEO, CPAS: Hi, Kathleen.=20 HAYS: I think it`s interesting that Charles Boucher who was head of the pub= lic oversight board that resigned in protest today, says there`s plenty of = oversight. What has been lacking in overseeing the accounting industry is t= he power to discipline. The power to demand records. What do you think of h= is statement?=20 MELANCON: Well, in actuality what Chairman Pitt is proposed is a process wh= ere discipline is addressed, Kathleen. And in fact moves from the oversight= to public participation. And obviously public participation is a higher or= der of participation than public oversight, and so the activities that Chai= rman Pitt proposed is moving us to new area which a majority of non-auditor= s, people who are not in the profession would actually be involved in the d= ecision-making process over discipline and quality control.=20 HAYS: But in fact the public oversight board was not comprised of people in= the accounting profession. And let me come back to that question, is there= something that Mr. Pitt has proposed that is going to put teeth in this ne= w oversight board? So again, you`d think it would be very important to be a= ble to demand to see certain records and have the threat of some kind of pu= nishment from this board hanging over auditors if they don`t do their job.= =20 MELANCON: Well, what Chairman Pitt has proposed is a process by which a dis= ciplinary board -- or in monitoring quality control. If someone was found t= o be deficient in the quality they were doing, they would actually lose the= rights to be able to audit public companies, that`s pretty significant tee= th. HAYS: What about the basic conflict of interest, this --also this does = not seem to be addressed by Mr. Pitt`s proposal, at least not so far. Many = of the large accounting firms do audits of companies, they also have anothe= r part that has consulting contracts where they advise the very managers th= at the other part of the firm is auditing. Is that problem going to be addr= essed by Harvey Pitt`s proposal?=20 MELANCON: Well, in actuality, former Chairman Arthur Levitt adopted a rule = at the end of his term that addressed that issue very directly. It outlawed= or made by rule the inability to do certain services, it`s severely limite= d other services and it created a total aspect of transparency and disclosu= re if services were performed outside of the audit. But I might add, that`s= sort of an easy issue to address from the standpoint it sounds good. But e= ven if we had an outright ban, which is a very complicated point, this is v= ery complicated issue, Enron, and that outright ban itself would not preven= t the reoccurrence of Enron. HAYS: But it might prevent a conflict of inter= est in these firms. This is an issue that most every kind of accounting pro= fessor seems to bring up when they`re asked about it.=20 MELANCON: In actuality there are over 300,000 CPAs in this country, and I t= hink if you talk to small business people, business managers, they turn to = their CPA`s for things other than just audits. And it`s just part of the pr= ofession for over a hundred years. And it`s been a critical element in the = profession being part of the fiber, if you will, of the success of the Amer= ican economy. Doing things like taxes, doing things like general advisory o= n whether someone should lease or buy, financial services are all part of w= hat CPAs, men and women throughout this country who are doing things every = day, and yet those same men and women do a very good job of drawing the lin= e and in fact are drawing the line today. HAYS: Thank you very much, Barry = Melancon for joining us.=20 MELANCON: Thank you.=20 *** HAYS: Today, a federal judge in Houston held a hearing on whether to impoun= d documents from Enron regarding the company`s collapse. The hearing follow= ed allegations that documents were being shredded by Enron employees as rec= ently as last week.=20 Tim O`Brien has the latest on today`s hearing. Hi, Tim.=20 O`BRIEN: Kind of a non-decision, Kathleen. Federal judge Melinda Harmon say= s she wants to let the lawyers work out the details of any solution. And th= e lawyers for the plaintiffs, representing investors and former employees, = are said to be very close to agreement with the lawyers for Arthur Andersen= .=20 The plan now is to allow the plaintiff`s lawyers and their experts total ac= cess to all records which are being kept in four secure locations: Houston,= San Francisco, Chicago and New York. Attorneys for Andersen have already p= romised, of course, no more documents would be shredded, no computer files = deleted.=20 The plaintiff`s lawyers will have all the ordinary rights of discovery if t= hey don`t get what they want or have any suspicions documents are being wit= hheld or destroyed. Their remedy would be to go back to court.=20 *** And that is MONEYLINE for this Wednesday evening. Thanks so much for joinin= g us. I`m Kathleen Hays in for Lou Dobbs. Good night from New York. WOLF BL= ITZER REPORTS begins right now.=20 TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 888-CNNFN-01 OR USE OUR SE= CURE ONLINE ORDER FORM LOCATED AT WWW.FDCH.COM=20 THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY B= E UPDATED.=20 Content and programming copyright 2002 Cable News Network, Inc. ALL RIGHTS = RESERVED. Prepared by FDCH-eMedia (Federal Document Clearing House, Inc. -e= MediaMillWorks, Inc.) No license is granted to the user of this material ot= her than for research. User may not reproduce or redistribute the material = except for user`s personal or internal use and, in such case, only one copy= may be printed, nor shall user use any material for commercial purposes or= in any fashion that may infringe upon Cable News Network, Inc.`s copyright= or other proprietary rights or interests in the material; provided, howeve= r, that members of the news media may redistribute limited portions (less t= han 250 words) of this material without a specific license from CNN so long= as they provide conspicuous attribution to CNN as the originator and copyr= ight holder of such material. This is not a legal transcript for purposes o= f litigation. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Poor Kenny Boy=20 Will Durst - WorkingForChange.com 01.23.02 - SAN FRANCISCO -- Poor Kenneth Lay. Just this time last year he w= as riding higher than bacteria on a gnat inside the ear of a giraffe with a= hyperactive pituitary. And now the powers that be are starting to pile on = like he was a secret member of the Taliban's high command and they discover= ed his black turban on a shelf in the closet behind the gay porn tapes.=20 This is all because Enron reportedly put a few employees' retirement in a b= it of jeopardy, and Kenny Boy, as our hero President is wont to call him, m= ight have sold a couple of shares of Enron stock while the company was expe= riencing their minor financial setback.=20 It turns out there is an extremely logical and reasonable explanation for t= his "suspicious" behavior. Mr. Lay was not trying to ditch his stockholders= and employees, but merely trying to raise some quick cash. To put it in th= e simplest of terms, for the "layman": he used his millions of dollars in E= nron stock to repay loans made to him by the company and then he would take= out more loans to repay money he owed on his other investments. That's all= .=20 Of course Mr. Lay was concerned about Enron's health, that's why on Septemb= er 26 he used an online chat to urge employees to buy Enron shares because = the stock was "an incredible bargain" which it was. It's an even better bar= gain now. Huge bargain as a matter of fact.=20 You know what, I think people are just jealous. And indignant. And pissed. = And outraged. And bitter. And angry. Just because Enron didn't pay any inco= me taxes four out of the last five years, although whose fault was that? Th= e shred happy accounting firm of Arthur Anderson, that's who. And weren't t= hey fired last week? Of course they were. By who? Enron. See, problem disco= vered, action taken.=20 Of course, nobody cares what happens to Mr. Lay. Who's wringing their hands= over the fact this persecuted American has had to stay liquid by selling m= ost of the properties he owns and pays taxes on all over this great nation = of ours? No one. We're talking 3 out of the 4 homes he owned in Aspen, Colo= rado. Now this beleaguered CEO only has one destination to stay while skiin= g. How is one supposed to entertain when the help is staying in the same 12= bedroom manse as the guests?=20 The only consolation is though his name will be dragged through mud by a ve= ngeful media, the man himself is destined to receive justice. It is very do= ubtful any of the ten Congressional investigating committees will be able t= o form a quorum for even considering an indictment. After all, 250 out of 5= 35 members of Congress received campaign contributions from Enron and that = doesn't include the Attorney General's office, which has recused itself. As= a matter of fact, I'm pretty sure everyone in DC except for Monica Lewinsk= y has recused themselves from this investigation. Perhaps Mr. Lay will take= some solace from the price an old Enron ethics manual being sold on Ebay r= ight now for over $250 whose seller advertises it as being in mint conditio= n. Hopefully Mr. Lay has a couple of cases of old manuals laying around the= garage. I doubt if any of them were ever used.=20 ? 2002 WorkingForChange.com=20 Sarah Palmer Internal Communications Manager Enron Public Relations (713) 853-9843