Message-ID: <8593617.1075841176356.JavaMail.evans@thyme> Date: Wed, 16 Jan 2002 07:01:11 -0800 (PST) From: sarah.palmer@enron.com To: sarah.palmer@enron.com Subject: Enron Mentions (Part I) -- 01/16/02 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.\Inbox X-Origin: MARTIN-T X-FileName: tom martin 6-25-02.PST Publicized Letter to Lay Involved Struggle Over Enron's Direction The Wall Street Journal, 01/16/2002 Text of Letter to Enron's Chairman After Departure of Chief Executive The New York Times, 01/16/2002 THE NATION THE ENRON INQUIRY Memo Warned of Enron's Setup Being Seen as 'Ho= ax' Probe: Full text suggests that a senior executive was not telling Kenne= th Lay anything new. She ridicules accounting procedures and forecasts the = company's collapse. Los Angeles Times, 01/16/2002 ENRON'S COLLAPSE: THE EMPLOYEE Author of Letter To Enron Chief Is Called Tough The New York Times, 01/16/2002 THE NATION A Regular Life in Unusual Times Profile: Enron insider Sherron W= atkins led a quiet existence before becoming a key figure in the firm's sca= ndal. Los Angeles Times, 01/16/2002 Law Firm Releases Enron E-Mails Detailing Lockdown Dow Jones News Service, 01/16/2002 ENRON'S COLLAPSE: THE INVESTIGATION Justice Dept.'s Inquiry Into Enron Is Beginning to Take Shape, Without Big = Names The New York Times, 01/16/2002 Deals & Deal Makers: NYSE Halts Trading in Enron, Moves to Delist Energy Co= mpany The Wall Street Journal, 01/16/2002 NYSE Moves to Delist Enron Stock Los Angeles Times, 01/16/2002 Accord for Enron Trading Operations Leaves UBS Free Not to Inject Capital The Wall Street Journal, 01/16/2002 SWITZERLAND: UBS says has no acquisition plans for Enron Europe. Reuters English News Service, 01/16/2002 UBS CEO Rules Out Big Acqusitions Dow Jones International News, 01/16/2002 UBS Enron bid values affiliate at US$4M: Enron Canada Corp.: Unit of failed= parent holds cash of at least $220-million National Post, 01/16/2002 The Enron Effect: Government's Job Being Rethought The Wall Street Journal, 01/16/2002 Law Firm Reassured Enron on Accounting --- Vinson & Elkins Discounted Warni= ngs by Employee About Dubious Dealings The Wall Street Journal, 01/16/2002 ENRON'S COLLAPSE: THE LAW FIRM Legal Counsel In Many Ways Mirrors Client The New York Times, 01/16/2002 ENRON'S COLLAPSE: THE BANKS Lenders Differ in Disclosing Their Exposure to Troubles The New York Times, 01/16/2002 Citigroup's Enron Financing Stirs Controversy The Wall Street Journal, 01/16/2002 Enron, Argentina take down J.P. Morgan Chase earnings Associated Press Newswires, 01/16/2002 JP Morgan Chase's Shapiro says Enron exposure totalled 450 mln usd in Q4 AFX News, 01/16/2002 Citigroup's Enron Deal Stirs Creditor Outcry Dow Jones Business News, 01/16/2002 FOCUS Analysts, ratings agencies image hurt by Enron; legal impact unlikely AFX News, 01/16/2002 `Lockdowns' of 401(k) Plans Draw Scrutiny --- Enron Employees' Losses Sudde= nly Put Practice in Spotlight The Wall Street Journal, 01/16/2002 Computer sleuths searching for deleted Enron e-mails Associated Press Newswires, 01/16/200 Paper Trail: Andersen Fires Partner It Says Led Shredding Of Enron Document= s --- It Claims Disposal Effort Started After SEC Asked Energy Firm for Dat= a --- Was He Following Orders? The Wall Street Journal, 01/16/2002 ENRON'S COLLAPSE: NEWS ANALYSIS For Andersen and Enron, the Questions Just Keep Coming The New York Times, 01/16/2002 Andersen Dismisses Lead Enron Auditor; Partner Said to Lead Document Shredd= ing The Washington Post, 01/16/2002 Scandals Put Andersen's Future at Risk; Enron Case Is Just Latest to Put De= nt in Reputation of Big Five Accounting Firm The Washington Post, 01/16/2002 Arthur Andersen May Lack Insurance To Cover Judgments The Wall Street Journal, 01/16/2002 SEC, Accounting Firms Redrafting Audit Rules; Agency Chairman Draws Fire fo= r Role in Effort The Washington Post, 01/16/2002 O'Neill says US derivatives rules may need modernising in wake of Enron cas= e AFX News, 01/16/2002 ENRON'S COLLAPSE: THE DONATIONS Enron's Ties to a Leader of House Republicans Went Beyond Contributions to = His Campaign The New York Times, 01/16/2002 Hooley and Blumenauer return Enron cash Associated Press Newswires, 01/16/200 The Essentials Of a Washington Scandal; Enron Has Possibility. But Somethin= g's Still Missing. The Washington Post, 01/16/2002 Commentary No Special Counsel on Enron Los Angeles Times, 01/16/2002 . . . Especially From Republicans The Washington Post, 01/15/2002 Media Split on Import of Enron The Washington Post, 01/15/2002 THE IDEAS INDUSTRY Richard Morin and Claudia Deane Enron Pumped Cash Into Tanks Too The Washington Post, 01/15/2002 Enron highlights risks of employee stock plans National Post, 01/16/2002 DEALS Allan Sloan The Worst Thing About Enron: Checks and Balances Failed The Washington Post, 01/15/2002 A Comedy of Assets The Washington Post, 01/16/2002 Watchdogs and Lapdogs The Wall Street Journal, 01/16/2002 'Genius of Capitalism' Let Out of the Bottle Los Angeles Times, 01/16/200 Letters to the Editor The Real Lessons of Enron's Fall The New York Times, 01/16/200 POINT OF VIEW: Beyond Enron, A Wider Crisis Of Confidence Dow Jones News Service, 01/16/2002 THE WORLD World Press Tries to Unknot Tale of Bush and the Pretzel Reaction= : Some papers are skeptical or sarcastic. Others delve into the history of = the salty snack. Los Angeles Times, 01/16/2002 BRAZIL PRESS: Elektro Cancels BRR195M Bond Plan Dow Jones Capital Markets Report, 01/16/2002 Houston Non-Profit Organization Targets Former Enron Employees Business Wire, 01/16/2002 Former Enron Corp. employees hawking items from bankrupt company in Interne= t auction Associated Press Newswires, 01/16/2002 ___________________________________________________________________________= ____________ Publicized Letter to Lay Involved Struggle Over Enron's Direction By John R. Emshwiller and Kathryn Kranhold Staff Reporters of The Wall Street Journal 01/16/2002 The Wall Street Journal A4 (Copyright (c) 2002, Dow Jones & Company, Inc.) A now highly publicized August 2001 letter from an Enron Corp. executive ra= ising serious questions about the company's business and accounting practic= es was actually one of the later shots fired in an internal struggle that h= ad been going on inside the energy-trading company for a year or more.=20 The letter to Enron Chairman and Chief Executive Officer Kenneth Lay from S= herron Watkins, a company vice president, detailed what she saw as the huge= financial and public-relations risks facing the company. Extensive dealing= s with partnerships that had been set up and run by some of the company's o= wn executives could cause Enron to "implode," she wrote. Widespread disclos= ure of those partnerships in the media beginning in October played a key ro= le in a collapse in investor confidence that eventually forced Enron to see= k bankruptcy-law protection. Ms. Watkins's attorney, Philip Hilder, declined to discuss details of the l= etter. But he said his client likely would cooperate with some of the gover= nment investigations into the Enron collapse. "She has a compelling story a= nd I expect she'll have an opportunity to tell that story," Mr. Hilder said= .=20 But the story behind Ms. Watkins's letter is much more than that. It involv= es a power struggle over the direction of Enron as it committed itself to t= he extremely unusual and tangled partnership structures that eventually con= tributed to its undoing. People familiar with that struggle say the issues = ranged from the ethics of Enron's actions to a battle for the job of chief = financial officer at the Houston-based energy-trading company. The partners= hips -- called LJM Cayman LP and LJM2 Co-Investment LP -- were formed in 19= 99 by then Chief Financial Officer Andrew Fastow, who also ran the entities= and owned part of them. From the beginning, Mr. Fastow, Mr. Lay and other = top company officials said the LJM partnerships were designed to do busines= s deals with Enron and help the energy company manage its financial risk.= =20 However, other Enron officials were extremely skeptical about the partnersh= ips, say company insiders and others familiar with the matter. For one thin= g, they saw inherent conflicts of interest in having the company's chief fi= nancial officer standing to financially benefit from business deals done wi= th Enron by an outside partnership that he headed. Late last year, Enron es= timated that Mr. Fastow made more than $30 million from the LJM partnership= s.=20 One of the chief critics was Jeffrey McMahon, who in March 2000 took his co= ncerns about LJM to then Enron President Jeffrey Skilling. Mr. Skilling did= n't share those concerns and soon after the meeting Mr. McMahon left his jo= b as corporate treasurer for another executive post within Enron.=20 A spokeswoman for Mr. Skilling says Mr. McMahon merely voiced worry about w= hether his own compensation might be affected if he had to negotiate deals = on the opposite side of the table from LJM. Mr. McMahon "never raised any b= roader concerns," she said.=20 However, an Enron spokesman speaking on behalf of Mr. McMahon strongly chal= lenged that interpretation of events. "There was a very clear conversation = where Mr. McMahon expressed concerns about a range of conflicts" related to= the LJM entities, said the spokesman.=20 Mr. Fastow had been widely viewed within Enron as a close ally of Mr. Skill= ing, whose sudden resignation last August raised investor concerns and cont= ributed to the company crisis. For his part, Mr. Fastow believed that Mr. M= cMahon wanted his job as chief financial officer and that Ms. Watkins was a= n ally in that effort, said a person familiar with the matter. Mr. McMahon = was named chief financial officer last October when Enron replaced Mr. Fast= ow because of rising controversy surrounding the partnerships.=20 The Enron spokesman said Mr. McMahon denies that he was seeking the chief-f= inancial-officer job when he went to see Mr. Skilling. Mr. McMahon knew Ms.= Watkins, the spokesman said. Indeed, he added, she initially had written t= he letter anonymously and first revealed her identity as the author to Mr. = McMahon. He urged her to identify herself to Mr. Lay and personally express= her concerns to the CEO. She later had a meeting with Mr. Lay.=20 Ms. Watkins' attorney, Mr. Hilder, said "We categorically deny that Ms. Wat= kins was in cahoots with Mr. McMahon regarding trying to oust Mr. Fastow as= CFO." He declined to comment on any specific dealings she might have had w= ith Mr. McMahon.=20 Also expressing concerns about LJM was former Enron Vice Chairman Cliff Bax= ter, who left the company last May. In her letter, Ms. Watkins said Mr. Bax= ter "complained mightily . . . about the inappropriateness of our transacti= ons with LJM." Mr. Baxter couldn't be reached for comment yesterday.=20 ---=20 Journal Link: Read a copy of the letter from Sherron Watkins warning Kennet= h Lay about Enron's accounting practices at WSJ.com/JournalLinks. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C Text of Letter to Enron's Chairman After Departure of Chief Executive 01/16/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company Following is the text of an unsigned letter written in August to Kenneth L.= Lay, the chairman of the Enron Corporation, after Jeffrey K. Skilling resi= gned unexpectedly as chief executive on Aug. 14. Its author was later ident= ified as Sherron S. Watkins, a vice president for corporate development at = Enron. The House Energy and Commerce Committee released excerpts of the let= ter on Monday and the full letter yesterday:=20 Has Enron become a risky place to work? For those of us who didn't get rich= over the last few years, can we afford to stay? Skilling's abrupt departure will raise suspicions of accounting improprieti= es and valuation issues. Enron has been very aggressive in its accounting -= - most notably the Raptor transactions and the Condor vehicle. We do have v= aluation issues with our international assets and possibly some of our EES = MTM positions.=20 The spotlight will be on us, the market just can't accept that Skilling is = leaving his dream job. I think that the valuation issues can be fixed and r= eported with other good will write-downs to occur in 2002. How do we fix th= e Raptor and Condor deals? They unwind in 2002 and 2003, we will have to po= ny up Enron stock and that won't go unnoticed.=20 To the layman on the street, it will look like we recognized funds flow of = $800 million from merchant asset sales in 1999 by selling to a vehicle (Con= dor) that we capitalized with a promise of Enron stock in later years. Is t= hat really funds flow or is it cash from equity issuance?=20 We have recognized over $550 million of fair value gains on stocks via our = swaps with Raptor. Much of that stock has declined significantly -- Avici b= y 98 percent from $178 million, to $5 million; the New Power Company by 80 = percent from $40 a share, to $6 a share. The value in the swaps won't be th= ere for Raptor, so once again Enron will issue stock to offset these losses= . Raptor is an LJM entity. It sure looks to the layman on the street that w= e are hiding losses in a related company and will compensate that company w= ith Enron stock in the future.=20 I am incredibly nervous that we will implode in a wave of accounting scanda= ls. My eight years of Enron work history will be worth nothing on my resume= , the business world will consider the past successes as nothing but an ela= borate accounting hoax. Skilling is resigning now for ''personal reasons'' = but I would think he wasn't having fun, looked down the road and knew this = stuff was unfixable and would rather abandon ship now than resign in shame = in two years.=20 Is there a way our accounting guru's can unwind these deals now? I have tho= ught and thought about a way to do this, but I keep bumping into one big pr= oblem -- we booked the Condor and Raptor deals in 1999 and 2000, we enjoyed= wonderfully high stock price, many executives sold stock, we then try and = reverse or fix the deals in 2001, and it's a bit like robbing the bank in o= ne year and trying to pay it back two years later. Nice try, but investors = were hurt, they bought at $70 and $80 a share looking for $120 a share and = now they're at $38 or worse. We are under too much scrutiny and there are p= robably one or two disgruntled ''redeployed'' employees who know enough abo= ut the ''funny'' accounting to get us in trouble.=20 What do we do? I know this question cannot be addressed in the all-employee= meeting, but can you give some assurances that you and Causey will sit dow= n and take a good hard objective look at what is going to happen to Condor = and Raptor in 2002 and 2003?=20 Summary of Alleged Issues:=20 RAPTOR Entity was capitalized with LJM equity. That equity is at risk; howe= ver, the investment was completely offset by a cash fee paid to LJM. If the= Raptor entities go bankrupt LJM is not affected, there is no commitment to= contribute more equity.=20 The majority of the capitalization of the Raptor entities is some form of E= nron N/P, restricted stock and stock rights.=20 Enron entered into several equity derivative transactions with the Raptor e= ntities locking in our values for various equity investments we hold.=20 As disclosed in 2000, we recognized $500 million of revenue from the equity= derivatives offset by market value changes in the underlying securities.= =20 This year, with the value of our stock declining, the underlying capitaliza= tion of the Raptor entities is declining and credit is pushing for reserves= against our MTM positions.=20 To avoid such a write-down or reserve in quarter one 2001, we ''enhanced'' = the capital structure of the Raptor vehicles, committing more ENE shares.= =20 My understanding of the third-quarter problem is that we must ''enhance'' t= he vehicles by $250 million.=20 I realize that we have had a lot of smart people looking at this and a lot = of accountants including AA & Co. have blessed the accounting treatment. No= ne of that will protect Enron if these transactions are ever disclosed in t= he bright light of day. (Please review the late 90's problems of Waste Mana= gement -- where AA paid $130 million plus in litigation re questionable acc= ounting practices.)=20 The overriding basic principle of accounting is that if you explain the ''a= ccounting treatment'' to a man in the street, would you influence his inves= ting decisions? Would he sell or buy the stock based on a thorough understa= nding of the facts? If so, you best present it correctly and/or change the = accounting.=20 My concern is that the footnotes don't adequately explain the transactions.= If adequately explained, the investor would know that the ''entities'' des= cribed in our related party footnote are thinly capitalized, the equity hol= ders have no skin in the game, and all the value in the entities comes from= the underlying value of the derivatives (unfortunately in this case, a big= loss) AND Enron stock and N/P. Looking at the stock we swapped, I also don= 't believe any other company would have entered into the equity derivative = transactions with us at the same prices or without substantial premiums fro= m Enron. In other words, the $500 million in revenue in 2000 would have bee= n much lower. How much lower?=20 Raptor looks to be a big bet if the underlying stocks did well, then no one= would be the wiser. If Enron stock did well, the stock issuance to these e= ntities would decline and the transactions would be less noticeable. All ha= s gone against us. The stocks, most notably Hanover, the New Power Company = and Avici are underwater to great or lesser degrees.=20 I firmly believe that executive management of the company must have a clear= and precise knowledge of these transactions and they must have the transac= tions reviewed by objective experts in the fields of securities law and acc= ounting. I believe Ken Lay deserves the right to judge for himself what he = believes the probabilities of discovery to be and the estimated damages to = the company from those discoveries and decide one of two courses of action:= =20 1. The probability of discovery is low enough and the estimated damage too = great; therefore we find a way to quietly and quickly reverse, unwind, writ= e down these positions/transactions.=20 2. The probability of discovery is too great, the estimated damages to the = company too great; therefore, we must quantify, develop damage containment = plans and disclose.=20 I firmly believe that the probability of discovery significantly increased = with Skilling's shocking departure. Too many people are looking for a smoki= ng gun.=20 Summary of Raptor Oddities:=20 1. The accounting treatment looks questionable.=20 a. Enron booked a $500 million gain from equity derivatives from a related = party.=20 b. That related party is thinly capitalized with no party at risk except En= ron.=20 c. It appears Enron has supported an income statement gain by a contributio= n of its own shares.=20 One basic question: The related party entity has lost $500 million in its e= quity derivative transactions with Enron. Who bears that loss? I can't find= an equity or debt holder that bears that loss. Find out who will lose this= money. Who will pay for this loss at the related party entity?=20 If it's Enron, from our shares, then I think we do not have a fact pattern = that would look good to the S.E.C. or investors.=20 2. The equity derivative transactions do not appear to be at arms length.= =20 a. Enron hedged New Power, Hanover and Avici with the related party at what= now appears to be the peak of the market. New Power and Avici have fallen = away significantly since. The related party was unable to lay off this risk= . This fact pattern is once again very negative for Enron.=20 b. I don't think any other unrelated company would have entered into these = transactions at these prices. What else is going on here? What was the comp= ensation to the related party to induce it to enter into such transactions?= =20 3. There is a veil of secrecy around LJM and Raptor. Employees question our= accounting propriety consistently and constantly. This alone is cause for = concern.=20 a. Jeff McMahon was highly vexed over the inherent conflicts of LJM. He com= plained mightily to Jeff Skilling and laid out five steps he thought should= be taken if he was to remain as treasurer. Three days later, Skilling offe= red him the C.E.O. spot at Enron Industrial Markets and never addressed the= five steps with him.=20 b. Cliff Baxter complained mightily to Skilling and all who would listen ab= out the inappropriateness of our transactions with LJM.=20 c. I have heard one manager-level employee from the principal investments g= roup say, ''I know it would be devastating to all of us, but I wish we woul= d get caught. We're such a crooked company.'' The principal investments gro= up hedged a large number of their investments with Raptor. These people kno= w and see a lot. Many similar comments are made when you ask about these de= als. Employees quote our C.F.O. as saying that he has a handshake deal with= Skilling that LJM will never lose money.=20 4. Can the general counsel of Enron audit the deal trail and the money trai= l between Enron and LJM/Raptor and its principals? Can he look at LJM? At R= aptor? If the C.F.O. says no, isn't that a problem?=20 Condor and Raptor Work:=20 1. Postpone decision on filling office of the chair, if the current decisio= n includes C.F.O. and/or C.A.O.=20 2. Involve Jim Derrick and Rex Rogers to hire a law firm to investigate the= Condor and Raptor transactions to give Enron attorney-client privilege on = the work product. (Can't use V & E due to conflict -- they provided some tr= ue sale opinions on some of the deals).=20 3. Law firm to hire one of the big 6, but not Arthur Andersen or Pricewater= houseCoopers due to their conflicts of interest: AA & Co. (Enron); PWC (LJM= ).=20 4. Investigate the transactions, our accounting treatment and our future co= mmitments to these vehicles in the form of stock, NP, etc., For instance: I= n the third quarter we have a $250 million problem with Raptor 3 (NPW) if w= e don't ''enhance'' the capital structure of Raptor 3 to commit more ENE sh= ares. By the way: in Q. 1 we enhanced the Raptor 3 deal, committing more EN= E shares to avoid a write-down.=20 5. Develop cleanup plan:=20 a. Best case: Clean up quietly if possible.=20 b. Worst case: Quantify, develop P.R. and I.R. campaigns, customer assuranc= e plans (don't want to go the way of Salomon's trading shop), legal actions= , severance actions, disclosure.=20 6. Personnel to quiz confidentially to determine if I'm all wet:=20 a. Jeff McMahon=20 b. Mark Koenig=20 c. Rick Buy=20 d. Greg Walley=20 To put the accounting treatment in perspective I offer the following:=20 1. We've contributed contingent Enron equity to the Raptor entities. Since = it's contingent, we have the consideration given and received at zero. We d= o, as Causey points out, include the shares in our fully diluted computatio= ns of shares outstanding if the current economics of the deal imply that En= ron will have to issue the shares in the future. This impacts 2002-2004 ear= nings-per-share projections only.=20 2. We lost value in several equity investments in 2000, $500 million of los= t value. These were fair-value investments; we wrote them down. However, we= also booked gains from our price risk management transactions with Raptor,= recording a corresponding PRM account receivable from the Raptor entities.= That's a $500 million related party transaction -- it's 20 percent of 2000= IBIT, 51 percent of NI pretax, 33 percent of NI after tax.=20 3. Credit reviews the underlying capitalization of Raptor, reviews the cont= ingent shares and determines whether the Raptor entities will have enough c= apital to pay Enron its $500 million when the equity derivatives expire.=20 4. The Raptor entities are technically bankrupt; the value of the contingen= t Enron shares equals or is just below the PRM account payable that Raptor = owes Enron. Raptor's inception-to-date income statement is a $500 million l= oss.=20 5. Where are the equity and debt investors that lost out? LJM is whole on a= cash-on-cash basis. Where did the $500 million in value come from? It came= from Enron shares. Why haven't we booked the transaction as $500 million i= n a promise of shares to the Raptor entity and $500 million of value in our= ''economic interests'' in these entities? Then we would have a write-down = of our value in the Raptor entities. We have not booked the latter, because= we do not have to yet. Technically we can wait and face the music in 2002-= 2004.=20 6. The related party footnote tries to explain these transactions. Don't yo= u think that several interested companies, be they stock analysts, journali= sts, hedge fund managers, etc., are busy trying to discover the reason Skil= ling left? Don't you think their smartest people are poring over that footn= ote disclosure right now? I can just hear the discussions -- ''it looks lik= e they booked a $500 million gain from this related party company and I thi= nk, from all the undecipherable half-page on Enron's contingent contributio= ns to this related party entity, I think the related party entity is capita= lized with Enron stock.'' . . . . ''No, no, no, you must have it all wrong,= it can't be that, that's just too bad, too fraudulent, surely AA & Co. wou= ldn't let them get away with that?'' ''Go back to the drawing board, it's g= ot to be something else. But find it!'' . . . . ''Hey, just in case you mig= ht be right, try and find some insiders or 'redeployed' former employees to= validate your theory.'' Chart: ''Terms of the Business'' AA & CO. -- Arthur Andersen & Company, Enr= on's auditor. AVICI -- A maker of data networking systems. BAXTER, CLIFF --= Vice chairman of Enron before he resigned in May. BUY, RICK -- Enron's chi= ef risk officer. CAUSEY, RICHARD -- Enron's chief accounting officer. CONDO= R -- An off-balance-sheet partnership. DERRICK, JIM -- General counsel of E= nron. EES MTM -- Enron Energy Services, mark to market, a way of accounting= for the value of contracts. ENE -- Stock symbol of Enron. EPS -- Earnings = per share. HANOVER -- Hanover Compressor, a provider of natural gas compres= sion services. IBIT -- Income before interest and taxes. LJM -- Partnership= s with Enron that were controlled by Andrew S. Fastow, the company's chief = financial officer until he was ousted on Oct. 24. KOENIG, MARK -- Enron exe= cutive vice president for investor relations. McMAHON, JEFF -- Enron's chie= f financial officer. N/P -- Note payable. NI -- Net income NEW POWER -- An = energy company. RAPTOR -- An off-balance-sheet partnership. ROGERS, REX -- = Assistant secretary general counsel of Enron. SWAPS -- An exchange of one i= nvestment for another. V & E -- Vinson & Elkins, Enron's law firm. WHALLEY,= GREG -- Enron's president=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION THE ENRON INQUIRY Memo Warned of Enron's Setup Being Seen as 'Ho= ax' Probe: Full text suggests that a senior executive was not telling Kenne= th Lay anything new. She ridicules accounting procedures and forecasts the = company's collapse. MICHAEL A. HILTZIK; DAVID STREITFELD TIMES STAFF WRITERS 01/16/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company HOUSTON -- A detailed road map of Enron Corp.'s aggressive accounting maneu= vers and an uncannily accurate prediction of the company's collapse were la= id before Enron Chairman Kenneth L. Lay in August in a lengthy memo that be= came public Tuesday.=20 Excerpts of the memo had been released by congressional investigators Monda= y, but the full extent of the warnings became known only Tuesday with the r= elease of the entire text. The author of the memo, Sherron Watkins, 42, expressed concern that the com= pany's vaunted business success would eventually become considered "nothing= but an elaborate accounting hoax." Watkins, a vice president of corporate = development at Enron, worked directly under the architect of Enron's comple= x and highly questionable financial dealings.=20 Watkins focused particularly on what were known as the "Raptor" transaction= s, in which Enron transferred several marginal investments to a putatively = independent partnership. The partnership had gone virtually bankrupt by las= t summer, but Enron still was not disclosing the loss to shareholders, Watk= ins said.=20 The full text suggests that Watkins did not believe she was telling Lay muc= h that he did not already know--and that many of the company's financial tr= ansactions were mere accounting shams.=20 She attempted to persuade Lay either to reverse the offending transactions = promptly or to disclose them fully to shareholders and "develop damage cont= ainment plans." Lay did neither.=20 "Her motivation is not vindication or being proven right or bringing down t= he company," her husband, Richard, said Tuesday from the family home in Hou= ston. "She's a team player."=20 Watkins went to work at Enron Tuesday morning as news of her memo was splas= hed across the front pages.=20 "It's a normal day," said her lawyer, Philip Hilder, although he acknowledg= ed that "it's very difficult for anybody to go to work under these circumst= ances."=20 Watkins has suffered no retaliation from anyone at the company, the lawyer = said, although a source close to her said Watkins has been made to feel "an= outcast."=20 Sherron Watkins, the daughter of two secondary school educators, grew up in= the distant Houston suburb of Tomball and graduated from the University of= Texas.=20 Tuesday morning, television news trucks jammed the street in front of the W= atkins home. Later that day, Richard Watkins praised his wife for doing "so= mething quite courageous. She has the strength of her convictions. But she'= s very vulnerable."=20 A neighbor said the hint of moral indignation in Watkins' memo to Lay was g= enuine.=20 "Clearly she thought it was her moral and professional duty to do what she = did," said Carrie Wood, who also was Watkins' sorority sister at UT. "Sherr= on was drawn to the dynamic intellectual challenge of being an Enron vice p= resident. I don't think she was drawn to the materialistic greed that spran= g out of it."=20 Word of Enron's accounting irregularities leaked out slowly during the fall= , depressing the company's already-dropping stock price. Its businesses des= troyed and its reputation in tatters, Enron finally filed for Chapter 11 ba= nkruptcy protection Dec. 2.=20 Watkins wrote her memo on the heels of the surprise resignation Aug. 14 of = Enron Chief Executive Jeffrey K. Skilling. The corporate announcement of Sk= illing's departure ascribed it to "personal reasons."=20 But to Watkins and others inside the company, the move hinted at his deep u= nease at the accounting irregularities and presaged a difficult period of p= ublic scrutiny.=20 "I think he . . . looked down the road and knew this stuff was unfixable, a= nd would rather abandon ship now than resign in shame in 2 years," she wrot= e to Lay. Moreover, she warned, "the probability of discovery significantly= increased with Skillings's shocking departure. Too many people are looking= for a smoking gun."=20 Many of Enron's financial maneuvers would not bear that scrutiny, she said,= even though they had been formally approved byEnron's outside auditor, And= ersen, formerly known as Arthur Andersen.=20 'We're Such a Crooked Company'=20 This particularly applied to deals Enron had made with LJM, a partnership t= hat had been set up to trade with Enron and was managed by Enron Chief Fina= ncial Officer Andrew S. Fastow. The goal was to move debt and other liabili= ties off Enron's books, where they would have a negative effect on the comp= any's financial picture, and park them with a putatively independent compan= y. As long as these liabilities remained secret, Enron's reputation, and it= s stock price, remained buoyant.=20 The LJM deals inspired deep unease within Enron, Watkins related, quoting o= ne colleague remarking: "I know it would be devastating to all of us but I = wish we would get caught. We're such a crooked company."=20 Lay responded to Watkins' letter by meeting with her personally and persuad= ing the Enron board to commission an internal review by Vinson & Elkins, on= e of Enron's Houston law firms.=20 Robert S. Bennett, Enron's Washington attorney, defended the company's resp= onse. The nine-page review of Watkins' concerns by Vinson & Elkins issued O= ct. 15 shows "the good faith of Ken Lay and the company. . . . It shows tha= t they meaningfully looked into this."=20 Bennett said the law firm interviewed Watkins but that it put "a lot of fai= th in Arthur Andersen."=20 Watkins, however, had specifically warned Lay against allowing Vinson & Elk= ins to conduct the investigation.=20 "Can't use V&E due to conflict," she wrote in her memo. "They provided some= true sale opinions on some of the deals."=20 In other words, she argued that the firm would be ruling on the propriety o= f legal opinions it had itself issued.=20 Moreover, the law firm said in its report, written by Vinson partner Max He= ndrick III and addressed to Enron General Counsel James V. Derrick Jr., tha= t it was specifically instructed by Enron not to "second guess . . . the ac= counting advice and treatment" provided by Andersen. The report stated that= Enron and Andersen representatives acknowledged that the accounting treatm= ent of the suspect transactions "is creative and aggressive," but it did no= t conclude that it was "inappropriate from a technical standpoint."=20 Vinson & Elkins spokesman Joe Householder declined to discuss whether it wa= s a conflict of interest for the firm to investigate Watkins' allegations.= =20 "We are not in a position to talk about our engagements with Enron or any o= ther client," he said.=20 As it happens, the firm overruled almost all of Watkins' substantive object= ions to the LJM transactions, although it did acknowledge some "awkwardness= " arising from LJM's executives serving as Enron officers.=20 "Transactions were negotiated between Enron employees acting [for] Enron an= d other Enron employees acting for LJM," the law firm's report stated.=20 It also noted that within Enron there was widespread suspicion that the Enr= on employees representing LJM were enjoying special perquisites, including = higher compensation. But it said the awkwardness would be eliminated in the= future because LJM executives were leaving the Enron payroll and relocatin= g their offices from its headquarters building.=20 Focus on the 'Raptor' Deals=20 The report did, however, provide indirect evidence of Enron's custom of min= imizing the public disclosure of the nature of its financial maneuvers. Amo= ng other things, the company gave its outside lawyers little opportunity to= examine closely the financial reports and other documents it was releasing= for public consumption.=20 "Enron's practice is to provide its financial statements and disclosure mat= erials to V&E with a relatively short time frame within which to respond wi= th comments," the report stated.=20 In her memo, Watkins focused most heavily on several transactions between E= nron and LJM known as the Raptor deals. The term referred to a special busi= ness entity that Enron had established to hold several investments that wer= e expensive and of possibly marginal value, including ownership in a broadb= and communications company called Rhythms NetConnections and other technolo= gy and energy companies.=20 To cover the LJM-Raptor acquisition of the investments, Enron pledged share= s of its own stock and that of some of its subsidiaries. But it also engage= d in a series of complicated derivatives deals aimed at hedging the possibi= lity that the value of Rhythms and the other assets would fall.=20 In 2000, Watkins noted, Enron went as far as to record more than $500 milli= on in revenue from those derivatives deals. That, she said, presented numer= ous problems.=20 For one thing, Enron had not received the $500 million from LJM. Rather, th= e payment was conditioned on the value of the underlying investments remain= ing high; if the investments deteriorated, there was an increasing chance t= hat Enron would never receive the money.=20 Further, it was likely that a truly independent company would not have paid= anywhere near $500 million for the investments at issue--meaning that the = deal was not legitimately an arm's-length sale.=20 Vinson & Elkins acknowledged this, noting in its report that LJM "permitted= Enron to close transactions that otherwise could not have been accomplishe= d."=20 In fact, as the value of the investments dropped, Enron was obligated to ma= ke up the difference by paying LJM more of its own stock.=20 Throughout 2001 the underlying investments did fall in value--and so did th= e value of Enron stock. That meant the company had to contribute vastly mor= e shares to LJM than it ever anticipated. That was a contingency that was n= ever fully disclosed to the public or Enron's shareholders, who stood to lo= se value in their own shares as more were pledged to LJM.=20 "It sure looks to the layman on the street that we are hiding losses in a r= elated company and will compensate that company with Enron stock in the fut= ure," Watkins wrote.=20 Not until Nov. 8 did Enron fully disclose the nature of the Raptor deals--a= s part of its public announcement that the improper accounting of those tra= nsactions and others resulted in its overstating its earnings by $586 milli= on over a nearly five-year period.=20 The announcement all but destroyed any chance that the company would be abl= e to survive in its existing form.=20 Addiction to Accounting Tricks=20 Enron critic Mark Roberts, president of Off Wall Street Consulting Group, a= Cambridge, Mass.-based stock research firm, said the Watkins memo adds to = the evidence of Enron's addiction to illegitimate accounting tricks.=20 The Raptor deals were derivative transactions "with recourse," meaning deal= s in which the counter-party would be compensated for any losses, he noted = in an interview.=20 "If the buyer doesn't have risk, the risk stays with Enron and has to be re= flected on their balance sheet," said Roberts, whose firm sold Enron shares= "short," a bet that they would fall, as early as last May.=20 *=20 Hiltzik reported from Los Angeles, Streitfeld from Houston. Times staff wri= ters Richard Simon in Washington, Nancy Rivera Brooks in Los Angeles and Th= omas S. Mulligan in New York contributed to this report. PHOTO: Enron Chairman Kenneth L. Lay received a warning memo from a company= vice president.; ; PHOTOGRAPHER: Agence France-Presse; PHOTO: (lead photo)= House Energy and Commerce Committee investigators examine Enron documents.= Investigators plan to meet today with the Andersen executive who oversaw t= he audit. He was fired Tuesday.; ; PHOTOGRAPHER: ALEX WONG / Getty Images; = PHOTO: Senate staffers review Enron documents; Watkins memo care to light a= fter bankruptcy filing.; ; PHOTOGRAPHER: Reuters=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 National Desk; Section A ENRON'S COLLAPSE: THE EMPLOYEE Author of Letter To Enron Chief Is Called Tough By JIM YARDLEY 01/16/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company HOUSTON, Jan. 15 -- In the cutthroat business culture of the Enron Corporat= ion, where toughness and a sharp tongue were often prerequisites for succes= s, Sherron S. Watkins could be noticeably tough and sharp.=20 One former colleague described her as ''a bull in the china shop'' at times= . Others mistook the Texan Ms. Watkins for a brusque New Yorker. But severa= l former colleagues agreed that her toughness was rooted in a strong sense = of business ethics and that she was unafraid to deliver difficult news, eve= n to her superiors. ''In my experience, she was not afraid to speak the truth, even when it was= uncomfortable,'' said Stephen Schwarz, a former Enron employee who worked = with Ms. Watkins and described her as ''the consummate professional.''=20 Ms. Watkins, a vice president for corporate development at Enron, has emerg= ed as a central figure in the federal investigations into the company, afte= r a Congressional subcommittee released a letter she sent in August to Kenn= eth L. Lay, Enron's chairman. [Text, Page C6.]=20 Written months before the company laid off more than 4,000 workers and file= d for Chapter 11 bankruptcy protection in December, the letter warned that = improper accounting practices threatened to destroy the company even as Mr.= Lay was reassuring investors and employees.=20 That Ms. Watkins, who came to Enron eight years ago after working at the Ar= thur Andersen accounting firm, would confront her bosses with such a pointe= d message did not startle those who knew her.=20 ''Now that I've read what she wrote, I'm not in the least bit surprised tha= t it was her,'' one former Enron colleague said.=20 Another Enron employee said word that Ms. Watkins had confronted Mr. Lay be= gan to circulate through the company at some point after she had sent the l= etter and had a subsequent audience with the chairman.=20 ''Rumors were floating that she knew some things that were going on and tha= t she had apparently voiced some concerns,'' said a former employee of Enro= n Broadband Services, a division where Ms. Watkins once worked.=20 Ms. Watkins, who is 42 and still works at Enron, declined to comment today,= but her lawyer, Philip H. Hilder, said his client had written the letter a= s an act of conscience.=20 ''She thought it was the right thing to do, to ask some questions,'' Mr. Hi= lder said. ''I think that was her only motivation. She saw that there were = some problems, and she was concerned.''=20 The investigations into Enron are focused at least in part on a series of o= ff-the-books partnerships that were reportedly used to inflate the company'= s profits by hiding its losses, including those involving the company's for= mer chief financial officer, Andrew S. Fastow. The partnerships involving M= r. Fastow, who was fired in October amid growing investor concern, are cent= ral to the Securities and Exchange Commission's investigation of Enron's ac= counting.=20 Ms. Watkins's lawyer said his client reported directly to Mr. Fastow last s= ummer after being reassigned to his office from the broadband unit.=20 In her letter to Mr. Lay, Ms. Watkins did not mince words in discussing fou= r of those partnerships.=20 ''Has Enron become a risky place to work?'' she asked. ''For those of us wh= o didn't get rich over the last few years, can we afford to stay?''=20 Like many other Enron employees, Ms. Watkins first worked at Arthur Anderse= n, the Big Five accounting firm that has also come under federal scrutiny a= fter it was disclosed that Andersen employees had destroyed thousands of pa= ges of Enron documents in recent months. One former Enron colleague, whose = career also began at Andersen, said Ms. Watkins, then Sherron Smith, starte= d around 1982 as an auditor in Andersen's Houston office.=20 Another employee in the same Andersen office was Jeffrey McMahon, who would= later become Enron's treasurer.=20 ''She was very good friends with Jeff McMahon,'' a former Enron colleague s= aid, noting that each had married later in life and started a family.=20 It was Mr. McMahon who in 2000 complained to Jeffrey Skilling, then Enron's= president, about the partnerships connected to Mr. Fastow, people close to= Enron say. Mr. McMahon was later reassigned to another position. Mr. Skill= ing ascended to chief executive, only to leave abruptly last August after s= ix months in the post.=20 Ms. Watkins's career at Andersen took her to New York until she left to joi= n Enron, where she steadily rose to the position of corporate vice presiden= t. Colleagues say she first worked on international projects.=20 ''She could swear up a blue streak,'' said a former colleague who worked wi= th Ms. Watkins on international deals. ''She came down with a tough New Yor= ker confidence that could carry her in a predominantly men's world.''=20 While Ms. Watkins could be abrasive, that colleague added, her ethics were = unassailable.=20 Eventually, she was assigned to the broadband unit, where colleagues say he= r responsibilities included reining in costs. She earned a reputation as be= ing outspoken at meetings. One former Enron executive said Ms. Watkins alie= nated some employees, who pointedly sought not to work for her. But, the ex= ecutive added, ''I have never heard anyone question her judgment, her integ= rity and her veracity. I never heard anybody say she cut corners.''=20 Mr. Schwarz, the former broadband colleague who regarded her highly, descri= bed her as ''a New Yorker amidst Texans.''=20 In fact, Ms. Watkins grew up in a small town north of Houston and later att= ended the University of Texas. Her husband, Richard, declined to comment to= day at their home in the city's affluent Southampton neighborhood.=20 A neighbor, Carrie Wood, said she and Ms. Watkins were sorority sisters in = college and painted a softer picture of her friend. She described Ms. Watki= ns as a doting mother who dedicated all her time away from Enron to her you= ng daughter.=20 ''She's bright and she's humble and she's thoughtful and deliberate and she= 's morally sound,'' said Ms. Wood, who described Ms. Watkins as an active C= hristian who participated in Bible study. ''She's a bright, confident busin= esswoman, too.''=20 Another neighbor, Chris Cagley, an independent accountant who did business = with Enron, said he had on occasion bumped into Ms. Watkins on their street= and in the Enron lobby.=20 ''Now that I know that she wrote this mystery memo, I would say I have a ne= wfound respect for this person,'' Mr. Cagley. ''Because it's not easy to st= and up and point out things that are wrong in corporate America. It's much = easier to let it go.'' Photo: Sherron S. Watkins wrote to the chairman of Enron last August.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION A Regular Life in Unusual Times Profile: Enron insider Sherron W= atkins led a quiet existence before becoming a key figure in the firm's sca= ndal. DAVID STREITFELD TIMES STAFF WRITER 01/16/2002 Los Angeles Times Home Edition A-17 Copyright 2002 / The Times Mirror Company HOUSTON -- She goes to Bible study class and buys cookies from every Girl S= cout who comes to the door. She gave $40 to the neighborhood association fo= r tree planting, which earned her the rank of "regular," not quite "patron"= or "sustaining."=20 Sherron Watkins, 42, became a national figure in the Enron Corp. affair thi= s week after the disclosure of her August letter warning fellow company exe= cutives of questionable accounting measures. But friends say Watkins, an En= ron vice president, has tried not to let the growing scandal at her company= overwhelm her life. The last time Carrie Wood, Watkins' neighbor and former sorority sister, sa= w her friend was Sunday. Wood asked how she was.=20 "I've gotten an SEC [Securities and Exchange Commission] subpoena," Watkins= said.=20 "For documents? Or for you?" Wood asked.=20 "Both," Watkins said.=20 But she appeared normal, Wood said, noting that "she was going off to buy h= er daughter some shoes."=20 Watkins lives in Southampton, a pleasant, tree-lined Houston neighborhood w= ith big but not extravagant houses nestled close together. A few blocks awa= y is Rice University, where she runs up the stadium steps to keep fit.=20 Watkins and her husband, Richard, who works in oil and gas financing for a = Canadian company, and their 2-year-old daughter live in a gray saltbox-styl= e home with a large American flag out front. On Tuesday morning, television= news trucks filled the street, but by afternoon they had given up their qu= est for an interview and left.=20 Like the street, the inside of the Watkins house was quiet, domestic--golf = clubs on the study floor, family photos on the walls and tables, an empty b= eer bottle near the door. Richard Watkins had a clipboard on which he was n= oting who called and what they wanted. It was a long list.=20 The husband didn't want to talk much, but neighbors were glad to offer test= imonials.=20 "She's very professional--we keep it just neighbors," said Chris Cagley, wh= o lives across the street.=20 Cagley worked for Enron too, as a contract employee, but he said he never d= iscussed office matters with Watkins. Her role in calling attention to the = questionable practices came as a surprise to him when he picked up the Tues= day paper. He was filled with admiration.=20 "You know how corporations are," he said. "No one wants to stand out, to sa= y anything bad. But Sherron wanted to inform people, to let them know what = was going on."=20 Meanwhile, Watkins' attorney, Philip Hilder, was being besieged by the news= media in his new downtown offices, which are still under construction. He = did simultaneous TV interviews, perfecting the art of saying nothing.=20 "We fully anticipate we will be subpoenaed to appear" before Congress and o= ther regulatory hearings, he said repeatedly.=20 Hilder, a former federal prosecutor who specializes in white-collar crimina= l defense, responded to one interviewer who asked if he had handled a case = like this before:=20 "Has anybody handled anything like this before?" Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Law Firm Releases Enron E-Mails Detailing Lockdown 01/16/2002 Dow Jones News Service (Copyright (c) 2002, Dow Jones & Company, Inc.) (This story was first published Tuesday)=20 WASHINGTON -(Dow Jones)- One of the law firms representing Enron Corp.'s (E= NE) employees in their 401(k) lawsuit against the company released two inte= rnal e-mails showing conflicting dates regarding the start of the lockdown = period for the company's 401(k) plan. The press release, issued by Gottesdiener Law Firm, is a possible indicatio= n of the tactics the plaintiffs will use in pursuing their claims against E= nron. In the release, Gottesdiener also claims the lockdown wasn't administ= ratively necessary at all.=20 As reported, some employees of the bankrupt energy concern are suing, claim= ing a lockdown of the Enron plan to make administrative changes prevented a= ll employees from selling Enron shares during that time. During the lockdow= n, the company's stock price collapsed.=20 An Enron spokesman couldn't immediately be reached for comment on the lates= t press release. Enron has previously said the lockdown was for 10 days, fr= om Oct. 29 to Nov. 12, and has defended the move as being essential to allo= w employee account information to be accurately and completely transferred = to a new administrator.=20 In the Tuesday press release, Gottesdiener said an e-mail sent on Sept. 27 = was the company's initial announcement to employees about the lockdown. The= e-mail, available for viewing at www.enronsuit.com, told employees that th= e lockdown would begin on Oct. 19 and last one month.=20 "To ensure that records and individual accounts are converted accurately," = the e-mail said, "a transition period of approximately one-month will begin= Oct. 19."=20 "During the transition period," the e-mail continued, "participants are not= able to transfer funds among investment options or request a withdrawal."= =20 However, a second e-mail, sent on Oct. 25 and also available on the Web sit= e, appears to provide contradictory information, stating the lockdown would= begin Oct. 26.=20 Gottesdiener said the e-mails show that the company issued false informatio= n, leading many workers to believe that the lockdown began a week earlier t= han it actually did and causing them to miss the opportunity to sell their = stock when it was still trading for around $30 a share.=20 Attorney Eli Gottesdiener said Enron issued another e-mail on Nov. 14 at ni= ght informing employees the lockdown had been lifted Nov. 13.=20 On Dec. 14, Enron had defended criticism of the 401(k) lockdown in a statem= ent, saying a temporary shutdown is required when companies change 401(k) a= dministrators in order to allow employee account information to be accurate= ly and completely transferred to the new administrator.=20 Enron said then that it mailed a notice to the homes of all affected employ= ees Oct. 4, to announce a transition to the new 401(k) administrator would = begin Oct. 29. The company said it also sent several internal e-mail remind= ers between the two dates.=20 Enron said the transition period during which employees couldn't change inv= estments lasted "just 10 total trading days," from Monday, Oct. 29 to Monda= y, Nov. 12, and applied to all plan participants, including senior executiv= es. The company said that from the first day of the temporary plan shutdown= to Tuesday, Nov. 13, the first day participants could transfer funds, its = closing share price fell from $13.81 to $9.98, a drop of $3.83, or 28%.=20 On five days during the lockdown, Enron said, its stock closed below $9.98.= On Friday, Oct. 26, the last day before the lockdown began, Enron's stock = closed at $15.41. - By Stephen Lee, Dow Jones Newswires; 201.938.5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE INVESTIGATION Justice Dept.'s Inquiry Into Enron Is Beginning to Take Shape, Without Big = Names By DAVID JOHNSTON 01/16/2002 The New York Times Page 7, Column 1 c. 2002 New York Times Company WASHINGTON, Jan. 15 -- With Attorney General John Ashcroft and virtually th= e entire legal staff of the United States attorney's office in Houston disq= ualified from the Enron criminal investigation, the Justice Department has = been forced to rapidly assemble a pickup team of prosecutors and investigat= ors to unravel Enron's collapse.=20 The mammoth white-collar fraud inquiry, which focuses on an energy trading = company that has been a big Republican donor and supporter of both Presiden= t Bush and Mr. Ashcroft, is emerging as the most politically sensitive case= yet confronted by the Bush administration. Overall, the investigation will= be under the direction of Larry D. Thompson, the deputy attorney general, = and his subordinates in the department's criminal division. Mr. Thompson is proving to be a reliable second-in-command for Mr. Ashcroft= and the White House. A top federal prosecutor in Atlanta during the presid= ency of Mr. Bush's father, Mr. Thompson won his credentials with the Bush c= amp in 1991 when he helped guide Clarence Thomas through a tumultuous confi= rmation as a Supreme Court justice.=20 On Jan. 10, Mr. Ashcroft, along with David Ayres, his chief of staff, recus= ed himself from the criminal investigation of the company's collapse. The c= ase was then referred to a Washington-led task force. Mr. Ashcroft's associ= ates have said he took the step to avoid any criticism of conflict of inter= est because he had accepted campaign donations from Enron. Mr. Ashcroft rec= eived more than $50,000 from the company and its chairman, Kenneth L. Lay, = for his 2000 Senate campaign.=20 Some Democratic groups argue that Mr. Thompson, too, has ties to Enron. In = Atlanta he was a lawyer at the firm King & Spalding, which represented Enro= n, but he himself did no work for Enron, a Justice Department official said= today.=20 So far the department has avoided the appointment of a special counsel, a s= tep that would force it to relinquish control to an outside prosecutor and = deepen the impression that the case represents a serious conflict for the B= ush administration.=20 The criminal investigation itself will be centered in Houston, where Enron = is based. But the Justice Department is being forced to recruit a fresh tea= m of prosecutors because Michael T. Shelby, the United States attorney in H= ouston, and virtually the entire legal staff of Mr. Shelby's office were di= squalified on grounds that they were acquainted with Enron employees.=20 Mr. Shelby's brother-in-law is a lawyer for Enron North America and was amo= ng those Enron stockholders who lost substantial sums when the company's st= ock plummeted. Mr. Shelby said that several of his employees had ties to fo= rmer and current Enron workers, some of whom could be witnesses in the case= .=20 Justice Department officials have declined to specify how many lawyers disq= ualified themselves and said they did not yet know how many will be reassig= ned to Houston. F.B.I. officials said that a large number of agents trained= in forensic accounting would be temporarily moved to Houston for the case.= =20 The Federal Bureau of Investigation's own task force on the Enron case will= be headed by Joseph L. Ford, an F.B.I. agent for 20 years who has led seve= ral of the bureau's complex health care fraud investigations and helped org= anize the investigation of the financial transactions behind the Sept. 11 t= error attacks, government officials said.=20 Law enforcement officials said that the initial focus of the criminal inqui= ry is on whether the company defrauded investors or federal regulators as i= t set up risky outside partnership deals that contributed to the company's = bankruptcy. But privately, some officials said that investigators were at t= he fledgling stage of the inquiry and had no idea what they would find.=20 For that reason, they said it was far too early to discuss what violations = they might find as they scour the company looking for documents and coopera= tive witnesses. Among the areas of scrutiny will be the destruction of Enro= n-related documents by Arthur Andersen, the company's auditing firm.=20 Justice Department officials said that Joshua Hochberg, head of the departm= ent's fraud section, would supervise the inquiry with the rank of a United = States attorney -- making him an equal to other United States attorneys inv= olved in the case in New York, San Francisco and the District of Columbia. = Mr. Hochberg will report to Michael Chertoff, head of the criminal division= .=20 On a day-to-day basis the case will be managed by Leslie R. Caldwell, who w= as chief of the securities fraud section of the United States attorney's of= fice in San Francisco. Ms. Caldwell had been a senior trial lawyer in Brook= lyn until 1999, when Robert S. Mueller III, now the F.B.I. director, recrui= ted her for the Northern California job while he was United States attorney= in San Francisco.=20 The Justice Department criminal inquiry, while potentially the most serious= and far-reaching of the investigations, is only one of a number under way = among executive branch agencies. The Labor Department has been examining ho= w the company dealt with employee retirement plans in the weeks before Enro= n's bankruptcy filing on Dec. 2. The Securities and Exchange Commission has= been investigating transactions between Enron and outside partnership deal= s and the company's relationship with Arthur Andersen.=20 Today, Senator Paul S. Sarbanes, a Maryland Democrat and head of the Senate= Banking Committee, said he had asked the Congressional investigative arm, = the General Accounting Office, to examine laws regulating employee stock ow= nership in retirement plans and whether failures in accounting practices in= creased the risks of the company's failure.=20 Two other Senate inquiries are being conducted by Democrats on the Governme= ntal Affairs Committee. The investigations are emerging as the Democrats' m= ost significant investigative effort since they took control of the Senate = in June.=20 Many Democrats were highly critical of Republican-led investigations into a= ccusations of improprieties by the Clinton administration. Now the Democrat= s, who have benefited to a lesser extent from Enron contributions, risk bei= ng accused of staging politically motivated inquiries aimed at a company wi= th well-known Republican connections.=20 ''I am very concerned that this is going to become highly politicized,'' sa= id Robert S. Bennett, an Enron lawyer and a veteran of Washington scandals = as a onetime lawyer for former President Bill Clinton.=20 Mr. Bennett added: ''If it does become highly politicized, a lot of people = are going to get hurt. A lot of reforms which might come about will not be = enacted, and this will be just a typical major league Washington mess with = blood all over the place and little accomplished.''=20 But Mr. Bennett's first problem is elsewhere on Capitol Hill. Mr. Lay is sc= heduled to testify early next month. His appearance could be a turning poin= t in public perceptions about the company. He must give accurate testimony = but avoid providing further ammunition for criminal investigators.=20 Mr. Lay will testify before the Senate Commerce Committee, which is investi= gating how Enron employees who held company stock in retirement plans were = barred from selling their stock as it plummeted -- leaving many retirees in= serious financial straits.=20 On the same day, Mr. Lay will testify before the House Financial Services C= ommittee. It has focused its inquiry on the impact of Enron's collapse on i= nvestors and markets.=20 The Senate Governmental Affairs Committee, headed by Joseph I. Lieberman, D= emocrat of Connecticut, is conducting an inquiry centered on whether regula= tors like the Commodity Futures Trading Commission and the Securities and E= xchange Commission should have uncovered problems sooner. Mr. Lieberman's p= anel is scheduled to hold a hearing on Jan. 24.=20 One of the Governmental Affairs subcommittees, an investigations panel whos= e chairman is Senator Carl Levin, Democrat of Michigan, is conducting its o= wn inquiry. Mr. Levin's subcommittee has prepared 51 subpoenas for document= s related to the operations of the company, its executives and its outside = auditor.=20 Two other House committees are also investigating the company. The House En= ergy and Commerce Committee has been investigating Enron's accounting pract= ices. The House Education and Workforce Committee has been looking into emp= loyees' retirement plans. Photo: Deputy Attorney General Larry D. Thompson, who will be directing an = Enron investigation. (Susana Raab for The New York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Deals & Deal Makers: NYSE Halts Trading in Enron, Moves to Delist Energy Co= mpany By Gaston F. Ceron and Christina Cheddar Dow Jones Newswires 01/16/2002 The Wall Street Journal C12 (Copyright (c) 2002, Dow Jones & Company, Inc.) NEW YORK -- The New York Stock Exchange said it is suspending trading in En= ron Corp. and moved to delist the energy company's shares from the Big Boar= d.=20 The NYSE said that it "has determined that the company's securities are no = longer suitable for trading on the NYSE." The exchange's action affects not= only Enron stock, but also other Enron securities, such as preferred conve= rtible stock. Enron spokeswoman Karen Denne said the NYSE's decision wasn't a surprise to= the company. "This will have no effect on our business," Ms. Denne said.= =20 In a separate statement late yesterday afternoon, Enron said its common sto= ck will be now traded as an over-the-counter security under the symbol ENRN= Q. Quotation services will be provided by Pink Sheets LLC. Formerly known a= s the National Quotation Bureau, the New York company provides pricing and = financial information for over-the-counter securities. "Investors should ca= ll their brokers for daily pricing and volume information," the statement s= aid.=20 Enron's collapse last year triggered a huge drop in the company's stock -- = sending it down to mere pennies a share -- and massive layoffs at the Houst= on-based company. Enron filed for Chapter 11 bankruptcy-court protection on= Dec. 2.=20 The NYSE moved to delist Enron after the company's stock traded below the c= ritical level of $1 for 30 consecutive days, placing it in violation of the= Big Board's listing standards.=20 "The exchange notes that today's action is being taken due to the expected = protracted nature of the company's bankruptcy process and the uncertainty a= t this time as to the timing and outcome of this process, as well as the ul= timate effect on the company's common shareholders," the NYSE said.=20 The exchange said it will apply to the Securities and Exchange Commission t= o delist Enron securities "upon the completion of applicable procedures, in= cluding any appeal by the company of the NYSE staff's decision."=20 The most recent time that Enron shares traded at the NYSE was Thursday. Tra= ding in the shares has been halted since then.=20 ---=20 Journal Link: New hires and a new office for Keefe Bruyette help life at th= e investment bank ease back to normal. Read the latest Comeback Diary at WS= J.com/JournalLinks. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Business Desk NYSE Moves to Delist Enron Stock E. SCOTT RECKARD TIMES STAFF WRITER 01/16/2002 Los Angeles Times Home Edition C-4 Copyright 2002 / The Times Mirror Company Enron Corp.'s fall Tuesday from the august New York Stock Exchange to the l= owest tier of securities trading--the unregulated "pink sheets"--reflects d= eep skepticism about the energy-trading firm's past and future, experts sai= d.=20 At this point, few financial institutions will allow their names to appear = in the same news report as Enron if they can help it. The NYSE, in its anno= uncement Tuesday that it is suspending trading in Enron pending an official= delisting, avoided pointed language. Instead, the exchange chose to explai= n the move by citing the likelihood of a "protracted" bankruptcy, and uncer= tainty "as to the timing and outcome of this process as well as the ultimat= e effect on the company's common shareholders." The NYSE's technical basis for suspending trading--the first step toward bo= oting the stock off the market--was that Enron's shares have failed to clos= e above $1 for more than a month. That is one of the grounds for delisting = under NYSE rules.=20 But the exchange has plenty of leeway in allowing companies to trade even a= fter a descent into penny-stock territory, if market officials see residual= value for shareholders, and a benefit for the NYSE itself.=20 One example is Bethlehem Steel, which has traded below $1 on the NYSE since= the company filed for Chapter 11 bankruptcy protection Oct. 15. The stock = ended at 51 cents Tuesday. Also, Finova Group, a finance firm that exited C= hapter 11 last August, has spent the last two months below $1.=20 The NYSE temporarily halted trading in Enron on Friday, and that halt laste= d through Tuesday.=20 Enron said its stock now will trade in the so-called pink sheet market unde= r the symbol ENRNQ. It was quoted there Tuesday at 50 cents.=20 Pink sheet stocks are traded between brokers; prices can be viewed at www.p= inksheets.com.=20 Shares of bankrupt companies frequently turn out to be worthless when the c= ompanies reorganize. Thus, many experts say most trading in Enron shares wi= ll be sheer speculation. "It's just hoping that you buy low and the stock s= hoots up for a day on some news," said Jon Schotz, head of Santa Monica inv= estment bank Saybrook Capital. "You're gambling. Red or black."=20 But Lawrence E. Harris, a professor of finance at the USC business school, = said good reasons may exist for the NYSE and other markets to continue list= ing companies that have fallen on hard times. Flexibility in selling stock = to record losses for tax purposes can be important for shareholders, he sai= d. Also, exchanges may not want to lose listings of bankrupt companies that= will emerge, reorganized, as solid operations with new common shares, he s= aid.=20 Harris also said bond holders and other creditors of bankrupt firms, whose = claims take precedence, sometimes allow stockholders to retain valuable int= erests as an incentive to get companies out of bankruptcy more quickly.=20 Enron, however, is a different matter, especially because its accounting ir= regularities may have been outright fraud and, at the very least, are incon= sistent with NYSE requirements for accurate financial reporting, Harris sai= d.=20 "The NYSE does not want its list to be depreciated by a rogue firm," he sai= d. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accord for Enron Trading Operations Leaves UBS Free Not to Inject Capital By Mitchell Pacelle Staff Reporter of The Wall Street Journal 01/16/2002 The Wall Street Journal (Copyright (c) 2002, Dow Jones & Company, Inc.) NEW YORK -- Enron Corp.'s agreement to sell its North American trading oper= ations to UBS AG doesn't require the Swiss concern to inject any minimum am= ount of capital into the operations, nor supply any minimum amount of credi= t, according to documents released yesterday.=20 Furthermore, UBS has the right to terminate the agreement on short notice, = according to lawyers who have studied the documents. The accord to sell the= operations in exchange for a slice of the unit's future profits was detail= ed in bankruptcy-court filings. As previously reported, UBS's investment-banking arm, UBS Warburg, won't pa= y any cash for Enron's trading operations, which were once the company's la= rgest source of profits. Instead, UBS will pay royalties to Enron amounting= to one-third of the energy-trading enterprise's pretax profit for as much = as 10 years.=20 The deal gives UBS a series of options to begin buying out Enron's royalty = interest in year three of the agreement, the documents say. UBS's options c= an be exercised in three steps, each representing one-third of the royalty = stream. UBS would pay Enron 5.75 times Enron's prior-year payment for each = one-third share of royalty eliminated.=20 UBS spokesman David Walker declined to provide details about the new ventur= e until after a bankruptcy-court hearing on the deal scheduled for Friday.= =20 "This is an extremely positive deal for Enron and its creditors that confir= ms the substantial value of Enron's trading operation," Enron Chief Financi= al Officer Jeffrey McMahon said in a statement. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 SWITZERLAND: UBS says has no acquisition plans for Enron Europe. 01/16/2002 Reuters English News Service (C) Reuters Limited 2002. ZURICH, Jan 16 (Reuters) - UBS AG has no plans to expand Enron's business i= n Europe through acquisitions, Peter Wuffli, president of the executive boa= rd, said on Wednesday.=20 "There are no plans ... for acquisitions in Europe," Wuffli told reporters = prior to an analysts' briefing. UBS won the bidding for Enron's North Ameri= can wholesale electricity and natural gas trading business earlier this mon= th. Wuffli declined to disclose particulars of the deal, citing legal restr= ictions. Regarding the banking group's overall strategy, Wuffli said: "I do feel we = are in a shift in our priorities," following a decade of acquisitions at th= e group. "For the first time we are happy with our platform...so the focus = will be quite clearly on organic growth."=20 Regarding staffing levels, especially in investment banking, "we are going = against the trend," Wuffli said. "We do not feel we have overcapacity." He = added the group expected markets to recover in the second half of 2002. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 UBS CEO Rules Out Big Acqusitions 01/16/2002 Dow Jones International News (Copyright (c) 2002, Dow Jones & Company, Inc.) ZURICH -(Dow Jones)- After a decade of rapid growth and big mergers, UBS AG= (Z.UBS) has the size and scale to grow organically, the Swiss banking gian= t's top executive said Wednesday.=20 Peter Wuffli, who heads the group's executive board, said his focus is on m= aking UBS cost-efficient and improving its client base. "We are still looking at acquisitions and apply our standards, but we don't= see any large transformation deals like PaineWebber or the merger with Swi= ss Bank Corp.," Wuffli said. "We don't have to do a major deal."=20 Wuffli, who took the top job at UBS in late December, said he's sticking to= statements he has previously made that UBS won't need to make any major la= yoffs.=20 He said UBS learned the hard way that, "the cost of disruption, distraction= , motivation of staff is high."=20 "Positively, there is a premium to stability," he said.=20 This is one reason why UBS won't be following rivals who have announced big= cuts in staff over the past two quarters.=20 The other reason, he said, is UBS is confident markets will recover in the = second half of this year.=20 "We don't want to miss that," Wuffli said.=20 But he said UBS won't veer from its strategy even if a recovery is delayed = by a quarter or two.=20 The only reason to possibly reassess its personnel stance would be if there= were a major unexpected political or financial crisis.=20 UBS wants to increase cooperation between its wealth-management business an= d their investment banking activities.=20 "There are more synergies to be realized if the units can work more closely= together," he said.=20 UBS is stressing improvement of its brand-name. Wuffli said branding hadn't= been particularly consistent due largely to all of UBS's mergers with and = acquisitions of other companies.=20 "We want to raise the profile of our identity for our clients and staff," W= uffli said.=20 Wuffli said UBS will steer away from using cheap loans as a way to attract = more lucrative investment banking mandates. Many of the Swiss group's rival= s have been doing that to beef up investment banking revenues since markets= started trending downward.=20 "The cross-subsidized corporate finance with credit just doesn't make sense= ," he said. "We will not buy business with our balance sheet."=20 The issue is a particularly contentious one at UBS, and was believed to be = a source of tension between group Chairman Marcel Ospel and Wuffli's predec= essor, Luqman Arnold, who was ousted in a power struggle late last year.=20 UBS Warburg's ties with EchoStar Communications Corp. last year came under = strain because - unlike rivals - it wouldn't offer the U.S. satellite-TV op= erator a $3 billion loan to finance its acquisition of Hughes Electronics C= orp.=20 UBS Warburg didn't win the mandate to handle the acquisition. That was emba= rrassing for the investment bank, which had been advising EchoStar on its m= erger and acquisition options.=20 Wuffli has previously denied EchoStar was a factor in the disagreements Osp= el and Arnold had over business strategy.=20 UBS last week won its bid to buy Enron Corp.'s energy trading activities, a= nd Wuffli said the group is ready to absorb its activities into UBS Warburg= .=20 "This is an attractive addition to our trading activities. The Enron busine= ss will be completely integrated into UBS Warburg," Wuffli said.=20 It will also be integrated into the investment bank's risk-management profi= le and existing risk limits.=20 He said the acquisition makes sense and should make UBS Warburg stronger.= =20 "It's an addition to the product line and means a diversification of revenu= es," he said.=20 He said it will be "quite challenging" to keep Enron's experienced energy t= raders and, "we will make offers to front personnel and support staff."=20 But he said he couldn't say yet how many people would get offers and what t= he specifics of those offers would be.=20 -By Anita Greil, Dow Jones Newswires; 411-211-7014; anita.greil@dowjones.co= m Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Post: Canada UBS Enron bid values affiliate at US$4M: Enron Canada Corp.: Unit of failed= parent holds cash of at least $220-million Claudia Cattaneo, Calgary Bureau Chief Financial Post 01/16/2002 National Post National FP4 (c) National Post 2002. All Rights Reserved. CALGARY - A bid by UBS Warburg to take over the trading operations of Enron= Corp. assigns little value to its cash-rich Canadian unit, even though it = claimed to be a viable business despite the bankruptcy of its parent.=20 The agreement, made public yesterday, says UBS will take over at a cost of = no more than US$4-million the intellectual property and technology, trading= staff, office space and equipment of the Canadian affiliate, so it can con= duct gas and power trading in Canada and with Canadian counterparties "in s= ubstantially the manner historically conducted by Enron and its affiliates.= " Enron Canada Corp. has at least $220-million in cash from the sale last mon= th of its interest in the Sundance B power-generating plant outside of Edmo= nton, and is owed more than $100-million by partners that have not honoured= their obligations, its chief executive said last week.=20 The unit unsuccessfully attempted last month to win court backing for a reo= rganization so it could re-emerge as an independent operation and distance = itself from its parent's bankruptcy.=20 Now, Enron Canada "is happy to go along with this" and be part of the UBS b= id, said Eric Thode, a spokesman for Enron.=20 Under the broader agreement, UBS, the Swiss investment bank, won't pay anyt= hing to acquire the trading business, which generated about 90% of the comp= any's US$101-billion in revenue in 2000, nor assume any of the company's de= bts, but will share a third of the energy operation's profits with Enron an= d its creditors.=20 Brian O'Leary, a lawyer representing many Canadian energy firms with ongoin= g contracts with Enron Canada, said it looks like the contracts will be liq= uidated, and any left over money used to pay creditors with the rest sent b= ack to the U.S. parent.=20 "A lot still has to be unravelled here," Mr. O'Leary said. "It's going to t= ake a while to calculate damages and find out if [contracts] were properly = terminated and determine the full amount payable. Who is going to do that f= rom Enron's point of view? That's the big question we have."=20 Jim Joyce, a principal with Risk Advisory, a risk management advisory firm = in Calgary, said the deal gives Enron Canada a better balance sheet and the= ability to start fresh.=20 "They had a lot of cash, but people still weren't dealing with them, becaus= e they weren't sure of the long-term implications of that cash, whether it = was going to be funnelled back to the States or not. So, having a big balan= ce sheet behind it is certainly better than whatever cash Enron Canada had,= " Mr. Joyce said.=20 It may also mean new jobs for the operation, which recently laid off 75 emp= loyees in Calgary and Toronto, because UBS doesn't have an energy trading b= usiness in Canada, Mr. Joyce said.=20 Gary Gault, vice-president of the Natural Gas Exchange in Calgary, which ac= counts for about 10% to 15% of natural gas trading in Canada, said he would= also welcome Enron's return. "Enron was a very big market maker and create= d deal flow in the market place," he said.=20 But he said the company will find the market has changed since its collapse= .=20 Enron's share of natural gas and power trading has been taken over by compe= titors, including NGX, which saw a 15% increase in activity.=20 In addition, activity is slower because of reduced commodity price volatili= ty since last winter's energy crisis and because credit conditions are tigh= ter across the industry, he said.=20 Enron's activities may be restricted under the new regime.=20 "How much will they let them win and how much will they let them lose? Our = guess is that they will probably be more scrutinized, that UBS will be very= judicious in their management," he said.=20 Enron collapsed late last year amid revelations of complex partnerships use= d to keep billions of dollars in debt off its books and mask financial prob= lems so it could continue to get cash and credit to run the trading busines= s. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Politics & Policy CAPITAL JOURNAL The Enron Effect: Government's Job Being Rethought By Gerald F. Seib 01/16/2002 The Wall Street Journal A18 (Copyright (c) 2002, Dow Jones & Company, Inc.) WASHINGTON'S HUNT for the great Enron scandal is on. As it unfolds, keep in= mind the cardinal rule of such controversies: The real scandal usually lie= s not in what's illegal, but in what's legal.=20 If that principle holds true, the long-term impact of the Enron affair won'= t be some Bush White House ethics controversy, as Democrats hope. It's more= likely to lie in a realization that government failed miserably in its rol= e as regulator of the marketplace. In that respect, Enron's demise figures to join a list of recent events, in= cluding the tragedies of Sept. 11, that are helping to swing the political = pendulum away from the deregulatory trends of the 1980s and 1990s. If Enron= -- a company that was both the leading disciple and very symbol of the der= egulatory mood of recent years -- collapses while regulators were clueless = about what it was doing, how could the political effect be otherwise?=20 For now, Washington's interest in Enron is a lot less subtle than that: The= company run by the president's top political contributor has crumbled, tak= ing the retirement nest eggs of many rank-and-file employees with it. Did t= he president's people do any favors for the company's executives in its dyi= ng days? Did the White House have inside knowledge of the disaster about to= befall employees and stockholders that it should have acted upon?=20 So far, the answers appear to be no. In many cases, that would be the begin= ning of the end of Washington's interest.=20 But not in this instance. Washington's examination of Enron is shaping up a= s more than a partisan scandal monger's look for Bush-administration ethica= l lapses. It has the makings of a more serious, bipartisan look at what wen= t wrong and what government's role should have -- or at least could have --= been in stopping it.=20 AS ONE INDICATOR, consider the fact that the most dogged congressional inve= stigator so far isn't a Democrat, but Republican Rep. Billy Tauzin, chairma= n of the House Energy and Commerce Committee. His panel has been looking in= to Enron's collapse for two months, and he has sought documents from Enron = (twice), from its accounting firm Arthur Andersen (twice) and from the Secu= rities and Exchange Commission.=20 It was Rep. Tauzin's staff that this week unearthed the damning letter from= an Enron official to Chairman Kenneth Lay, warning that the company's prac= tice of hiding its debt in internal partnerships threatened to "implode in = a wave of accounting scandals." That discovery prompted a Tauzin request fo= r more documents.=20 Rep. Tauzin seems disinclined to give a break either to Enron or to Arthur = Andersen for failing to blow the whistle. When it was disclosed that Anders= en had destroyed Enron documents, Rep. Tauzin advised simply: "Anyone who d= estroyed records simply out of stupidity should be fired; anyone who destro= yed records intentionally to subvert our investigation should be prosecuted= ." Andersen appeared to take his advice by dismissing a group of employees = yesterday.=20 It seems clear that the SEC had no real idea how Enron was massaging its bo= oks, and a limited ability to find out, and that there was no real regulato= ry-oversight system in place to make sure Andersen was doing its job on beh= alf of the average shareholder.=20 THE IMPACT transcends the Enron debacle, because the mess comes at a time w= hen Americans already are rethinking the role government should play in the= ir lives. In a small way, California's electricity crisis and in a large wa= y the Sept. 11 terrorist attacks have prompted a re-evaluation. On Sept. 12= , the notion of the government's taking charge of airport security didn't s= eem like such a bad idea, and Americans who once would have been offended b= y nosy law-enforcement officials snooping around welcomed the practice.=20 Now one can almost sense some similar rethinking of government's role in th= e marketplace. Many liberals tend to think government should protect consum= ers from both risk and deceit in the marketplace. Many conservatives tend t= o think market forces can take care of both risk and deceit.=20 A search for a middle ground is under way. Liberals will need to concede th= at individuals clearly have to handle their own risk, and conservatives wil= l need to agree that government needs to look harder for deceit, and to hav= e the tools to do the job right. A sign of the times came yesterday, when n= o less a conservative icon than columnist George Will, in the Washington Po= st, wrote of the Enron case: "It will remind everyone -- some conservatives= , painfully -- that a mature capitalist economy is a government project." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Politics & Policy Law Firm Reassured Enron on Accounting --- Vinson & Elkins Discounted Warni= ngs by Employee About Dubious Dealings By Wall Street Journal staff reporters Jeanne Cummings and Tom Hamburger in= Washington and Kathryn Kranhold in New York 01/16/2002 The Wall Street Journal A18 (Copyright (c) 2002, Dow Jones & Company, Inc.) A venerable and politically connected law firm advised Enron Corp. official= s not to worry about a company employee's warnings of questionable accounti= ng, based on an inquiry that only canvassed Enron executives and its accoun= tants at Arthur Andersen LLP.=20 The report by Vinson & Elkins partner Max Hendricks III, a copy of which wa= s obtained by The Wall Street Journal, concluded that Enron's practice of f= orming special-purpose entities to keep debt off its books was "creative an= d aggressive," but that "no one has reason to believe that it is inappropri= ate from a technical standpoint." In fact, the subsequent widespread disclosure of those partnerships last fa= ll fueled Enron's downward spiral toward a bankruptcy filing, lawsuits and = now government inquiries -- including a federal criminal investigation. The= Enron executive whose complaints prompted the Vinson & Elkins review also = warned, in an August letter to Enron's chairman, against using Vinson & Elk= ins to vet her concerns because she believed there was a conflict of intere= st.=20 Vinson partner Ronald Astin also was involved in structuring some of the pa= rtnerships, according to an Enron source.=20 The expanding Enron scandal also is putting political heat on President Bus= h and his inner circle. Along with Enron, Houston's Vinson & Elkins has bee= n among the big Texas businesses that have been his biggest political patro= ns. Of the firm's 341 partners, 165 contributed about $204,000 to Mr. Bush'= s 2000 campaign, according to Thomas Marinis Jr., a firm partner and boyhoo= d friend of the president's.=20 The web of friendships and money threatens to raise additional questions ab= out possible conflicts of interest. For instance, after Commerce Secretary = Donald Evans received a call for help from Enron Chairman Kenneth Lay, amon= g those he turned to for advice was his department counsel, Theodore Kassin= ger. Mr. Kassinger is a former Vinson & Elkins attorney who had done work f= or Enron on international trade and project-financing matters, according to= his public resume. Mr. Kassinger declined a request for an interview. But = a Commerce Department spokesman said Mr. Kassinger worked in Washington and= knew nothing about Enron partnerships. He also said Mr. Kassinger hadn't b= een asked for help by any former law firm colleagues.=20 White House counsel Alberto R. Gonzales also is an alumnus of Vinson & Elki= ns -- or V&E, as the Texas legal and political powerhouse is commonly known= . Mr. Gonzales left there in 1994, when Mr. Bush, newly elected as Texas go= vernor, picked him to serve as his attorney.=20 White House spokesman Dan Bartlett says he is unaware of any contacts betwe= en Vinson & Elkins attorneys and administration officials about Enron. "One= thing is clear," he adds. "This administration has taken no action to bene= fit or to attempt to help the Enron company."=20 Vinson & Elkins's internal inquiry that ended up reassuring Enron was spurr= ed by an August letter from Enron Global Finance executive Sherron Watkins = to Mr. Lay. In it, she raised alarms about the energy firm's unorthodox par= tnerships and their potential danger to the company's finances and public i= mage.=20 "I am incredibly nervous that we will implode in a wave of accounting scand= als," Ms. Watkins wrote, according to a copy of the letter obtained by the = Journal. "My eight years of Enron work history will be worth nothing on my = resume, the business world will consider the past successes as nothing but = an elaborate accounting hoax," she added.=20 In her letter, Ms. Watkins specifically points to Enron's creation of a par= tnership called Raptor to help protect it from falling share prices in comp= anies in which it owned stock. As she described the situation, Raptor had t= o pay Enron if the company stock prices fell. In return, Enron had promised= to make up Raptor's losses with shares of Enron stock. When Enron's stock = declined throughout the year, the amount needed to make Raptor whole grew s= ignificantly.=20 Ms. Watkins also raised concerns about whether Enron had properly disclosed= the transactions with the partnerships to investors. And she questioned wh= ether Enron Chief Financial Officer Andrew S. Fastow had a conflict of inte= rest in forming them.=20 She also specifically cautioned Mr. Lay against using Vinson & Elkins "due = to conflict." Despite that, Mr. Lay did turn to his longtime allies at the = firm. The ties between Enron and Vinson & Elkins date to the early 1980s, p= rior to when Enron's predecessors, Houston Natural Gas and Internorth, merg= ed. Enron was the law firm's biggest client, though it only accounted for a= bout 7% of its work.=20 So close were the firms that, at times, Mr. Lay would pick a local charity,= and Vinson & Elkins partners were expected to pony up donations along with= Enron, say people familiar with the firm. And just as Mr. Lay and Enron we= re early givers to the Bush presidential campaign, so, too, was Vinson & El= kins. In early 1999, 140 of its lawyers wrote $1,000 checks in the span of = a few days, and bundled them for delivery to Bush headquarters, according t= o an analysis by the Center for Responsive Politics. Both outfits' executiv= es are among the Bush "Pioneers," supporters who raised at least $100,000 f= or the candidate.=20 Over the years, lawyers at the firm would move in and out of jobs as Enron'= s in-house attorneys. Enron's general counsel, James Derrick Jr., was a par= tner at the firm until he joined the energy company in 1991. It was Mr. Der= rick, one of the Enron contributors to Mr. Bush, who requested the internal= study of Ms. Watkins's concerns. But he imposed two restraints: Don't seco= nd-guess the Andersen accountants, and don't analyze every transaction.=20 Washington defense attorney Robert Bennett, who is representing Enron, says= the limits were imposed because "they wanted an answer to this if they cou= ld get one soon." But in hindsight, he concedes, "They probably should have= done some other things," such as seeking outside expertise on the accounti= ng questions.=20 Vinson & Elkins investigators zeroed in on four areas -- conflicts of inter= ests, the accounting treatment of the partnerships in Enron's financial sta= tement, public disclosures of the partnership transactions and the potentia= l impact on Enron's financial statements because of stock-price declines.= =20 In each case, they dismissed Ms. Watkins's worries primarily by relying on = assurances from Arthur Andersen that the accounting practices were appropri= ate, according to the report. "In summary, none of the individuals intervie= wed could identify any transaction between Enron [and the outside partnersh= ip] that was not reasonable from Enron's standpoint or that was contrary to= Enron's best interests," Mr. Hendrick noted.=20 The company believed the conflict of interest largely was resolved when Mr.= Fastow severed his connection with the controversial partnerships, but Mr.= Hendrick noted that Enron's board twice waived the company's ethics code t= o allow transactions to go forward.=20 The one area where the investigators saw Enron as vulnerable was in its pub= lic relations: The transactions could "be portrayed very poorly if subjecte= d to a Wall Street Journal expose or class action lawsuit," they noted in t= he report.=20 The report is dated Oct. 15, 2001. The next day, Mr. Lay disclosed that his= company had a loss of $618 million in the third quarter. Shortly later, th= e complex partnership arrangements were exposed, along with the fact that E= nron had used them to conceal billions of dollars in losses. The revelation= s rocked the company, and led to its Dec. 2 bankruptcy filing.=20 Mr. Bennett argues that Mr. Lay would have conducted a more thorough invest= igation of the partnerships if his attorneys had recommended it. "I think t= his shows Ken Lay's good faith in the matter," he says of the report.=20 Joseph Dilg, Vinson & Elkins's new managing partner, who has worked closely= with Enron since the early 1990s, declined to comment on the specifics of = the firm's investigation of Enron's partnerships and auditing practices.=20 "We remain very comfortable with everything we did," he says.=20 But Mr. Dilg says that while the firm could offer legal opinions on certain= Enron transactions, it couldn't conduct a review of its accounting practic= es because it doesn't have expertise.=20 "We are not competent to render accounting advice," he says.=20 An Andersen spokesmen yesterday declined to comment on the report, referrin= g only to Andersen Chief Executive Joseph Berardino's recent congressional = testimony. In that appearance, Mr. Berardino said Andersen made a mistake i= n accepting Enron's accounting for one of the partnerships, and wouldn't ha= ve approved of another if it had known all the details.=20 Mr. Dilg says the Securities and Exchange Commission and congressional comm= ittees haven't yet contacted him or his partners. But, he adds, the firm ha= s retained Washington's Williams & Connolly as its outside counsel. The fir= m also has hired well-known Houston lawyer Joe Jamail to handle civil litig= ation. The firm was named in two Enron-related lawsuits, but those have bee= n withdrawn.=20 ---=20 Journal Link: Read excerpts from the Vinson & Elkins report on its investig= ation of Enron's accounting practices at WSJ.com/JournalLinks. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE LAW FIRM Legal Counsel In Many Ways Mirrors Client By JIM YARDLEY with JOHN SCHWARTZ 01/16/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company HOUSTON, Jan. 15 -- The law firm of Vinson & Elkins, which became publicly = enmeshed this week in the Enron scandal, is often described much like its c= lient: hugely powerful, international in scope and rich with connections fr= om the statehouse to the White House.=20 The connections that bind Vinson & Elkins to the Enron Corporation were evi= dent long before the House Energy and Commerce Committee demanded documents= from the firm on Monday as part of its investigation into Enron's filing f= or Chapter 11 bankruptcy protection. For at least the past five years, Enro= n has been one of Vinson & Elkins's biggest clients, and last year, Enron a= ccounted for nearly 8 percent of the firm's $455 million in gross revenues. ''I think that probably made them the largest client,'' said Joseph C. Dilg= , the managing partner, noting that the firm began representing Enron 15 ye= ars ago when it was known as Houston Natural Gas.=20 Congressional investigators are looking at a letter sent in August to the E= nron chairman, Kenneth L. Lay, in which a vice president at the company, Sh= erron S. Watkins, warned that accounting practices involving a series of se= cret financial partnerships could threaten Enron's future. At the time, Enr= on asked Vinson & Elkins to investigate the issues raised in the letter but= limited the scope of the inquiry.=20 In a nine-page response on Oct. 15, Vinson & Elkins concluded that Enron di= d not need a larger investigation into the issues raised in Ms. Watkins's l= etter but warned that the ''bad cosmetics'' of the partnerships could bring= ''a serious risk of adverse publicity and litigation.''=20 Mr. Dilg said the firm was still reviewing the Congressional request for do= cuments and other information. ''We're not trying to be evasive, but we do = have professional responsibilities for the clients we work for, and Enron i= s one of our clients.''=20 Founded in 1917 by James A. Elkins and William A. Vinson, Vinson & Elkins h= elped create modern Houston.=20 Today, Vinson & Elkins has 860 lawyers with nine offices worldwide, ranking= as one of the 25 largest firms in the country. Partners earn an average of= $655,000 a year.=20 According to Texans for Public Justice, a not-for-profit research group tra= cking money in Texas politics, Vinson & Elkins employees and political acti= on committees gave $133,000 in campaign contributions to George W. Bush in = his 1994 and 1998 campaigns for governor. During the 2000 presidential camp= aign, three of the firm's partners served as ''pioneers,'' each raising mor= e than $100,000 for Mr. Bush's race.=20 ''They have built their practice in part by building political connections = through campaign contributions,'' said Craig McDonald, director of Texans f= or Public Justice. ''They are by far the largest law firm contributor in th= e state of Texas.''=20 There are already a plethora of lawsuits filed over Enron, as shareholders,= creditors and other plaintiffs are seek redress from the company and its a= ccounting firm, Arthur Andersen. Two shareholder groups had initially inclu= ded Vinson & Elkins in their suits until the firm hired a prominent lawyer,= Joe Jamail, who persuaded the plaintiffs to drop the firm as a defendant.= =20 Larry Doherty, a prominent legal malpractice attorney in Houston, said Texa= s statutes states that law firms can be sued for malpractice only by a clie= nt. Still, he predicted that any lawyers who have worked for Enron and were= involved in reviewing partnerships and other questionable financial transa= ctions could be vulnerable to lawsuits.=20 Other lawyers warned against any rush to judgment. Dick DeGuerin, a promine= nt defense lawyer, compared the current frenzy surrounding Enron to ''the c= rash of the stock market or the run on a bank.'' He added, ''Everybody's pi= ling on Enron and to some extent Vinson & Elkins.'' Photo: A reception area at Vinson & Elkins. The law firm in Houston made 8 = percent of its $455 million in gross revenues last year through Enron. (Bre= tt Coomer for The New York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE BANKS Lenders Differ in Disclosing Their Exposure to Troubles By PATRICK McGEEHAN with RICHARD W. STEVENSON 01/16/2002 The New York Times Page 8, Column 1 c. 2002 New York Times Company The two biggest lenders to Enron have given distinctly different responses = to questions about their ties to the failed company. While J. P. Morgan Cha= se rushed to detail its potential losses, Citigroup has repeatedly rebuffed= inquiries.=20 But the paths taken by the two investment banks should start to converge ov= er the next two days as they report their earnings for the fourth quarter o= f 2001. J. P. Morgan is expected to provide new details on the cost of its = exposure to Enron today, while Citigroup is expected to end its silence abo= ut just how deep its financial ties to Enron went when it discusses its ear= nings tomorrow. Unlike J. P. Morgan, Citigroup has declined for several weeks to divulge de= tails of the loans and trading exposures it has to Enron, a giant energy tr= ading company. Analysts said they did not believe that the amounts involved= were so big that they had to be disclosed to investors.=20 Citigroup apparently had enough involvement with Enron, however, to prompt = Robert E. Rubin, chairman of Citigroup's executive committee, to seek help = from a senior Treasury Department official.=20 Mr. Rubin, who was Treasury secretary before he joined Citigroup, called Pe= ter R. Fisher, the under secretary of the Treasury for domestic finance, on= Nov. 8 and broached the subject of Mr. Fisher's possibly calling bond rati= ng agencies in hopes of averting an immediate downgrade of Enron's debt.=20 Mr. Fisher rejected the idea and Mr. Rubin accepted his decision, according= to the Treasury Department's account of the conversation.=20 People close to Mr. Rubin said he called Mr. Fisher in part because Citigro= up was a large creditor of Enron and was working for the energy company in = an investment banking capacity. But they said Mr. Rubin, who remains promin= ent in Democratic politics and continues to take a keen interest in public = policy issues, was also motivated by concern that the collapse of Enron wou= ld have ramifications for the financial markets and the economy.=20 Citigroup officials declined to comment yesterday on the reasons for their = public silence about the firm's dealings with Enron. Analysts said the comp= any usually declines to discuss its lending relationships.=20 Most analysts estimate the net value of Citigroup's exposure to be about $1= billion. But they speculated that because Citigroup has not issued any war= nings to investors about its earnings, the company must not expect to lose = much of that money.=20 In contrast, J. P. Morgan has already said its earnings will be reduced by = $220 million for bad loans to Enron, and its trading revenue for the quarte= r will be reduced by $235 million after the bank marked down the value of t= rading positions involving the company.=20 A Citigroup spokesman declined to say whether Citigroup executives would ev= en mention Enron when they announce earnings tomorrow. But analysts said th= e company would not try to evade questions about its potential losses relat= ed to Enron.=20 ''I think that could create an extremely contentious discussion with the in= vestment community,'' said Henry McVey, an analyst with Morgan Stanley, who= has been recommending Citigroup's shares.=20 Mr. McVey said he did not know how Citigroup's exposure to Enron broke down= among its units.=20 J. P. Morgan, in contrast, has said its exposure includes loans and trading= positions, as well as certain bonds issued by insurers -- including the pr= operty-casualty unit of Citigroup -- which were backed by some Enron oil an= d gas contracts.=20 ''For better or worse, J. P. Morgan's investor relations strategy has been = relatively open over the years,'' said Judah Kraushaar, an analyst at Merri= ll Lynch. ''They got caught in a jam this time, but their intentions were t= o give the market as much information as possible.''=20 J. P. Morgan originally estimated its exposure to Enron at $900 million, in= part because it had counted on recovering on the bonds. But the insurers h= ave balked at paying, and J. P. Morgan is suing them.=20 After reassessing all of its potential losses in the Enron debacle, J. P. M= organ said last month that its total exposure to Enron was actually about $= 2.6 billion. That amount included $965 million on the bonds and $165 millio= n in a letter of credit, as well as loans secured by a natural-gas pipeline= and unsecured loans.=20 Both Citigroup and J. P. Morgan had also served as investment bankers to En= ron. The two firms were advisers to Enron on the proposed sale to Dynegy th= at might have saved Enron from collapse. Together, they stood to collect ad= visory fees of about $90 million if Dynegy went through with that acquisiti= on.=20 Citigroup's Salomon Smith Barney investment banking unit also underwrote se= curities for Enron and the various limited partnerships the company control= led. And Salomon was one of six brokerage firms that managed the sale last = May of about $150 million of units in an Enron partnership called Northern = Border Partners L.P.=20 Daniel Noonan, a spokesman for Salomon, declined to say how many of the par= tnerships the firm helped to sell or to characterize the scope of the firm'= s involvement with the partnerships.=20 Citigroup has disclosed so little, analysts said, that anything it says abo= ut Enron will be an improvement.=20 ''If they say that it is immaterial, that is a piece of information,'' said= Diane B. Glossman, an analyst with UBS Warburg. ''If you wait until Thursd= ay afternoon, we will have more information about Enron than we have right = now.'' Photo: Robert E. Rubin, the chairman of Citigroup's executive committee and= a former Treasury secretary. (Bloomberg News)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Citigroup's Enron Financing Stirs Controversy By Jathon Sapsford and Mitchell Pacelle Staff Reporters of The Wall Street Journal 01/16/2002 The Wall Street Journal C1 (Copyright (c) 2002, Dow Jones & Company, Inc.) When Enron Corp. turned to its bankers for money in late October, the energ= y company needed a quick, big loan to restore investor confidence in its fi= nances.=20 Citigroup Inc. came up with the cash -- but with a catch. Enron owed Citigroup $250 million in unsecured debt that was coming due in = early December, just one portion of the overall debt Enron owes the bank. S= o Citigroup told Enron it would provide $600 million of a new $1 billion se= cured loan -- as long as $250 million was used to pay back existing Citigro= up debt, according to people familiar with the transaction.=20 Now, a number of bankers in the lending syndicate are crying foul. Citigrou= p, they say, used its influence as a new secured lender to improve the stan= ding of unsecured loans it had already extended at the expense of other len= ders. The bankers say they discovered only later that part of the loan faci= lity was used to prop a Citigroup debt position. Thus, the bankers are like= ly to challenge Citigroup's arrangement as part of Enron's bankruptcy filin= g in a New York bankruptcy court.=20 Few can blame Citigroup for trying to reduce its exposure to Enron. But som= e analysts say the maneuver raises questions about whether Citigroup moved = unfairly to grab assets. And the deal effectively reduced the pool of colla= teral available to all of Enron's other creditors in the bankruptcy proceed= ings. "There's a bit of a conflict there," says Andy Collins, an analyst wi= th U.S. Bancorp Piper Jaffray.=20 Citigroup declined to comment.=20 At a minimum, the controversy over the Citigroup financing underscores how = contentious Enron's bankruptcy process could become, as numerous creditors = fight to secure a piece of a shrinking asset pie. It addition, it raises st= ill more questions about the multiple hats worn by large lenders such as Ci= tigroup, and the conflicts that may create with Enron's other creditors.=20 For Enron, the demand was a disappointment. While Enron trumpeted $1 billio= n in fresh financing to the investing public, it actually received only $75= 0 million in new money, less than it had wanted, according to several peopl= e involved in the financing.=20 Enron Chief Financial Officer Jeffrey McMahon has been telling other credit= ors that Enron needed cash so badly that Enron had no choice but to go thro= ugh with the deal. Mr. McMahon was unavailable to comment, but an Enron spo= keswoman says, "We got the best deal we could at the time." The arrangement= was driven by the fact that the $250 million debt in question, linked to f= inancing for a natural-gas transaction, was soon to come due, according to = a banker familiar with Citigroup's strategy.=20 J.P. Morgan Chase & Co., which contributed the remaining $400 million to th= e $1 billion credit line, also had hundreds of millions of dollars in exist= ing unsecured exposure to Enron. Unlike Citigroup, it made no demands that = its own existing loans be rolled into the new credit facility. An official = at J.P. Morgan declined to comment.=20 The incident sheds some light on the inner workings of Citigroup in the Enr= on mess. J.P. Morgan has disclosed it is owed some $2.6 billion in Enron-re= lated exposure.=20 But Citigroup has kept quiet on the subject. Analysts have said it was at l= east $1 billion, but warn the number could be higher. "Citigroup's disclosu= re has been lagging," says Mr. Collins.=20 In most bankruptcy cases, unsecured creditors examine all loans extended be= fore the filing to see whether the collateral was granted properly. If an u= nsecured debt was paid off, or turned into a secured debt, within 90 days o= f a bankruptcy, that lender is sometimes accused of receiving a "preference= " over other lenders.=20 Because such "preferences" clash with a basic aim of bankruptcy law -- to s= top a race to the courthouse by treating all similarly situated creditors t= he same -- they can be challenged in court.=20 A potential challenge by some creditors against Citigroup, in essence, woul= d be that the bank improved its standing in the line of creditors by demand= ing new collateral on the $250 million of unsecured debt, thereby taking aw= ay from other creditors assets that might be available pro rata to other un= secured creditors.=20 Such challenges are often mounted late in the bankruptcy process, when cred= itors are hashing out how to allocate assets that have been assigned to cre= ditors.=20 If the Citigroup financing is successfully challenged, the $250 million cla= im would once again become unsecured, freeing up the collateral for the pot= ential pool of assets to be divvied up by unsecured creditors. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron, Argentina take down J.P. Morgan Chase earnings By EILEEN ALT POWELL AP Business Writer 01/16/2002 Associated Press Newswires Copyright 2002. The Associated Press. All Rights Reserved. NEW YORK (AP) - Hammered by loans to Argentina and the bankrupt Enron Corp.= that have gone bad, J.P. Morgan Chase & Co. on Wednesday reported a steep = earnings loss for the fourth quarter. The results were far below analysts' = estimates.=20 Bad news for the New York financial giant came in almost every division exc= ept retail, which was boosted by record mortgage originations and higher de= posit volumes. Operating revenues declined in the fourth quarter in investm= ent banking and in investment management and private banking, J.P. Morgan s= aid. J.P. Morgan Partners, its venture capital arm, reported a loss. William B. Harrison Jr., chairman and chief executive officer, said in a st= atement accompanying the earnings report, that results "were particularly a= ffected by our exposure to private equity investments, and to Enron and Arg= entina."=20 He said the bank had moved "aggressively to value those exposures to market= and to build loan loss reserves further" to position the bank for stronger= earnings when markets recover.=20 The bank said it lost $332 million, or 18 cents a share, in the October-Dec= ember period. A year earlier, it reported net income of $708 million, or 34= cents a share.=20 Excluding merger and restructuring costs, the company earned $247 million, = or 12 cents a share, for the quarter compared with $763 million, or 37 cent= s a share, a year earlier.=20 Analysts surveyed by Thomson Financial/First Call had expected operating ea= rnings of 34 cents a share.=20 The bank said its total nonperforming assets were $3.92 billion at year's e= nd, including $1.13 billion "related to the Enron surety receivables and le= tter of credit." That, it said, was the "subject of litigation." Nonperform= ing assets a year earlier totaled $1.92 billion, the bank said.=20 For the full year, net income was $1.69 billion, or 80 cents a share, compa= red with $5.73 billion, or $2.86 a share, in 2000. Operating earnings were = $3.41 billion, or $1.65 a share, compared with $5.93 billion, or $2.96 a sh= are, in 2000.=20 ---=20 On the Net:=20 www.chase.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 JP Morgan Chase's Shapiro says Enron exposure totalled 450 mln usd in Q4 01/16/2002 AFX News (c) 2002 by AFP-Extel News Ltd NEW YORK (AFX) - JP Morgan Chase & Co vice chairman Marc Shapiro said the b= ank's exposure to bankrupt energy giant Enron Corp totalled 450 mln usd in = the fourth quarter.=20 Shapiro made the comment in an interview with CNBC television, immediately = after the bank reported fourth-quarter operating earnings per share of 12 c= ents, down from 37 cents a year ago and well below the First Call/Thomson F= inancial consensus of 34 cents. JP Morgan Chase said Enron and its exposure to Argentina shaved a total of = 807 mln usd off trading and other revenues.=20 cl/lj Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Citigroup's Enron Deal Stirs Creditor Outcry 01/16/2002 Dow Jones Business News (Copyright (c) 2002, Dow Jones & Company, Inc.) When Enron Corp. turned to its bankers for money in late October, the energ= y company needed a quick, big loan to restore investor confidence in its fi= nances, Wednesday's Wall Street Journal reported.=20 Citigroup Inc. (C) came up with the cash -- but with a catch. Enron (ENE) owed Citigroup $250 million in unsecured debt that was coming d= ue in early December, just one portion of the overall debt Enron owes the b= ank. So Citigroup told Enron it would provide $600 million of a new $1 bill= ion secured loan -- as long as $250 million was used to pay back existing C= itigroup debt, according to people familiar with the transaction.=20 Now, a number of bankers in the lending syndicate are crying foul. Citigrou= p, they say, used its influence as a new secured lender to improve the stan= ding of unsecured loans it had already extended at the expense of other len= ders. The bankers say they discovered only later that part of the loan faci= lity was used to prop a Citigroup debt position. Thus, the bankers are like= ly to challenge Citigroup's arrangement as part of Enron's bankruptcy filin= g in a New York bankruptcy court.=20 Few can blame Citigroup for trying to reduce its exposure to Enron. But som= e analysts say the maneuver raises questions about whether Citigroup moved = unfairly to grab assets. And the deal effectively reduced the pool of colla= teral available to all of Enron's other creditors in the bankruptcy proceed= ings.=20 Citigroup declined to comment.=20 Copyright (c) 2002 Dow Jones & Company, Inc.=20 All Rights Reserved. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 FOCUS Analysts, ratings agencies image hurt by Enron; legal impact unlikely 01/16/2002 AFX News (c) 2002 by AFP-Extel News Ltd ---- by Leslie Wines ----=20 NEW YORK (AFX) - Public trust in brokerage analysts and debt rating agencie= s will remain seriously eroded for months by their failure to issue timely = warnings prior to Enron Corp's Dec 2, 2001 bankruptcy filing, but they face= few legal and financial consequences, analysts said. About 16 brokerage analysts maintained 'Buy" orders on Enron right up until= Dec 2, according to Steven Toll, a partner with Washington, DC securities = law firm Cohen, Milstein, Hausfield & Toll, which has filed a shareholders'= class action case against Enron.=20 Standard & Poor's Corp downgraded the debt of Enron Corp in late November, = triggering the collapse of merger plans with Dynegy Inc and the bankruptcy = filing. The downgrade came a full three months after the company first reve= aled its own problems.=20 Toll said that the extremely late response of analysts was highly disturbin= g to countless investors who depend on them in large part for investment de= cision advice.=20 But he said he has no plans to launch a class action suit against brokerage= s and ratings agencies on behalf of investors because such a case would hav= e scant chances for success as these institutions do not have a legal fiduc= iary duty to warn stock buyers.=20 "The problem is they (analysts and ratings agencies) are not paid by shareh= olders," Toll said. "They are paid by their employers and owe a duty to the= m. It would be very hard to show that they have a duty to everyone in the m= arketplace."=20 In addition, a recent US Supreme Court ruling largely restricts fraud litig= ation to those suspected of committing it directly, such as, in this case, = certain Enron executives and their auditors at Arthur Andersen LLP.=20 Brokerage analysts, ratings agencies and other additional parties who may h= ave "aided and abetted fraud" in the Enron case would not be easy to sue un= der the current US Supreme Court's legal interpretations, Toll said.=20 However, an individual investor who sues his personal broker or analyst mig= ht have a better chance of success, he said.=20 George Perry, a fellow with the Brookings Institute in Washington, DC, said= : "This thing is going to upset a lot of people before it's over, but in ge= neral I don't think that the analysts will be in legal trouble."=20 Margaret Blair, another Brookings Institute fellow and a Georgetown Univers= ity School of Law professor, said the delayed response of brokerage analyst= s to the Enron developments intensified a public confidence crisis that beg= an in 2000 when they failed to warn investors of the technology sector's im= pending sharp deterioration.=20 "The analysts' reputation was already shot after they contrived to put out = glowing reports on the internet sector well after the party was over," Blai= r said.=20 In addition, she said some shrewd investors began to express reservations a= bout the trustworthiness of analyst research even before the Nasdaq market = began its decline.=20 "Any time someone appears to be minting money, it's fishy. And it's the dut= y of analysts to ask tough questions. If they don't, people will lose respe= ct," she said.=20 "I think analysts will have to work harder than ever to show that they unde= rstand the companies they cover," Blair said. "It may be a long time before= the public falls for what they have to say."=20 By contrast, she said criticism of debt ratings agencies may be less severe= because their function is chiefly to analyze the financial information pro= vided to the general public by corporations, and in the Enron case this inf= ormation itself was flawed and possibly fraudulent.=20 "I'm not sure you can blame the ratings agencies for not having access to w= hat went on at Enron," she said.=20 However, J. Edward Ketz, an associate professor of accouning at Penn State'= s Smeal School of Business, said ratings agencies' delayed response to the = Enron crisis is "a serious problem."=20 "The problem of ratings agencies moving too late has been there for years,"= he said. "Ratings agencies generally make changes only after a problem is = known by everyone."=20 "I don't know how many investors know this, but some ratings agencies look = at companies in depth only once every two to three years. The rest of the t= ime they just take cursory looks at the listed companies once in a while."= =20 Ketz said that in some cases investors with a knowledge of statistical mode= ls would be better off taking quarterly corporate financial statements and = making their own assessments of profits performances.=20 He also said that brokerage analysts' usefulness to investors has been grad= ually weakened in recent years by a shift in analysts' approach to their ow= n roles.=20 "In the past analysts looked at financial statements and other information = and tried to come up with an independent objective view," he said. "But now= they seem closer to marketing firms for the companies they cover," Ketz sa= id.=20 law/gc Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 `Lockdowns' of 401(k) Plans Draw Scrutiny --- Enron Employees' Losses Sudde= nly Put Practice in Spotlight By Ellen E. Schultz Staff Reporter of The Wall Street Journal 01/16/2002 The Wall Street Journal C1 (Copyright (c) 2002, Dow Jones & Company, Inc.) Many investors now are painfully aware that "lockdowns" don't just occur in= prisons -- they can handcuff employees' retirement-savings plans, too.=20 And for that disclosure, they can thank Enron Corp. Last fall, amid the growing news of financial woes at the energy-trading co= mpany, Enron officials "locked down" the employee retirement-savings plan t= o make administrative changes. Although long-planned, the lockdown was poor= ly timed: It prevented employees from moving out of Enron stock as its pric= e continued to plummet.=20 The recent disclosures that Enron Chairman Kenneth Lay and top aides were a= ware of significant troubles at the company two months before the lockdown = -- yet went ahead with it anyway -- have magnified the wrath of employees w= ho have lost millions of dollars in retirement savings.=20 It also has hastened the examination of lockdowns by investigators. In addi= tion to a Labor Department investigation, Sen. Charles Grassley (R., Iowa),= a ranking member of the Finance Committee, says his staff is examining loc= kdowns, which also are known as "blackouts" and "quiet periods."=20 The latest developments also signal the possibility for "potential criminal= exposure," asserts Marc Machiz, former associate solicitor at the Labor De= partment in the Plan Benefits Security division. He adds that the lockdown = by itself isn't the main issue. "If the company deceived employees into han= ging onto the stock, it could become part of a pattern of fraud that might = support" a racketeering claim, contends Mr. Machiz, now a member of the Was= hington law firm Cohen, Milstein, Hausfeld, & Toll, who isn't involved in t= he Enron litigation.=20 Robert F. Bennett, a lawyer for Enron, at Skadden, Arps, Slate, Meagher, & = Flom, says, "We are not aware of any criminal conduct in any fashion relate= d to the 401(k), and people should not make reckless allegations in this ar= ea."=20 Lockdowns, though unpopular with employees, hadn't been controversial befor= e now. They are the equivalent of putting a car up on the blocks when it is= getting a tune-up. They occur when a plan is being transferred to a new re= cordkeeper, or is implementing some structural change, such as a shift to d= aily valuation from monthly valuation. During this time, employers forbid e= mployees from moving their savings among funds.=20 Ordinarily, such lockdowns are perfectly legal and routine. But if company = officials know that a coming lockdown will coincide with grim news that cou= ld send the stock lower -- falling earnings, lawsuits, layoffs, a regulator= y investigation -- then as fiduciaries they have a responsibility to protec= t employees in the plan. Postponing a lockdown would be a prudent move.=20 Companies typically alert employees months in advance to planned lockdowns = to give them time to shift their investments around if they choose. Normall= y, a "time out" of several weeks or even a couple of months may not make th= at much difference to employee savings, as long as the market isn't roiled = by some disaster.=20 However, the growing prominence of employer stock in retirement plans has m= ade lockdowns riskier for workers. As more and more employees hold huge pos= itions in their employers' stock, they face enhanced risks when they are fo= rced to sit tight for a period of time. As Enron has shown, they can't bail= out to limit their losses. (That's assuming they are allowed to sell: Most= companies prevent employees from selling shares they receive from the comp= any until a certain age. Enron employees under age 50 weren't allowed to di= versify out of company-contributed stock, so even without the lockdown, the= y were locked into those shares).=20 Conversely, during lockdowns, employees can't sell to lock in gains either.= International Paper Inc. locked down its 401(k) plan, which had 43% of its= assets in company stock, from Nov. 30, 1999, through Jan. 31, 2000. During= that time, the company's stock fell 9% to $47.63.=20 The company in prior months had notified employees of the coming "quiet per= iod," which occurred while the company made improvements to the plan. Thoma= s Johnson, a manager with the company for 38 years who was planning to reti= re the following summer, planned to sell his shares when the stock was in t= he $50 range to diversify.=20 Although the shares hit a high of $60 during the lockdown, Mr. Johnson coul= dn't make a move. In contrast, filings show that IP insiders sold millions = of dollars in shares during the period when the employees were locked down.= =20 Unlike Enron employees, Mr. Johnson didn't see his savings evaporate. But h= is situation raises questions about whether employees close to retirement a= re more at risk in lockdowns. A spokesman for IP says that the company comm= unicated the planned lockdown for many months ahead of time and that the ch= anges improved employees' ability to diversify.=20 If nothing else, Enron's lockdown will lead to closer scrutiny of how well = companies communicate these events. Some Enron employees allege that the co= mpany sent them an e-mail on Sept. 27 erroneously stating that the lockdown= would start Oct. 19, though it didn't start until Oct. 26. As a result, th= ey missed an opportunity to sell the stock when it was selling for almost $= 30 a share, they say. On Oct. 26, the last day employees could trade their = accounts, the stock closed at $15.40 a share; by the end of the lockdown on= Nov. 13, it had fallen to $9.98.=20 An Enron spokesman says that the company sent out a brochure and additional= e-mails throughout October, and that this apparently got the message acros= s, because on the last trading day before the lockdown, Oct. 26, 187 employ= ee investment transfers were made.=20 In an e-mail the company sent to employees shortly before midnight of the f= inal day to make transfers, the company acknowledged that employees wanted = to postpone the lockdown, but said it was going ahead anyway.=20 "We understand that you are concerned about the timing" of the lockdown and= "we understand your concerns and are committed to making this transition p= eriod as short as possible without jeopardizing the reconciliation of both = the Plan in total, or your account in particular," the e-mail said. "Rememb= er that the Enron Corp. Savings Plan is an investment vehicle for your long= -term financial goals." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Computer sleuths searching for deleted Enron e-mails 01/16/2002 Associated Press Newswires Copyright 2002. The Associated Press. All Rights Reserved. WASHINGTON (AP) - The job of recovering the missing Enron Corp. accounting = documents is falling to computer sleuths whose work can foil the casual use= of the delete button.=20 They've been called on before in high-profile cases, looking for suspected = spy transmissions and missing Clinton White House e-mails. And now they'll be asked to recover documents from the computers of Arthur = Andersen LLP, which acknowledges its employees destroyed thousands of e-mai= ls and paper documents about Enron.=20 Investigators want to know who knew about the problems at Enron, which shoc= ked the financial world and its own employees with its fall from Wall Stree= t grace to bankruptcy.=20 Computer sleuths move quickly to preserve hard drives and backup tapes befo= re the bits of deleted data are overwritten forever.=20 Andersen has said its Houston auditors started deleting Enron e-mails on Oc= t. 23 and stopped Nov. 9. Bedser said his firm has been able to recover Lot= us Notes e-mail messages that were deleted up to eight months earlier. Ande= rsen used Lotus Notes.=20 Most computer users think a simple stroke of the delete key is enough to ma= ke a message disappear forever.=20 ---=20 Enron faces Congress probe over its own tax returns=20 WASHINGTON (AP) - Even as it neared collapse, Enron Corp. was in the forefr= ont of a business lobbying campaign to scrap the corporate alternative mini= mum tax. Now, Congress is turning its attention to Enron's own tax returns.= =20 Repeal of the alternative minimum tax was backed by dozens of companies inc= luding Enron and was part of President Bush's economic stimulus plan. The H= ouse added a provision that would have given Enron a $254 million infusion = of cash, but the package ultimately failed.=20 Now, the Senate Finance Committee is "interested in whether Enron has been = complying with federal tax laws" particularly those governing tax shelters,= said the panel's spokesman, Mike Siegel.=20 Whether Enron used any shelters viewed by the Internal Revenue Service as s= et up mainly to avoid paying taxes is one key point.=20 Enron, the Houston-based energy conglomerate, faces investigations from a g= rowing list of congressional committees, the Justice Department and the Sec= urities and Exchange Commission following its collapse late last year in th= e nation's biggest corporate bankruptcy. The Finance Committee is one of tw= o congressional panels with access to Enron's tax records.=20 Even as its failure loomed last fall, Enron maintained a high-profile lobby= ing effort on a variety of tax issues. Enron led the AMT Coalition for Econ= omic Growth, a business group dedicated to repeal of the corporate alternat= ive minimum tax, which is intended to guarantee that companies pay at least= a minimal amount of income taxes.=20 Bush also pushed for repeal in his economic stimulus package, arguing that = the provision hits corporations hardest in down years.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Paper Trail: Andersen Fires Partner It Says Led Shredding Of Enron Document= s --- It Claims Disposal Effort Started After SEC Asked Energy Firm for Dat= a --- Was He Following Orders? By Wall Street Journal staff reporters Ken Brown, Greg Hitt, Steve Liesman = and Jonathan Weil 01/16/2002 The Wall Street Journal A1 (Copyright (c) 2002, Dow Jones & Company, Inc.) Capping a series of stunning disclosures, Arthur Andersen LLP fired a partn= er it charged with directing the hurried destruction of thousands of e-mail= s and paper documents related to its audit of troubled Enron Corp., declari= ng that he acted after learning that federal regulators were probing the en= ergy giant's finances.=20 In an extraordinary statement, Andersen said David Duncan -- the Houston-ba= sed lead partner on the Enron account -- led "an expedited effort to destro= y documents" after he learned "that Enron had received a request for inform= ation from the SEC about its financial accounting and reporting." In additi= on to firing Mr. Duncan, Andersen placed three other Houston partners respo= nsible for the Enron audit on administrative leave. The purge marked an effort by Andersen to contain the Enron affair to its H= ouston office and shield itself from more serious charges, as Congress and = the Justice Department intensify their scrutiny of the case. "If they can s= how that this was a rogue partner, acting beyond his authority, that will h= elp them fashion a defense," said Joseph di Genova, a former U.S. attorney = in Washington, D.C., who isn't involved in the case.=20 Just what more senior officials at Andersen knew, and when they knew it, wi= ll become central questions, as the embattled firm struggles to salvage its= tattered reputation and credibility, and to limit its possible civil and c= riminal liability.=20 While Andersen insisted that its higher-ups didn't know until recently abou= t the destruction of documents, a person close to Mr. Duncan and speaking o= n his behalf said the firm is unjustly trying to pin the blame on him. Mr. = Duncan merely was following instructions in an Oct. 12 e-mail from an Ander= sen lawyer that advised the Enron auditors to follow company procedure that= allows for the disposal of many documents, this person said. Congressional= and Justice Department investigators expect to question Mr. Duncan in Wash= ington, D.C., today.=20 Separately, even as Andersen moved to contain the damage to its Houston off= ice, there were new indications yesterday that Andersen's Chicago headquart= ers knew details about controversial Enron financing arrangements that cont= ributed to the company's downfall. These arrangements included partnerships= that kept huge amounts of debt off the company's balance sheet and inflate= d earnings.=20 After investigating an Enron employee's warnings in August about improper a= ccounting for the partnerships, the company's outside law firm, Vinson & El= kins, wrote in a report to Enron that "all material facts" about the partne= rships were "disclosed and reviewed by Arthur Andersen." The Oct. 15, 2001,= report, a copy of which was obtained by The Wall Street Journal, said that= Andersen officials in Houston consulted with colleagues in Chicago about t= he accounting treatment of the partnerships. The nine-page report made clea= r that Enron's board of directors approved of the outside partnerships and = had suspended its code of ethics to allow the partnerships to be headed by = a top Enron executive who stood to benefit financially from them.=20 Asked for comment on the Vinson & Elkins report, an Andersen spokesman yest= erday would only refer to the recent congressional testimony of Andersen Ch= ief Executive Joseph Berardino. Mr. Berardino told lawmakers that in one ca= se, Andersen made an error in judgment in accepting Enron's accounting for = one of its off-balance-sheet financing vehicles. In another case, he said t= hat if Andersen had known everything about the deal it wouldn't have signed= off on it.=20 Deepening financial problems related to its hidden debt and overstated earn= ings forced Enron in December to become the biggest company ever to file fo= r bankruptcy-court protection. Its collapse has been painful to investors, = and especially Enron employees, who have seen once-valuable company stock b= ecome almost worthless. In recent weeks, attention increasingly has focused= on Andersen's failure to flag the giant energy-trading company's problems = in audits and on Enron's unsuccessful efforts to use its influence in Washi= ngton to keep the company from going under.=20 The scandal widened last Thursday with the disclosure by Andersen, initiall= y with few details, of the document destruction. On Monday, congressional o= fficials revealed a letter written by an Enron employee last August, expres= sing worry that the company would "implode in a wave of accounting scandals= ." It also emerged Monday that Vinson & Elkins, in its Oct. 15 report, had = concluded that nothing wrong had gone on at its client, Enron.=20 In its announcement yesterday, Andersen depicted a frantic effort last Octo= ber, allegedly directed by Mr. Duncan in its Houston office, to get rid of = sensitive documents. The disposal took place as troubles mounted at Enron a= nd after questions arose about accounting deficiencies that may have contri= buted to the company's downfall.=20 Andersen said in its statement: "The effort [to destroy documents] was init= iated following an urgent meeting the lead partner called on Oct. 23 to org= anize the expedited effort to dispose of Enron-related documents. This meet= ing occurred shortly after the lead partner learned that Enron had received= a request for information from the [Securities and Exchange Commission] ab= out its financial accounting and reporting. This effort was undertaken with= out any consultation with others in the firm and at a time when the engagem= ent team should have had serious questions about their actions. Nothing in = an Oct. 12 e-mail, almost two weeks earlier, or so far as we know, other co= nversations around that time, authorized this activity."=20 The firm added that the document destruction "appears to have ended shortly= after the lead partner's assistant sent an e-mail to other secretaries on = Nov. 9 -- the day after Andersen received a subpoena from the SEC -- tellin= g them to `stop the shredding.' " By that time, huge volumes of e-mails and= written documents had been destroyed. Andersen said, "These activities wer= e on such a scale and of such a nature as to remove any doubt that Andersen= 's policies and reasonable good judgment were violated."=20 Andersen said that it couldn't assure that document destruction ended after= the firm officially came under scrutiny in the SEC investigation. "The fir= m is still looking into this issue," Andersen said, noting that "if anyone = is found to have acted in this way, they will be dismissed."=20 The Andersen spokesman wouldn't comment yesterday on whether people in any = office other than Houston knew about the document shredding as it was happe= ning.=20 Andersen's Mr. Berardino said in a brief interview that he first learned of= the document destruction on Jan. 3 and that the firm notified the Justice = Department and the SEC the following day. "We came out with this as soon as= we had enough facts," he said. It is "too early to say" what the debacle's= impact will be on Andersen's ability to attract new clients, he added. In = an advertisement appearing in today's Wall Street Journal, Mr. Berardino sa= id, "In the near future Andersen will announce comprehensive changes in our= practices and policies that we believe will reaffirm confidence in the ind= ependence and quality of our work."=20 A Justice Department spokesman declined to comment on the latest revelation= s from Andersen. But Mr. di Genova, the former federal prosecutor, predicte= d that the accounting firm's fast action signals it may seek to cooperate w= ith the government's criminal investigation.=20 "If prosecutors can cut a deal with Arthur Andersen, they may be able to ge= t to the bottom of what happened at Enron pretty quickly," said Mr. di Geno= va, who is now a private white-collar defense lawyer. The purge and admissi= on about document shredding amount to "a really nice piece of evidence [for= prosecutors]," he said. If it can be shown that anyone at Andersen destroy= ed documents "in the middle of a criminal or congressional investigation," = that person could be charged with obstruction of justice, a crime punishabl= e by prison time, he said.=20 On Capitol Hill, the investigation by the House Energy and Commerce Committ= ee, led by Republican Chairman W.J. "Billy" Tauzin, is accelerating rapidly= . Boxes of documents are pouring into the panel's office from Enron and And= ersen. Committee aides are preparing for a series of imminent interviews wi= th central players in the financial drama.=20 Mr. Duncan is scheduled to be interviewed today by investigators from the c= ommittee, as well as by officials with the Justice Department, congressiona= l aides said. "Now that he's been fired he may have a little more motivatio= n to cooperate with us," said Mr. Tauzin's spokesman, Ken Johnson. "Today, = we heard one side of the story. Tomorrow we'll hear the other."=20 The firing and other actions by Andersen mirror classic strategy in white-c= ollar criminal-defense cases: Hand prosecutors a few scalps and pledge coop= eration in hopes of gaining lenient treatment in the future. Securities-law= specialists say it's likely only the beginning of a wave of acts of contri= tion by Andersen in an attempt to restore its reputation and appease author= ities.=20 In its prepared statement, Andersen took care to cite the document destruct= ion as the only reason that Mr. Duncan and the other partners were being fi= red or placed on leave. The firm didn't link Enron's audit failure to the p= ersonnel actions. In past cases of audit failures, such as those involving = Waste Management Inc. and Sunbeam Corp., Andersen chose not to fire the par= tners responsible for those companies' audits, partly out of concern that t= hey would turn against the firm in subsequent litigation.=20 Taking action against employees doesn't necessarily shield Andersen from be= ing criminally prosecuted itself, Ted Fiflis, a securities-law professor at= the University of Colorado at Boulder, said.=20 Andersen's Houston office has been one of its biggest and most successful, = employing more than 1,400 people, out of Andersen's world-wide work force o= f 85,000. The firm said it has the largest operation of any of the Big Five= accounting firms in Houston, even though it is the smallest of the Big Fiv= e overall.=20 Mr. Duncan, 42 years old, has been at the firm since 1981, except for a nin= e-month period in 1992, and was made partner in 1995. He has been the Enron= "engagement partner" since 1997, and over the past three years has taken o= n broader responsibility within Andersen, people close to him said. In 1999= and 2000, he was part of a firm-wide strategic advisory council and last y= ear, Mr. Berardino asked him to be on the chairman's advisory council, a gr= oup of 21 partners who discuss firm-wide issues. He was informed of his dis= missal in a phone call yesterday morning, the people close to him said.=20 These people said that no Enron documents had been destroyed before Houston= officials received the e-mail from an Andersen lawyer on Oct. 12. That lon= g and detailed policy statement, while ordering auditors to save crucial do= cuments, told them to destroy many other documents. If the firm wanted the = auditors to save all the Enron-related documents, it should have sent a dif= ferent memo, a person close to Mr. Duncan said.=20 "When you want to preserve documents, you say it with bold-faced letters wi= th exclamation points," this person added. "The notion that there was some = kind of instruction from him that there be some form of expedited, extraord= inary activity, it's just not correct," the person close to Mr. Duncan said= . Mr. Duncan is cooperating fully with government investigators, according = to the people close to him.=20 The Houston-based Andersen partners put on administrative leave for their r= oles in the Enron document destruction are Thomas H. Bauer, Debra A. Cash a= nd Roger D. Willard. Peter Anderson, an attorney for Mr. Willard, denied th= at his client had been involved in any wrongdoing. Andersen's "action sugge= sts that my client has done something wrong or had acted in violation of th= e firm's policy, and we have no evidence . . . that has been communicated t= o us or that we're even aware of that would suggest that that's the case," = he said.=20 Mr. Anderson said he was told by attorneys for Andersen that the leaves wer= e imposed "out of an abundance of caution." The attorney added that his cli= ent, Mr. Willard, "acted in a belief that he was acting in accordance with = Andersen policy."=20 Mr. Bauer and Ms. Cash didn't return phone calls to their homes and offices= .=20 The firm also relieved four Houston-based partners of their management resp= onsibilities. They are D. Stephen Goddard Jr., Michael M. Lowther, Gary B. = Goolsby and Michael C. Odom. None of the four returned calls to their homes= and offices.=20 Even as attention yesterday was focused on the document destruction, invest= igators continue to probe the controversial aspects of Enron's accounting. = One of the central questions has been how much Andersen -- and in particula= r top-level partners -- knew about certain partnerships, including some run= by Enron's officers. One of the partnerships, whose existence Enron didn't= disclose for four years, was part of an arrangement that inflated earnings= by several hundred million dollars. And Enron's debt level was much higher= than it revealed, thanks to the off-balance-sheet treatment.=20 Andersen partners were apparently concerned enough about the structure of t= hese deals that they "consulted with its senior technical experts in its Ch= icago office," according to the report to Enron from Vinson & Elkins, the o= utside law firm.=20 The report also suggested ongoing contact between Enron and Andersen over t= he partnerships. "The relationship between Enron and AA was an open one," t= he report said, citing Enron's chief accounting officer, Richard Causey, a = former Andersen employee. "Enron consults AA early and often on accounting = and audit issues as they arise."=20 On more than one occasion, Mr. Causey told other company officials that And= ersen's Houston office took decisions about the accounting treatment of the= partnerships to the accounting firm's top levels in Chicago, an Enron insi= der said in an interview. "Duncan would run these things way up the chain,"= this person said. The company insider didn't know who specifically in Ande= rsen's Chicago headquarters received the information.=20 Asked about whether Andersen's Houston office routinely sought approval fro= m the Chicago headquarters in this manner, an Enron spokeswoman said, "We w= ere aware that in many cases the Houston office of Andersen consulted with = the national office on the accounting treatment of various partnerships."= =20 While many big companies have close relationships with their outside audito= rs, the relationship between Enron and Andersen was particularly close. In = 1993, when Andersen took over Enron's internal-audit operation, 40 people m= oved from the company's payroll to Andersen's. Andersen employees occupied = a large space in Enron's office tower.=20 Mr. Duncan, the Andersen audit partner, was a frequent golfing partner of M= r. Causey, the chief accounting officer for Enron. And Mr. Duncan also move= d in some of the same philanthropic circles as Kenneth Lay, Enron's chairma= n and chief executive. The two men both serve on the 36-member board of dir= ectors of a nonprofit organization called the American Council for Capital = Formation, according to the council's Web site. The organization says its m= ission is to promote "economic growth through sound tax, regulatory, and en= vironmental policies."=20 ---=20 John R. Emshwiller and Tom Hamburger contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: NEWS ANALYSIS For Andersen and Enron, the Questions Just Keep Coming By FLOYD NORRIS 01/16/2002 The New York Times Page 1, Column 4 c. 2002 New York Times Company Arthur Andersen tried yesterday to salvage its reputation by firing a partn= er who it said had directed the destruction of Enron documents. But the act= ions it said the partner took have left Andersen facing the likelihood of c= riminal investigations even as it tries to reassure the public, and its cli= ents, that its audits can be trusted.=20 ''This is very, very bad,'' said Alan M. Cohen, a former federal prosecutor= in New York and now a partner at the law firm of O'Melveny & Myers. ''Ther= e is little doubt that prosecutors will view this as an act of obstruction.= It is inconceivable to me that the partner and Andersen would not be subje= cts of a criminal investigation at a minimum.'' He noted that even though Andersen says the destruction was not authorized = by the firm, the law says a business has ''vicarious liability'' for acts c= ommitted by its agents or employees.=20 Paul R. Brown, the chairman of the accounting department at the Stern Schoo= l of Business of New York University, said of Andersen: ''They have taken a= permanent hit to their reputation.''=20 Joseph F. Berardino, Andersen's managing partner and chief executive, tried= to put the best face on the situation as he announced the firing. ''Based = on our actions today, it should be perfectly clear that Andersen will not t= olerate unethical behavior, gross errors in judgment or willful violation o= f our policies,'' he said.=20 Only a month ago, Mr. Berardino said the Enron case showed that reforms wer= e needed in accounting rules, and he blamed Enron management for deceiving = his auditors. But now the focus is clearly on Andersen itself.=20 ''The integrity of this firm is in question,'' Mr. Berardino said in a tele= phone interview. ''Our reputation is our most important asset.''=20 David Ruder, a former chairman of the Securities and Exchange Commission wh= o is now a professor of law at Northwestern University, said Andersen was '= 'doing what they can to repair the damage by firing the person and changing= the management down there.'' But he said the firm should also undertake a = broad review of its entire internal enforcement procedures to make sure its= auditors will walk away from a client when necessary.=20 Andersen said the fired partner, David B. Duncan, ordered the destruction o= f documents the day after Enron said the S.E.C. was asking questions about = the financial statements that Andersen had audited.=20 Just what was in the destroyed documents is not known. Nor is it clear what= , if anything, was wrong with the audits of Enron that Mr. Duncan had super= vised since 1997. But prosecutors assume that a person with nothing to hide= does not destroy documents after an investigation has been disclosed.=20 ''The destruction of documents would indicate some intent to deceive,'' sai= d Franklin B. Velie, a former federal prosecutor who is now a partner at th= e Salans law firm in New York. ''Where there's smoke there's fire, and wher= e there is a lot of smoke, like the destruction of documents, there is a lo= t of fire. This is really beginning to look like a fraud scenario.''=20 Andersen's reputation was hurt last year when the S.E.C. filed a civil frau= d case against the firm concerning its audit of Waste Management. It was th= e first such charge in decades against a major accounting firm, and the all= egations reached to the very top of the firm.=20 The S.E.C. said Richard L. Measelle, when he was the firm's managing partne= r, had concurred in the decision not to force Waste Management to correct f= aulty accounting that Andersen's auditors had uncovered. Mr. Measelle was n= ot accused of wrongdoing.=20 Andersen settled the case without admitting or denying wrongdoing and paid = a $7 million fine. Two partners were fined and banned by the S.E.C. from au= diting public companies for three years but kept their jobs.=20 Why was no one fired then? ''You need to be fair to people who are trying t= o do a good job,'' Mr. Berardino said yesterday.=20 Formal documents accepting an S.E.C. censure in the Waste Management case w= ere signed by Gary B. Goolsby, then Andersen's director of global risk mana= gement. Yesterday he was one of four partners relieved of management duties= in Andersen's Houston office.=20 A lawyer for Mr. Duncan, the Andersen partner who was fired yesterday, said= his client had done nothing wrong but was just following directives on doc= ument retention and destruction that had been sent to Houston by a lawyer a= t Andersen's Chicago headquarters on Oct. 12. Andersen says nothing in thos= e directives would have justified Mr. Duncan's actions.=20 The directives encourage the destruction of documents that are not needed a= s work papers to support an audit. They say that all documents should be re= tained if there is a threat of litigation. But they do not say explicitly w= hether that would apply when the S.E.C. has started an informal investigati= on of a client, like Enron disclosed on Oct. 22, or even when the investiga= tion has become a formal one, as Enron disclosed on Oct. 29. But lawyers no= t involved in this case say it is clear that documents should be preserved = after an accounting firm learns of an official investigation.=20 The case against Andersen regarding Waste Management was based almost entir= ely on internal Andersen documents indicating that Andersen believed that W= aste Management's accounting was improper but approved it anyway. Many of t= hose documents need not have been maintained under the current Andersen pol= icy.=20 The official listed as the author of Andersen's directives on document rete= ntion was Robert V. Kutsenda, the firm's director of global risk management= when the directives were issued in February 2000, while the Waste Manageme= nt investigation was under way. He retired from Andersen last year after th= e S.E.C. said he had ''engaged in highly unreasonable conduct'' in the Wast= e Management case. The S.E.C. barred him from auditing public companies for= a year.=20 Andersen said yesterday that Mr. Duncan had directed ''the deletion of thou= sands of e-mails and the rushed disposal of large numbers of paper document= s.'' It said the ''activities were on such a scale as to remove any doubt t= hat Andersen's policies and reasonable good judgment were violated.''=20 But if it was that clear that Andersen's policies were being violated, it d= oes not appear that any of the Houston personnel involved in the activities= complained to their superiors at the Chicago headquarters. Mr. Berardino s= aid yesterday that he did not hear anything about the document destruction = until Jan. 3.=20 That could indicate that to some at Andersen, the lesson learned from the W= aste Management case was not the lesson that the S.E.C. wanted to send -- t= hat auditors run great risks if they sign off on accounts they know to be w= rong. Instead, they may have concluded that the error was in keeping the do= cuments around for the S.E.C. to subpoena them later.=20 The services of an accounting firm are of no use to a company if investors = will not trust the auditor's report. That is clearly a risk Andersen faces,= even if it manages to avoid charges.=20 But Andersen may be helped by the fact that there are now only five major a= ccounting firms, a number reduced from eight by mergers in recent years. Th= e companies that hire auditors do not want to see even less competition.=20 For most companies that report on a calendar-year basis, audits for 2001 ar= e under way, and changing an auditor would be extremely difficult. But chan= ging after that audit is completed would be far easier. It is then that it = may become clear how badly Andersen has been damaged. Photos: The headquarters of Arthur Andersen in Chicago (above) and promotio= nal banners on display in the lobby (left). An Andersen partner who was fir= ed yesterday for ordering the destruction of Enron documents was following = directives issued by the Chicago office, his lawyer says. (Agence France-Pr= esse); (Tim Boyle/Getty Images)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section Andersen Dismisses Lead Enron Auditor; Partner Said to Lead Document Shredd= ing David S. Hilzenrath and Susan Schmidt Washington Post Staff Writers 01/16/2002 The Washington Post FINAL A01 Copyright 2002, The Washington Post Co. All Rights Reserved Accounting giant Arthur Andersen yesterday fired the partner who ran its au= dits of Enron Corp., saying he had directed a "rushed" destruction of docum= ents after learning that federal regulators were beginning to look into Enr= on's books.=20 The document destruction didn't stop, Andersen said, until the partner's as= sistant sent a "stop the shredding" e-mail in November, the day after Ander= sen received a subpoena from the Securities and Exchange Commission. The big accounting firm also placed three other partners on administrative = leave and demoted four managers in its Houston office, where Enron and its = auditors are based. "The message we're delivering today -- highly unusual -= - is we are not going to tolerate anything less than the highest standards,= " Andersen chief executive Joseph F. Berardino said in an interview.=20 The dismissal of David B. Duncan came less than a week after the accounting= firm disclosed that thousands of e-mails and a large number of paper docum= ents related to the Enron audit had been destroyed. "These activities were = on such a scale and of such a nature as to remove any doubt that Andersen's= policies and reasonable good judgment were violated," Andersen said.=20 Andersen has not described the content of the lost records. The firm said t= he shredding was undertaken "without any consultation with others in the fi= rm and at a time when the [Enron] engagement team should have had serious q= uestions about their actions."=20 Enron's collapse is being investigated by the Justice Department, the SEC a= nd several congressional committees, and the revelations of document destru= ction have fueled questions about Andersen's role as well.=20 Enron, which filed for bankruptcy protection in December and whose stock wa= s dropped by the New York Stock Exchange yesterday, disclosed in November t= hat it had overstated its annual profits by nearly $600 million and had imp= roperly kept more than $1 billion in debt off its books since 1997. Anderse= n had endorsed Enron's financial statements.=20 Duncan, the fired partner at Andersen, met Monday with lawyers from the Jus= tice Department and the SEC, according to sources close to the probe. Dunca= n, who reported to executives in Houston and at Andersen's Chicago headquar= ters, is scheduled to meet with House Energy and Commerce Committee investi= gators today.=20 "Mr. Duncan is cooperating with all investigations of this matter. He prope= rly followed the instructions of an Andersen in-house lawyer in handling do= cuments," said a lawyer for Sullivan and Cromwell, which is representing Du= ncan. He declined to say what information was contained in the documents an= d e-mails but stressed that work papers from the audit were not destroyed.= =20 Work papers document the final conclusions auditors reach, among other thin= gs. They would not necessarily include many records of potential use to inv= estigators, such as notes, early drafts of papers, client records, messages= between auditors or correspondence with clients.=20 Andersen policy generally calls for work papers to be kept for six years, a= nd it prohibits the destruction of any "related information" in cases of "t= hreatened litigation."=20 Under federal law, it is a felony to "corruptly" persuade another person to= destroy records with an intent to impair their "availability for use in an= official proceeding." The law says the proceeding "need not be pending or = about to be instituted at the time of the offense."=20 As Andersen's problems multiplied, more details came to light about the all= egations that an Enron insider made about the company's financial practices= last summer.=20 The full text of the letter Enron Chairman Kenneth L. Lay received in Augus= t from Enron Vice President Sherron Watkins, warning that the company might= "implode in a wave of accounting scandals," was released yesterday by the = House committee. Separately, Robert S. Bennett, a Washington attorney for E= nron, released the findings of an investigation of Watkins's charges by the= company's outside law firm, Vinson & Elkins.=20 Her accusations are at the center of the probes of Enron, which are seeking= to determine whether company officials concealed a deteriorating financial= condition from investors and employees -- a charge Enron has denied. Watki= ns did not sign the letter but then identified herself to Lay and met with = him about her concerns.=20 In the letter, she alleged:=20 * Lay should choose someone other than Andersen and Vinson & Elkins to inve= stigate her allegations because both were involved in approving some of the= transactions she complained about. Lay chose instead to have the company's= outside law firm conduct a limited investigation without "second-guessing"= the accounting practices.=20 * Other senior Enron executives challenged then-chief executive Jeffrey Ski= lling about conflicts of interest in the operations of partnerships the ene= rgy-trading company set up with its chief financial officer, Andrew Fastow.= Jeffrey McMahon, then Enron's treasurer, was "highly vexed" about the conf= licts, "complained mightily" and suggested a list of remedies.=20 * She knew that a lot of accountants, including Andersen, "have blessed the= accounting treatment [used by the partnerships in question]. None of that = will protect Enron if these transactions are ever disclosed in the bright l= ight of day."=20 * Enron had failed to describe its partnership obligations adequately in it= s financial statements. If the partnerships had been fully explained, inves= tors would have seen that Enron was exposed to hundreds of millions of doll= ars of potential losses.=20 "My 8 years of Enron work history will be worth nothing on my resume, [and]= the business world will consider the past successes as nothing but an elab= orate accounting hoax," Watkins wrote.=20 In Vinson & Elkins's Oct. 15 report on the letter's charges, the law firm s= aid the disputed partnerships had been established with the approval of Enr= on's board and its audit committee.=20 In its report, Vinson & Elkins said Enron and Andersen acknowledged that th= e accounting treatment of the partnerships "is creative and aggressive" but= said that "no one has reason to believe it is inappropriate from a technic= al standpoint."=20 After interviewing Andersen auditors, Vinson & Elkins reported that Anderse= n "is comfortable" with the explanations provided to investors in Enron's f= inancial statements. Vinson added that it was Enron's practice to give the = law firm "a relatively short time" to review the key financial information = that Enron was disclosing in those statements.=20 Under a "Bad Potential Cosmetics" heading, Vinson & Elkins said that partne= rship transactions cited by Watkins "could be portrayed very poorly" in a n= ewspaper expose{acute} or a lawsuit by shareholders. "It could be argued" t= he transactions were questionable because Enron had underwritten the risks = of partnership investors, the law firm said.=20 Vinson & Elkins concluded that the facts it found did not warrant "a furthe= r widespread investigation" by independent lawyers and auditors.=20 Enron attorney Bennett said Lay was not aware of the issues Watkins raised = until he received the memo. Lay had told his general counsel "to get to the= bottom" of Watkins's charges, Bennett said. "The notion that this was a wh= itewash is not borne out. . . . It was mostly an appearance problem," he sa= id.=20 The document destruction Andersen described yesterday makes its position in= civil litigation "close to indefensible," said John C. Coffee Jr., a law p= rofessor at Columbia University. It is likely the firm will face "heavy lia= bility," he said.=20 "Whether or not this is a crime, it's a colossal blunder," Coffee said.=20 The accounting firm has disclosed that Nancy Temple, a senior Andersen lawy= er, had sent an Oct. 12 internal memo to remind the Enron audit team of the= firm's document retention and destruction policy.=20 In its statement yesterday, Andersen said Duncan called an "urgent meeting"= on Oct. 23 to organize the destruction of Enron-related records, soon afte= r Duncan learned that the SEC had asked Enron for information about its acc= ounting.=20 Andersen spokesman David Tabolt couldn't say yesterday why Temple did not a= ct to preserve documents as soon as the firm learned of the SEC's inquiry O= ct. 22. In its statement, Andersen said that "nothing in [her] Oct. 12 e-ma= il . . . or so far as we know other conversations around that time, authori= zed this activity."=20 "There is a lot we don't know about what people did and didn't do," Tabolt = said in an interview.=20 As Andersen described the timing, the destruction of records continued afte= r Enron disclosed on Oct. 31 that the SEC's preliminary inquiry had become = a formal investigation.=20 In the interview, Berardino said he was not aware of any records being dest= royed after Andersen received an SEC subpoena on Nov. 8. But he added that = he could not rule out the possibility.=20 Duncan joined the company in 1981, became a partner in 1995 and was put in = charge of the Enron account in 1997.=20 Andersen said it placed on administrative leave partners Thomas H. Bauer, D= ebra A. Cash and Roger D. Willard and it relieved four others of management= responsibilities: D. Stephen Goddard Jr., Michael M. Lowther, Gary B. Gool= sby and Michael C. Odom.=20 Odom declined to comment yesterday. Calls to the others were not returned.= =20 Staff writer Peter Behr contributed to this report. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Scandals Put Andersen's Future at Risk; Enron Case Is Just Latest to Put De= nt in Reputation of Big Five Accounting Firm Kirstin Downey Grimsley Washington Post Staff Writer 01/16/2002 The Washington Post FINAL E01 Copyright 2002, The Washington Post Co. All Rights Reserved On Vault.com, graduating college seniors who have been offered jobs at acco= unting giant Arthur Andersen ask plaintively into the ether whether they sh= ould still go.=20 Some e-mail responders tout the company's history and tradition of excellen= ce. Others volunteer that they're Andersen employees -- and say they're loo= king to get out. Several large Andersen clients, such as Marriott International Inc., say th= ey remain committed to Andersen. But many others won't say, and the cities = of Seattle and Chicago are reconsidering their longtime links to the firm, = according to the Chicago Tribune.=20 The firm's admission that it destroyed subpoenaed documents from its audit = of failed energy trader Enron Corp. is just the latest serious blow for the= 89-year-old firm, founded by Arthur Andersen in 1913, which has prided its= elf for decades on its stolid, Midwestern sense of propriety and diligent, = rigid accounting standards.=20 University of Chicago accounting professor Roman L. Weil puts the company's= odds of survival at only "50-50." He said the company could end up being h= arshly disciplined by the Securities and Exchange Commission; could be merg= ed into another firm, perhaps one of the other Big Five accounting firms; o= r could go bankrupt if scandal-averse clients turn tail and sever their tie= s to the firm.=20 "Their future is at risk, and there are many factors for that," said Arthur= Bowman, editor of Atlanta-based Bowman's Accounting Reports. "The most obv= ious is financial. Defending the company will be expensive, even if they do= n't pay out a dime. There will be many, many lawsuits."=20 "Arthur is rolling in his grave as we speak," Bowman said. "This company, w= ith its great history, its great legacy. People would have said it was the = most arrogant firm in the business, but they wouldn't say that today."=20 Andersen is one of the the Washington region's largest corporate contributo= rs to charities. Last year, it gave more than $1 million to local charities= , and it permitted its employees to spend many hours engaged in volunteer w= ork for nonprofit organizations.=20 Andersen employees here, in Texas and around the country have been devastat= ed by the company's internal problems, Bowman said. The firm's partners, wh= o have been earning on average about $500,000 a year, are expected to soon = be asked to help foot the bill for the company's defense. They are facing d= ifficult choices about whether to stay or leave.=20 Andersen announced yesterday that it would dismiss the lead partner on the = Enron account and place three others on administrative leave. It also said = it is putting new management in charge of the Houston office, where the aud= iting and accounting work for the now-bankrupt energy firm was headquartere= d.=20 Andersen said it would also take action against anyone found to have purpos= efully deleted Enron-related e-mails or letters, as congressional investiga= tors have alleged occurred. The firm said it is continuing to investigate t= he matter, and other employees found to have been involved will also be fir= ed.=20 "Based on our actions today, it should be perfectly clear that Andersen wil= l not tolerate unethical behavior, gross errors in judgment or willful viol= ation of our policies," said Joseph F. Berardino, Andersen's managing partn= er and chief executive.=20 Arthur Andersen had prospered through the 1990s, enjoying double-digit inco= me growth annually through the 1990s. Its revenue rose from $3 billion in 1= 992 to $9.3 billion in 2001, fueled by the firm's entry into new lines of b= usiness outside of its auditing. It now has 85,000 employees worldwide.=20 One source of income growth came from outsourcing. The firm took over the i= nternal accounting functions within many companies, including Enron, allowi= ng those firms to focus on their businesses and reduce their payrolls and e= xpenses. It was an especially easy transition if Andersen was also already = handling the firms' auditing work.=20 Also, about a decade ago, the firm's accounting arm began offering consulti= ng services, including management advice and information technology assista= nce, to some longtime clients -- a practice that later had dire consequence= s on the management level as the firm's consulting wing vehemently proteste= d the incursion into its home turf.=20 With that, the baby boomers who headed the firm's consulting and accounting= divisions, Jim Wadia and George Shaheen, began a divisive ground war among= themselves, in a dispute so extended that some observers at the time liken= ed it to Vietnam. The consulting arm took the matter to an international ar= bitrator to decide how best to split the two groups apart, resulting in a p= rolonged bout of negative publicity about the leadership turmoil -- an unat= tractive prospect for organizations that sold themselves on the basis of th= eir management expertise.=20 "It was pretty ugly," Bowman recalled. "They hated each other. It affected = their every breathing moment they were consumed by it."=20 The arbitrator partitioned the two firms into separate entities in July 200= 0. The accounting arm, which had hoped to receive a multibillion-dollar win= dfall from the consulting arm for the value of the brand name, was disappoi= nted to receive far less. Andersen Consulting dubbed itself Accenture, and = Arthur Andersen, the accounting arm, now often drops the "Arthur."=20 Wadia resigned and then went to an international law firm called Linklaters= in October 2001; Shaheen went to Webvan, an online grocery that has since = failed. Other prominent executives left soon afterward.=20 Last year, Andersen was forced to pay $110 million to settle a lawsuit brou= ght by shareholders in the Sunbeam Corp. appliance company alleging that th= e accounting firm signed off on a company audit that included fictitious pr= ofits. On Monday, former Sunbeam chief executive Albert J. Dunlap, nickname= d "Chainsaw Al" for his job-cutting enthusiasm, agreed to pay $15 million t= o settle a similar lawsuit by shareholders.=20 Andersen similarly agreed to pay part of a $220 million class-action settle= ment and a $7 million SEC fine in a case in which another of its clients, W= aste Management Inc., overstated its income by more than $1 billion.=20 Andersen now finds itself in the position that it often warned its clients = against risking. In a 1999 report, Andersen executives Andrew Flaig and Glo= ria Chang told the firm's hospitality industry clients that they needed to = be wary of financial reporting fraud, or what Flaig and Chang called "cooki= ng the books."=20 The executives warned that "widespread publicity involving disclosure of fi= nancial statement fraud is clear evidence of how damaging this is to a comp= any."=20 They said that the resulting costs could include "precipitous drops in mark= et value, . . . multiple shareholder lawsuits and damages material to the e= ntities' financial statements, damaged employee morale and retention and ex= tensive amounts of time diverted."=20 In the report, they urged their clients to be wary of these warning signs: = "Inadequate leadership at the top, weak internal controls, autocratic senio= r management, collusion among accounting employees and aggressive accountin= g policies." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Politics & Policy Arthur Andersen May Lack Insurance To Cover Judgments By Christopher Oster Staff Reporter of The Wall Street Journal 01/16/2002 The Wall Street Journal A18 (Copyright (c) 2002, Dow Jones & Company, Inc.) In dealing with lawsuits stemming from its actions as Enron Corp.'s outside= auditor, Arthur Andersen LLP likely won't be able to pass the bulk of any = potential judgments against the big accounting firm on to insurance compani= es because Andersen, in large part, serves as its own insurer.=20 Andersen already has been hit with shareholder lawsuits seeking class-actio= n status in connection with its audits of the energy-trading firm, which fi= led for bankruptcy-court protection late last year. Securities-law speciali= sts said Andersen's ability to successfully fight the lawsuits took a hit y= esterday with its announcement that it was firing its lead auditor on the E= nron engagement, on the heels of its announcement last week of document des= truction by certain employees. The coverage available for litigation in cases like that of Enron would fal= l under Andersen's errors-and-omissions liability coverage. It is unclear h= ow much coverage Andersen purchased from insurance carriers. And like the o= ther Big Five accounting firms, Andersen carries a large deductible, which = means it is on the hook for smaller claims, said Leo Beus of Beus Gilbert P= LLC, a Phoenix law firm, that has won several suits against the big account= ing firms and in the process has become familiar with their insurance cover= age.=20 For payments that exceed the coverage limits on its outside insurance, Ande= rsen would tap into an insurance pool that it jointly funds with other big = accounting firms, including some outside the U.S., according to Mr. Beus. T= his pool, based in Bermuda, operates as an insurance company would, investi= ng its assets and paying claims as needed.=20 An Andersen spokesman declined to comment about the firm's insurance covera= ge.=20 Mark Cheffers, chief executive of AccountingMalpractice.com, which advises = accounting firms on how to reduce liability risk, said the Big Five are sec= retive about their insurance coverage because they don't want plaintiffs' a= ttorneys to know how large a pool of money they maintain to pay judgments.= =20 In a 1994 speech before a House subcommittee, J. Michael Cook, then-chairma= n of Deloitte & Touche, said the big accounting firms "have virtually no ou= tside insurance." He said the firms, due to tremendous growth of litigation= against them, "pooled our own risks."=20 Mr. Cheffers said it was unlikely that Andersen's insurance coverage -- inc= luding the deductible and pooled portion -- for any single year would be gr= eater than $300 million. "At the end of the day it's designed so it's large= ly self insurance," Mr. Cheffers said.=20 Mr. Cheffers said plaintiffs' attorneys generally are hesitant to push any = one firm into dire financial straits. "The one thing Andersen has going for= it is that the class-action attorneys recognize that they don't want to ki= ll the goose, and that they can get more money out of Andersen in 10 years = than in one."=20 For its part, Enron is expected to tap into $300 million in directors-and-o= fficers liability coverage provided by several big insurance companies, as = previously reported. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section SEC, Accounting Firms Redrafting Audit Rules; Agency Chairman Draws Fire fo= r Role in Effort Kathleen Day and Albert B. Crenshaw Washington Post Staff Writers 01/16/2002 The Washington Post FINAL A01 Copyright 2002, The Washington Post Co. All Rights Reserved Securities and Exchange Commission Chairman Harvey L. Pitt and the accounti= ng industry are scrambling to craft a new system for policing auditors in a= n effort to shore up confidence in the financial reports of publicly traded= companies.=20 The new plan, which could be unveiled within days, is designed to head off = criticism in the wake of the Enron Corp. fiasco that the current system of = self-regulation does not work. The effort is being driven by Pitt, who face= s complaints from some lawmakers that he should distance himself from the S= EC's investigation. Pitt represented the five major accounting firms as a private lawyer before= he was appointed by President Bush to take over the SEC on Aug. 4.=20 Sens. Jon S. Corzine (D-N.J.) and Byron L. Dorgan (D-N.D.) have said Pitt's= previous ties to the industry should require him to declare a hands-off po= licy. "I think Harvey Pitt has a high degree of integrity," said Corzine, a= former partner with Goldman Sachs Group Inc. "But I do believe for appeara= nce' sake . . . Pitt ought to do what Attorney General John Ashcroft has do= ne and clearly step aside from the process."=20 But Pitt disagreed. "To talk about recusals at this point misperceives how = this agency operates," he said in an interview.=20 Pitt said he has done and will continue to do his job in accordance with et= hics rules, which forbid -- but with some exceptions -- the SEC chairman fr= om taking any action concerning a former client for a year after taking off= ice.=20 The SEC, which regulates financial markets, is also responsible for the ove= rsight of accounting firms, which are supposed to certify that financial re= cords give a fair portrait of a company's finances.=20 With the Enron collapse focusing criticism on accounting firms, the SEC is = facing conflict-of-interest questions, not only because of Pitt's former ti= es to the industry, but also because Bush's two nominations for vacant seat= s on the five-member SEC come from big accounting firms.=20 Pitt yesterday would not comment on how he voted last fall, when the commis= sion agreed to launch an investigation into the Enron affair. That investig= ation is examining the role played by Enron officials and the company's out= side auditor, Arthur Andersen.=20 Pitt also would not specify what he would do if the SEC staff were to come = before the commission again, at the conclusion of its investigation, with r= ecommendations that actions be taken against companies or accounting firms.= =20 "Enforcement inquiries are conducted by our staff and the SEC commissioners= do not have any involvement in the myriad decisions that our enforcement s= taff will be called upon to make," Pitt said.=20 "It is not the function of the chairman of the SEC or any commissioner to m= anage any investigations. If and when I am asked to do anything on this mat= ter, I will follow both the letter and the spirit of the ethical requiremen= ts of this office. Any suggestion that I would do otherwise is an attempt t= o politicize the workings of an independent agency."=20 Pitt also would not comment on the negotiations he is having with the top f= ive accounting firms and the industry trade group, the American Institute o= f Certified Public Accountants -- all of them former clients -- on how to r= evamp oversight of the profession. An SEC spokesman said those discussions = are permitted by ethics rules and are appropriate.=20 Industry sources said that talk about a regulatory overhaul, a topic that h= as been kicked around for years, was given new impetus after Enron's failur= e. Enron filed for bankruptcy Dec. 2 after being forced to restate earnings= . The industry wants to unveil its proposal before Congress reconvenes next= Wednesday and begins hearings into what caused the energy company's proble= ms, sources said.=20 The new framework would create a private-sector regulatory organization, si= milar to those that the SEC now permits the securities markets to use to di= scipline members and establish guidelines for what is accepted and unaccept= able behavior, industry sources said.=20 But the organization would not be controlled by accounting firms, the sourc= es said, because it would be governed by boards whose members would come la= rgely from outside the accounting industry. Accounting industry officials a= cknowledge that the reforms may not go far enough to quell criticism from c= onsumer groups and some lawmakers, who say self-regulation is at the root o= f the accounting profession's problems.=20 The five major accounting firms declined to comment on the proposal.=20 The major accounting firms, in the past, have fought such a proposal, insis= ting that the current system, which includes industry self-regulating group= s and state licensing boards, are sufficient. But in missing seemingly egre= gious misstatements and incorrect reports at Enron, the Arthur Andersen tea= m raised anew questions about how well the nation's system of private accou= ntants, paid by their audit clients, serves the nation's investors.=20 The federal government gave the accounting industry the valuable franchise = to audit companies that sell shares to the public after the stock market cr= ash of 1929. In return, auditors are supposed to serve the public interest,= and maintain independence from their clients.=20 "The true client is society in an audit -- yet the client that is paying yo= ur fee is the corporation," said Stephen Loeb, professor of accounting and = business ethics at the University of Maryland. With this system, "you have = a conflict of interest. It's always going to be there," he said.=20 In addition, many accounting firms earn large sums by selling consulting se= rvices to their clients. For instance, Andersen was paid $52 million last y= ear by Enron -- $25 million for auditing and $27 million for consulting ser= vices.=20 Accountants argue that they are professionals who can and do stand up to th= eir clients when that is necessary. And, they add, ultimately their livelih= ood depends on retaining the public's trust. Otherwise, they say, audits wo= uld lose their value.=20 That, though, is exactly what is happening, some critics charge.=20 Arthur Levitt Jr., chairman of the SEC during the Clinton administration, p= roposed prohibiting accounting firms from selling certain consulting servic= es to corporations whose books they audit in 2000. But that proposal was be= aten back by the accounting industry and was opposed by several members of = Congress.=20 In addition, generally accepted accounting principles, the rules that accou= ntants must follow in auditing public companies, allow considerable flexibi= lity in evaluating what a business has done. Some lawmakers question whethe= r those rules give accounting firms too much latitude.=20 "Does the Enron debacle (and cases like it) rest on activity that is allowa= ble under generally accepted accounting principles and standards, or that c= onstitutes clear violations of those principles and standards, or some comb= ination thereof?" Rep. John D. Dingell (D-Mich.), ranking minority member o= f the House Commerce Committee, asked the SEC last month.=20 Auditing problems are not new. The late 1990s saw a wave of "restatements,"= in which many major companies, including Rite-Aid Corp., Sunbeam Corp., Wa= ste Management Inc. and Cendant Corp., were forced to admit that profits re= ported earlier had been vastly overstated.=20 Some cases involved fraud, which auditors said they are ill-prepared to det= ect. Critics have said that auditors should do more extensive checks of con= tracts, deliveries and other aspects of a company's operation. But accounta= nts warn that would make routine audits far more expensive. They say that i= n fierce competition for clients, the lowest cost auditor often wins. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 O'Neill says US derivatives rules may need modernising in wake of Enron cas= e 01/16/2002 AFX News (c) 2002 by AFP-Extel News Ltd WASHINGTON (AFX) - Treasury Secretary Paul O'Neill said US derivatives regu= lations may need modernising, in the wake of the bankruptcy of Enron Corp.= =20 "In this case, I think it's fair to say it may be that our rules and regula= tions have gotten behind practices," O'Neill said in an interview on the PB= S Charlie Rose program. At heart of the Enron bankruptcy was the firm's dealing with derivatives tr= ading, he explained, which "got away from them."=20 Derivatives that are four to five levels deep from the original product the= y are based on are extremely complex, he said, and the laws and regulations= addressing information disclosure need to be modernised.=20 A second factor is that some of Enron's actions possibly "didn't pass muste= r when they're held up against what the law required" under existing rules,= he added. To the extent that anybody broke the law, "they should go to jai= l."=20 O'Neill also said he would not have made the call former Treasury Secretary= Robert Rubin made to a senior current Treasury official concerning interve= ntion with credit rating agencies and Enron's banks.=20 According to the Treasury, Rubin called Treasury Undersecretary Peter Fishe= r and brought up the possibility of Fisher calling the ratings agencies and= encouraging them to work with Enron's banks to avoid a credit downgrade.= =20 O'Neill said it was up to Rubin to decide whether the call was appropriate,= but that he would not have made such a call.=20 Separately, O'Neill said he believes he has 100 pct backing in his position= from President George Bush, in face of criticism from politicians and the = media on his job performance.=20 Regarding the US economy, O'Neill said the US has now "put in place the con= ditions that in a reasonably quick period of time will restore growth" to 3= .0-3.5 pct.=20 Europe and Japan need to do the same, he said, to ensure the world's three = major economies are driving global development.=20 Asked about Argentina's crisis, the Treasury Secretary said Bush told him "= the concept here is friendly amigo," with the US offering technical and pol= icy advice to the new government, to help it establish a program that can r= estore growth.=20 However, he drew a distinction between Argentina and Mexico, which in 1995 = received a multi-billion dollar bailout from the previous Clinton administr= ation.=20 In the Mexican situation, US aid was collateralised with Mexican oil revenu= es.=20 In Argentina's case, however, "they don't have anything left to collaterali= se," he said.=20 O'Neill also said the US only "reluctantly went along with the notion at th= e IMF that they should be given one more chance," last August, when the IMF= boosted its loan program for Argentina by 8.0 bln usd.=20 cxa/tr For more information and to contact AFX: www.afxnews.com and www.afx= press.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE DONATIONS Enron's Ties to a Leader of House Republicans Went Beyond Contributions to = His Campaign By ALISON MITCHELL 01/16/2002 The New York Times Page 1, Column 2 c. 2002 New York Times Company WASHINGTON, Jan. 15 -- It is well known that the Enron Corporation lavished= money and attention on political figures all over the nation's capital. Bu= t for an insight into how carefully the company cultivated members of Congr= ess, look no further than its efforts to please its home state powerhouse, = Representative Tom DeLay.=20 Like other members of the Texas delegation, Mr. DeLay, a Republican whose d= istrict is in the Houston suburbs near Enron's headquarters, received sizab= le personal campaign donations from Enron -- $28,900 since 1989, according = to the Center for Responsive Politics. Yet Mr. DeLay, the House majority whip, is not just another lawmaker. The d= onations were only a starting point.=20 Enron used as lobbyists two influential members of Mr. DeLay's informal kit= chen cabinet, Ed Buckham and Karl Gallant.=20 Mr. Buckham, a former chief of staff for Mr. DeLay, has worked closely on s= trategy with Mr. DeLay's political action committee, Americans for a Republ= ican Majority. And Mr. Gallant, who once served as that committee's directo= r, went on to run the Republican Majority Issues Committee, a group widely = considered close to Mr. DeLay, whose allies once hoped that the issues comm= ittee would serve as a counterweight to unions by financing get-out-the-vot= e efforts for conservative candidates.=20 Records also show that Enron and its executives made sizable donations to e= ach of the groups. The 2000 disclosure statement for Mr. Gallant's committe= e includes a $50,000 contribution from Enron's chairman, Kenneth L. Lay, an= d a $25,000 contribution from Joseph W. Sutton, a vice chairman of Enron wh= o left the company in November. Before that year, disclosure was not requir= ed for gifts to issues groups.=20 Americans for a Republican Majority received a $10,000 corporate contributi= on from Enron in 2000 for its unregulated ''soft money'' account. And accor= ding to the Center for Responsive Politics, the group also received $47,250= in regulated contributions in 1995 through 2000 from Enron, its political = action committee or individuals tied to the company.=20 Mr. DeLay's spokesman, Stuart Roy, said there was nothing unusual about Mr.= DeLay's relationship with Enron. He described the company as ''an equal-op= portunity political donor and an equal-opportunity employer, as well, hirin= g lobbyists who were both Republicans and Democrats and giving money to bot= h sides, including a third of House Democrats and half of the Senate Democr= ats.''=20 Mr. Gallant said he would not discuss his dealings with Enron, citing a con= fidentiality clause in his contract. Mr. Buckham did not return a phone cal= l, and an aide said he would be unavailable until later this month.=20 Mr. DeLay has been unabashed about demanding that business support Republic= ans, whom he considers commerce's natural ally. Aides said he froze Enron o= ut of his office for some of the past year because it had hired Linda Robin= son, a Democrat who was a senior Treasury official in the Clinton administr= ation, to run its Washington office.=20 Mr. DeLay has previously urged lobbying firms and trade associations to ins= tall more Republicans in executive positions. Indeed, the House Ethics Comm= ittee wrote a warning, but took no official action, after he tried to persu= ade a lobbying group not to hire a Democrat as its president in 1998.=20 Still, whatever the tensions last year, Mr. Delay and Enron had a natural a= lliance. In his days in the Texas Capitol, Mr. DeLay was called Dereg by so= me because of his support of business. And in Congress he has been a longti= me proponent of energy deregulation, an issue dear to Enron.=20 Moreover, last year he was the chief Republican strategist who pushed throu= gh the House energy legislation that was favored by Enron and many other en= ergy companies. Three years ago, when Enron lost out to a Japanese company = in bidding to build a power plant in the Commonwealth of Northern Mariana I= slands, a United States territory in the Pacific, Mr. DeLay asked for the b= idding to be reopened.=20 In some ways, Mr. DeLay's support for Enron was a matter of constituent ser= vice. Mr. Roy said that Enron's success had always been important to Mr. De= Lay because of the hundreds of people the company employed in his Congressi= onal district and the thousands of others in nearby Houston.=20 ''Obviously, DeLay would not be doing his job if he were not trying to help= job creation by a major company in Houston,'' Mr. Roy said.=20 He said Mr. DeLay had never asked that the company hire his former aides as= lobbyists.=20 It is also the case that Enron cultivated the other side of the aisle. For = example, Michael Lewan, a former chief of staff to Senator Joseph I. Lieber= man, the Connecticut Democrat who is running one investigation into the com= pany's collapse, worked for Enron for a time, a spokesman for Mr. Lieberman= confirmed. The spokesman, Dan Gerstein, said Mr. Lewan, who remains a poli= tical adviser to Mr. Lieberman, had severed his ties to the company.=20 Enron officials in Washington referred questions to a company official in H= ouston who did not return a call.=20 Having a lobbyist who is close to a lawmaker can help a company get attenti= on. In 1999 Mr. Buckham told Mr. DeLay that the Japanese company had succes= sfully bid to build the power plant in the Northern Marianas. Mr. DeLay wro= te his letter asking that the bidding be reopened.=20 Mr. Roy said there had been rumors at the time that some bidders had been l= ocked out of the competition. He said Mr. DeLay's letter did not advocate o= n behalf of Enron, but for ''a fair and open bidding system.'' Mr. Roy said= he did not know who won the final contract.=20 A former aide to Mr. DeLay who did not want to be identified said of Enron,= ''They certainly through Ed Buckham got more attention than people who did= n't have Ed Buckham.''=20 After Enron hired Ms. Robertson for its Washington office in late 2000, rel= ations with Mr. DeLay became more distant. ''Relations were chilly all last= year,'' Mr. Roy said.=20 But as the member of the House Republican leadership shepherding Mr. Bush's= program through the House, Mr. DeLay pulled off a stunning upset and built= a coalition of Republicans and Democrats to pass energy legislation sought= by many companies, including Enron.=20 Mr. Roy said Mr. DeLay had received no warnings that Enron was in deep fina= ncial trouble. With many of the hard-pressed Enron employees in his distric= t, Mr. DeLay called the situation ''heartbreaking'' in an interview with a = Houston television station this week and said his goal now was to find out = whether there had been criminal wrongdoing by the company. Photo: The Enron Corporation contributed to groups aligned with Tom DeLay, = the House majority whip, and used two former employees of his as lobbyists.= (Associated Press)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Hooley and Blumenauer return Enron cash 01/16/2002 Associated Press Newswires Copyright 2002. The Associated Press. All Rights Reserved. SALEM, Ore. (AP) - Reps. Darlene Hooley and Earl Blumenauer, both Oregon De= mocrats, became the latest politicians to return campaign contributions fro= m Enron, the failed energy giant.=20 Enron went bankrupt Dec. 2 after disclosing that its faulty accounting prac= tices concealed huge losses. Top executives sold millions of dollars of sto= ck before the collapse, but many employees were barred from selling shares = held in their company 401(k) plans. "The news over the past several weeks of the financial collapse of Enron ha= s been devastating for individuals and families throughout the United State= s," Hooley wrote to Enron CEO Kenneth Lay on Dec. 21, enclosing a check for= the $1,000 the company's political action committee had sent her.=20 "They, like most Americans, are not analysts and experts in the field of fi= nancial investment," Hooley continued. "They believed in your company's fin= ancial projections. They believed you and your board of directors."=20 Enron was widely noted for its political influence. Since its demise, sever= al politicians from around the country, including Sen. Gordon Smith, R-Ore,= have returned or donated contributions.=20 Upon hearing of the company's bankruptcy filing and realizing she had gotte= n money from its PAC, Hooley initially tried to send the money to employees= who have sued the company, said her chief of staff, Joan Mooney.=20 But taxes would have eaten up more than half of the donation, and the payof= f to individual employees or investors would have been negligible.=20 Blumenauer announced Wednesday that he is donating $2,200 in campaign donat= ions made by Enron's PAC to a private nonprofit group that is retraining la= id-off Enron employees.=20 "I am pleased to give the money from Enron's corporate PAC to a good cause,= especially when so many Oregonians have been hurt by the company's collaps= e," Blumenauer said in a statement.=20 Blumenauer also got contributions from people employed by companies bought = out by Enron, including Portland General Electric.=20 The congressman said he is not returning those donations because they were = made by longtime supporters and personal friends. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Style The Essentials Of a Washington Scandal; Enron Has Possibility. But Somethin= g's Still Missing. Paul Farhi Washington Post Staff Writer 01/16/2002 The Washington Post FINAL C01 Copyright 2002, The Washington Post Co. All Rights Reserved It's still early, but, yes, it's possible. If everything goes to form, and = everyone executes according to the playbook, this one could go all the way:= The collapse of Enron Corp. could turn out to be another Incomprehensible = Washington Scandal.=20 An IWS is one of those events that, like Halley's comet, periodically light= s up the sky. It fascinates some and disappoints others -- but it mostly ba= ffles everyone else. In the beginning, you understand the basic plot of an IWS. Somebody in high= office allegedly did something he wasn't supposed to do. But soon the leak= ed memos start colliding with the press conferences, which pile into the tr= anscripts and the congressional hearings. Lawyers and spokesmen materialize= .=20 Soon, you've lost it. The simple story becomes so barnacled with facts and = accusations, so encumbered with major and minor players, that the core is n= o longer recognizable. You struggle to keep pace, but it's not long before = you're being lapped by the field.=20 By definition, an IWS is so convoluted that it is understood only by partic= ipants, partisans, lawyers and a few very nerdy journalists -- all of whom = are paid to pay attention anyway. An IWS involves allegations about things = that might have been said, on dates that are in dispute, by people who may = or may not have had the legal authority to do what they (allegedly) did. Al= l IWSes inspire congressional hearings, although early in the process the h= earings take place before panels with names like the House Subcommittee on = Intra-government Affairs, Federal Rules and Oversight Operations Management= .=20 A new IWS erupts about once every 18 months, give or take, which means Enro= n's timing could be just about perfect. IWSes rarely overlap, the media and= political classes' endurance being what it is. The Asian Fundraising Scand= al followed Filegate, which followed Travel Officegate, which followed Whit= ewater, which followed the House Post Office Scandal, which followed the HU= D Debacle, which followed the Savings & Loan Scandals, which followed Iran-= contra. And so on back to Teapot Dome.=20 What with its destroyed documents, suspect accounting reports and eye-glazi= ng concepts like "off-balance sheet partnerships," Enron is halfway to clas= sic IWS status. Almost every IWS involves money, but not money alone. It al= so needs some Byzantine connection (or plausibly imputed connection) to som= e kind of official influence-peddling. This distinguishes an IWS from a Sim= ple Washington Scandal (SWS), which is usually about sex, and therefore not= especially perplexing (everyone understands sex, or thinks they do).=20 So: Wilbur Mills's fling with stripper Fanne Fox was an SWS, as was Gary Ha= rt's friendship with Donna Rice, as were Bill Clinton's problems with Paula= Jones and Monica Lewinsky. Bob Packwood's personnel-management techniques = were an SWS, as were Clarence Thomas's movie preferences. Gary Condit's rel= ationship with Chandra Levy was an SWS, but with an asterisk: It involved s= ex and the suspicion of violence.=20 Perhaps the easiest way to tell a bona fide IWS from an SWS is by the media= that cover it. CNN, the New York Times and The Washington Post take on bot= h kinds (although they are much later to an SWS than an IWS). The National = Enquirer and the Star were all over Lewinsky et al., but don't expect to re= ad much about "off-balance sheet partnerships" in them.=20 Further, there are few, if any, telegenic props associated with an IWS. The= re is never a stained dress or a yacht called Monkey Business. There are, m= ostly, memos.=20 We'll know for sure when Enron has become a full-blown IWS when it achieves= the following milestones of every true IWS:=20 * A catchy name. All IWSes require a spiffy nickname. So far, Enron hasn't = gotten there, but there have been some rudimentary attempts.=20 The media continues to shorthand Enron as "the biggest corporate bankruptcy= in U.S. history," which is accurate, but hardly headline-ready.=20 New York Times columnist William Safire, pointing to the failings of accoun= ting firm Arthur Andersen, dubbed this aspect of the story "Andersen-gate,"= "-gate" being the predictable suffix for every IWS and SWS since Water-.= =20 The Democratic National Committee last week was floating "Enron-omics" as a= way to disparage the Bush Administration's tax and budget initiatives. Ala= s, this falls short, too, if you're trying to gin up an IWS. The "-omics" s= uffix ("Reaganomics") merely suggests a style of policy, not corruption. If= it turns out someone illegally cut corners, maybe this one will become kno= wn as "End-ron."=20 * Buzzwords. No IWS is fully realized until certain legal and quasi-legal p= hrases start flying: "subpoena," "grand jury," "special counsel," "nolo con= tendre." We're not there yet. All we've been able to muster so far are the = hoary soporifics of every two-bit D.C. dispute: "conflict of interest," "ap= pearance of a conflict of interest," and the unlovely "suggestion of the ap= pearance of a conflict of interest."=20 * Regrettable catchphrases. One of the great subsidiary values of an IWS is= that it sometimes throws off a preposterous or startling catchphrase. Agai= n, Enron is not fully developed enough to generate entries into the rhetori= cal pantheon that includes "I'm not a potted plant," "No controlling legal = authority," and the ultimate: "I am not a crook."=20 * The Lawyer as Character. Count on the media to elevate some unglamorous, = balding guy in a baggy gray suit to the status of Righteous Crusader for Ju= stice, or at least Colorful Rogue during a long-running IWS. Brendan Sulliv= an got there during Iran-Contra. David Boies made it during the Microsoft a= ntitrust trial (technically, not an IWS, but very close). No sightings on E= nron yet.=20 * The Dragon Lady. Even the dreariest IWS eventually coughs up one or two s= emi-glamorous women to enliven the proceedings. The woman in question may b= e a key player, or she may hold a minor role. Doesn't matter. Either way, s= he's bound to look good next to all the balding lawyers in baggy gray suits= . Remember Fawn Hall, Deborah Gore Dean, Susan McDougal and Mo Dean?=20 * The Non-Denouement. Quick: What was the result of every IWS of the past 1= 5 years? Surely, after all those special prosecutors, all that media covera= ge, all that distracting government focus, there was some outcome. Wasn't t= here? http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 California; Editorial Pages Desk Commentary No Special Counsel on Enron SAMUEL DASH Samuel Dash, a professor of law at Georgetown University Law Center, was ch= ief counsel to the Senate Watergate Committee and ethics counsel to the ind= ependent counsel investigation on Whitewater. 01/16/2002 Los Angeles Times Home Edition B-13 Copyright 2002 / The Times Mirror Company The fast developing Enron story has now reached Washington scandal status.= =20 Adding to the frenzy, some Democratic leaders sound as though they regret t= he demise of the independent counsel legislation, something most of them ap= plauded when it happened in 1999. If that legislation had not expired, thes= e critics would have been able to demand that the Bush administration reque= st an independent counsel and then make political hay when the administrati= on refused. This would have been reminiscent of the Republican onslaught ag= ainst Atty. Gen. Janet Reno for refusing to request an independent counsel = to investigate charges of campaign financing misdeeds in the 1996 Clinton c= ampaign. Instead, the critics can only call for the Justice Department to appoint a = special counsel. Yet on the basis of the facts known so far, this would be = wrongheaded and inconsistent, nothing more than a return to the familiar pa= rtisan political game of "gotcha!"=20 Enron's collapse may indeed justify investigations by Congress, the Securit= ies and Exchange Commission and the Justice Department, all of which are un= derway.=20 The attorney general and his chief of staff have properly recused themselve= s because of political contributions made by Enron, and a special Justice t= ask force has been created to conduct the investigation.=20 There appears to be no reason that the professional prosecutors on this tas= k force cannot be trusted to be objective and thorough.=20 Then what was the necessity for past independent counsels, which Congress l= egislated after the Watergate scandal?=20 That legislation never was intended to replace the Justice Department as th= e official law enforcement arm of the federal government; Congress could no= t constitutionally do this. Rather, the independent counsel legislation was= aimed at the rare circumstance in which an attorney general would be faced= with a serious conflict of interest in having to investigate substantial a= nd credible criminal charges against the president or a high Cabinet offici= al.=20 In Watergate, exactly such a conflict existed for Atty. Gen. Elliot L. Rich= ardson when criminal charges were pending against President Nixon's top sta= ff and former Cabinet members, charges that implicated the president. At th= e time, Richardson appointed a regulatory special prosecutor, Harvard law p= rofessor Archibald Cox. Only after Nixon fired Cox did the Senate Watergate= Committee conclude that new legislation was needed.=20 I believe this legislation worked well from 1978 to the mid-1980s. It was u= sed sparingly and had the confidence of the public. But beginning with the = Iran-Contra investigation and through the numerous investigations involving= the Clinton administration, it was overused. It became publicly and politi= cally unpopular and so was not reenacted by Congress.=20 So far, nothing made public about Enron would have justified the appointmen= t of an independent counsel. There are no charges that President Bush, Vice= President Dick Cheney or any member of the Cabinet had complicity in Enron= 's financial failure. Yes, Enron Chairman Kenneth L. Lay was a major financ= ial supporter of Bush and thus had access to the president and Cabinet memb= ers. But such access has always been an inherent feature of the American po= litical system. With no evidence of improper favors, it is at most an impro= priety. The remedy is campaign financing reform.=20 The administration has disclosed that in October, just as Enron was going u= nder, Lay contacted Treasury Secretary Paul H. O'Neill and Commerce Secreta= ry Don Evans and may have asked for help in protecting Enron's credit ratin= g. But it seems that no such help was given. Apparently, the administration= did nothing to prevent the company's financial failure and the resulting l= osses to shareholders and employees. It is not clear what the administratio= n could have done, even in October. But if anyone in the administration had= intervened to save Enron, the critics would now be making even more seriou= s allegations. The investigations should go forward without a supplemental = independent investigator. With regard to possible criminal charges, the Jus= tice task force should conduct an aggressive investigation. The accounting = practices used to falsely report huge profits, misleading investors and emp= loyees, need to be exposed and those responsible made accountable.=20 The congressional and SEC investigations must thoroughly examine the role o= f corporate directors, auditors and large accounting firms to determine whe= ther outside audits are truly independent.=20 Tragic as it is to so many investors and employees, Enron's failure could s= erve as a wake-up call for American politics and business. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial . . . Especially From Republicans George F. Will 01/15/2002 The Washington Post FINAL A19 Copyright 2002, The Washington Post Co. All Rights Reserved Washington -- narcissistic and even solipsistic, as usual -- thinks Enron's= collapse is primarily a Washington, meaning a political, story. Actually, = the debacle is, so far, primarily a tale of two other cities. Houston is En= ron's hometown. New York is the center of the financial system that Arthur = Andersen is supposed to serve. Andersen is the document-destroying accounti= ng firm that failed -- assuming, generously, that it tried -- to report acc= urately Enron's activities.=20 However, Washington will star in subsequent acts of this drama that may liv= e on, in litigation, longer than anyone reading this column. Events since S= ept. 11 have confirmed Randolph Bourne's 1918 axiom that "war is the health= of the state." Enron's collapse is a reminder that economic scandal, too, = causes the state to wax. It will remind everyone -- some conservatives, painfully -- that a mature c= apitalist economy is a government project. A properly functioning free mark= et system does not spring spontaneously from society's soil as dandelions s= pring from suburban lawns. Rather, it is a complex creation of laws and mor= es that guarantee, among much else, transparency, meaning a sufficient stre= am -- torrent, really -- of reliable information about the condition and co= nduct of corporations.=20 Always necessary to economic health, transparency has increasingly become c= rucial to civic health because of the changed demographics of stock ownersh= ip. A nation in which a majority of households own equities is neurological= ly wired to the stock market. Hence corporate corruption quickly begets pol= itical demoralization and cynicism.=20 Off and on over the years, a few capitalists have done more to delegitimize= capitalism than America's impotent socialist critics ever did or today's m= oribund left could hope to. It is the Republicans' special responsibility t= o punish such capitalists.=20 Democrats are properly put on the defensive by corruption in organized labo= r and the ditziness of the cultural left. Similarly, Republicans, beginning= with their post-Civil War entanglement with corporate America (tariffs and= all that), have had a special responsibility to police business outlaws.= =20 Fortunately, those in the Bush administration who were approached on Enron'= s behalf evidently did exactly what government should do for fools and clev= er knaves who are ruining a corporation: nothing. But now there are things = to be done.=20 Indignation is a precondition for whatever new laws and regulations are req= uired to prevent behavior such as Enron's. It has been said that the absenc= e of honest emotion is the shared characteristic of American politics and p= rofessional wrestling. One would like to hear from President Bush, regardin= g Enron's executives, the sort of anger he expressed over the possibility t= hat the crybaby Secret Service agent whose behavior caused an American Airl= ines pilot to bar him from a flight might have been a victim of illegitimat= e profiling.=20 Instead, we have heard Bush's slippery -- Clintonian, actually -- assertion= that Enron's CEO, Ken Lay, "was a supporter of Ann Richards in my run in 1= 994" for governor. Well, yes, but no. Lay contributed to Richards. And he c= ontributed much more to Bush.=20 When the president finds his proper voice, he should say:=20 Arthur Andersen was both accountant and consultant for Enron. The resulting= relationship reeked of conflict of interest, and surely helped produce Enr= on account books that should be filed under "fiction." Enron never reported= even a bad quarter before collapsing. Consulting by accounting firms shoul= d be proscribed. And what is the point of "peer reviews" by the big account= ing firms of one another's work if they do not discern an approaching train= wreck such as Enron's?=20 A few senior Enron executives sold their Enron stock when they realized the= y were steering their ship onto the rocks. In some crucial final days, empl= oyees, locked in steerage like the lower orders on the Titanic, were blocke= d from selling the Enron stock that comprised, on average, 62 percent of em= ployees' 401(k) holdings. (At 120 large corporations, employees' 401(k) pla= ns have at least one-third of their value in their employers' stocks.) If i= nsider trading and other laws do not proscribe such things, they should.=20 Amid the debris of Enron, the functions and liabilities of boards of direct= ors need fresh scrutiny. Many boards have proved themselves unwilling (ther= e are myriad forms of coziness between corporations and their directors) or= unable to stop the most scandalous practices regarding senior executives' = compensation, practices not easily distinguishable from the looting of shar= eholders' wealth. Let us have, at a minimum, congressional hearings that em= barrass the looters, if they are capable of embarrassment.=20 Now Washington takes center stage. By casting a cool eye on Enron's debris = and those who made it, government can strengthen an economic system that de= pends on it. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Style Media Split on Import of Enron Howard Kurtz Washington Post Staff Writer 01/15/2002 The Washington Post FINAL C01 Copyright 2002, The Washington Post Co. All Rights Reserved Judging by the sudden media explosion, the Enron saga is a high-octane poli= tical scandal of the first order.=20 Or, some journalists say, it's a badly hyped bit of Beltway intrigue that w= ill run out of gas because the Bush White House did nothing wrong. A senior administration official blames the coverage on "a bunch of scandal= -thirsty reporters who are dying to hit the bottle, even though it's not al= coholic."=20 In the days since the White House revealed that Enron CEO Kenneth Lay calle= d two Cabinet officers shortly before his energy-trading company collapsed = in the largest bankruptcy in American history, the press has jumped on the = story with Whitewater-like intensity. But since the administration refused = to help Lay, a long time friend and financial backer of President Bush, the= coverage has an almost schizophrenic quality.=20 Jonah Goldberg, editor of National Review Online, sees journalists firing a= t their favorite targets.=20 "Bush has gotten a really good ride out of the press during the war for a l= ong time, and rightly so," he says. "All of a sudden there's this huge stor= y that Democrats, for reasons good and ill, are trying to make hay out of. = You can see the press saying we have to go back to our muckraker roots and = get to the bottom of it. It's natural for the press to want to show that bu= siness is evil."=20 But Robert Scheer, a Los Angeles Times columnist who has called Enron a "ca= ncer on the presidency," maintains the press has gone soft. "Journalists sh= ould be asking the question 'What did you know and when did you know it?' "= he says. Scheer argues that "the media backed off" on White House coverage= after Sept. 11 and have been "cheerleading" for Bush.=20 This philosophical split is reflected in the news reports. "The rapidly exp= loding Enron inquiry presents all the elements of earlier Washington scanda= ls," the New York Times said Friday, "including carefully phrased denials a= nd accusations of improper influence."=20 The Washington Post took a similar tack: "It's too soon to say whether Enro= n Corp.'s spectacular collapse will become a bona fide Washington scandal, = but the classic elements suddenly burst into view yesterday -- disclosures = of destroyed documents, White House phone calls from a big political contri= butor, an attorney general's recusal and damage control efforts by the pres= ident."=20 But the Washington Times cast Bush as a reformer, relegating the White Hous= e calls to the eighth paragraph: "President Bush yesterday decried the 'awf= ul bankruptcy' of Enron Corp. and ordered a review of pension disclosure la= ws to help protect the life savings of workers at other troubled firms." An= d USA Today went with the headline: "Bush Seeks Review of 401(k) Law."=20 "I couldn't find anything improper or illegal in Enron officials calling Ca= binet secretaries," says Washington Times correspondent Bill Sammon. "I'm n= ot going to join people who are throwing around a lot of innuendo and insin= uation. . . . Of course the White House was defensive, in response to accus= atory questions from the press."=20 White House spokesman Ari Fleischer faults The Post for including "disclosu= res of destroyed documents" in the article's first sentence before explaini= ng that the papers were shredded by auditor Arthur Andersen & Co. "The velo= city with which this story has taken off in the minds of the Washington pre= ss corps is way ahead of the pace of the facts," Fleischer says.=20 Conservatives, noting that Enron also gave sizable sums to Democrats, ridic= ule the notion that the White House/Enron story should be covered like Bill= Clinton's scandals. White House adviser Mary Matalin told radio host Don I= mus that Bush's critics "act like there's some billing records or some catt= le scam or some fired travel aides or some blue dress."=20 "The comparison to Whitewater really doesn't hold," says Goldberg. "No one = is alleging that Bush gained personally from this." (As it turned out, the = Clintons lost money on their Whitewater land deal.)=20 There is little dispute that the Enron meltdown is a major-league financial= scandal in which company insiders dumped their stock before employees star= ted losing their life savings. But despite the Houston firm's Dec. 2 bankru= ptcy filing, the story was largely relegated to the business pages and rare= ly mentioned on television. Exceptions included the New York Times and Wall= Street Journal -- as well as the Los Angeles Times and San Francisco Chron= icle, where local interest was fueled by Enron's role in California's energ= y crisis.=20 As late as Aug. 28, after the former CEO abruptly resigned, the Houston Chr= onicle was cautious in a front-page report: "Even though nothing major appe= ars to be wrong at Enron Corp., investor confidence in the world's largest = energy trader remains shaky."=20 Jim Cramer, a former money manager and co-host of CNBC's "America Now," say= s an Enron executive complained to his bosses months ago when he charged th= at the company was "unraveling" and that its stock was going to zero.=20 "My producer and I have been saying for weeks, 'Are we the only guys who th= ink this is a big story?' " Cramer says. "Everyone just kept quoting the sa= me analysts, saying it's all much ado about nothing. The Wall Street analys= ts worked at firms that were doing massive amounts of investment banking bu= siness with Enron."=20 Paul Begala, a former Clinton aide who now teaches at Georgetown University= , says Enron deserves far more coverage than the Monica Lewinsky melodrama.= "Clinton having an affair is pretty much between him, his wife and his gir= lfriend," Begala says. "It didn't hurt America. Nobody lost their savings. = This is a very big deal."=20 Begala says Bush hurt himself by claiming last week that Lay supported Ann = Richards over him for Texas governor in 1994 -- a claim that was prominentl= y debunked by Texas newspapers but only briefly mentioned elsewhere.=20 "The lesson I learned from the Lewinsky thing is a president must never lie= ," Begala says. Bush "got off very, very easy," he says, because the press = is "a bunch of cream puffs." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section THE IDEAS INDUSTRY Richard Morin and Claudia Deane Enron Pumped Cash Into Tanks Too Richard Morin and Claudia Deane 01/15/2002 The Washington Post FINAL A17 Copyright 2002, The Washington Post Co. All Rights Reserved Politicians weren't the only ones getting gobs of cash from Kenneth L. Lay,= the embattled chairman of Enron Corp., the Houston-based energy trading co= mpany that collapsed last month amid allegations of accounting hanky-panky = and management misdeeds.=20 In recent years, Lay or Enron contributed thousands of dollars to Resources= for the Future and the American Enterprise Institute. Lay also serves on t= he board of directors of the two high-profile Washington-based think tanks. "Enron has contributed periodically to RFF since 1990, with gifts ranging f= rom $10,000 to $45,000" to the general fund, said Jonathan Halperin, direct= or of communications planning and strategy at RFF. The $45,000 contribution= was made last fall to honor the 50th anniversary of the think tank, which = researches issues related to natural resources and the environment.=20 And yes, "the check did clear," reported Ted Hand, RFF's vice president for= finance and administration.=20 In addition, the Linda and Ken Lay Foundation pledged in 2000 to endow a re= search chair at RFF. In 2000, the foundation contributed a total of $15,000= , Halperin said.=20 The Enron chairman briefly served on the RFF board of directors in the mid-= 1980s. He rejoined the board in April 2000.=20 Lay has served on AEI's board of trustees since 1994. AEI officials decline= d to say how much Lay or Enron has contributed to the tank.=20 "We have a firm rule about not discussing the amount of contributions or wh= ere they come from," said Executive Vice President David Gerson, though he = noted wryly that AEI got less than RFF did last year.=20 AEI is the intellectual home of Lynne V. Cheney, wife of Vice President Che= ney and an AEI senior fellow. The vice president and Lay were on a panel to= gether at AEI's World Forum on June 24, the White House said in a letter to= Congress released last week.=20 GETTING TOGETHER: Here's another unexpected consequence of the Sept. 11 ter= rorist attacks: "Whites trust blacks more, Asians trust Latinos more, and s= o on, than these very same people did a year ago," reports Harvard politica= l scientist Robert Putnam.=20 Putnam, the intellectual guru of the civic engagement movement, based his s= urprising claim on a new analysis of surveys conducted by the Saguaro Semin= ar at Harvard. The first poll was conducted in 2000. Last October, research= ers returned to the same people and posed the questions again to see if the= ir attitudes had changed following the attacks on the World Trade Center an= d the Pentagon.=20 They had. "Evidence of enhanced trust across ethnic and other social divisi= ons is especially striking and gratifying," Putnam writes in the American P= rospect due out this week. For example, the proportion of whites and Asians= who said they trusted blacks "a lot" increased from 22 percent to 29 perce= nt, Putnam reported.=20 VOUCHING FOR SCHOOL CHOICE: School vouchers didn't make the final cut in th= e recent education bill, but they're still a smoking hot topic in Washingto= n with the Supreme Court set to hear oral arguments in the Cleveland vouche= r case next month.=20 With this timing in mind, the Cato Institute announced the launch of the Ce= nter for Education Freedom, to be run by new hire David Salisbury. The cent= er will run on an annual budget of $450,000 and start with a staff of four.= =20 "We'll be looking at proposals in the 50 states, including tuition tax cred= its, scholarship tax credits like they have in Arizona, and how to decrease= the role of the federal government in special education," Salisbury said. = "We're also looking at for-profit and nonprofit educational entrepreneurs w= ho are providing options for managing schools and educating kids outside th= e government."=20 Salisbury, a former education professor at Florida State University, comes = to the libertarian tank from Utah, where he spent five years running the Su= therland Institute, a small, free-market think tank.=20 (Perhaps there's some sort of East-West libertarian exchange going on. Cato= 's previous education expert, Darcy Olsen, left the District last fall to b= ecome the executive director of the Phoenix-based Goldwater Institute.)=20 On a related subject, the Center for Education Reform, a pro school-choice = advocacy group, just released the seventh edition of its National Charter S= chool Directory, which includes a list of 2,431 charter schools as well as = analyses of enrollment and growth, and a ranking of state laws.=20 PEOPLE: Everett Ehrlich has been named senior vice president and director o= f research at the Committee for Economic Development. Ehrlich, a former und= ersecretary of commerce for economic affairs, has also served as assistant = director at the Congressional Budget Office, and is a former vice president= for Unisys Corp. In his spare time, he pens novels.=20 The Carnegie Endowment for International Peace has hired George Perkovich, = a specialist in South Asian security issues, as a senior associate. Perkovi= ch, author of a well-received book on Indian nuclear policy, has spent the = last decade grant-making at the W. Alton Jones Foundation. Council on Forei= gn Relations scholar and former State Department policy planning head Morto= n Halperin has taken over the directorship of the Washington office of Geor= ge Soros's Open Society Institute.=20 Ross Eisenbrey has joined the Economic Policy Institute as policy director.= He comes from the Occupational Safety and Health Review Commission, where = he was a commissioner, and has worked on labor issues in both the House and= Senate. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Post: Editorial Enron highlights risks of employee stock plans Amity Shlaes National Post 01/16/2002 National Post National FP15 (c) National Post 2002. All Rights Reserved. Back in the late 1950s, a lawyer called Louis Kelso co-authored a book call= ed The Capitalist Manifesto. In it, he posited that democracy suffered when= money was confined to the hands of the wealthy. Workers should have a chan= ce to participate in capital, not just in some nominal fashion but as true = shareholders.=20 With the Enron collapse on the front pages, and much media attention paid t= o the many employees who lost the bulk of their life savings because their = retirement funds contained little other than Enron stock, Mr. Kelso's lesso= ns for us bear revisiting. The essence of property, as Mr. Kelso wrote, "is the right to receive its p= roduct." Workers needed equity assets and, crucially, the freedom to manage= them. After this radical change, the United States would stabilize and wou= ld no longer suffer periods like that of Mr. Kelso's own youth, the Great D= epression.=20 Mr. Kelso created a device to mount his revolution: the employee stock owne= rship plan, Esop. A Kelsonian spirit also infused the subsequent developmen= t of the now widespread employee pension plan, the 401(k), an RSP-like vehi= cle.=20 The 401(k) gives companies the option -- it is important to note this is vo= luntary -- to deposit company shares or cash into accounts of individual em= ployees. Tax incentives then encourage workers to match the company contrib= ution made in their name with their own cash savings. There are also confis= catory penalties for those who do not wait until retirement to claim the pr= oceeds.=20 All this comes to mind when we consider the fate of Enron employees who los= t their 401(k) shirts when the Enron stock they held evaporated. One could = argue -- from the left -- that the Enron case shows worker stock ownership = is inherently dangerous. But the truth is that Enron's pension crisis occur= red because 401(k)s are not Kelsonian enough.=20 Consider the nature of 401(k)s. While workers have nominal title to their p= ensions while they are employed, both the government and company sponsors p= lace all sorts of constraints on their ownership. In 401(k) plans, worker i= nvestments are routinely limited to an array of mutual funds, chosen by the= company, and to company shares. They may not invest their 401(k) money in = assets that are not on the prescribed menu, such as individual properties. = They are, as mentioned, subject to rules that punish any withdrawals before= retirement. What is more, pension law encourages employers to play the mur= ky role of principal investment "educator" to employees. Many of these rule= s were written in the name of protecting the workers. But the net result is= that, during the working years, the rights of ownership of 401(k) plans do= not reside with the worker alone. Instead, they are shared between him and= his employer. Worker ownership has generated enormous good, just as Mr. Ke= lso foresaw.=20 The existence of Esops and 401(k)s in the 1980s and 1990s meant that worker= s could participate in great economic expansions. The fact that companies c= ould offer their own stock to workers meant that they shared out far more t= han they might otherwise have done.=20 The second benefit of employee stock ownership was that it did indeed give = workers a personal stake in their companies. Companies figured out that wor= ker-owners would be less likely to shirk. This is one reason why U.S. produ= ctivity growth stands out internationally. But Enron illustrates the disadv= antages of the half-ownership arrangement.=20 First is the problematic rule that drives employers to play the role of inv= estment educator. This creates a form of pension paternalism that in turn g= enerates a false sense of security. If Enron employees had been talking to = an independent financial planner instead of their go-go bosses, that planne= r would have told them that it was crazy to have 98% of their pension in En= ron stock. The advisor would also have told them that their Enron pension p= lans were insufficient. He or she would have said it was unwise for middle-= aged workers to be taking the same risks as 20-year-olds at Internet start-= ups.=20 The second problem was a rule that gave Enron -- and other such firms -- th= e discretion to enforce a "black-out" period when workers are not allowed t= o alter their investments. Just such a black-out was in effect when Enron s= tock price was plummeting. This denied workers the right of the true owners= to, receive their capital's product, as Mr. Kelso put it. If they had been= able to do so, they could have sold the shares in a timely manner.=20 The third problem rule is one that gave Enron the discretion to block sales= by workers until they reached a certain age. Had workers truly controlled = their capital, they would have been free to act more quickly. The logical n= ext step therefore is to unmuddy the pension law and make clear what owners= hip is and what it is not.=20 If employees are to have 401(k) investments -- and they should -- their own= ership should be something closer to outright. The law should encourage the= m to seek independent advisers and to cast a skeptical eye on their employe= rs' enthusiasms. The worst thing would be to heap on new constraints and "p= rotections," as legislation proposed by senators Barbara Boxer and Jon Corz= ine would do. This would stop companies from contributing to these voluntar= y plans altogether.=20 Most important to recall, at this dire moment, is that the profit-sharing i= deal did achieve its lofty aim. For the tens of thousands of Enron workers = in trouble, there are millions more who have seen benefits. It would do mor= e damage than a dozen Enrons to disturb the progress of Louis Kelso's revol= ution. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial DEALS Allan Sloan The Worst Thing About Enron: Checks and Balances Failed Allan Sloan 01/15/2002 The Washington Post FINAL E01 Copyright 2002, The Washington Post Co. All Rights Reserved Enron was supposed to be the next new thing, a new-economy company with sub= stance to it.=20 Unlike flaky Internet start-ups that substituted ethereal yardsticks such a= s "eyeballs" and "stickiness" for revenue and profits, Enron had real busin= esses, real assets, real revenue and what seemed to be real profits. It own= ed natural gas pipelines and electric generating plants and water companies= . Not only would it do well, it would improve the planet by substituting the = efficient hand of the market for the clumsy hand of government regulation. = And it seemed to work. From humble beginnings as a natural gas company, Enr= on rose in a mere 15 years to No. 7 on the Fortune 500 list, doing $100 bil= lion of business in 2000. Along the way, Enron became one of America's most= admired companies and a perennial favorite on best-places-to-work lists.= =20 But Enron turned out to be another bubble. Unlike a Pets.com or a Webvan, w= hose implosions did little damage outside of costing dice-rolling speculato= rs some money and techies some jobs, the Enron bubble exploded like a grena= de. Today, Enron is a smoking ruin, the biggest corporate bankruptcy filing= in American history.=20 A year ago, the stock market valued Enron at more than $60 billion. Its sto= ck has since lost 99 percent of its value -- and still seems overpriced. St= ockholders and lenders are out tens of billions of dollars. Many of Enron's= 20,000 employees lost their retirement savings when the company collapsed.= About 5,000 of them, from computer jocks in Houston to newsprint recyclers= in New Jersey, lost their jobs, too.=20 By contrast, Chairman Ken Lay made $205 million in stock-option profits in = the past four years alone, and other big hitters and board members made out= , too. What's especially galling is that a handful of executives and outsid= ers made millions by investing in off-balance-sheet deals with Enron that p= layed a large role in destroying the company.=20 The collateral damage keeps spreading. Prominent among the wounded is Arthu= r Andersen, Enron's outside auditing firm, which disclosed last week that s= ome employees destroyed documents. Andersen's reputation has been tarnished= to the point that the Big Five accounting firms might shrink to the Big Fo= ur. Wall Street's credibility has been shattered. Utilities deregulation, f= or which Enron was the model, is now on the back burner.=20 The spectacle of impoverished, unemployed Enron workers has thrown a harsh = spotlight on the risks of 401(k) accounts stuffed with company stock. Confi= dence in financial markets has been shaken -- and rightly so. With the acti= on in Afghanistan slowing down, Enron shock waves have finally reached Wash= ington, raising the specter of another 'Gate.=20 Life would be simple if we could blame the whole thing on Enron Chairman La= y. Or on George W. Bush, who goes way back with Lay, the biggest individual= contributor to Bush's presidential and Texas gubernatorial campaigns. But = Enron isn't that simple. It's something far more scary: a wholesale systemi= c failure.=20 The multi-layered system of checks and balances that is supposed to keep a = company from running amok completely broke down. Executives of public compa= nies have legal and moral responsibilities to produce honest books and reco= rds -- but at Enron, they didn't do that. Outside auditors are supposed to = make sure that a company's financial reports not only meet the letter of ac= counting rules but also give investors and lenders a fair and accurate pict= ure of what's going on -- but Arthur Andersen failed that test. To protect = themselves, lenders are supposed to make sure borrowers are creditworthy --= but Enron's lenders were as clueless as everyone else. Wall Street analyst= s are supposed to dig through company numbers to divine what's really happe= ning -- but almost none of them managed to do that. Regulators didn't regul= ate. Enron's board of directors didn't direct.=20 Why did all these people look the other way for so long? Money talks. Or, w= ith Enron, shouts. The company put lots of money in the pockets of people a= nd institutions who were supposed to police it. Enron's incessant dealmakin= g generated huge fees for Wall Street investment-banking houses. And guess = what: Wall Street loved Enron, with most analysts rating its stock and bond= s as the greatest thing since money was invented, at least until they final= ly heard Enron's death rattle.=20 Enron paid huge fees -- $52 million in 2000 -- to Arthur Andersen for audit= ing and consulting services. Andersen allowed it to get away with accountin= g that was at best aggressive and at worst criminal. If Andersen had stood = on principle, Enron would doubtless have changed accountants.=20 Enron famously made heavy political contributions. Pols got peanuts compare= d with what Wall Street and Andersen got, but it was enough to help Enron r= un over regulators at both the national and state levels.=20 The Enron fallout promises to be severe and far-reaching. With a criminal i= nvestigation underway, some of the Enron players face the possibility of sp= ending time in the Big House. The only questions about Arthur Andersen is h= ow much the partners will have to pay to settle this mess and whether the c= ompany can survive as an independent entity. The accounting profession is w= ishing it were again faceless and colorless, instead of being in the harsh = spotlight. Financial conglomerates such as J.P. Morgan Chase and Citigroup = are going to be scrutinized over their multiple and often conflicting roles= at Enron: lenders, trading partners, investors, advisers, investment banke= rs.=20 The bottom line: Enron wanted to change the world. It did. But not quite th= e way that it had in mind.=20 Keith Naughton, Kevin Peraino, Temma Ehrenfeld and Donna Foote in Los Angel= es and Jamie Reno in San Diego contributed to this report for Newsweek.=20 Sloan is Newsweek's Wall Street correspondent. His e-mail address is sloan@= panix.com. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial A Comedy of Assets Michael Kelly 01/16/2002 The Washington Post FINAL A19 Copyright 2002, The Washington Post Co. All Rights Reserved "I am incredibly nervous that we will implode in a wave of accounting scand= als."=20 -- Enron employee Sherron S. Watkins to Kenneth L. Lay, chairman of the now= -bankrupt energy company that inflated its profits by nearly $600 million u= nder the approving eye of the industry-leading accounting firm of Arthur An= dersen. Scene: The executive conference room of Megaglom-Inflato Inc.=20 Cast: The chairman of Megaglom-Inflato and a senior partner of the accounti= ng firm Alfred Arthursen.=20 Megaglom Chairman (seated at conference table, head in hands, weeping): "Wo= e is me! For I am undone; because I am a man of unclean lips, and I dwell i= n the midst of people of unclean lips!"=20 Alfred Arthursen Senior Partner: "Nonsense, nonsense, now, now, come, come,= chin up, stiff lip, all is not lost, no fear."=20 Megaglom Chair (rending clothes, tearing hair, covering self in ashes): "Do= om, doom, perdition and doom. Bankruptcy. Fraud. Court TV trial. Texas jail= time. Doom."=20 Arthursen Senior Partner (dancing gaily around table, strewing flowers, sin= ging):=20 "Gray skies are gonna clear up=20 Put on a happy face.=20 Brush off the clouds and cheer up.=20 Put on a happy face."=20 Megaglom Chair (curled up on floor, fetal position, moaning): . . .=20 Arthursen Senior Partner (opening briefcase, arranging Megaglom ledgers, gr= een eyeshade, eraser): "Pull yourself together, man. It's audit time! First= thing, let's assess liabilities."=20 Megaglom Chair (whispering): "Seven hundred and ninety-seven million dollar= s and fourteen cents."=20 Arthursen Senior Partner (examining ledgers): "And this appears on the book= s, as -- ah, here it is -- fourteen cents. Now, that's what I call accounti= ng."=20 Megaglom Chair (staring into space): "Whoops. Whoops. Whoops."=20 Arthursen Senior Partner: "Whoops-a-daisy, you mean -- son, this isn't noth= ing but a little ol' hill of beans -- nothing that a good auditor can't fix= . What about assets?"=20 Megaglom Chair: "Zip, nada, goose egg."=20 Arthursen Senior Partner: "Which appears on the books as $145,000,000.14. O= key-dokey, let's get there. We'll start with corporate assets of the person= . Always more there than you think. Lemme see. Shirt, Turnbull & Asher; thr= ee-piece bespoke suit, Saville Row; shoes, Church's; socks, very nice black= cotton ones; belt, Mark Cross; watch, Rolex Oyster; wedding ring, Tiffany;= underwear, no doubt finest kind. Lemme see, that ads up to $42,357.25."=20 Megaglom Chair (perking up): "Really?"=20 Arthursen Senior Partner: "More assets of the person: Age, 55 -- years of p= roductive leadership service remaining -- let's say 15 at an annual compens= ation, adjusted, gross, net, with bells on, averaging $22 million: total $3= 30 million. Value of spousal consortium -- figure one conjugal occasion per= week, 52 weeks per year, four weeks off makes 48, multiplied by 25 years m= akes 1,200 at an assessed value of $5,000 per occasion equals $6 million, n= ot bad.=20 "Parental value to children -- two kids, right? -- mentoring, guiding, cons= oling, hectoring, teaching right from wrong. Let's call it $100 million per= precious wee nipper, for $200 million.=20 "Finally, the body itself: procreative value to corporation, figuring, say,= five future Megaglom executive officers at a lifetime worth per officer of= , oh, $65 million; value of precious bodily fluids adds up to $325 million.= Then there are your ruby lips, sapphire eyes, pearly teeth -- gemstones va= lued $2 million. So, let's see, I make your corporate assets of the person = out at $863,042,357.25."=20 Megaglom Chair (a startled smile lighting up his face): "Hey!"=20 Arthursen Senior Partner: "Kid, you ain't seen nothing yet. You ever contri= bute to any elected officials?"=20 Megaglom Chair: "Have I ever! Lifetime support of current president, $2.5 m= illion; lifetime support of current members of Congress, average $45,000 a = head in the Senate for a total of $4.5 million, $20,000 per each of 435 Hou= se members for $8.7 million; state, county and local officials adds up to a= bout $5 million, give or take a hundred thou."=20 Arthursen Senior Partner: "Okay, that's $20.7 mil, call it $21, and figurin= g in a conservative multiplier effect of about six -- for as ye sow so shal= l ye reap -- we get $120 million more in assets. Grand total of assets of M= egaglom-Inflato: $983,042,357.25. Against liabilities of $797,000,000.14, w= e arrive at a net market value of $186,042,357.11."=20 Megaglom Chair: "Wow!"=20 Arthursen Senior Partner: "Minus our usual consulting fee, which this time = comes out to $41.1 million, that leaves you with assets of -- well, what do= you know -- $144.9 million, round it up to $145,000,000.14 for accounting = purposes."=20 Megaglom Chair (stands up, a new man, puts his arm around Arthursen Senior = Partner): "Gosh, I love an audit."=20 Both (arm in arm, leaving, singing):=20 "Pick out a pleasant outlook.=20 Stick out that noble chin.=20 Wipe off that full-of-doubt look.=20 Slap on a happy grin!" http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Watchdogs and Lapdogs By Burton Malkiel 01/16/2002 The Wall Street Journal A16 (Copyright (c) 2002, Dow Jones & Company, Inc.) The bankruptcy of Enron -- at one time the seventh-largest company in the U= .S. -- has underscored the need to reassess not only the adequacy of our fi= nancial reporting systems but also the public watchdog mission of the accou= nting industry, Wall Street security analysts, and corporate boards of dire= ctors. While the full story of what caused Enron to collapse has yet to be = revealed, what is clear is that its accounting statements failed to give in= vestors a complete picture of the firm's operations as well as a fair asses= sment of the risks involved in Enron's business model and financing structu= re.=20 Enron is not unique. Incidents of accounting irregularities at large compan= ies such as Sunbeam and Cendant have proliferated. As Joe Berardino, CEO of= Arthur Andersen, said on these pages, "Our financial reporting model is br= oken. It is out of date and unresponsive to today's new business models, co= mplex financial structures, and associated business risks." It is important to recognize that losses suffered by Enron's shareholders t= ook place in the context of an enormous bubble in the "new economy" part of= the stock market during 1999 and early 2000. Stocks of Internet-related co= mpanies were doubling, then doubling again. Past standards of valuation lik= e "buy stocks priced at reasonable multiples of earnings" had given way to = blind faith that any company associated with the Internet was bound to go u= p. Enron was seen as the perfect "new economy" stock that could dominate th= e market for energy, communications, and electronic trading and commerce.= =20 I have sympathy for the Enron workers who came before Congress to tell of h= ow their retirement savings were wiped out as Enron's stock collapsed and h= ow they were constrained from selling. I have long argued for broad diversi= fication in retirement portfolios. But many of those who suffered were more= than happy to concentrate their portfolios in Enron stock when it appeared= that the sky was the ceiling.=20 Moreover, for all their problems, our financial reporting systems are still= the world's gold standard, and our financial markets are the fairest and m= ost transparent. But the dramatic collapse of Enron and the rapid destructi= on of $60 billion of market value has shaken public trust in the safeguards= that exist to protect the interests of individual investors. Restoring tha= t confidence, which our capital markets rely on, is an urgent priority.=20 In my view, the root systemic problem is a series of conflicts of interest = that have spread through our financial system. If there is one reliable pri= nciple of economics, it is that individual behavior is strongly influenced = by incentives. Unfortunately, often the incentives facing accounting firms,= security analysts, and even in some circumstances boards of directors mili= tate against their functioning as effective guardians of shareholders' inte= rests.=20 While I will concentrate on the conflicts facing the accounting profession,= perverse incentives also compromise the integrity of much of the research = product of Wall Street security analysts. Many of the most successful resea= rch analysts are compensated largely on their ability to attract investment= banking clients. In turn, corporations select underwriters partly on their= ability to present positive analyst coverage of their businesses. Security= analysts can get fired if they write unambiguously negative reports that m= ight damage an existing investment banking relationship or discourage a pro= spective one.=20 Small wonder that only about 1% of all stocks covered by street analysts ha= ve "sell" recommendations. Even in October 2001, 16 out of 17 securities an= alysts covering Enron had "buy" or "strong buy" ratings on the stock. As lo= ng as the incentives of analysts are misaligned with the needs of investors= , Wall Street cannot perform an effective watchdog function.=20 In some cases, boards of directors have their own conflicts. Too often, boa= rd members have personal, business, or consulting relationships with the co= rporations on whose boards they sit. For some "professional directors," lar= ge fees and other perks may militate against performing their proper functi= on as a sometime thorn in management's side. Our watchdogs often behave lik= e lapdogs.=20 But it is on the independent accounting profession that we most rely for as= surance that a corporation's financial statements accurately reflect the fi= rm's condition. While we cannot expect independent auditors to detect all f= raud, we should expect we can rely on them for integrity of financial repor= ting. While public accounting firms do have reputations to maintain and leg= al liability to avoid, the incentives of these firms and general auditing p= ractices can sometimes combine to cloud the transparency of financial state= ments.=20 In my own experience on several audit committees of public companies, the a= udit fee was only part of the total compensation paid to the public account= ing firm hired to examine the financial statements. Even after the divestit= ure of their consulting units, revenues from tax and management advisory se= rvices comprise a large share of the revenues of the "Big Five" accounting = firms. In some cases auditing services may be priced as a "loss leader" to = allow the accounting firm to gain access to more lucrative non-audit busine= ss.=20 In such a situation, the audit partner may be loath to make too much of a f= uss about some gray area of accounting if the intransigence is likely to je= opardize a profitable relationship for the accounting firm. Indeed, audit p= artners are often compensated by how much non-audit business they can captu= re. They may be incentivized, then, to overlook some particularly aggressiv= e accounting treatment suggested by their clients.=20 Outside auditors also frequently perform and review the inside audit functi= on within the corporation, as was the case with Andersen and Enron. Such a = situation may weaken the safeguards that exist when two independent organiz= ations examine complicated transactions. It's as if a professor let student= s grade their own papers and then had the responsibility to hear any appeal= s. Auditors may also be influenced by the prospect of future employment wit= h their clients.=20 Unfortunately, our existing self-regulatory and standard-setting organizati= ons fall short. The American Institute of Certified Public Accountants has = neither the resources nor the power to be fully effective. The institute ma= y even have contributed to the problem by encouraging auditors to "leverage= the audit" into advising and consulting services.=20 The Financial Accounting Standards Board has often emphasized the correct f= orm by which individual transactions should be reported rather than the sub= stantive way in which the true risk of the firm may be obscured. Take "Spec= ial Purpose Entities," for example, the financing vehicles that permit comp= anies such as Enron to access capital and increase leverage without adding = debt to the balance sheet. Even if all of Enron's SPEs had met the narrow t= est for balance sheet exclusion (which, in fact, they did not), our account= ing standard would not have illuminated the effective leverage Enron had un= dertaken and the true risks of the enterprise.=20 Given the complexity of modern business and the way it is financed, we need= to develop a new set of accounting standards that can give an accurate pic= ture of the business as a whole. FASB may have helped us measure the indivi= dual trees but it has not developed a way to give us a clear picture of the= forest. The continued integrity of the financial reporting system and our = capital markets must be insured. We need to modernize our accounting system= so financial statements give a clearer picture of what assets and liabilit= ies on the balance sheet are at risk. And we must find ways to lessen the c= onflicts facing auditors, security analysts, and even boards of directors t= hat undermine checks and balances our capital markets rely on.=20 One possibility is to require that auditing firms be changed periodically t= he way audit partners within each firm are rotated. This would incentivize = auditors to be particularly careful in approving accounting transactions fo= r fear that leniency would be exposed by later auditors.=20 And, in the end, we need to create a powerful and effective self-regulatory= organization with credible disciplinary authority to enforce accounting ru= les and standards. It would be far better for the industry to respond itsel= f to the current crises than to await the likelihood that the political pro= cess will do so for them.=20 ---=20 Mr. Malkiel, professor of economics at Princeton, is author of "A Random Wa= lk Down Wall Street," 7th ed. (W.W. Norton, 2000). Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 California; Editorial Pages Desk 'Genius of Capitalism' Let Out of the Bottle 01/16/2002 Los Angeles Times Home Edition B-12 Copyright 2002 / The Times Mirror Company Re "Officials Defend Not Sounding Alarm on Enron," Jan. 14: Treasury Secret= ary Paul O'Neill and Commerce Secretary Don Evans should be allowed to stat= e under oath that they did not tell the president of Enron's pending bankru= ptcy. This was Dubya's moneybag--past, present and future--and they didn't = think it important enough to inform him?=20 That is not credible. The last presidential election was ugly. The next one= should be worse. Glenn Yokum=20 Barstow=20 *=20 If O'Neill and Evans had come out and warned the public about the trouble o= f Enron, who would still buy Enron stock? Wouldn't O'Neill and Evans be acc= used of driving down Enron's stock?=20 Ringo Li=20 South Pasadena=20 *=20 O'Neill's contention that "I don't go across the street and tell the presid= ent every time somebody calls me" is about the weakest defense I've heard i= n my life. One of the largest corporations in the world is saying it is in = trouble and needs help from the U.S. government and O'Neill doesn't even ca= ll President Bush?=20 [Enron Corp. Chairman] Kenneth Lay is a close friend of the Bush family and= O'Neill doesn't call Bush? Is it possible Bush might have been watching "F= ox News Sunday" on Sunday and not a football game when he choked on that pr= etzel?=20 Dave Gunall=20 Ventura=20 *=20 O'Neill describes the theft of thousands of hard-working, loyal workers' jo= bs and retirement funds by a small handful of far-wealthier men as "part of= the genius of capitalism." If despicable corporate behavior such as Enron-= gate continues to be ignored and condoned (only after being exposed, of cou= rse) by our highest government officials, aren't we being told that crime d= oes indeed pay? If you're running a corporation, that is.=20 Why do we have thousands upon thousands of petty, two-bit criminals behind = bars, many for doing drugs that only harmed themselves, while people like L= ay and his higher rungs get awarded "genius" status when they've just ruine= d thousands of lives and made off with their loot? O'Neill's callous remark= , further evidence of the true pro-business/anti-worker nature of our sudde= nly beloved president who appointed him, offers us another shining, some wo= uld say genius, example of "compassionate conservatism."=20 Victor H. Knowles=20 Los Angeles=20 *=20 The Bush administration attempted to distance itself from the Enron disaste= r by turning a deaf ear to requests for help from high Enron officials. The= fear was that any government involvement would appear to be integral to th= e cozy relationship between Enron and Bush administration officials. Had th= is relationship not existed, prompt government action (as was done in the c= ases of Chrysler, Lockheed and Long-Term Capital Management) might have sta= ved off an Enron bankruptcy and thereby mitigated the consequences to Enron= employees and investors.=20 Michael Horstein=20 Los Angeles=20 *=20 Try though they may, the Democrat alchemists will have a tough time turning= energy into political hay.=20 Gerald Wright=20 Los Angeles=20 *=20 Re "Enron Way: Anything but 'Simple, Straightforward,' " Commentary, Jan. 1= 3: I think there's a perfectly straightforward and simple answer to this me= ss. Freeze every bank account belonging to the Enron executives who sold al= l their stock at tremendous profit. Then pay back the employees who weren't= allowed to cash their stocks and who lost their pensions and 401(k)s from = this money.=20 Then, give the Enron executives and the Andersen auditors ("Auditor Says It= Destroyed Enron Records," Jan. 11) what they deserve--nice long prison sen= tences. Simple.=20 Ann Johnston=20 Thousand Oaks PHOTO: Paul H. O'Neill; ; PHOTOGRAPHER: Associated Press=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 5 c. 2002 New York Times Company To the Editor:=20 Quite apart from any question of political corruption, the Enron story stan= ds as a symbol of the kind of society that I thought we had left behind man= y years ago (''Minimizing the Enron Taint,'' editorial, Jan. 12). Entrepren= eurs assure profits for themselves while investors are cheated and workers = are left with next to nothing. This debacle should remind us that government has a role in restraining ind= ividuals who abuse the market for their own interests and in protecting tho= se subject to economic forces beyond their control.=20 JOHN H. WILSON=20 New York, Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 5 c. 2002 New York Times Company To the Editor:=20 In ''Minimizing the Enron Taint'' (editorial, Jan. 12), you imply that ''an= y action by the government'' on behalf of Enron would have been inappropria= te given the perception that it was a favor for campaign contributions. But it may be that such action to stem the economic calamity caused by Enro= n's bankruptcy was called for. The ability of government to act without fea= r of ethical impropriety is another reason for campaign finance reform bann= ing soft money from corporations.=20 PAUL M. WORTMAN=20 Stony Brook, N.Y., Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 5 c. 2002 New York Times Company To the Editor:=20 I am concerned that the Democrats, in their desire to impute scandal to the= Bush administration in the Enron matter, may overlook the real political m= essage of this debacle (''Parties Weigh Political Price of Enron's Fall,'' = front page, Jan. 12).=20 Enron was the administration's model corporation. It operated aggressively = in a lightly regulated environment, and its financial practices were secret= ive and obfuscatory. The Bush tax cuts replicate this model. If the cuts are not repealed, the c= ountry will experience an Enron-like disaster on a vast scale.=20 JAMES FLEMING=20 Potomac, Md., Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 4 c. 2002 New York Times Company To the Editor:=20 Equating the Enron affair with Washington scandals past (news analysis, fro= nt page, Jan. 11) misses a fundamental point: this one really matters. Unlike the Whitewater land deal or sex with an intern, which consumed the p= ress and Congress for years but had zero bearing on the public policy of th= is country, Enron exposes the all-too-legal influence-peddling, favor-seeki= ng and corporate greed at the heart of our political system.=20 JEREMY WEINBERG=20 New York, Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 4 c. 2002 New York Times Company To the Editor:=20 Re ''Bush and Democrats Disputing Ties to Enron'' (Business Day, Jan. 12): Anyone who received campaign contributions from Enron should return every d= ime to the employees who had their pensions wiped out.=20 FRANK HANSEN=20 Martin, Tenn., Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 4 c. 2002 New York Times Company To the Editor:=20 Enron spread its financial largess to the candidates of both major politica= l parties to promote policies to get government off the backs of the energy= sector. How ironic that the same erstwhile champion of deregulation repeat= edly called high government officials and sought their help for some kind o= f financial bailout (front page, Jan. 12). VEDULA N. MURTI=20 Middletown, Pa., Jan. 12, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Letters to the Editor The Real Lessons of Enron's Fall 01/16/2002 The New York Times Page 18, Column 4 c. 2002 New York Times Company To the Editor:=20 Despite the tone-deaf remark by Paul H. O'Neill, the treasury secretary, th= at the collapse of Enron reflects ''the genius of capitalism,'' the Bush ad= ministration does not appear to have done anything illegal. As Bob Herbert = suggests (column, Jan. 14), the laws themselves are scandalous.=20 The real travesty of the Enron collapse is not the failure of administratio= n officials to notify small-time investors of what Enron's fat cats knew: i= t is in corporate control over employee 401(k) investments and laws governi= ng the corrupt campaign finance system. Rather than wasting energy trying to pin a scandal on President Bush now, w= hy not seize this opportunity to change the laws that let companies buy acc= ess to top officials and allow companies to force employees to keep their s= avings in a tanking stock while executives cash in?=20 If Congress refuses to act, we should all be scandalized.=20 CHRISTINE EVANS=20 Washington, Jan. 14, 2002 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 POINT OF VIEW: Beyond Enron, A Wider Crisis Of Confidence By Michael Rapoport 01/16/2002 Dow Jones News Service (Copyright (c) 2002, Dow Jones & Company, Inc.) A Dow Jones Newswires Column=20 (This report was originally published Tuesday.)=20 NEW YORK -(Dow Jones)- Enron Corp. (ENE) has a lot to answer for. And it ma= y be even more than you might realize at first. Already the rippling scandal has claimed a long list of victims - from the = thousands of Enron employees who've seen their retirement savings wiped out= to the reputation of Arthur Andersen LLP, Enron's beleaguered auditor.=20 But what may turn out to be the most far-reaching effect of the Enron scand= al is more amorphous and less obvious. Simply put, the problem is this: Aft= er Enron, and after conflicts of interest and earnings tricks at other comp= anies that have shaken the confidence of investors over the past couple of = years, who can investors trust?=20 Because of these happenings, investors are going through "a crisis in confi= dence like I've never seen before," said Pat McConnell, an accounting analy= st for Bear Stearns & Co. Their faith in something as basic as the accuracy= of financial statements has been eroded, she said - and "that's not a good= and healthy thing."=20 Enron, after all, amounts to a poster child for a lot of what's been wrong = with the market in recent years. Manipulation of financial statements to ma= ke the company look like it's in better shape than it really is? Check. Aid= ing and abetting in its misdeeds, apparently, by an auditor who may have be= en more concerned about its fees than in the accuracy of the figures it was= auditing? Check. Fawning praise from stock analysts too lazy or too confli= cted to raise the questions about the company's business that should have b= een raised? Check.=20 As a result, investors feel a little like the rug has been pulled out from = under them. They've had enough, said McConnell, who spoke Thursday in New Y= ork at a Directors' Roundtable seminar on how companies should report their= earnings. With their confidence damaged, she said, there's "a lot of skept= icism" among investors about the information they're being given.=20 This lack of confidence has all kinds of effects, none of them favorable. F= or one thing, McConnell noted, it increases the cost of capital for compani= es: If investors don't feel they can trust in the accuracy of the informati= on they use to make investment decisions, they're going to demand a bigger = return on their investments to compensate.=20 And look at what's happened to Tyco International Inc. (TYC). The SEC close= d an accounting probe of Tyco in 2000 without taking any action, and the co= mpany insists that everything is on the up-and-up - and yet persistent inve= stor skepticism about Tyco's accounting has weighed on the stock in recent = days. Investors no longer know who to believe.=20 This slippage in investor confidence in the most basic of the market's unde= rpinnings is worrisome, and it should be a wake-up call. It should concern = every company out there that's tried to game the figures to paste a smiley = face on its financial condition, and every auditor and analyst who's helped= them do it.=20 Because if investors' confidence slips too far, the market is going to suff= er some damage that it's going to be hard to recover from. A free market is= built on the free and equitable distribution of information in whose accur= acy investors can trust when using it to make financial decisions. Without = that accuracy and that trust, we might as well be Argentina.=20 -By Michael Rapoport, Dow Jones Newswires; 201-938-5976; michael.rapoport@d= owjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Foreign Desk THE WORLD World Press Tries to Unknot Tale of Bush and the Pretzel Reaction= : Some papers are skeptical or sarcastic. Others delve into the history of = the salty snack. MARJORIE MILLER TIMES STAFF WRITER 01/16/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company LONDON -- Was it an Al Qaeda plot? An Enron end run? Or was it, as Presiden= t Bush said, just a wayward pretzel that briefly felled the leader of the f= ree world?=20 With the only witnesses to the presidential fainting spell two canines, the= international press has been left to speculate about what happened and whe= ther Bush can watch TV and chew pretzels at the same time. "George Bush attempted to taste the biscuit with his attention focused on a= football game--a combination of actions that, it appears, proved difficult= ," said the Greek daily To Vima.=20 The media responded to the pretzel pratfall with jokes, queries about Bush'= s mental and physical health and detailed explanations of the knotted Ameri= can-style pretzel.=20 "Though not to everyone's taste, they are not considered a health hazard," = London's Independent newspaper informed readers dryly.=20 True to form, the Germans consulted pretzel experts, the French contemplate= d Americans' "complicated relationship with food," and the Italians looked = to the religious roots of the pretzel. The Saudis worried that the scare wi= ll prevent Bush from focusing attention on Israel's oppression of the Pales= tinians, while Britons offered Bush a few backhanded compliments.=20 The incident proved Bush is "a man of the people," London's Daily Telegraph= said in an editorial. "This is exactly the sort of accident that befalls H= omer Simpson, night after night."=20 The conservative paper noted in its news pages that the president "was not = eating something foreign or in any way fancy when he passed out." The paper= was cheered by the fact that the leader of the international war on terror= ism still has time for Sunday football. "He has shown himself, once again, = to be completely in tune with the tastes and instincts of the people he lea= ds," its editorial said.=20 Of course, most Americans didn't end up prone with facial bruises at the en= d of the game--at least not from pretzels. The Independent labeled the offi= cial story "Hard to Swallow."=20 "Was he poisoned perhaps? Has the stress of fighting the war on terrorism w= hile fending off inquiries about the collapse of his friend Ken Lay's Enron= overwhelmed him? Was there maybe some family tiff?" the paper asked in an = editorial. It concluded that "the vanquisher of Al Qaeda may have met his m= atch."=20 Germany's mass-circulation Bild, the daily of choice for blue-collar German= s, also asked if there wasn't more to the story: "Has the president's alcoh= ol problem been taken up again?"=20 Expressing concern for the president's health, Saudi Arabia's English-langu= age Arab News said that while no one believes there is anything seriously w= rong with Bush, his pretzel mishap has led to speculation about the impact = of an ailing president on the world.=20 "These are particularly dangerous times internationally. The United States = has assumed considerable responsibilities and powers in its campaign agains= t global terrorism. In order to bring together a coalition of support withi= n the Arab world, the White House had to focus its attention more construct= ively on Israel's oppression of the Palestinians," the paper said in an edi= torial.=20 "If, however, Bush's unusual collapse is a symptom of more serious medical = problems, we can be absolutely sure that, lacking any clear direction from = a troubled White House, Washington's foreign policy will click back on its = traditional Zionist track. Palestinians will continue to choke on Israeli a= ggression while the U.S. president may again choke on a typical Yiddish pre= tzel," it said.=20 No, no, said the Italian press. The American-style pretzel was invented by = a 16th century German monk as a reward for children who memorized their pra= yers, La Repubblica newspaper said. The word derives from the Latin prex, o= r prize, it said.=20 Leave it to the British tabloids to challenge the Italians on Latin. London= 's Daily Mail declared that the word "pretzel" comes from pretiola--Latin f= or "little reward." The dough is folded to look like a child's arms in pray= er, and the three holes represent Christianity's holy Trinity. And it was G= erman and Dutch immigrants who took the pretzel across the Atlantic when th= ey settled in Pennsylvania in 1710, the paper said.=20 Pretzel is brezel in Germany, where the Berliner Morgenpost sought out the = opinion of a master baker on the safety of the U.S. snack food--and the lik= elihood that it could have caused the president's swoon.=20 "I have no reason to doubt the quality of the American pretzel," opined Ebe= rhard Groebel, speculating that Bush's spell was due to his ignoring "the 5= 0-gram rule." That is a German etiquette adage that holds that one should n= ot try to talk with more than 1.75 ounces of food in one's mouth.=20 "Even in his wildest dreams, Osama bin Laden couldn't have managed what one= tiny pretzel did this weekend," began a story in the Berliner Zeitung dail= y. "According to reports from the White House, it not only brought the migh= tiest man in the world to his knees but flat out on the floor."=20 Spain's national daily, ABC, reported that after an exhaustive investigatio= n, the FBI, CIA and Secret Service had "rejected [the possibility] that the= biscuit in question came from Afghanistan and have certified that it is a = genuine American salted pretzel."=20 Russian newspapers, perhaps reflecting the more somber tone of the Vladimir= V. Putin era, restrained themselves. The daily Komsomolskaya Pravda ran a = detailed diagram of Bush's anatomy, with the location of the pretzel blocka= ge marked with a star.=20 "Bush's organism, although weakened and unconscious, managed to cope with t= he indisposition," wrote the daily Gazeta. "The organism first rejected the= pretzel but later swallowed it and digested without mercy."=20 Ah, but Bush shouldn't be overconfident, the French and British press warne= d.=20 "This shows that the most powerful man on Earth is, above all, a man," wrot= e the Lyons newspaper Le Progres. "And as a man, he is in danger of digging= his grave with his teeth. . . . Especially when he comes from a society th= at obviously has a complicated relationship with food."=20 Added London's Mirror tabloid: "Attila the Hun survived bloody battles only= to die of a nosebleed on his wedding night. Sir Francis Bacon wanted to pr= ove frozen food lasted longer and went outside to stuff a chicken with snow= . The experiment was a success, but he died of pneumonia."=20 *=20 Contributing to this report were Times staff writers Richard Boudreaux in R= ome, Maura Reynolds in Moscow, Michael Slackman in Riyadh, Saudi Arabia, an= d Carol J. Williams in Berlin and special correspondents Maria Petrakis in = Athens, Achrene Sicakyuz in Paris and Cristina Mateo Yanguas in Madrid. PHOTO: Artist Jo Kinsey paints a bruise on the face of a model of President= Bush at Madame Tussaud's wax museum in London.; ; PHOTOGRAPHER: Agence Fra= nce-Presse=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BRAZIL PRESS: Elektro Cancels BRR195M Bond Plan 01/16/2002 Dow Jones Capital Markets Report (Copyright (c) 2002, Dow Jones & Company, Inc.) SAO PAULO -(Dow Jones)- Elektro Eletricidade e Servicos SA (E.EKO), an elec= tricity distributor controlled by Enron Corp. (ENE), decided to cancel plan= s to issue 195 million reals ($1=3DBRR2.38) in debt, business daily Valor E= conomico said Wednesday. According to the paper, lead manager Sudameris adv= ised Elektro to cancel the bond plan following Enron's bankruptcy and after= the local market regulator demanded that Elektro republish its 2000 earnin= gs statement.=20 Newspaper Web site: http://www.valor.com.br -Sao Paulo Bureau, Dow Jones Newswires; 55-11-3145-1481 -adriana.arai@dowjo= nes.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Houston Non-Profit Organization Targets Former Enron Employees 01/16/2002 Business Wire (Copyright (c) 2002, Business Wire) HOUSTON--(BUSINESS WIRE)--Jan. 16, 2002--=20 The Resource Alliance Group of Houston Launches to Accelerate and Incubate Emerging Businesses Founded by Former Enron Employees=20 The Resource Alliance Group of Houston, a non-profit newly formed organizat= ion, today announced its launch to provide former Enron employees with the = necessary resources to accelerate the growth of new businesses in Houston.= =20 The Resource Alliance Group (RAGroup) is comprised of local, experienced bu= siness people and companies interested in providing office space, infrastru= cture, computers, mentoring, professional services and access to funding so= urces to former Enron employees launching new businesses.=20 "This group was founded as a means to keep people, jobs and funding in Hous= ton," said John Elder, a Houston entrepreneur serving as executive director= for RAGroup. "We can't change the facts surrounding this incredibly devast= ating event but we can do our part to promote the growth of new business th= at will affect the tremendous financial impact on the local economy and los= s of jobs resulting from the collapse of Enron."=20 Former Enron employees can submit ideas, executive summaries and business p= lans via the RAGroup Web site at www.RAGroup.org, via email to info@RAGroup= .org or by calling 713/861-0230. The business will be evaluated and then as= signed for need assessment by a steering committee member, who will act as = the company's mentor. In addition, a method for measurement of success will= allow for the group to monitor a company's growth and designate parameters= for "graduating" from the organization.=20 The RAGroup Web site also allows corporations interested in supporting the = initiative to submit resource allocations online, and allows former Enron e= mployees interested in working with an emerging business to submit their re= sumes online. Former Enron employees can also join the mailing list and ref= er associates and friends to the site automatically online.=20 The volunteer-driven organization's operations are funded entirely through = donations from sponsoring companies and individuals.=20 The organization is driven by a steering committee of impressive local, mul= ti-industry experienced business leaders. John Elder, a Houston entrepreneu= r, serves as the executive director and co-founder. Additional co-founders = and steering committee members include:=20 a.. Mark Slaughter, a private investor and former president and=20 CEO of Reliant Energy Communications.=20 b.. Dan Sudduth, CFO for Teligistics, Road-Show.com and several=20 emerging companies.=20 c.. Randy Stilley, a private investor and former president of=20 Weatherford International's Completion and Oilfield Services=20 Division.=20 d.. Barry Smotherman, managing partner of Tatum CFO.=20 RAGroup is open to all former Enron employees with an interest in developin= g new business initiatives. The non-profit resources are not limited to tec= hnology-driven businesses, industry-specific or proprietary technology, but= is open to any business idea generated by former employees of Enron.=20 For more information, please call 713/668-8091 or visit RAGroup's Web site = at www.RAGroup.org. CONTACT: The Padgett Group, Houston Kim Padgett, 713/668-8091 Fax: 713/668-= 8872 Kim@ThePadgettGroup.com=20 09:00 EST JANUARY 16, 2002=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Former Enron Corp. employees hawking items from bankrupt company in Interne= t auction By KRISTEN HAYS Associated Press Writer 01/16/2002 Associated Press Newswires Copyright 2002. The Associated Press. All Rights Reserved. HOUSTON (AP) - Former Enron Corp. employees are hawking dozens of company i= tems on Internet auctions, including the embattled company's 64-page code o= f ethics and a commemorative stock certificate.=20 Former Enron employee Matt Mitchell is selling one of his two copies of a b= roadband risk management manual used by the former energy giant, which cont= ains tips on increasing creditworthiness and timing of reported earnings. I= t is among the priciest of more than 100 Enron-related items for sale in eB= ay auctions. "It's not entirely deceptive, but it isn't showing what's actually happenin= g," Mitchell said Tuesday of risk management techniques employees learned f= rom the manual, which he hopes to sell for at least $150. The auction ends = Friday.=20 Other items for sale on the site range from freebies that Enron gave employ= ees, such as golf balls, baseball hats and paperweights with the company lo= go.=20 Enron spokeswoman Karen Denne said former employees can sell Enron artifact= s with the company's blessing.=20 "The whole situation is unfortunate, and we've always had resourceful, inno= vative employees. This is just the latest demonstration," she said.=20 Mitchell, 29, was among hundreds of employees laid off from Enron's money-l= osing broadband services unit in July last year, six months before 4,500 lo= st their jobs in December after Enron filed the largest bankruptcy in histo= ry. He worked as a sales engineer for Enron for 14 months, consulting with = traders who made telecommunications-related trades.=20 Mitchell found another job for less pay with a small software company in Ho= uston in September and watched his former employer implode in a whirlwind o= f questionable accounting practices, deflated shares and erosion of investo= r and trader confidence. Stock that traded near $80 a year ago was delisted= from the New York Stock Exchange on Tuesday, having stagnated at less than= $1 for weeks.=20 Mitchell said he thought the risk management manual might generate a snicke= r or two and pique interest from some bidders. He said risk management tech= niques used for energy and electricity trading were tweaked to apply to bro= adband in the manuals.=20 "This was just old information rewritten," Mitchell said. "It does not go i= nto specific laws about what you can do with taxes and ownership, but there= are cases of where it focuses on what you can do and accepted accounting p= ractices that are allowed."=20 For example, the manual said companies can re-categorize expenses "in such = a manner as to improve the perceived financial performance."=20 Mitchell said layoffs were common for broadband employees working for an un= profitable venture, but they benefited from the company's severance plan.= =20 Those laid off after the bankruptcy filing received $4,500 each, as approve= d by a U.S. bankruptcy judge in New York. Mitchell received nearly $40,000 = as entitled under company policy, as did others laid off before Enron's dem= ise.=20 "I was one of the lucky ones," Mitchell said. "I was lucky enough to get an= other job, with a substantial pay cut, in September. I feel worse for all m= y co-workers, who had no notice whatsoever and no idea it was coming."=20 ---=20 On the Net:=20 http://www.ebay.com AP Photo HT105=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Sarah Palmer Internal Communications Manager Enron Public Relations (713) 853-9843