Message-ID: <28912015.1075841149427.JavaMail.evans@thyme> Date: Tue, 5 Feb 2002 06:36:34 -0800 (PST) From: sarah.palmer@enron.com To: sarah.palmer@enron.com Subject: Enron Mentions (major papers only) -- 02/05/02 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 Enron Accountants May Be Placed On Leave by Board The Wall Street Journal, 02/05/2002 Former Enron Chairman Lay's Whereabouts Unknown Bloomberg, 02/05/2002 Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Comp= any's Board, Citing Various Inquiries The Wall Street Journal, 02/05/2002 Lay stands down from Enron board after scathing report. Financial Times, 02/05/2002 SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON The New York Times, 02/05/2002 Lay Leaves Enron Board; Founder Severs Last Ties to Firm The Washington Post, 02/05/2002 Lay steps down from Enron's board of directors=20 Irate lawmakers working on subpoenas=20 Houston Chronicle, 02/05/2002 Deal at Enron Gave Insiders Fast Fortunes The New York Times, 02/05/2002 Legal Liability for Enron Debacle May Be Determined by 1997 Memo The Wall Street Journal, 02/05/2002 Enron Report Could Bolster Criminal Case Probe: Panel's allegations of fina= ncial subterfuge increase likelihood of indictment, legal experts say. Los Angeles Times, 02/05/2002 Varied Roles Cause Some Conflicts, Brokers Say The New York Times, 02/05/2002 Lawsuits may widen to hit partnerships SPECIAL-PURPOSE VEHICLES. Financial Times, 02/05/2002 Enron workers' benefits reportedly raided=20 $15 million allegedly spent elsewhere=20 Houston Chronicle, 02/05/2002 Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Lead= ership' The Washington Post, 02/05/2002 Little-Known Academic Pushed Onto Enron Stage The Washington Post, 02/05/2002 Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water C= ould Bring $1.4 Billion To Failed Energy Firm The Wall Street Journal, 02/05/2002 Enron Direct pay-outs decided. Financial Times, 02/05/2002 Ernst & Young Latest Auditor Moving to Alter Some Practices The New York Times, 02/05/2002 Dynegy charges Enron has only itself to blame=20 Houston Chronicle, 02/05/2002 'He should have been here'=20 Ex-staffers irked after trip to D.C.=20 Houston Chronicle, 02/05/2002 Saving Your Career After Earning a Name As a Whistle-Blower The Wall Street Journal, 02/05/2002 Sex and The Scandal The Washington Post, 02/05/2002 The Blue Bayou City; Two Months After 'Black Monday,' Houston Still Is Pick= ing Up The Enron Pieces The Washington Post, 02/05/2002 A Debacle Chronicled in Kitsch The New York Times, 02/05/2002 Decoding Enron The New York Times, 02/05/2002 Enron's Culture of Corruption The Washington Post, 02/05/2002 QUOTATION OF THE DAY The New York Times, 02/05/2002 _____________________________________________________________________ Enron Accountants May Be Placed On Leave by Board By Rebecca Smith Staff Reporter of The Wall Street Journal 02/05/2002 The Wall Street Journal A6 (Copyright (c) 2002, Dow Jones & Company, Inc.) Enron Corp.'s board is expected to put the company's two top accounting off= icers on administrative leave this week in reaction to an internal report t= hat says neither did his job adequately, sources close to the matter say.= =20 The men, Chief Accounting Officer Richard A. Causey and Chief Risk Officer = Richard B. Buy, reviewed Enron's creation of several outside partnerships r= un by Enron officers and, records indicate, judged them beneficial to Enron= . They also reviewed subsequent transactions with those entities. Recent di= sclosures that these partnerships greatly enriched a handful of Enron emplo= yees at Enron's expense contributed to the Houston energy concern's collaps= e into bankruptcy proceedings in December. Neither man nor an attorney representing them responded to requests to comm= ent yesterday.=20 To date, there is no evidence that Messrs. Causey or Buy invested in any of= the Enron-related partnerships or personally reaped any financial windfall= from them. The men were scheduled to testify Thursday before one of severa= l congressional committees investigating Enron's downfall.=20 Before joining Enron in early 1991, Mr. Causey was an accountant for Arthur= Andersen in Houston and had "primary responsibility for the Enron engageme= nt," according to his company biography. Mr. Buy, before joining Enron in 1= 994, was a vice president at Bankers Trust, assigned to energy lending and = trading in Houston and New York.=20 In his current role at Enron, Mr. Causey was supposed to make sure that Enr= on's accounting practices adhered to industry standards and that its Securi= ties and Exchange Commission disclosures were full and complete. Mr. Buy, a= s chief risk officer, has had primary responsibility for "quantifying and c= ontrolling risks in both Enron's trading activities and investment opportun= ities," according to his company biography.=20 Instead, Mr. Causey has "presided over" accounting decisions that go "well = beyond aggressive," according to the Enron internal report prepared by a sp= ecial, three-person committee of the board. Mr. Buy, according to that same= report, "saw his role more narrowly" than appropriate and "did not affirma= tively carry out . . . a careful review of the economic terms" of transacti= ons between Enron and the related-party entities.=20 Board minutes reviewed by The Wall Street Journal show that Messrs. Causey = and Buy frequently told the board that there were adequate controls in plac= e to protect the company's interests as it transacted business with the off= icer-controlled partnerships, including ones run by Enron's former chief fi= nancial officer, Andrew Fastow.=20 For example, in a meeting of the board's finance committee on Oct. 6, 2000,= Mr. Causey joined then-chief executive Jeffrey Skilling in discussing the = "benefits to the company" of being able to transact business with the LJM p= artnerships set up by Mr. Fastow, according to minutes of that meeting. Pre= viously, Mr. Fastow had told the board that all transactions with the vehic= les he ran would be reviewed by Messrs. Causey, Buy and Skilling in order "= to mitigate any potential conflicts."=20 J.C. Nickens, an attorney representing both men, couldn't be reached to com= ment yesterday. But in an interview last week, he said his clients are blam= eless. Referring to Mr. Causey, Mr. Nickens said that "my client would say = the accounting for these partnerships was appropriate . . . that the deals = were structured and accounted for with professional advice of people on his= staff and Arthur Andersen," which was Enron's auditing firm.=20 All told, the Fastow-related partnerships engaged in more than two dozen tr= ansactions with Enron that left the company, in many cases, holding the bag= . The Enron special committee, in its report, which was released during the= weekend, said that in some cases Enron settled some of its partnership ven= tures for far less money than what the committee felt was fair value. This = suggests that the interests of the officer-controlled partnerships may have= been put ahead of those of Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Former Enron Chairman Lay's Whereabouts Unknown 2002-02-05 08:32 (New York) Washington, Feb. 5 (Bloomberg) -- Kenneth Lay, former chairman of Enro= n Corp., won't appear at a House hearing this morning after his attorney re= fused to accept a subpoena compelling him to appear, CNN said. Lay's attorney, Earl Silbert, said there wasn't enough time because La= y had returned to Houston and Silbert didn't know where to find him, CNN sa= id. This morning the Senate Commerce Committee plans to vote to issue a su= bpoena for Lay to testify on Feb. 12. House and Senate committee members ha= ve said they hope Lay won't take the Fifth Amendment and refuse to testify = on the grounds it may incriminate him. Lay backed out of appearances yesterday and today before the Senate Co= mmerce Committee and a House Financial Services subcommittee. Silbert infor= med both panels that Lay wouldn't appear because of "inflammatory'' comment= s made by members of the committee that he said were prejudicial to his cli= ent. Yesterday the House panel voted to subpoena Lay to appear at 10 a.m. t= his morning. A board-sponsored investigation released this weekend said Enron execu= tives enriched themselves while hiding at least $1 billion in losses in 3,0= 00 partnerships. Those transactions caused Houston energy dealer to file th= e largest bankruptcy reorganization on Dec. 2. The company's failure led to at least 4,500 job losses in Houston and = 1,100 in the U.K. and wiped out millions of dollars of retirement savings f= or Enron employees, whose investments were tied up in the company's stock. Powers Testimony Yesterday Lay resigned from the board of the company he founded in 198= 5, saying it was in the "best interests'' of former and current Enron emplo= yees and "other stakeholders,'' according to a statement distributed by PR = Newswire. In testimony yesterday before the House panel, William Powers Jr., the= head of the Enron's special investigation Committee, said Lay and the rest= of the board failed to halt ``a systematic and pervasive attempt'' by mana= gement to deceive investors about the energy dealer's finances. "What we found was absolutely appalling,'' Powers said. Powers' 203-page investigative report found Enron executives enriched = themselves while hiding at least $1 billion in losses in 3,000 partnerships= . Enron had said it overstated earnings by $586 million since 1997 by faili= ng to disclose partnerships used to hide loans and losing ventures. Powers also said today that Enron's auditor, Arthur Andersen LLP, coul= dn't have performed an independent audit of Enron because it was paid $5.7 = million by the company to help set up the partnerships. "If they helped structure the transactions, they already are going to = hold views of the transactions,'' he told the House Financial Services subc= ommittee on capital markets. Andersen was paid $25 million in audit fees by Enron and $27 million f= or non-audit services in 2000. Senate and House Democrats are introducing b= ills that would prohibit auditors from also providing some consulting servi= ces to the same client. -- William Selway in the San Francisco newsroom at (415) 743-3511, or wselw= ay@bloomberg.net=20 Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Comp= any's Board, Citing Various Inquiries By Michael Schroeder Staff Reporter of The Wall Street Journal 02/05/2002 The Wall Street Journal A3 (Copyright (c) 2002, Dow Jones & Company, Inc.) WASHINGTON -- Lawmakers say they will issue a subpoena to compel Kenneth La= y, former chairman of Enron Corp., to appear before committees investigatin= g the collapse of the Houston energy trading giant.=20 Enron director William Powers told a House Financial Services subcommittee = that a recently completed review by the board concluded that Enron's top ma= nagers, including Mr. Lay, outside auditors and directors, all contributed = to the company's downfall. Mr. Lay had canceled his much-anticipated appear= ance before a Senate panel, saying that the hearings would be prosecutorial= . Separately yesterday, Mr. Lay announced his resignation from the Enron boar= d, saying that because of the many investigations being conducted that invo= lve him, his continued role on the board has "become a distraction" as the = company works to emerge from bankruptcy-court proceedings.=20 Meanwhile, Senate Commerce Committee Chairman Ernest Hollings (D., S.C.) ca= lled for a special prosecutor to replace the Justice Department in its crim= inal investigation of Enron. And Harvey Pitt, chairman of the Securities an= d Exchange Commission, pointed a finger at the Financial Accounting Standar= ds Board, the independent rule-setting body, for long delays in updating ru= les, including a request by the SEC more than a decade ago to reconsider ne= w accounting rules for off-balance-sheet special-purpose entities. Enron us= ed these partnerships extensively, which contributed to the company's downf= all.=20 Mr. Powers's testimony was seized on by committee members to press their pr= oposals for additional oversight of auditors, stock analysts and rating age= ncies. Lawmakers are debating whether severe shortcomings in financial repo= rting can be addressed by new SEC rules or legislation.=20 Mr. Hollings's comments are a signal that the high level of partisanship on= the Enron debacle among congressional Democrats is likely to intensify as = more hearings are held in the coming weeks. The Bush administration's exten= sive ties to Enron made it a "cash-and-carry government," he said at a news= conference.=20 Mr. Hollings also said that the Justice Department couldn't be relied on to= conduct an objective investigation, given the Enron connections of several= department officials, including Attorney General John Ashcroft. Mr. Ashcro= ft recused himself from the probe, citing the large campaign contributions = he had gotten from Enron in his 2000 Senate campaign.=20 Justice Department officials responded that appointing a special prosecutor= is unnecessary. "No conflict of interest exists. No person involved in pur= suing this investigation has any conflict, or any ties that would require a= recusal," the department said in a statement.=20 Mr. Hollings also said he had doubts about the objectivity of the Enron int= ernal review, conducted by a special committee of the company's board led b= y Mr. Powers. Mr. Powers "is a very fine gentleman, but he's a member of th= e board," he said.=20 The senator, who canceled his panel's hearing yesterday after Mr. Lay decli= ned to testify, said members would vote today to issue a subpoena.=20 Mr. Lay also said he wouldn't appear at a scheduled House subcommittee hear= ing today. In response, the Financial Services Committee chairman, Rep. Mic= hael Oxley (R., Ohio) attempted yesterday afternoon to serve Mr. Lay a subp= oena through his attorney Earl Silbert. Peggy Peterson, Mr. Oxley's spokesw= oman, said that Mr. Silbert said he "didn't know the whereabouts of his cli= ent."=20 Mr. Silbert didn't return a phone call or answer an e-mail seeking comment.= =20 The subpoenas can't compel Mr. Lay to testify, however. Sen. Byron Dorgan (= D., N.D.) acknowledged that Mr. Lay could use his Fifth Amendment right to = refuse to answer questions when he does appear under subpoena. Two other En= ron executives who lawmakers want to talk with about the company's collapse= have already told lawmakers they plan to do this.=20 In testimony before Rep. Richard Baker's subcommittee, Mr. Powers said that= he found "appalling" problems at Enron. The University of Texas Law School= dean outlined the main findings of his report, focusing on the firm's use = of complex off-the-books partnerships that enriched key employees, includin= g Chief Financial Officer Andrew Fastow. "Virtually everyone, from the boar= d of directors on down," understood the company was using partnerships to o= ffset investment losses with its own stock.=20 Mr. Powers, whose objectivity has been questioned because of Enron contribu= tions to his university's law school, faulted the board of directors, sayin= g it "failed in its duty to provide leadership and oversight." During the h= earing, numerous lawmakers said they were incredulous that the board never = raised any red flags.=20 "Whether the Powers report is appropriately balanced or not, given the limi= ted information on which the report is based, it does establish a basis on = which to conclude . . . that the rules aimed at requiring disclosure were s= o misused that they were warped into a black bag from which no information = was able to escape," Mr. Baker said.=20 Several lawmakers, including Rep. John LaFalce (D., N.Y.), called for legis= lation or new regulations to address accounting and disclosure weaknesses t= hat the Enron scandal has uncovered.=20 Mr. LaFalce also complained that the Bush administration authorized only a = 4% SEC budget increase to $480 million for the next fiscal year. He said he= favors tripling the SEC's budget.=20 ---=20 Journal Link: Listen in as a House panel examines the findings of Enron's s= pecial investigative committee. Also, Andersen CEO Joseph Berardino testifi= es on the accounting firm's relationship with Enron, in the Online Journal = at WSJ.com/JournalLinks, by arrangement with Hearings.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 FRONT PAGE - FIRST SECTION - Lay stands down from Enron board after scathin= g report. By ANDREW HILL, SHEILA MCNULTY and PETER SPIEGEL. 02/05/2002 Financial Times (c) 2002 Financial Times Limited . All Rights Reserved Kenneth Lay, Enron's former chairman and chief executive, yesterday resigne= d from the company's board, two days after publication of a damning interna= l report on the energy trader's ill-fated deals with partnerships.=20 The report, which criticised officers, directors and advisers of the compan= y, has raised the legal stakes in the race to apportion blame for Enron's c= ollapse. In a statement announcing his resignation, Mr Lay said his involvement had = "become a distraction" from achieving the goal of a successful reorganisati= on of the bankrupt company.=20 Two congressional committees moved yesterday to subpoena Mr Lay, compelling= him to appear as early as next week. He unexpectedly withdrew from hearing= s this week after congressmen said the report suggested Enron executives ha= d broken the law.=20 The report analyses in detail some of the deals Enron conducted with off-ba= lance-sheet partnerships. It concludes that many were carried out simply to= flatter Enron's accounts and that Mr Lay, and other senior officers, bore = ultimate responsibility for the failure of oversight.=20 Dynegy, facing a $10bn suit from Enron after pulling out of its abortive re= scue bid last year, said yesterday the report showed Enron's demise was "se= lf-inflicted" and justified its decision to withdraw from the takeover.=20 Shareholders and employees seeking compensation from Enron directors and of= ficials said the report also could provide ammunition for lawsuits against = investors who financed Enron's off-balance-sheet partnerships.=20 Limited partners in the special-purpose vehicles took on little risk and re= ceived disproportionately large returns, according to the report.=20 Investors in one of the partnerships, LJM2 Co-Investment, included funds or= units run by Merrill Lynch (which also led the placement of stakes in LJM2= ), JP Morgan Chase, Citigroup, and other blue-chip companies.=20 Eli Gottesdiener, head of a Washington law firm involved in one suit agains= t Enron and Andersen, its former auditor, declined to say whether limited p= artners would now be sued. But he said lawyers for employees and shareholde= rs would probably "use the report to assist them in casting the net as wide= ly as possible".=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 National Desk; Section A ENRON'S MANY STRANDS: THE OVERVIEW SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON By STEPHEN LABATON and RICHARD A. OPPEL Jr. 02/05/2002 The New York Times Page 1, Column 6 c. 2002 New York Times Company WASHINGTON, Feb. 4 -- After Kenneth L. Lay, the former chairman and chief e= xecutive of Enron, refused to testify before the Senate Commerce Committee = this morning, Republicans and Democrats on the panel said they would vote T= uesday to issue a subpoena to compel his appearance.=20 Mr. Lay, who severed his final tie to Enron this evening by resigning from = its board, had infuriated lawmakers by canceling his appearance at the last= minute, saying through his lawyer that Congressional hearings planned for = this week had taken on a prosecutorial tone. ''We decided that we really had no choice but to issue a subpoena,'' Senato= r Byron L. Dorgan, a North Dakota Democrat, said at a news conference this = afternoon. Mr. Lay, he said, ''should not have expected it would ever be a = walk in the park'' to testify at a Congressional hearing.=20 Lawmakers in the House said this evening that they had notified Mr. Lay's l= awyer, Earl J. Silbert, that they intended to issue a subpoena, and were to= ld that he did not know where his client could be found. Mr. Lay had been s= cheduled to testify in the House on Tuesday, but he also backed out of that= date.=20 Mr. Silbert did not respond to requests for comment tonight, but Congressio= nal aides and other lawyers involved in the case said they expected that Mr= . Lay, if subpoenaed, would again refuse to testify, and invoke his Fifth A= mendment right against self-incrimination.=20 Tonight, Mr. Lay issued a brief explanation of why he had decided to remove= himself from the company he founded 16 years ago, expanded into one of the= nation's largest energy concerns and watched helplessly as it spiraled out= of control.=20 ''I want to see Enron survive and successfully emerge from reorganization,'= ' he said. ''Due to the multiple inquiries and investigations, some of whic= h have focused on me personally, I believe my involvement has become a dist= raction to achieving this goal.''=20 Mr. Lay's silence before Congress is a remarkable turnabout for a corporate= executive who not long ago was a highly courted figure in Washington, a fi= nancial patron of many public officials, a guest of both Democratic and Rep= ublican presidents and a top contender for a cabinet position in the admini= stration of the first President Bush.=20 Now he is facing a multitude of investigations by Congress, the Justice Dep= artment and the Securities and Exchange Commission. A report issued on Satu= rday night by three outside directors of Enron, which has filed for bankrup= tcy protection, concluded that he bore overall responsibility as its leader= , but that he appeared to be largely oblivious to the details of questionab= le transactions. The report was based in part on interviews with Mr. Lay an= d foreshadows his defense to the inquiries.=20 The day witnessed the first extensive testimony by a member of Enron's boar= d about the company's demise. William C. Powers, the chairman of the specia= l committee on Enron's board that issued the report, told a Congressional p= anel that his inquiry had uncovered ''a systematic and pervasive attempt by= Enron's management to misrepresent the company's financial condition.''=20 ''The tragic consequences of the related-party transactions and accounting = errors were the result of failures at many levels and by many people,'' sai= d Mr. Powers, the dean of the University of Texas School of Law. ''A flawed= idea, self-enrichment by employees, inadequately designed controls, poor i= mplementation, inattentive oversight, simple and not-so-simple accounting m= istakes, and overreaching in a culture that appears to have encouraged push= ing the limits.''=20 Mr. Powers termed his findings ''absolutely appalling.'' He added, ''There'= s no question that virtually everyone, from the board of directors on down,= everyone understood that the company was seeking to offset its investment = losses with its own stock.''=20 Fresh signs of the political implications of Enron's demise were evident in= a capital that has quickly become captivated by the matter. At a news conf= erence this afternoon, Senator Ernest F. Hollings, the South Carolina Democ= rat who heads the Commerce Committee, sharply criticized the Bush administr= ation for its ties to Enron and its top executives.=20 ''I've never seen a better example of cash-and-carry government than this B= ush administration and Enron,'' he said. ''Specifically, everyone knows how= the Bushes got the cash, whether while he was governor using the planes of= the largest contributor; as president in his campaign the largest contribu= tor; to the Republican committee running the convention and the inaugural c= ommittee and everything else like that.''=20 Mr. Hollings, following some House Democrats, called on the administration = to appoint a special counsel to lead the criminal investigation into Enron'= s collapse. He cited the company's ties to nearly a dozen top officials in = the administration and Attorney General John Ashcroft's excusing himself fr= om the case because he had received campaign donations from Enron.=20 The Justice Department said it saw no reason for such a counsel. ''No confl= ict of interest exists,'' its statement said. ''No person involved in pursu= ing this investigation has any conflict or any ties that would require a re= cusal.''=20 Mr. Hollings gamely deflected a question about his own campaign contributio= ns from the company. Asked whether he had received donations from Enron, he= replied: ''I sure did, but I got 3,500 over 10 years, but our friend Kay B= ailey Hutchison, she got 99,000. Heck, I'm the chairman of the committee. T= hat wasn't a contribution. That was an insult.''=20 Republicans, meanwhile, continued to denounce what they called corruption a= t Enron while noting that the company had ties to Democrats.=20 ''Clearly Enron was a very politically active corporation, and I think that= makes this a more interesting story,'' said Senator Peter G. Fitzgerald, t= he Illinois Republican who is the ranking minority member on one of the sub= committees examining the affair. ''But the fact of the matter is that at ro= ot I think this is a corporate scandal. I don't believe that anyone in the = Bush administration was aware that there was what appears to me to have bee= n a pyramid scheme going on in Enron.''=20 After noting that the administration of President Bill Clinton also promote= d some of Enron's business interests, he added, ''There's a very famous pic= ture of Ken Lay with the previous president as well as the current presiden= t.''=20 At a House financial services subcommittee hearing today, Harvey L. Pitt, t= he chairman of the Securities and Exchange Commission, said that if facts d= escribed in the Enron report as characterized by one lawmaker proved correc= t, ''that would be fraud.''=20 He said his agency was re-examining a broad range of regulations as a resul= t of Enron's problems. ''I am committed and the commission is committed to = re-examining every assumption, every rule, and regulation, in light of Enro= n,'' he said.=20 Specifically, he said, the agency was reviewing disclosure and financial re= porting requirements, the role of audit committees and the oversight of acc= ounting firms. He said that the agency was closely examining other companie= s that have shifted their liabilities off their books and that he believed = that corporate executives ought to face ''personal exposure'' for violating= disclosure rules. Photos: Representative Richard H. Baker of Louisiana, center, the chairman = of a subcommittee of the House Financial Services Committee, consulted with= colleagues and aides yesterday at a hearing on the collapse of Enron. (Ass= ociated Press); The S.E.C. chairman Harvey Pitt before Congress yesterday. = (Associated Press)(pg. C4)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section Lay Leaves Enron Board; Founder Severs Last Ties to Firm Peter Behr Washington Post Staff Writer 02/05/2002 The Washington Post FINAL A04 Copyright 2002, The Washington Post Co. All Rights Reserved Enron Corp. founder Kenneth L. Lay resigned from the company's board of dir= ectors yesterday, two days after an investigative report found him signific= antly responsible for the company's demise.=20 In a letter of resignation cutting his last ties to the company, Lay said: = "I want to see Enron survive and successfully emerge from [bankruptcy] reor= ganization. Due to the multiple inquiries and investigations, some of which= are focused on me personally, I believe that my involvement has become a d= istraction to achieving this goal." Lay was supposed to testify voluntarily yesterday before a Senate committee= , but he canceled the appearance Sunday. His attorney said members of Congr= ess had prejudged Lay before hearing his testimony.=20 Lay and other directors were pointedly criticized in a report released Satu= rday by a special committee appointed by Enron's board and headed by Willia= m Powers Jr., dean of the University of Texas Law School.=20 Powers told members of the House Financial Services Committee yesterday tha= t the failure of Lay and other directors to police accounting and ethics vi= olations at Enron was "appalling." Disclosures of executives' self-dealing = and false financial statements by Enron shattered its credibility with inve= stors and customers, forcing it into bankruptcy.=20 For Lay, the departure ends a tumultuous year at the company he founded 16 = years ago. He stepped down as chief executive a year ago, turning the post = over to his prote{acute}ge{acute} Jeffrey Skilling. While Lay kept the chai= rman's position, he was planning to expand his activities outside the count= ry. Then Skilling's unexpected resignation in August, as Enron's financial = problems were growing, forced Lay to take up the chief executive's duties o= nce again.=20 His assurances last summer that Enron was in good shape has been condemned = by former Enron workers and attacked by lawyers suing Enron and its top exe= cutives on behalf of shareholders and employees. Lay and top Enron executiv= es also face ongoing federal securities and criminal investigations.=20 Lay resigned as chairman and chief executive Jan. 23 under pressure from cr= editors in the Enron bankruptcy reorganization case. Enron is trying to sel= l enough assets to meet creditors' demands while eventually putting survivi= ng units of the company back on their feet.=20 Thomas Roberts, Enron's outside lawyer in the bankruptcy case, received Lay= 's resignation.=20 "This was Ken Lay's decision," Roberts said. While it is difficult for a co= rporate board to remove an individual director, Lay could have been forced = to resign.=20 Roberts said Enron was sorry Lay did not feel comfortable testifying yester= day. "The company would have liked him to tell the company's story and his = story, and the company is sorry that circumstances have led to his leaving = the board."=20 Lay has been working at an office at Enron's Houston headquarters but is cu= t off from former executives and employees he once led. His wife, Linda Lay= , said last week that except for their home, "everything is for sale."=20 The financial implications of Lay's resignation as chairman and chief execu= tive are not yet clear.=20 "His severance package is being discussed now," Roberts said. "With the com= pany in bankruptcy, the board does not have much latitude, if any, in agree= ing to a severance package. It's all subject to the bankruptcy court." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Lay steps down from Enron's board of directors=20 Irate lawmakers working on subpoenas=20 By JULIE MASON=20 Copyright 2002 Houston Chronicle Washington Bureau=20 Feb. 5, 2002, 12:43AM WASHINGTON -- Former Enron Corp. Chairman Ken Lay resigned from the company= 's board of directors Monday, as irate lawmakers prepared subpoenas that wo= uld force him to appear on Capitol Hill.=20 Lay, who resigned as chairman last month, severed final corporate ties with= Enron, saying his problems had become a distraction to the company's effor= ts to emerge from bankruptcy.=20 "Due to the multiple inquiries and investigations, some of which are focuse= d on me personally, I believe that my involvement has become a distraction = to achieving this goal," Lay said in a statement.=20 The move came during a chaotic day in Washington as lawmakers, stung by Lay= 's abrupt cancellation of highly anticipated testimony on Capitol Hill, too= k steps to compel the embattled former executive to appear.=20 "I understand it would be difficult to come and testify, but he should not = have expected it would ever be a walk in the park," said Sen. Byron Dorgan,= D-N.D.=20 Lay withdrew less than 24 hours before he was to appear Monday at the Senat= e Commerce Committee. He also pulled out of a hearing set for today before = the House Financial Services Committee.=20 In response, the House committee voted unanimously to authorize its chairma= n to subpoena Lay, and the Senate panel is poised to do the same today.=20 The Senate panel tentatively set Feb. 12 as the new day to hear from Lay, w= hile the House committee's new date was undecided.=20 Earl Silbert, Lay's attorney in Washington, D.C., said Monday night he is a= ware that Lay may be subpoenaed by the House Financial Services Committee a= nd suggested to the committee that Lay could testify on Feb. 12 or 13.=20 According to news reports Silbert said he did not know where Lay was when h= e was contacted by the committee about him, but he meant that he did not kn= ow where Lay was when the committee staff was speaking to him.=20 "I knew he had left D.C.," Silbert said.=20 Kelly Kimberly, Lay's newly hired spokeswoman, said Lay returned to Houston= from Washington, D.C., Monday morning.=20 Lawmakers said they are not inclined to barter immunity for Lay's testimony= , and it was unclear whether Lay would invoke his Fifth Amendment right aga= inst self-incrimination and refuse to answer questions.=20 Far from backing down from the heated rhetoric that Lay's attorneys blamed = for his withdrawal, angered lawmakers, again lashed out at Enron and its fo= rmer chairman for failing to appear as promised.=20 "We have not arrived at any preconceived notions here, but I will tell you = it sure appears to me that this company was on the financial equivalent of = steroids," said Sen. Ron Wyden, D-Ore. "They inflated those short-term prof= its and pumped themselves up to the detriment of the long-term health of th= ousands of families in my home state."=20 Sen. Ernest Hollings, D-S.C., chairman of the Senate committee, criticized = the Bush administration for its ties to Enron and called for a special pros= ecutor to oversee the criminal investigation.=20 "I've never seen a better example of cash-and-carry government as this Bush= administration and Enron," Hollings said.=20 Attorney General John Ashcroft recused himself from prosecuting the case, d= isclosing that he took campaign contributions from Enron for a failed 2000 = Senate bid.=20 Hollings criticized the subsequent choice of Deputy Attorney General Larry = Thompson to head up the investigation, noting that Thompson once worked in = a law firm that represented Enron.=20 "In other words, it should be independent," Hollings said.=20 "Of course, finding someone in this town independent of Enron is easier tha= n finding bin Laden, I can tell you that," he said ironically.=20 The Justice Department rejected the call to replace Thompson with a special= prosecutor.=20 "No person involved in pursuing this investigation has any conflict, or any= ties that would require a recusal," Justice Department officials said.=20 Lay, who it was hoped would finally break months of silence on the collapse= of his one-time empire, was to be the star attraction in a week of intense= hearings in both the House and Senate.=20 Instead, his lawyers cited "prosecutorial" tones in the public remarks of l= awmakers preparing to question Lay, in explaining his withdrawal.=20 Committee members generally scoffed at Lay's response, noting that their ad= versarial tone has remained largely consistent since he agreed in December = to testify.=20 "The problem for Mr. Lay is that some of the autopsies have already been do= ne on Enron," said Sen. Peter Fitzgerald, R-Ill. "If Mr. Lay wants to corre= ct some of the damning impressions that are coming out of these documents, = he ought to come before the American people."=20 Lay's decision not to appear came the day after a special committee of Enro= n's board released a 218-page report criticizing company executives, audito= rs, lawyers and board members for allowing improperly created partnerships = to inflate Enron's earnings, hide its debt and wrongfully enrich a handful = of insiders.=20 The report also cited Lay for bearing significant responsibility in the com= pany's collapse.=20 Lay resigned as chairman and CEO of Enron Jan. 23, saying he could not run = the company effectively while facing investigations and lawsuits into Enron= 's collapse.=20 His resignation from the board closes 16 years of service at Enron, leaving= his diminished stock ownership the only remaining link to the company.=20 He retired as chief executive in February 2001, but resumed the position wh= en his successor, Jeff Skilling, quit in August.=20 Lawmakers said Monday that Skilling is still expected to cooperate. Former = Chief Financial Officer Andrew Fastow, also scheduled to testify, has notif= ied lawmakers he will not answer questions.=20 In a brief statement on Lay's resignation from the board, Enron said, "We r= egret that circumstances have led to this. We wish Ken the best."=20 Chronicle reporters Laura Goldberg in Houston and Patty Reinert in Washingt= on contributed to this story.=20 =20 Business/Financial Desk; Section A ENRON'S MANY STRANDS: THE PARTNERSHIPS Deal at Enron Gave Insiders Fast Fortunes By KURT EICHENWALD 02/05/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company They called it Southampton Place. To most people in Houston, it was the nam= e of a neighborhood known for expensive homes and influential residents.=20 But to a small group of executives at the Enron Corporation, it meant somet= hing far different: the opportunity to obtain millions of dollars of cash, = fast, with the money coming from the company's own coffers. Details of the lucrative investments in Southampton, a limited partnership = involved in dealings with Enron partnerships, were disclosed Saturday in a = report released by a special committee of the Enron board. For directors an= d former employees, the details have proved to be some of the most emotiona= lly charged disclosures in the lengthy report: a small group of insiders ma= de millions in profits in secret deals with some of the partnerships that u= ltimately brought the company to its knees.=20 Two of the investors were able to transform $5,800, the price of a used car= , into more than a million dollars each in just two months, according to th= e report. Andrew S. Fastow, the former chief financial officer of Enron and= engineer of many of the partnership transactions, transformed a $25,000 co= ntribution from a family foundation into $4.5 million in the same matter of= weeks.=20 The deals in early 2000, which involved at least half a dozen Enron employe= es, violated the company's conflict of interest requirements. Last fall, wh= en the first inklings of Southampton emerged, every senior executive invest= ing in the deal who had not already been fired for a role in the partnershi= p problems was terminated. Until then, the report says, no top officials of= the company knew anything about -- let alone approved of -- the insider de= al that had come from Mr. Fastow's finance division.=20 The investment was arranged by Mr. Fastow and another Enron employee, Micha= el Kopper, who both live in Southampton Place in Houston. Investigators wor= king for the board committee worked to figure out why the two executives of= fered the lucrative opportunity to other corporate insiders, but were unabl= e to find an answer.=20 Now, legal experts say, that same question is certain to be examined by Fed= eral prosecutors investigating the Enron debacle.=20 Investigators will look for a quid pro quo arrangement in which something o= f value was expected from the investors in return for the lucrative opportu= nity to participate in such a profitable deal, said Stephen Meagher, a form= er federal prosecutor in San Francisco who handled white-collar cases.=20 A spokesman for Mr. Fastow declined to comment. Mr. Kopper did not return a= telephone message left at his home.=20 The small group of other investors included only people who were involved i= n partnership transactions with Mr. Fastow. Mr. Kopper, like Mr. Fastow, al= so invested $25,000, through a partnership he called Big Doe -- apparently = a nod to the potential profits from the investment.=20 The other investors included Ben F. Glisan Jr., the former Enron treasurer = who helped set up some Enron partnership deals with Mr. Fastow, and Kristin= a Mordaunt, a lawyer who worked for Mr. Fastow before becoming general coun= sel of the company's broadband division. Mr. Glisan and Ms. Mordaunt were t= he executives who each put up $5,800 for a return of $1 million.=20 Two other employees put up smaller amounts, and received thousands in retur= n.=20 Henry F. Schuelke, a lawyer for Mr. Glisan, did not return a phone message.= Ms. Mordaunt's phone number could not be found in a computer search. Howev= er, according to the report, she informed the committee that she never aske= d for and never provided anything in return for the Southampton investment.= Mr. Glisan also told the committee that Mr. Fastow never asked him for any= favors or other consideration in return for the Southampton investment.=20 For some legal experts, the Southampton transaction sounds eerily similar t= o a central part of the investment scandal at the investment house Drexel B= urnham Lambert Inc. more than a decade ago. There, the man in charge of Dre= xel's junk bond operation, Michael R. Milken, offered lucrative interests i= n a partnership called MacPherson Investment Partners L.P. to a group of mu= tual fund managers. Some of those managers, who invested their mutual funds= in other Drexel deals, were subsequently convicted on charges that they ha= d accepted bribes in exchange for decisions they made for their funds.=20 With the Enron executives having fiduciary obligations to the company's sha= reholders, legal experts said, investigators will try to determine whether = anyone appeared to modify their actions because of the investment opportuni= ty.=20 The MacPherson case clearly has a role as precedent in this instance, said = Mr. Meagher, the former prosecutor.=20 Kenneth J. Vianale, the main prosecutor in the MacPherson cases, declined t= o comment, citing a conflict; his firm has already brought class actions ag= ainst Enron on behalf of shareholders.=20 According to the report, both Mr. Glisan and Ms. Mordaunt played roles in n= egotiating with Mr. Fastow's partnerships on behalf of Enron after they rec= eived their returns on the Southampton investment. That month, Mr. Glisan b= ecame treasurer of Enron, and was intimately involved that year in a series= of partnership deals that played a major role in bringing down the company= . Ms. Mordaunt was involved in at least one transaction with a Fastow partn= ership on behalf of Enron after her investment.=20 The Southampton Place partnership traces back to a $10 million investment b= y Enron in March 1998 in Rhythms Netconnections Inc., a privately held Inte= rnet service provider. Enron's stake, 5.4 million shares originally priced = at $1.85 each, proved to be enormously profitable, at least for a while.=20 A little more than a year after Enron purchased its stake, Rhythms went pub= lic at $21 a share and closed on the first day of trading at $69. Soon Enro= n's stake was worth some $300 million, according to the committee's report.= =20 But the company could not cash in its stake because the terms of its invest= ment prohibited selling the stock until the end of 1999. The prices of Inte= rnet stocks were extremely volatile, and the changes in value of Rhythms sh= ares showed up on the company's income statement, because of how Enron was = accounting for the shares.=20 Senior executives wanted to limit those swings in value.=20 That is where the partnerships came in. Mr. Fastow and Mr. Glisan, who woul= d later be appointed Enron's treasurer, arranged a series of transactions s= upposedly to hedge the risk in the Rhythms investment.=20 The complex transactions involved a number of related partnerships. But ult= imately the deals required Enron to contribute both stock in Rhythms and it= s own stock to the partnerships. The report said Mr. Fastow indicated to ot= her Enron executives that he had no financial interest in the transactions.= =20 In 2000, when Enron decided to sell its Rhythms stake, the complex series o= f transactions had to be undone, a process known as unwinding.=20 During the negotiations on the unwinding, Mr. Fastow proposed that Enron pa= y $30 million to one partnership involved He did not reveal at that time th= at the partnership was secretly owned by Southampton, which had just been e= stablished.=20 The fact that Enron executives were profiting off this deal at the expense = of their employer raised serious concerns for the committee.=20 ''We have not seen any evidence that any of the employees, including Fastow= , obtained approval from the chairman and C.E.O. under the code of conduct = to participate financially in the profits of an entity doing business with = Enron,'' the report says. ''While every code violation is a matter to be ta= ken seriously, these violations are particularly troubling.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Legal Liability for Enron Debacle May Be Determined by 1997 Memo By John R. Emshwiller Staff Reporter of The Wall Street Journal 02/05/2002 The Wall Street Journal A6 (Copyright (c) 2002, Dow Jones & Company, Inc.) Legal liability in the Enron Corp. debacle could depend, in part, on who kn= ew about an innocuous-looking, two-page memorandum dated Dec. 30, 1997, inv= olving one of the now-controversial outside partnerships run by company exe= cutives.=20 Enron's collapse into bankruptcy proceedings late last year, caused in larg= e part by the existence of those partnerships, is now the focus of congress= ional hearings and criminal and civil investigations. The company's downfal= l also has subjected the nation's corporate-accounting practices to unprece= dented scrutiny. The memo was signed by two Enron executives at the time, Jeremy Blachman an= d Michael Kopper. It included plans for how to distribute about $6.6 millio= n from one limited partnership, known as JEDI, to another limited partnersh= ip, known as Chewco Investments. Chewco has received widespread attention r= ecently as one of the partnerships whose questionable accounting treatment = helped bring Enron down. Chewco was run and partly owned by Mr. Kopper, who= resigned last year as a managing director of the Houston energy-trading gi= ant.=20 The memo shows Mr. Blachman was signing on behalf of an Enron unit that was= serving as general partner of JEDI, and Mr. Kopper was signing on behalf o= f Chewco. The memo was on JEDI letterhead and addressed to Chewco Investmen= ts.=20 The final destination and purpose of these funds has become the center of a= controversy between Enron and its longtime auditor Arthur Andersen LLP, as= well as a focus of inquiries by federal investigators probing the Enron co= llapse. Late last year, Enron and Andersen officials said their discovery o= f the use of that money in relation to Chewco had required Enron to retroac= tively reduce reported earnings back to 1997 by nearly $400 million, or mor= e than 10%. This reduction produced the lion's share of a broader financial= restatement that helped force Enron to seek bankruptcy-court protection on= Dec. 2.=20 In Dec. 12 congressional testimony, Andersen's chief executive, Joseph Bera= rdino, said the 1997 handling of the Chewco/JEDI financial arrangements inv= olved "possible illegal acts." He said that in 1997, crucial information ab= out the financial arrangements had been withheld from Andersen by Enron off= icials.=20 Yesterday, an attorney for Mr. Kopper declined to comment. Mr. Blachman, wh= o is currently a managing director at an Enron unit, didn't return phone ca= lls seeking comment. It isn't clear whether Mr. Blachman played anything mo= re than just a minor role in the Chewco matter. A report issued over the we= ekend by Enron's board of directors investigating Enron's executive-run par= tnerships indicates that Mr. Blachman, when interviewed recently, couldn't = recall details of the Dec. 30 document.=20 Mr. Berardino's testimony added to questions of who knew what and when in r= egard to Chewco. The partnership was created in 1997 to purchase from Enron= for $383 million an interest in JEDI, which is an acronym for Joint Energy= Development Investments. Enron had helped form JEDI in 1993 and operated i= t as a separate entity to invest in energy projects. By selling Chewco an i= nterest, Enron was able to keep treating JEDI as independent, which meant k= eeping more than $700 million in JEDI-related debt off Enron's balance shee= t.=20 Enron was only able to do this transaction because Chewco was considered an= independent entity under accounting rules, which required that the entity = have outside equity equal to at least $11.5 million, or 3%, of its $383 mil= lion in assets. Andersen has acknowledged that it reviewed Chewco in 1997 a= nd found that two small limited liability companies, known as Big River Fun= ding and Little River Funding, had put in enough outside equity to meet tha= t requirement. Mr. Kopper, besides his connection to Chewco, also shows up = as signatory for Big River and Little River on its bank-loan documents.=20 As it turned out, however, more than half the outside equity investment was= in effect guaranteed by the $6.6 million due from JEDI to Chewco being dep= osited in accounts as collateral against bank loans, which Big River and Li= ttle River had taken out to invest in Chewco. This collateral deposit meant= Chewco never had enough true outside equity to be treated as independent. = Thus it should have been folded into Enron, along with JEDI, in 1997. Ander= sen has said it wasn't told in 1997 about the collateral arrangement.=20 The 1997 memo talks of sending the $6.6 million to reserve accounts on beha= lf of Little River and Big River. Yesterday, an Andersen spokesman said "th= is is more confirmation of the fact that Enron didn't provide critical info= rmation regarding Chewco to Andersen." An Enron spokesman declined to comme= nt. One person familiar with the matter said that in 1997 Enron officials w= ere telling bankers involved in the Chewco-related loans that Andersen had = reviewed and approved of the now-suspect collateral transaction. The board = report released over the weekend said that Andersen work papers indicated t= hat the accounting firm had access to cash-flow records from JEDI including= the now-suspect $6.6 million distribution. However, the report added, it d= idn't know if Andersen had done anything to trace the disbursements from JE= DI.=20 And it still isn't known who at Enron or Andersen saw or had access to this= 1997 memo over the past four years. If individuals knew about the arrangem= ent and its potential financial impact on Enron, they could be guilty of vi= olations of the law, says one federal investigator looking into the matter.= =20 A Nov. 2, 2001, memorandum prepared by an Andersen official said that the a= ccounting firm was called on Oct. 26 by an Enron official named Rodney Fald= yn who "advised that he had learned that Chewco may not have the requisite = equity" and asked about the possible accounting impact of that situation. T= hat was the same day that The Wall Street Journal disclosed the existence o= f Chewco and its connection to Mr. Kopper. Mr. Faldyn declined to comment y= esterday.=20 Over the next several days, Enron and Andersen began reviewing Chewco, acco= rding to the Andersen memo. On Nov. 2, Andersen received a set of Chewco-re= lated documents from the law firm of Wilmer, Cutler & Pickering, which had = just been hired to help Enron's board of directors do its investigation of = the partnership arrangements. That investigative report, released over the = weekend, was extremely critical of Chewco and similar partnerships as well = as of top Enron officials.=20 The Dec. 30, 1997, memo was part of the Wilmer Cutler packet of documents, = said the Andersen memo. It isn't clear where the law firm obtained the Chew= co-related documents. William McLucas, the firm's lead attorney on the Enro= n investigation, couldn't be reached for comment yesterday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Business Desk Enron Report Could Bolster Criminal Case Probe: Panel's allegations of fina= ncial subterfuge increase likelihood of indictment, legal experts say. WALTER HAMILTON TIMES STAFF WRITER 02/05/2002 Los Angeles Times Home Edition C-1 Copyright 2002 / The Times Mirror Company A report claiming that Enron Corp. executives used partnerships to enrich t= hemselves and mask the company's troubled finances makes it increasingly li= kely that prosecutors will bring criminal fraud charges, legal experts said= Monday.=20 The report, released late Saturday by a special committee of Enron board me= mbers, said the partnerships appeared in some cases to be used for financia= l subterfuge rather than for legitimate business purposes. If investigators can show that Enron officials intentionally deceived inves= tors, it would mark a significant new development in the case, according to= attorneys experienced in corporate fraud.=20 Enron executives would have a stronger defense had the report found that th= ey simply made bad business decisions, attorneys said. Instead, the report = charged that the now-infamous partnerships at the heart of Enron's collapse= often served no "bona fide economic" purpose.=20 "This report makes it more likely that there will be a criminal indictment,= " said Christopher Bebel, a partner at Shepherd Smith & Bebel in Houston.= =20 "It looks like the government's going to have an easier time establishing i= ntent, because now we've learned additional details about the efforts at co= ncealment of the truth as the scheme was unfolding," Bebel said. "And we're= learning about the extent to which members of top management profited."=20 The report detailed a culture of corporate mismanagement and inside dealing= . It pointed the strongest criticism at Andrew S. Fastow, Enron's former ch= ief financial officer, saying that he and several subordinates reaped tens = of millions of dollars in profit at the expense of the company and its shar= eholders.=20 Fastow could not be reached for comment.=20 Some legal authorities cautioned that it was not certain criminal charges w= ould be brought.=20 Though the report contains strident allegations, the three-member panel ack= nowledged that it did not have the full picture. Some key people refused to= cooperate, and the panel lacked access to important documents.=20 Though the report appears to strengthen the government's hand in bringing p= otential fraud charges, Enron executives still have a variety of defenses a= vailable, some authorities said.=20 Enron executives could argue that the partnerships were created and run wit= h the full backing of lawyers and others upon whom they relied for expert a= dvice, said Ira Lee Sorkin, a New York defense attorney who previously was = at both the U.S. attorney's office in New York and the Securities and Excha= nge Commission.=20 Sorkin noted that as a defense, Enron executives could claim that lawyers, = accountants and others signed off on the deals.=20 Still, many experts said the report contains clearly damaging information t= hat lowers the hurdle to bringing a criminal case.=20 Simply put, the difference between a civil case and a criminal one is inten= t, attorneys said. Prosecutors would have to prove that a defendant purpose= ly broke the law as opposed to simply having acted "recklessly."=20 With Enron, prosecutors could argue that Fastow and others were making mill= ions while manipulating the company's books, experts said.=20 "If the evidence is as strong as this report seems to make it, then I'd thi= nk it's a pretty strong case," said Paul Fishman, a New York lawyer who han= dles white-collar crime cases.=20 The report also hands the Justice Department extra ammunition with which to= pursue its case, Fishman and others said. One major strategy in the invest= igation is to coax insiders to cooperate with information about the wrongdo= ing of others.=20 The report may convince some people that it's better to cooperate before ot= hers do and they lose offers of leniency.=20 "There may be enough in [the report] that it may scare the pants off someon= e," Fishman said.=20 If the allegations in the report bear out, the government could charge frau= d on several levels, said Brian O'Neill, a partner at O'Neill, Lysaght & Su= n in Santa Monica.=20 If the company was shuffling its finances while borrowing money from financ= ial institutions, that could be bank fraud, he said. If it used the mail or= electronic means to deceive investors, that could be mail or wire fraud.= =20 The headline-garnering nature of the Enron debacle could itself increase th= e likelihood of criminal charges being brought, said Henry Hu, a securities= -law professor at the University of Texas at Austin.=20 "This case has so gripped the attention of the general public that the fail= ure to bring a criminal prosecution, if the facts warrant it, could undermi= ne confidence in the financial markets," Hu said. "The message it would sen= d is that [criminal wrongdoing] doesn't matter: 'Even in an egregious situa= tion, we won't prosecute criminally.'" Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: WALL STREET Varied Roles Cause Some Conflicts, Brokers Say By PATRICK McGEEHAN 02/05/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company Investors may have been astonished to learn that the Enron Corporation allo= wed its former chief financial officer, Andrew S. Fastow, to wear two hats.= But Wall Street insiders could have shrugged and said, ''Is that all?''=20 On Wall Street, the biggest and most successful firms routinely play a vari= ety of roles and simultaneously serve several, and often conflicting, inter= ests. In some cases, the same firms that privately sold shares in the compl= ex partnerships that Enron kept off its balance sheet also lent Enron money= and recommended Enron's stock and bonds to the public. A report by a special committee of Enron's board found that the accounting = for those partnerships -- some of which were run by Mr. Fastow while he was= chief financial officer -- was one cause of the company's collapse. Congre= ssional investigators are asking whether the company's auditor, Arthur Ande= rsen, was blinded to that conflict by the consulting fees Enron was paying = it.=20 While the large accounting firms rush to eliminate their apparent conflicts= , executives on Wall Street are standing behind the securities laws that ha= ve perpetuated theirs. Unless Congress or securities regulators tell them o= therwise, the big securities firms intend to continue raising money for cor= porations by selling stocks, bonds and shares in partnerships to the full s= pectrum of investors, from the most sophisticated millionaires to the novic= es.=20 ''There are inherent conflicts of interest in this business,'' said James W= iggins, a spokesman for Merrill Lynch & Company, the nation's biggest broke= rage firm. ''It's a question of how you manage them.''=20 Like many major firms on Wall Street, Merrill helped to finance Enron's rap= id rise. The firm managed sales of the company's bonds, lined up buyers for= one big partnership run by Mr. Fastow and even collected a fee for advisin= g another company on its purchase of a utility that Enron sold.=20 At times, including last fall, Merrill's stock research department advised = brokerage customers to buy Enron's stock. Donato J. Eassey, an analyst who = followed Enron for Merrill until December, was recommending the stock after= Merrill successfully sold $349 million of shares in LJM2, a partnership cr= eated by Enron executives, through a private offering. Several Merrill inve= stment bankers, including Thomas Davis, now a vice chairman of the firm, bo= ught shares of that partnership for themselves, though their interest was n= ot disclosed to Merrill's customers. So far, they have recovered slightly m= ore than 90 percent of the money they invested, according to a person close= to the partnership.=20 There is no evidence that Merrill's investment bankers or executives ever c= onsidered these various roles an unacceptable conflict of interest. To the = contrary, Merrill's two top executives reassured the firm's employees last = week about the firm's role in selling LJM2.=20 In an internal memorandum on Jan. 30, Merrill's chief executive, David H. K= omansky, and its president, E. Stanley O'Neal, said: ''We placed it private= ly with a limited number of qualified institutional and individual investor= s who received full disclosure about its structure. Co-investment by Merril= l Lynch and some of our qualified employees is common in these kinds of pla= cements and does not represent a conflict of interest. Indeed, it directly = aligns our interests with the sophisticated investors who join us in puttin= g their capital at risk.''=20 If Merrill's bankers, as agents of Enron, gathered any information about En= ron that was not available to the company's shareholders or bondholders, th= ey would have been barred from sharing it, experts in securities law said. = That information belongs to the client and is available to the investment b= ankers under strict terms of confidentiality.=20 ''Investment bankers are not going to blow the whistle on transactions bles= sed by the company's lawyers and accountants,'' said Joseph McLaughlin, a p= artner with the law firm of Sidley Austin Brown & Wood. ''You can't release= the information without the company's permission.''=20 If bankers learned something negative in preparing to manage a private plac= ement for a public company, he said, ''what that calls for is a frank discu= ssion with the company'' to encourage its executive to disclose the informa= tion publicly.=20 But if the company chooses not to tell investors everything -- as Enron cle= arly did not -- that arrangement can leave the securities firm in an awkwar= d position. Its analysts and brokers may be promoting stocks that they woul= d not like so much if they knew what some of their co-workers in the invest= ment-banking department knew.=20 Securities firms long ago became comfortable with the potential for such co= nflicts. They have been playing the dual roles of corporate underwriter and= financial adviser for decades.=20 ''Conflicts of interest in the financial industry are as inevitable as deat= h and taxes,'' said John Coffee, a professor of law at Columbia University.= ''You can't wholly purge them.''=20 The most likely moves to deal with those conflicts, Mr. Coffee and other ex= perts said, will be to insulate analysts even more from their investment-ba= nking counterparts. Rather than allowing the two sides to share more inform= ation, regulators will probably try to limit the bankers' ability to influe= nce the analysts' ratings and views on securities that their firms underwri= te.=20 Beyond that, Wall Street executives are likely to resist calls for change. = It is an industry with codes of conduct that do not prevent an investment b= ank from representing both the buyer and the seller in a merger. ''It's tak= en an incredible perfect storm to force the auditing industry to change,'' = Mr. Coffee said. ''I don't think we're going to see Wall Street fundamental= ly change how it behaves.'' Photo: David H. Komansky, chief executive of Merrill Lynch, wrote a memoran= dum that explained the firm's role in LJM2, created by Enron. (Carol Halebi= an)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE ENRON COLLAPSE - Lawsuits may widen to hit partners= hips SPECIAL-PURPOSE VEHICLES. By JOSHUA CHAFFIN, STEPHEN FIDLER and ANDREW HILL. 02/05/2002 Financial Times (c) 2002 Financial Times Limited . All Rights Reserved Plaintiffs in suits against Enron directors and advisers are examining whet= her to widen their case for compensation to include investors who backed th= e energy trader's off-balance-sheet partnerships.=20 People involved in some of the class-action suits on behalf of employees an= d investors in Enron say a damning special report to the Enron board may pr= ovide ammunition for a wider case against the banks, funds and individuals = that funded the special-purpose vehicles. The report, published at the weekend, analyses in detail many of the deals = Enron conducted with the partnerships. It concludes that many "had little e= conomic substance" and were carried out simply to flatter the Enron account= s.=20 Limited partners in the special-purpose vehicles took on little risk and re= ceived disproportionately large returns, according to the report.=20 The investigation by three Enron directors does not go into detail about ho= w the partnerships were pitched to investors by Andrew Fastow, Enron's form= er chief financial officer, and Michael Kopper, another Enron employee. But= other documents obtained by the Financial Times make clear that potential = partners were aware of the inherent conflicts of interest.=20 Those documents - relating to LJM2 Co-Investment, one of the main partnersh= ips - show the rapid deal making, high rates of return and the promise of a= n inside track on Enron's strategy were all touted as attractions.=20 The internal report points out that in 20 transactions with Enron, "the LJM= partnerships rarely lost money ... even when they purchased assets that ap= parently declined in value after the sale" and in spite of the fact that "e= ach transaction theoretically involved a transfer of risk".=20 Among investors in LJM2, according to partnership documents, were funds or = units run by Merrill Lynch (which also led the placement of stakes in LJM2)= , JP Morgan Chase, Citigroup, Dresdner Bank, Lehman Brothers, Credit Suisse= First Boston, Wachovia and CIBC. GE Capital had a small stake, as did insu= rers and individual investors.=20 "We invested $10m," Lehman said. "We did it not simply for the relationship= , but because we thought it would be a good investment."=20 Lehman declined to comment on the possibility of a suit against partners in= LJM2, but one institution involved said it was more likely that partners w= ould now sue Enron.=20 The special report details for the first time the involvement of CSFB and N= ational Westminster Bank, now part of Royal Bank of Scotland, in LJM Cayman= (LJM1). Mr Fastow raised $7.5m from each of two limited partners ERNB and = Campsie which, the report says, were associated with CSFB and NatWest respe= ctively.=20 Some of those approached by Mr Fastow were intrigued by the high returns pr= omised, but eventually deterred by the fact that the chief financial office= r and other Enron employees were running the vehicles. Calpers, the Califor= nian pension fund that invested in other Enron-backed entities, turned down= LJM2 for those reasons, according to a Los Angeles Times report.=20 One private equity investor said he knew Mr Fastow's presence guaranteed "a= n edge". But this was also disconcerting because of the apparent conflict o= f interest.=20 "If these are legitimate deals, then why does Enron need Andy? Why not a th= ird party?" he had wondered.=20 When the investor raised these concerns with Mr Fastow, the Enron executive= replied that the board had approved, and so there was no problem. The inve= stor declined to join the partnership. "The whole team were Enron guys. The= re was not one of them who was a member of the partnership. There was somet= hing unusual about that," he said.=20 Eli Gottesdiener, head of a Washington law firm involved in one suit agains= t Enron and Andersen, its former auditor, declined to say whether limited p= artners would now be sued. But he said employees' and shareholders' lawyers= would probably "use the report to assist them in casting the net as widely= as possible".=20 Among the most egregious transactions involving partnerships was one relate= d to an entity called Jedi.=20 The internal report confirmed that for much of the 1990s, Enron was reporti= ng as income gains appreciation in its own shares. From 1993 to the first q= uarter of 2000, Enron reported as income gains the appreciation of 12m Enro= n shares contained in Jedi, which it controlled jointly with Chewco, an ent= ity formed by Mr Kopper.=20 Workpapers from Andersen indicated that Enron recorded $126m in Enron stock= appreciation in the first quarter of 2000, but in the third quarter of tha= t year this practice ended.=20 In the first quarter of 2001, Enron did not record its share of the loss in= value of Enron shares held by Jedi - amounting to some $90m.=20 Enron accountants said they were told by Andersen that since gains were not= being recorded as income, losses should not be either. "We do not understa= nd the basis on which Enron recorded increases in value of Enron stock held= by Jedi in 2000 and prior years, and are unable to reconcile that with adv= ice apparently provided by Andersen in 2001 concerning not recording decrea= ses," the report said.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron workers' benefits reportedly raided=20 $15 million allegedly spent elsewhere=20 By KRISTEN MACK=20 Copyright 2002 Houston Chronicle=20 Feb. 5, 2002, 12:43AM A former senior accountant at Enron told CBS News that the company took at = least $15 million from legally protected worker-benefits accounts and spent= it elsewhere.=20 During an interview aired on CBS-TV's Evening News Monday, Robin Hosea said= that immediately after joining Enron as a benefits specialist in 2000 she = noticed the money was being spent in other departments.=20 "The money that comes out of benefits accounts that is not directly to pay = for employee benefits is illegal," Hosea said. "It was a large amount of mo= ney and also a large number of items."=20 The Chronicle was unable to reach Hosea Monday night.=20 She said her records showed unexplained payments totaling almost $15 millio= n by the end of 2000, part of which went to monthly payments to outside con= sultants.=20 Last May, Hosea said she questioned her superiors about the payments and wa= s told "that it was a payment to friends of executives and to leave it," sh= e told CBS.=20 That summer, Hosea took disability for knee surgery.=20 Days before Enron declared bankruptcy, Hosea told CBS that she contacted fe= deral officials at the Department of Labor about her concerns.=20 Since then, Hosea said, an Enron supervisor has told her to keep quiet. She= also said she gets regular phone threats.=20 Hosea was laid off from Enron in December.=20 "Those sound like serious allegations," said Enron spokesman Mark Palmer.= =20 Monday night, Palmer said there was no way of checking the truth of her cla= ims.=20 "If the Department of Labor is looking into this, we should wait until thei= r investigation is complete to find out what the facts are," Palmer said.= =20 A Section Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Lead= ership' Robert O'Harrow Jr. and Jackie Spinner Washington Post Staff Writers 02/05/2002 The Washington Post FINAL A01 Copyright 2002, The Washington Post Co. All Rights Reserved Enron Corp.'s collapse was the result of a "a systemic and pervasive attemp= t" to inflate profits and hide losses, not of a few rogue employees breakin= g company rules, a member of Enron's board of directors told a House panel = yesterday.=20 The testimony from William C. Powers Jr., dean of the University of Texas L= aw School and an author of a scathing report about the energy trading compa= ny released over the weekend, will make it even more difficult for Enron's = former leaders to deflect blame for the company's stunning collapse to lowe= r-level employees or its auditor, Arthur Andersen. "What we found was appalling," said Powers, chairman of the Enron board's s= pecial investigative committee. "And there was a fundamental default of lea= dership and management. Leadership and management begin at the top, with th= e CEO, Ken Lay."=20 Powers testified before a House Financial Services subcommittee after Lay b= acked out of a pledge to appear before a Senate panel yesterday. Lay then r= esigned from Enron's board, closing out his involvement in a company he hel= ped to form in 1986.=20 Lay changed his mind because of "inflammatory language" surrounding the cas= e and his perception "the hearing will be prosecutorial," his attorney said= . Lay resigned as chief executive late last month under pressure from the c= ompany's creditors.=20 The Powers report concluded that Lay and former chief executive Jeffrey K. = Skilling were largely responsible for a "fundamentally flawed" decision to = let Andrew S. Fastow, the company's chief financial officer at the time, se= t up and run Enron-funded partnerships that made him tens of millions of do= llars and allowed Enron to hide huge losses and debts. Enron finally was fo= rced to disclose those losses in mid-October, sparking a crisis of confiden= ce among investors, lenders and customers that sent what was the nation's s= eventh-largest corporation spiraling into bankruptcy court within seven wee= ks.=20 Fastow received at least $30 million from running partnerships -- a fact th= at was never reported to shareholders. One of his colleagues, Michael J. Ko= pper, got at least $10 million from an initial investment of $125,000. Othe= rs received up to $1 million or more for doing virtually nothing, Powers sa= id.=20 In other testimony, Harvey L. Pitt, chairman of the Securities and Exchange= Commission, told the House panel he cannot guarantee that other "Enrons" -= - companies with massive accounting irregularities -- won't emerge. "It is = my hope there are not other "Enrons out there," Pitt told lawmakers. "But I= 'm not willing to rely on hope."=20 Within hours after Lay's testimony was to have begun, leaders of the Senate= Commerce Committee and its subcommittee on consumer affairs said they inte= nd to subpoena Lay to testify next Tuesday. Committee Chairman Ernest F. Ho= llings (D-S.C.) said the full committee would meet today to vote on authori= zing the subpoena.=20 Hollings also said the Justice Department should appoint an outside special= prosecutor to handle the case because Enron was a major contributor to Pre= sident Bush's campaign and had ties to an array of administration officials= . He cited, among other things, Attorney General John D. Ashcroft's decisio= n to recuse himself because of Enron campaign contributions.=20 The Justice Department released a statement saying it "sees no reason to ap= point a special counsel to investigate the Enron matter" because "no confli= ct of interest exists."=20 In the House, Rep. Richard H. Baker (R-La.), chairman of the subcommittee t= hat heard testimony yesterday, said the panel also would seek authority to = subpoena Lay. "Those who chose to ignore their responsibilities and enrich = themselves while bringing harm to others shall have no safe harbor," he sai= d in a statement that opened a hearing about Enron yesterday afternoon.=20 Baker later said Lay's attorney, Earl Silbert, told him Lay would invoke th= e Fifth Amendment and refuse to testify if subpoenaed. But Baker said he ex= pected to submit written questions to Lay, through his attorneys.=20 "Mr. Lay firmly rejects any allegations that he engaged in wrongful or crim= inal conduct," Silbert told the panel.=20 Powers declined to answer some of the House subcommittee's questions, inclu= ding those asking him to speculate about criminal wrongdoing or the need fo= r a special prosecutor. He used his appearance to underscore the damning fi= ndings of the Enron board's three-month investigation of the company's use = of partnerships.=20 He described incorrect accounting in deals from the third quarter of 2000 t= o the third quarter of last year that were hidden from the public.=20 "As a result of these transactions, Enron improperly inflated its reported = earnings for a 15-month period . . . by more than $1 billion," he said. "Th= is means that more than 70 percent of Enron's reported earnings for this pe= riod were not real."=20 The company misused its stock to "hedge" losses from investments, he said. = Normally, hedging involves getting an outsider to take on the risk of a dea= l, for a fee. If an investment loses value, that outsider loses.=20 But Powers said Enron "was essentially hedging with itself" by promising in= vestors in the Raptor partnerships that they would receive Enron stock if t= he assets in the partnerships fell in value. That depended on Enron's stock= continuing to climb in value. When the asset values and Enron's stock both= fell, the Raptor partnerships could not meet their obligations. "This is p= recisely what happened in late 2000 and early 2001," Powers said, but Enron= hid the problem and "gave the false impression that Raptors had enough mon= ey to pay Enron what they owed," he said.=20 "Let me say that while there are questions about who understood what, conce= rning many of these very complex transactions, there's no question that vir= tually everyone, from the board of directors on down, understood the compan= y was seeking to offset its investment losses with its own stock," he said.= "This is not the way it is supposed to work."=20 He told the lawmakers, "Whenever this many things go wrong it is not just t= he act of one or two people."=20 Pitt, in his testimony, repeated his call for a new regulatory body to gove= rn the accounting profession and stressed the need to modernize financial d= isclosure rules and corporate accounting systems. And he lamented the impac= t of Enron's fall on regular people who trusted the company, such as employ= ees who lost most or all of their 401(k) retirement savings because they we= re heavily invested in Enron stock.=20 "It is these Americans whose faith fuels our markets, who have no lobby and= no trade associations, whose interests are, and must be, paramount," he sa= id. "I am appalled at what happened to them as a result of Enron's collapse= ."=20 Pitt said the SEC would work with Congress to determine which areas of refo= rm could be addressed by rules and which would require legislative action. = He did not outright reject several suggestions, including a mandated term l= imit for audit firms, that the accounting profession vehemently opposed whi= le he represented it as a lawyer in private practice.=20 He also pledged to review how audit firms are paid and said the SEC was wor= king with lawmakers to address concerns related to conflicts of interest am= ong securities analysts, many of whom were urging investors to buy or hold = Enron stock until just before it sought bankruptcy protection.=20 Key figures in the creation of the partnerships have been invited before Co= ngress on Thursday, but not all of them will actually testify.=20 Fastow's attorney has said he will appear before the House Energy and Comme= rce Committee, but aides there said he is expected to exercise his Fifth Am= endment right against self-incrimination. Kopper has been subpoenaed but ha= s informed the committee he will refuse on Fifth Amendment grounds.=20 But an attorney for Skilling reiterated yesterday that Skilling will testif= y as scheduled. Skilling also was criticized in the Powers report, which de= scribed him as a man who prided himself on total involvement in management = oversight but who appeared to have little or no oversight of the partnershi= ps.=20 Former Enron treasurer Jeffrey McMahon, now the company's president, is exp= ected to testify. He complained about the partnership structure to Skilling= , warning of serious conflicts of interest, according to the report. An Enr= on lawyer who raised questions about the partnerships, Jordan Mintz, is als= o planning to testify, according to his attorneys.=20 Arthur Andersen chief executive Joseph F. Berardino previously testified th= at Enron officials committed "possible illegal acts" by not disclosing that= a partnership that caused huge losses lacked enough non-Enron investment t= o be separated from Enron's financial statements.=20 Powers said Andersen initially cooperated in his investigation but pulled o= ut after Enron fired it last month, citing Andersen's admission that employ= ees in its Houston office had destroyed large numbers of documents related = to the Enron audit.=20 Andersen announced over the weekend that it had hired former Federal Reserv= e chairman Paul A. Volcker to lead a sweeping review of its business practi= ces. Dean McMann, who heads a Houston-based accounting consulting firm, sai= d that suggested to him that the firm's problems may be greater than previo= usly realized.=20 "They had to hire a watchdog to watch over a watchdog," he said.=20 In federal bankruptcy court, meanwhile, a number of creditors filed objecti= ons to a motion submitted in by Enron last month that would authorize certa= in Enron insurance carriers to make payments to lawyers representing curren= t and former Enron officials in lawsuits and government investigations.=20 The officials include Skilling. An attorney for Skilling submitted a statem= ent supporting the Enron request.=20 The objecting creditors included the Florida State Board of Administration,= which in its filing called Enron's request for an initial $30 million to p= ay advance expenses and legal fees "another effort on Enron's part to prote= ct the wrongdoers who caused billions of dollars of losses . . . and to pro= vide them with further financial benefits."=20 Staff writers Helen Dewar, Susan Schmidt, Kirstin Downey Grimsley and Ben W= hite contributed to this report. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Little-Known Academic Pushed Onto Enron Stage Carrie Johnson Washington Post Staff Writer 02/05/2002 The Washington Post FINAL E01 Copyright 2002, The Washington Post Co. All Rights Reserved Last Halloween, amid revelations of accounting misdeeds at Enron Corp., Wil= liam C. Powers Jr. called a friend with some unexpected news.=20 Powers, dean of the University of Texas Law School, had agreed to join the = troubled energy company's board of directors -- and to lead a probe into it= s byzantine financial dealings. "I asked him, 'Why would you want to jump on a sinking ship?' " recalled Ri= chard Hogan, a Houston lawyer.=20 Indeed, many wondered. Texas newspapers questioned his ties to Enron -- the= law school had raised $250,000 from Enron and Enron's general counsel was = on the board of the law school.=20 Yet in just three months the relatively unknown academic, with little backg= round in securities law, oversaw the production of a withering report on th= e management practices at Enron and the actions of its auditor, Arthur Ande= rsen.=20 The extraordinary 218-page report detailed questionable financial partnersh= ips and activities that are providing a blueprint for more than a dozen con= gressional and executive branch investigations.=20 Powers testified at a hearing yesterday before a subcommittee of the House = Financial Services Committee. In the wake of former Enron chief executive K= enneth L. Lay's refusal to testify, Powers became an unlikely star witness,= sitting solemnly in a rumpled dark-blue suit, with sandy hair brushed acro= ss his forehead.=20 His testimony was as blunt as the report. "What we found was absolutely app= alling," Powers said.=20 And he spared no one, not even the board that had asked him to make the stu= dy, presumably in the hopes of salvaging the company's reputation. "Within = Enron, the checks and balances simply broke down. The oversight broke down = at the board level, at the senior management level and in the finance depar= tment," he told lawmakers.=20 Powers, 55, declined comment through a spokeswoman. But interviews with fri= ends and colleagues say his handling of the investigation reflected his ble= nd of low-key intelligence and earthy pragmatism.=20 "He's an extraordinarily quick study," said Steven Goode, an associate dean= at the Texas law school and a friend of Powers's since they joined the fac= ulty in 1977. "He grasps things more quickly and more deeply than anyone I = know."=20 Goode, who shares a motorboat with Powers and Powers's wife, Kim Heilbrun, = a real estate lawyer, said Powers has a razor-sharp and curious mind. Books= helves in the modern Austin home where Powers lives with his wife and three= of his five children are filled with audiotapes from the Learning Co. on s= ubjects including American literature, the New Testament and physics.=20 Despite 23 years of teaching at the law school in Austin and two as its dea= n and chief fundraiser, Powers has not developed a national reputation outs= ide of the law school community and the relatively small group of lawyers w= ho focus on reforming product-liability laws. Powers has written dozens of = articles and several textbooks on the subject.=20 "He's not a pretentious person," said Houston lawyer and multimillionaire J= oe Jamail, a member of the Texas law school's board of trustees and a lawye= r representing Enron's law firm, Vinson & Elkins. "He just does not get out= and beat his own chest."=20 Friends say Powers has been working 100-hour weeks to balance the duties of= the Enron probe with that of running a law school. Raymond Troubh, a New Y= ork financial consultant who serves on the three-member Enron investigating= committee, said the group worked long hours, with conference calls stretch= ing until midnight and beyond.=20 Staffers from the Washington law firm Wilmer, Cutler & Pickering and the ac= counting giant Deloitte & Touche did much of the hands-on work. But the thr= ee-member committee, which also includes Herbert Winokur, head of a private= investment firm, played a large part in guiding, rewriting and revising th= e Enron report, Troubh said.=20 Although Powers has been teaching full time for two decades -- earning a di= stinguished-teaching award from the university -- he has maintained an acti= ve legal practice, arguing before the Texas Supreme Court and the 5th U.S. = Circuit Court of Appeals.=20 Powers colleagues say that although he lacks a background in derivatives, h= e does have a reputation for being able to sort through confusing corporate= dealings. For instance, he was hired by workers to cut through the complex= structure of an oil company after an explosion at a refinery in Corpus Chr= isti, Tex., left some severely burned.=20 The firm, Coastal Corp., maintains that the factory is owned by a subsidiar= y, Coastal Refining & Marketing Inc., and that Coastal Corp. has no legal r= esponsibility to pay the $120 million awarded by a court. The case is on ap= peal.=20 "Bill was able to help us pierce through the corporate structure to get to = the real guts of what's going on," said Hogan, the Houston lawyer whose fir= m employs Powers as a consultant. "He's very good at taking a snapshot of t= hings from 30,000 feet up and seeing things clearly."=20 Powers earned a degree in chemistry from the University of California at Be= rkeley in 1967, then joined the Navy and served for three years in the Pers= ian Gulf. He then attended Harvard University's law school, where he edited= the law review.=20 By one account, Powers came to the attention of Enron through Harry Reasone= r, the managing partner of Vinson & Elkins and a trustee on the University = of Texas Law School Foundation.=20 Enron general counsel James Derrick served on the law school foundation's b= oard of directors and on the alumni association board. Derrick resigned fro= m the two boards after Powers joined Enron's board. Because the law school = received contributions from Enron and Vinson & Elkins, Powers has been crit= icized in recent weeks for agreeing to head the probe.=20 The jabs, including an editorial in the Austin American-Statesman that reco= mmended Powers step down in favor of a more independent evaluator, have tak= en their toll.=20 "All of the innuendos are quite embarrassing to him," said Troubh. "I didn'= t see one iota of partiality in one direction or another. He was a determin= ed, impartial chairman."=20 Longtime friend Goode said Powers was most upset that the "unfair personal = attacks" came in the days before Powers released his report, which conclude= d that Enron executives failed to oversee key partnerships and covered up $= 1 billion in losses in 12 months.=20 The Feb. 2 report also had harsh words for Vinson & Elkins, the auditing fi= rm Arthur Andersen and Enron's board of directors, saying they failed to mo= nitor self-dealing among company executives.=20 "The tragic consequences of the related-party transactions and accounting e= rrors were the result of failures at many levels and by many people," the r= eport said. "Our review indicates that many of those consequences could and= should have been avoided."=20 Researchers Richard Drezen and Kim Klein contributed to this report. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 International Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water C= ould Bring $1.4 Billion To Failed Energy Firm By Erik Portanger and James R. Hagerty Staff Reporters of The Wall Street Journal 02/05/2002 The Wall Street Journal A12 (Copyright (c) 2002, Dow Jones & Company, Inc.) LONDON -- Efforts to salvage value from the wreckage of Enron Corp.'s overs= eas interests are showing signs of progress.=20 A shortlist of bidders has been drawn up for Wessex Water, a utility in sou= thwest England that is one of the largest international assets of the faile= d energy-trading company. People familiar with the situation say the list i= ncludes Italian energy company Enel SpA; Cheung Kong Infrastructure Holding= s Ltd. of Hong Kong; and a consortium composed of General Electric Co.'s GE= Capital arm, Royal Bank of Scotland and Abbey National PLC. The sale is expected to take another six to eight weeks to complete. A pers= on familiar with the bidding said Wessex is likely to fetch more than GBP 1= billion ($1.4 billion).=20 Spokesmen for GE Capital, Royal Bank of Scotland, Abbey National and Enel d= eclined to comment. A spokesman for Cheung Kong wasn't immediately availabl= e for comment.=20 Separately, PricewaterhouseCoopers, the accounting firm appointed last year= as administrator of Enron's European arm, expects to raise $500 million to= $750 million through other transactions, including asset sales and complet= ion of futures trades. That money would go toward the claims of thousands o= f creditors and trading partners of Enron Europe and its units, said Tony L= omas, a partner at PricewaterhouseCoopers in London. Enron Europe owes abou= t $1 billion to its parent, Enron Corp., and Enron Europe's obligations to = other parties are likely to total more than $1 billion, Mr. Lomas said.=20 Enron Corp. bought Wessex in 1998 to be the cornerstone of a new global wat= er division, called Azurix. Enron's plan at the time was to transform the g= lobal water industry in the same way it revolutionized natural-gas markets,= by taking advantage of deregulation to squeeze inefficiencies out of utili= ties formerly managed by governments. But the strategy didn't work out as p= lanned, at least partly because of Enron's failure to create a successful o= nline marketplace to trade water.=20 Even so, Wessex Water is considered one of the best-run utilities in Britai= n and one of only a handful of sizable water assets up for grabs anywhere i= n the world. "If you are looking to make an entry into the global water mar= ket, then the U.K. is one of the few parts of the world where you can do th= at on a meaningful scale," said Andrew Wright, an analyst at UBS Warburg in= London. The sale has been complicated, however, by strict regulatory const= raints that prevent companies from owning, or holding a stake in, more than= one U.K. water company. While more than a dozen potential bidders expresse= d interest in Wessex, many of these dropped out at an early stage.=20 Even if a sale is completed, it would require the approval of British regul= ators.=20 At least one of the bidders on the shortlist, the GE Capital-led consortium= , has made an offer that would involve refinancing the water company with d= ebt, which would then be paid off by revenue, say people familiar with the = situation. This so-called securitization technique has been used frequently= in the past to acquire assets with stable cash flows.=20 Enel's interest in Wessex suggests an about-face for the Italian-government= -controlled company, which last year pulled out of a race to acquire Britai= n's Southern Water. Analysts believe Enel is pursuing Wessex as part of a b= roader push to diversify out of its core electricity operations and into ot= her utility sectors. Cheung Kong Infrastructure Holdings, an infrastructure= company controlled by Hong Kong businessman Li Ka-shing, is believed to be= seeking a foothold in the European market.=20 Separately, PricewaterhouseCoopers has scheduled a series of meetings in Lo= ndon next week with creditors of Enron Europe and its subsidiaries. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE ENRON COLLAPSE - Enron Direct pay-outs decided. By MATTHEW JONES. 02/05/2002 Financial Times (c) 2002 Financial Times Limited . All Rights Reserved Administrators for Enron Europe have determined approximate payment levels = for creditors of Enron Direct, the first business to be sold after the US p= arent group's collapse in December last year.=20 PwC, the administrators, said between 55p and 73p in the pound would be pai= d back to creditors, depending on the tax liability of the company, a small= energy retailer sold in December to Centrica of the UK. Enron Direct's total debts are #132m ( $188m), of which #105m is owed to an= other Enron subsidiary. The largest external creditors are listed as Univer= sal Utilities, owed #2.5m, Western Power Distribution, owed #2m, and Scotti= sh and Southern Energy, owed #1.3m.=20 Creditors of Enron Direct are likely to receive among the highest payments = of Enron's creditors, because it was a relatively straight-forward business= with some assets.=20 Other businesses, such as Enron Power Operations Limited, a company with 4,= 000 creditors that set up services contracts for other Enron units, are exp= ected to recoup less of their losses.=20 PwC sent preliminary reports on five Enron subsidiaries to thousands of cre= ditors over the weekend. The complexity of deals within the trading and ser= vices businesses, which represent the bulk of Enron Europe's debts, mean it= will be months before their creditors know the full extent of liabilities.= =20 Tony Lomas of PwC said trading staff were still working through 250,000 ind= ividual trades with about 1,000 counterparties. Those contracts "in the mon= ey" would realise at least $150m, but losses were expected to be many times= greater.=20 Overall, administrators estimate they will realise $500m to $750m of value,= but this will be swamped by "many billions of dollars" of debts. Creditors= include most of the financial institutions operating in the City of London= , the worst exposed of which include JP Morgan Chase, Bank of Tokyo Mitsubi= shi and Aegon, the Dutch insurer.=20 The first creditors' meetings for the European businesses will be held next= week in London. Enron Direct creditors will meet administrators on Tuesday= , while those of four other trading and services companies will meet on Fri= day.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: ACCOUNTING Ernst & Young Latest Auditor Moving to Alter Some Practices By JONATHAN D. GLATER 02/05/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company The accounting firm Ernst & Young announced yesterday that it would stop se= lling information technology services to companies it audits and that it wo= uld no longer serve as internal accountant and external auditor at the same= company.=20 The move by Ernst & Young comes as several competitors are announcing new l= imits on the range of services they will provide to a client. On Sunday, Ar= thur Andersen, the accounting firm that audited the Enron Corporation, anno= unced that it was creating a special oversight board with broad powers to c= hange how the firm does business. KPMG and PricewaterhouseCoopers both anno= unced last week that they would support similar changes. Ernst & Young's announcement leaves Deloitte & Touche as the only Big Five = accounting firm standing by the practice of providing consulting services t= o companies it audits.=20 In a statement last week, Deloitte acknowledged that its policy was perceiv= ed as a problem by investors, but said, ''The public interest would be serv= ed by lowering the level of hyperbole in the debate and carefully consideri= ng potential unintended consequences of any proposed reforms.''=20 James S. Turley, Ernst & Young's chief executive, said in a conference call= with reporters yesterday that it was important for the large accounting fi= rms to adopt clear positions on the question of which services auditors can= provide to clients. Investors, regulators and lawmakers have been calling = for a review of the many services accounting firms provide since the collap= se of Enron and its filing for bankruptcy protection. Enron's auditor, Arth= ur Andersen, provided both consulting and audit services and also served at= times as an internal and external auditor.=20 ''It's obviously a challenging time for the profession,'' Mr. Turley said. = ''Over the last few weeks it became very clear to me that several of us nee= ded to stake out positions and just get on with things, relative to the sco= pe of services.''=20 Mr. Turley said he favored the creation of an independent disciplinary orga= nization unrelated to the accounting industry's trade association, a propos= al similar to one made last month by the chairman of the Securities and Exc= hange Commission, Harvey L. Pitt. But he also suggested that regulators cre= ate a crisis-response team that would react to situations like Enron's bank= ruptcy filing by recommending rapid changes to accounting standards.=20 Mr. Turley said that providing consulting services to companies audited by = Ernst & Young did not in fact create conflicts of interest and that a prohi= bition against doing so would probably not prevent an Enron-style implosion= .=20 Rather, he said the public perception of a conflict had to be addressed. In= any event, he said, giving up technology consulting would not be a serious= hardship because the firm sold its consulting business to Cap Gemini, a Eu= ropean consulting firm, in 2000.=20 Ernst & Young will, however, feel the effects of no longer serving as both = internal and external accountants for its clients, Mr. Turley said. From 20= to 25 clients receive both services, and the internal audit work generates= several hundred million dollars a year for the accounting firm.=20 Ernst & Young would not disclose exactly how much it earns from clients whe= re it is both internal and external auditor. The firm could lose some clien= ts when it changes its policies, but it could just as easily pick up client= s from other accounting firms making similar changes. Not to take such step= s might keep the accounting industry from recovering its credibility, Mr. T= urley warned. That in turn could cause it to lose its best people.=20 ''The profession could become one where existing professionals don't want t= o stay in it,'' he said, and students would not want to work as accountants= .=20 The same concerns are behind an e-mail message sent yesterday by James G. C= astellano, chairman of the American Institute of Certified Public Accountan= ts, to members of that organization.=20 Mr. Castellano wrote that ''Enron's collapse has eroded our most important = asset: public confidence,'' and reported that the association's board had a= pproved a resolution supporting measures similar to those adopted by Ernst = & Young, Andersen and others.=20 Mr. Castellano also advised the group's members that in the next few weeks = the association would take out advertisements in national publications to t= ry to restore confidence in the accounting profession and attract recruits.= =20 ''The profession's heightened visibility,'' Mr. Castellano wrote, ''makes t= his an opportune time to convey our messages regarding its viability, dynam= ism and high standards.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Dynegy charges Enron has only itself to blame=20 By BILL MURPHY=20 Copyright 2002 Houston Chronicle=20 Feb. 4, 2002, 9:33PM Enron has only itself to blame for going bankrupt after Dynegy called off a= proposed merger in December, Dynegy's lawyer said Monday.=20 Enron is suing for $10 billion, saying Dynegy's failure to live up to the d= eal, signed Nov. 9, caused it to go bankrupt.=20 "Enron planted the seeds of its death spiral years before it turned to Dyne= gy seeking a bailout," said Dynegy's response, filed Monday in New York ban= kruptcy court.=20 At a news conference in Houston, Daryl Bristow, Dynegy's lawyer, said the d= eal specifically allowed Dynegy to back out if it learned that key informat= ion on which it was based was incorrect.=20 After about 10 days of research, Bristow said, Dynegy learned Enron had bee= n concealing debt in off-the-book accounts and had been grossly misleading = about profits and liquidity. When it told Enron it would back out, he said = Enron responded by cutting its asking price in half.=20 Dynegy called off the deal Nov. 28 after determining there was no way to sa= ve Enron, Bristow said.=20 "Everyone knew there had been a major and a disastrous financial change," B= ristow said. "Enron brought this on its own head. Dynegy only tried to salv= age the situation."=20 Bristow repeatedly cited the report of an Enron internal investigation, rel= eased Saturday, that assailed the company's executives, auditors, lawyers a= nd board members for letting improperly created partnerships inflate compan= y profits, conceal its debt and wrongfully enrich several insiders.=20 During negotiations, Enron informed Dynegy its core energy-trading business= was sound, but Bristow said Enron had suffered a massive cash drain in the= week after the merger was announced.=20 Enron paid more than $1 billion to cover margin calls -- a demand that it r= epay money borrowed to buy stocks -- in its trading unit.=20 Bristow said Dynegy will argue that the Enron suit should be transferred fr= om the New York City court to federal district court in Houston.=20 Dynegy alleges Enron engaged in fraud, but it did not file a countersuit be= cause Enron has no assets, Bristow said.=20 Martin Bienenstock, Enron's lawyer, said, "If they are afraid to assert the= fraud claim (in a countersuit), you have to wonder how good their defense = is."=20 He said he has not read Dynegy's court filing and could not discuss it in d= etail.=20 =20 'He should have been here'=20 Ex-staffers irked after trip to D.C.=20 By PATTY REINERT=20 Copyright 2002 Houston Chronicle Washington Bureau=20 Feb. 4, 2002, 11:37PM WASHINGTON -- Laid-off Enron Corp. workers, who traveled to Washington in h= opes of confronting Ken Lay, said they were angry Monday that their former = chairman backed out of his promise to testify before Congress.=20 "He should have been here. He should have said something," said Gwen Gray, = who worked in Enron's human resources department for three years before the= company filed for bankruptcy last year. "He knows what's going on. He coul= d explain a lot of things that we don't know the answers to now because he = didn't show up."=20 Lay, who resigned as the Houston company's top executive last month and fro= m the company's board Monday, had been scheduled to testify before the Sena= te Commerce and House Financial Services committees, the first of several h= earings on Capitol Hill this week looking into Enron's collapse.=20 On Sunday, Lay abruptly reversed course and said he would not testify.=20 The decision came one day after University of Texas Law School Dean William= Powers released his report on the company's activities.=20 Powers, who testified before the House panel Monday, said his investigation= found that Enron's management attempted to misrepresent the company's fina= ncial condition.=20 In his written testimony, Powers said there was a default of leadership and= management that began at the top and included Lay.=20 Enron, once the world's largest energy trader, filed the country's largest = bankruptcy on Dec. 2 after admitting it overstated its profits by hundreds = of millions of dollars since 1997. In addition to at least 10 congressional= inquiries and investigations by the Securities and Exchange Commission, th= e Labor Department and the Federal Energy Regulatory Commission, Enron and = its executives face a federal criminal probe and several class-action lawsu= its filed by employees and stockholders.=20 The company's former employees say they were misled about its finances and = were briefly kept from selling Enron stock from their 401(k) retirement pla= ns last fall as the price was falling. Now, they want their money back.=20 In letters to congressional committees, Lay's attorney, Earl Silbert, said = his client rejects allegations that he did anything wrong as his company sp= iraled toward bankruptcy. But Silbert said he advised his client against te= stifying after coming to the conclusion that lawmakers had already made up = their minds and would not give Lay a fair hearing.=20 The Senate committee plans to vote today on whether to subpoena Lay; the Ho= use panel also is considering a subpoena.=20 The small group of former workers, accompanied by the Rev. Jesse Jackson an= d members of his Rainbow/PUSH organization, met with lawmakers, urging them= to pass legislation to help workers recover money lost from their retireme= nt plans. Several laid-off workers sat in on the House panel's hearing.=20 Debbie Perrotta, a Kingwood resident who was a senior administrative assist= ant at Enron for five years, said she was not surprised that Lay changed hi= s mind about testifying.=20 Perrotta, scheduled to testify today before the Senate Governmental Affairs= Committee, said she held out little hope of confronting Lay about Enron's = collapse. If she ever gets the chance, she said she will ask:=20 "Why the deceit? Why the lies? And if you knew there was something going on= , that we were losing money, why did you continue to take bonuses?"=20 Perrotta said she also lost her family's health insurance and about $40,000= in Enron stock in her 401(k).=20 In her testimony today, she said, she'll try to explain to lawmakers why th= e employees put trust in the company.=20 "We loved Enron," she said. "Enron was a great company."=20 The workers had hoped to sit behind Lay in the hearing rooms so that when T= V cameras recorded his testimony, they also would show former employees.=20 "We need to see him face to face, and let him look at our faces," Perrotta = said. "He needs to know how many lives they've destroyed."=20 =20 MANAGING YOUR CAREER Saving Your Career After Earning a Name As a Whistle-Blower By Joann S. Lublin 02/05/2002 The Wall Street Journal B1 (Copyright (c) 2002, Dow Jones & Company, Inc.) ENRON EXECUTIVE Sherron Watkins never intended to become a whistle-blower b= y helping expose the practices that triggered her company's financial colla= pse.=20 When Jeffrey Skilling, president of the Houston energy concern, abruptly qu= it in August, Enron officials set up a special letter-collection box so emp= loyees could anonymously vent their worries. Ms. Watkins, vice president fo= r corporate development, wrote an unsigned, one-page note to then-Chairman = Kenneth Lay. "Has Enron become a risky place to work?" her letter asked, af= ter questioning its irregular accounting methods. "I am incredibly nervous that we will implode in a wave of accounting scand= als," she continued. "My eight years of Enron will be worth nothing on my r= esume."=20 Nothing may be further from the truth. Ms. Watkins's subsequent experience = suggests that whistle-blowing need not blow your career. Informers about wo= rkplace misdeeds can minimize career damage if they enjoy a strong reputati= on for honesty, management experts and former whistle-blowers say.=20 Ms. Watkins, 42 years old, has been lauded for her courage since a House co= mmittee investigating Enron released an expanded version of her letter last= month. Her reluctant internal disclosure "is going to be terrific for her = career. It shows profound integrity and discretion," says Hal Reiter, CEO o= f New York recruiters Herbert Mines Associates.=20 THOUGH MANY whistle-blowers get forced out after going public, Enron's mess= offers Ms. Watkins some job security. Even so, blowing the whistle within = Enron "wasn't an easy thing to do," says Philip Hilder, a Houston attorney = representing Ms. Watkins and speaking on her behalf.=20 Shortly after writing the letter, Ms. Watkins accepted a colleague's sugges= tion to divulge her identity and meet with Mr. Lay, where she detailed her = concerns. That session prompted the company to invite a law firm's investig= ation. Enron filed for bankruptcy Dec. 2.=20 Why didn't Ms. Watkins protect co-workers by alerting the SEC, asks Jeffrey= Wigand. He is the research executive who blew the whistle on alleged wrong= doing by his former employer, Brown & Williamson Tobacco. He became an educ= ator at one-tenth his former $300,000 salary. Keeping complaints in-house "= minimizes your career damage . . . as well as minimizes your integrity," he= believes.=20 Ms. Watkins didn't contact securities regulators because she was challengin= g accounting practices approved by Enron lawyers and accountants, Mr. Hilde= r replies.=20 Jerry Giordano understands the dilemma. In 1981, the then 37-year-old marke= ting director caused an internal ruckus but didn't inform authorities when = he found what he says were unlawful pricing practices at a small West Coast= industrial-products manufacturer. To make old products appear new, he says= , the maker repackaged them, falsified engineering specifications and order= ed him to pitch them before salespeople. An ex-Federal Trade Commission off= icial advised him the small business wouldn't likely be prosecuted.=20 Mr. Giordano confided his dilemma to a friend he had worked for at a defens= e contractor. The former boss had commended his integrity when he exposed h= idden cost overruns at their former company. Both left for other jobs. "He = created a job for me" at his new employer, he says.=20 Good thing. Before he could resign, he was fired for sending a memo to coll= eagues about the company's packaging practices that concluded "being indict= ed looks bad on your resume." Mr. Giordano, now the 58-year-old CEO of Crit= erium-Mooney Engineers, civil-engineering consultants in Portland, Maine, w= ould gladly hire Ms. Watkins. "She did the right thing by going to the top,= " he says.=20 At the moment, Mr. Hilder says, Ms. Watkins isn't thinking about whether he= r internal whistleblowing might harm her career. "If the time ever comes wh= en she needs to seek employment, she will rest on her abilities," the attor= ney insists.=20 BARBARA PROVUS, a principal of Chicago recruiters Shepherd Bueschel & Provu= s, is skeptical. "Very few companies really want a corporate conscience," s= he says.=20 Renwick T. Nelson learned that lesson after exposing allegedly deceptive li= fe-insurance sales practices at Prudential Financial. He gave a sworn anony= mous statement to Florida's attorney general in 1996 before he switched job= s at Prudential, from top marketing-practices officer to a $300,000-a-year = post as a compliance officer. But he was fired in March 1997, according to = his Dec. 5 testimony in a Miami federal court case stemming from the allega= tions.=20 Following his dismissal, Mr. Nelson sent out numerous resumes -- and never = got any interviews. He has a hunch why. "Senior management in the corporate= world seems to think they are owed complete loyalty and whistle-blowing in= dicates that you may be loyal to something else," he says.=20 Since July 2000, the 57-year-old has been a U.S. Peace Corps volunteer in T= onga, happily teaching business writing on the South Pacific island. What c= areer guidance would he offer Ms. Watkins? "She will feel isolated and vili= fied, but ultimately she will know that what she did was right. Nothing can= diminish that knowledge."=20 ---=20 E-mail comments to me at joann.lublin@wsj.com. To see other recent Managing= Your Career columns, please go to CareerJournal.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Style ART BUCHWALD edc Sex and The Scandal Art Buchwald 02/05/2002 The Washington Post FINAL C02 Copyright 2002, The Washington Post Co. All Rights Reserved "The trouble with Enron," said Baldwin, an investigative reporter, "is that= there is no sex. How can you have a scandal this size without sex?"=20 I said, "There must be a smoking gun somewhere." Baldwin said, "They had 20,000 people in the home office, plus private acco= untants and lawyers. Don't tell me someone wasn't fooling around."=20 I asked Baldwin, "By the way, what did Enron do?"=20 "It bought and sold oil and gas and took a commission from it. We're still = trying to find out what they did at night down by the Enron wading pool."= =20 "So what did they do wrong, besides the lying and cheating about their prof= its and losses?"=20 "When you have your own private plane, your own golf course, a yacht and a = home on the Riviera, you realize that money isn't everything. After you get= bored with giving soft money to politicians, you resort to something much = more dangerous."=20 "You know what makes me suspicious? The Enron big shots walked away with mi= llions of dollars. What could they spend it on, unless they had mistresses?= "=20 "If we find one, she is going to be a young blond chickadee who likes jewel= s and fur coats and is willing to sell her story to the National Enquirer a= nd Court TV," Baldwin said.=20 I added, "I can't think of any scandal in this town that had legs to it tha= t didn't involve sex."=20 "Exactly. My editor keeps saying, 'Cherchez la femme.' "=20 I asked, "Do you think any hanky-panky was going on while the accountants w= ere burning the books?"=20 "It could have started there. A lot of accountants get turned on when they'= re burning papers. Also, we hear about Enron executives making offshore par= tnerships and forming companies that were nothing more than bubbles. What a= great excuse to take their paramours to Bermuda."=20 "It sounds reasonable, but what happens if Enron and Arthur Andersen and th= eir lawyers are squeaky clean?"=20 "Don't you kid yourself. There have to be some unhappy wives out there righ= t now who just lost their Neiman Marcus charge cards and are willing to blo= w the whistle on their husbands' girlfriends."=20 Baldwin continued, "If I could find just one person who will introduce sex = into the investigation, suddenly I will have the whole country's attention.= If there is no sex in the Enron story in the next six months, we're going = to stop covering the case."=20 (c)2002, Tribune Media Services http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Style The Blue Bayou City; Two Months After 'Black Monday,' Houston Still Is Pick= ing Up The Enron Pieces Jennifer Frey Washington Post Staff Writer 02/05/2002 The Washington Post FINAL C01 Copyright 2002, The Washington Post Co. All Rights Reserved HOUSTON -- We have tears, we have penthouse apartments, we have a surfboard= from Nevis and a couple of kegs. We have shredded documents and a funky ar= t exhibit and a U.S. congressman talking about sending folks to the pokey. = There has been a suicide by a former top executive. Some of the other execu= tives are in hiding, perhaps because a female executive with a memo has the= m pretty much terrified. Not to mention that damning report released by the= ir own board of directors over the weekend.=20 We even have Jesse, Johnnie and Al. Oh, and a bunch of chuck wagons coming to town.=20 Welcome to Houston, post-Enron, where the city known for both its diverse a= rray of strip clubs and its top-notch rodeo is now best known for one parti= cular company with a tilted "E" logo. A logo that folks around here -- who = still manage to have a sense of humor about all this -- have taken to calli= ng the "crooked E."=20 Just in the past week, Jesse Jackson has hit town and compared former Enron= chairman Kenneth Lay to Job. Al Sharpton showed up to promote Johnnie Coch= ran's lawsuit at a town meeting. And Linda Lay cried while talking to Lisa = Myers on the "Today" show, prompting Houstonians who have heard about the L= ays' numerous properties -- including a penthouse apartment in the best par= t of town -- to write angry letters to the Houston Chronicle.=20 These days, the enclosed skyway that connects Enron's gleaming, reflective-= glass building at 1400 Smith St. to its parking garage has been nicknamed "= The Bridge of Sighs." Television reporters and print journalists stalk the = garage, desperate for information about the biggest bankruptcy in U.S. hist= ory.=20 Those traders still employed by Enron "celebrated" the day the company's st= ock was delisted from the New York Stock Exchange by bringing in a keg. Onc= e used to free-flowing champagne and ski weekends in Beaver Creek or getawa= ys to Hawaii, they just thought it was the appropriate thing to do. Across = the street, in a building that used to serve in part as an Enron annex, ex-= employees shuffle into a federally funded employment assistance office, onl= y to find Enron's now-infamous company posters ("respect" reads one, "integ= rity" another) still hanging on the walls.=20 Behind the building, a passerby stops and points as a truck bearing the log= o "Shredco" -- the company Enron hired to shred its documents -- is waved i= nto the delivery bay more than a week after Enron came under fire for docum= ent shredding.=20 Houston -- the fifth-largest city in the country -- has taken its share of = grief. There is the shirt-soaking humidity, of course, and the bad air qual= ity. Men's Fitness magazine has named it America's "fattest city" two years= in a row.=20 But don't treat the place too badly, because there's also lots to love. The= re was always NASA to be proud of, and some pretty fine restaurants, and a = couple of basketball teams (the Rockets and the Comets) that have won a few= championships. There's the annual rodeo -- biggest and best in the world, = Houstonians like to say. The regular folks, like the ones who lost their En= ron-invested pensions, are some of the nicest you'll find anywhere.=20 Hey, even the Astrodome, once one of baseball's ugliest stadiums, has been = replaced with a new ballpark that is helping revitalize Houston's downtown.= Nowadays, though, some local residents hope the team will change the name.= =20 After all, the ballpark is called Enron Field.=20 In tony River Oaks, you'll find multimillion-dollar mansions, Houston's mos= t exclusive country club and bags of old, old, old money.=20 And a little new money, like the stuff that Lay -- and several other Enron = executives -- made off stock deals.=20 The apartment where the Lays still live in Houston is in a building called = the Huntingdon, the city's poshest building, at the intersection of Kirby a= nd San Felipe. On this particular late-January morning, the Houston Chronic= le's op-ed page is filled with letters from angry individuals who watched L= inda Lay give that interview on "Today," during which she defended her husb= and, and cried, and tried to explain to the masses that her family is suffe= ring, too. She talked about personal bankruptcy, and putting three of the f= amily's four Aspen properties on the market.=20 It didn't help, though, that Mrs. Lay gave her interview in the living room= of one of her luxurious Houston homes. Or that the apartment she and her h= usband own is worth $7.1 million, encompasses nearly 13,000 square feet and= has 6 1/2 bathrooms.=20 "Linda Lay says they have lost everything except their home," A.M. Shelton = wrote to the Chronicle. "Their $7 million penthouse apartment or the 11 oth= er homes they own? Enron has ex-employees who have lost their only home, ha= ve no medical insurance and don't know how they are going to feed their fam= ilies. Cry for them, Linda, not for yourself."=20 And where are those people?=20 Well, some of them are across the street from Enron's headquarters trying t= o find a new job.=20 "Respect and integrity -- I'm okay with that," says Linda Walker, looking u= p at the Enron poster hanging over her desk at the employment office. "We j= ust need to get some black paper to cover up that 'E.' "=20 Until the day the bankrupt company laid off more than 4,000 employees -- a = day those employees now call "Black Monday" -- Walker worked for Enron Ener= gy Services in its executive offices.=20 "I was an executive assistant under Lou Pai," she says.=20 From across the desk, JoAnn Matson interrupts her.=20 "Don't say that name, Lou Pai!" she says, making a face.=20 "The truth will set me free!" Walker hollers, then she pauses, frowns.=20 "And where is Lou Pai, anyway?"=20 Lou Pai is now known as the Enron executive who made the most -- $353 milli= on over the past three years -- on sales of Enron stock. And Walker and Mat= son, along with Joyce Barrett, a third former Enron employee, are working t= emporary jobs at the WorkSource office at 3 Allen Center. This particular s= pace used to be home to offices in Enron's engineering and construction div= isions. Now it holds a training center for workshops, a computer center whe= re the out-of-work can refine re{acute}sume{acute}s and research corporatio= ns, and private offices for interviews.=20 Barrett was once in charge of Enron's amusingly named "redeployment office"= -- which is where the company sent employees it had just fired.=20 "I gave them the good news after the bad news," she explains.=20 The good news was the terms of their settlement, and an assignment to tempo= rary office space where they had a phone, a desk and a computer while they = looked for new employment, often ending up in another division of the compa= ny.=20 When Barrett was let go, though, there was no severance, no redeployment, n= o good news.=20 "I left before they could tell me," says Walker, who lost her entire 401(k)= and would have been eligible for $60,000 in severance under non-bankruptcy= circumstances. "I left at about 9:30, and I was crying so hard I could har= dly drive."=20 These days, Walker sees many of her former colleagues, and many of the peop= le who had been in the redeployment program at the time of the bankruptcy f= iling, come into the WorkSource office. They always seem surprised, she say= s, to see her there. They thought that she, at least, would have been one o= f the lucky ones. One of the ones who remained employed.=20 "What they don't understand," she says, "is that when they went away, I wen= t away. Without them, there was no need for me."=20 These days, Barrett is trying to bring in recruiters to interview potential= employees at WorkSource. And trying -- with the help of Walker and Matson = -- to keep her sense of humor.=20 "I know that we had several floors of this building," Walker says, when ask= ed how many Enron offices used to be housed at 3 Allen. Then she stops.=20 "Listen to me, saying we!" she says, raising her voice. "Let me start over.= I know that they had. . . ."=20 Matson interrupts.=20 "That's right," she says. "Look, you have to remember, we're divorced now."= =20 And the three women chuckle at the thought.=20 The Enron Code of Ethics was a product of a trip to the toilet. There is, D= rew Crispin admits, a bit of symmetry to that.=20 This is the lobby of 3 Allen Center, down the bank of elevators from the Wo= rkSource office. Here, Crispin runs a coffee stand called the Coffee Bar II= , which used to be visited by Enron employees. Not any longer. Almost no on= e from Enron works in this building anymore.=20 To honor their memories, though, Crispin -- with a big assist from several = ex-Enron employees -- has put up a makeshift art exhibit on the walls of hi= s stand.=20 "Enron: A Term of Art (1995-2001)" is the exhibit's name, and its contents = are all meticulously labeled, with placards just like the ones found in man= y galleries.=20 There is, for example, the surfboard one employee received on a company jun= ket to the Caribbean island of Nevis. ("On loan from the private collection= of Mark Courtney," the label reads). The item is called "Hang 10 K." There= is a bolt placed on red velvet and covered with glass -- a memento given t= o staffers when Enron completed a $2.6 billion deal involving the Houston P= ipe Line Co. Its official title? "Bolt Before Screwed." Then there is the p= lastic dome containing shredded money, aptly labeled "Not a Shred of Eviden= ce."=20 "A bunch of people who used to work at Enron were sitting around one night,= drinking beers and talking about how all these little mementos were the on= ly things they have left from Enron," Crispin says, "so they decided to do = something about it."=20 The Code of Ethics, Crispin's personal contribution, was discovered in a bo= x by the elevators right after Black Monday. Crispin had gone up to an Enro= n floor ("it has the closest public bathroom," he explains), and he peeked = into a cardboard box left by the elevators -- a box full of unemployment in= formation and job-seeking advice that Enron left out for the people it had = let go. The book was on top of the pile.=20 Crispin named it "Res Ipsa Loquitur." As in, the thing speaks for itself.= =20 Bring on the Dixie Chicks, the chuck wagons, the trail riders and ZZ Top.= =20 It's time for the annual Houston Livestock Show and Rodeo and, people hope,= some sense of normalcy to arrive in this town.=20 That is, if you consider massive traffic tie-ups as Fords and Hondas negoti= ate their way around cowboys on horseback (and, occasionally, the stuff the= animals leave behind) on all of Houston's major freeways to be normal.=20 The trail riders -- hundreds of them -- began their journeys to Houston as = long as two weeks ago, and they are expected to converge upon Memorial Park= on Friday, in time for "Go Texan" weekend and Saturday's big parade. Some = left from Louisiana, another group from Mexico, most from spots scattered a= round Texas.=20 Meanwhile, out near Reliant Park -- named for the other major energy compan= y in Houston -- tents are going up in the parking lots that separate the Re= liant Astrodome from Reliant Stadium (still under construction, it will ope= n with the debut of the NFL Houston Texans next fall) and Reliant Arena and= Reliant Hall. Forklifts are taking livestock pens out of storage. The stag= e is being prepared for a blockbuster lineup of concerts, featuring the lik= es of Destiny's Child and Bob Dylan.=20 "To try and explain the Houston Livestock Show and Rodeo to people in anoth= er part of the world is hard," says Leroy Shaffer, an assistant general man= ager of the massive production. "We're every bit as important to Houston as= Mardi Gras is to New Orleans or the Rose Bowl is to Southern California."= =20 Many major Houston corporations sponsor the show, which is entirely nonprof= it -- all the proceeds go to charity, specifically education programs. Reli= ant Energy and Continental Airlines, for example, are sponsors. Enron was n= ot. The company had a luxury box reserved, but with a five-year waiting lis= t for boxes, it was immediately resold.=20 "Our show won't be impacted at all," Shaffer says.=20 The events span nearly three weeks, starting with the barbecue competition,= which begins Thursday. The Dixie Chicks open the concert series next Tuesd= ay. The cowboys swing into action the same day.=20 More than a million visitors are expected.=20 After all, this is Texas, and nothing can stop a good Texas rodeo.=20 "Does it have a sharp edge or round edge?"=20 It is "power hour" at the Enron Boys & Girls Club -- all the children are r= equired to spend the first hour after school in the learning center, gettin= g help with their homework. A little girl with thick brown hair and a purpl= e T-shirt is trying to learn her shapes -- spheres vs. cones, pentagons vs.= triangles -- with the help of Blanca Martin, the education director.=20 The children gather around circular tables, some with math problems, some w= ith science homework, many desperate for assistance because their parents c= annot speak or read English, and they barely know the language themselves.= =20 Elmo and Cookie Monster and Big Bird sit on a shelf at one end of the room,= next to a row of brightly colored storybooks. On the opposite wall, an Enr= on logo hangs above a map of the United States, and between a row of circus= elephants decorated with numbers 1 through 14.=20 This center, located in Houston's struggling second ward, east of downtown,= opened Nov. 29, three days before Enron declared bankruptcy. The building = was renovated by the Boys & Girls Clubs of Greater Houston out of its capit= al development fund, with the understanding that Enron would pay operating = costs for 10 years -- to the tune of $2.4 million.=20 Less than a month after Enron collapsed, having made just one payment, for = $60,000, to the center that bears its name, local businessman Michael Holth= ouse quietly agreed to cover the deficit. Holthouse, a member of the Boys &= Girls Club board, is a philanthropist with his own foundation (the Holthou= se Foundation for Kids) and he has long been a big supporter of the organiz= ation.=20 "We were one of the fortunate ones here," says John Havard, the president o= f the Boys & Girls Clubs of Greater Houston. "It only took us three or four= weeks to make up for what we had lost."=20 Still, the "crooked E" remains on most of the walls of the building, and th= e sign proclaiming the building "Enron Boys & Girls Club of Greater Houston= " remains on display outside. The logo is on the scoreboard in the gymnasiu= m, over the computers in the technical center, above the glass doors that m= ark the main entrance.=20 There is a second dedication planned for Feb. 6. At 3 p.m. the club will re= move all the Enron logos from the building and take down the outside sign. = They will be replaced with ones bearing the insignia of Holthouse's foundat= ion, an expense Holthouse is footing. Already the Enron logo that once grac= ed the center of the basketball court has been sanded away. "The Holthouse = Foundation for Kids" was painted in its place. During the transition, the c= enter of the court was blocked off by cones, and the kids were unhappily co= nfined to playing half-court ball.=20 The rest of the signs, though, are coming down with ceremony.=20 "You'd be amazed at how many people want to come," says Amber Pressley, the= director of public relations and marketing. "It seems everyone has an inte= rest in seeing those logos come down." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: MEMORABILIA A Debacle Chronicled in Kitsch By JOHN SCHWARTZ 02/05/2002 The New York Times Page 5, Column 2 c. 2002 New York Times Company HOUSTON, Feb. 3 -- This city, already rich in museums and art galleries, go= t a new minigallery last week: an exhibit of commemorative plaques, T-shirt= s and expensive gewgaws from the Enron Corporation.=20 At a coffee bar. In a building occupied largely by Enron.=20 ''Enron: A Term of Art (1995-2000)'' is drawn from the collections of curre= nt and former employees of what was formerly one of the word's most admired= companies. And anyone who says the age of irony is over has missed the pos= t-Enron age.=20 The names given to each objet d'kitsch provide wry commentary: a bovine sta= tuette is titled ''A Bunch of Bull'' and a framed copy of the 2000 annual r= eport is entitled ''It Takes Skill(ing?) to Decipher.''=20 Particularly striking is a ''deal toy'' commemorating a transaction involvi= ng the company's paper trading business. It is a small dome filled with shr= edded money and entitled ''Not a Shred of Evidence.''=20 The objects show the company's almost fetishistic affection for trinkets, t= oys and plaques. There is a large bolt on a wooden base, issued after a $2.= 6 billion pipeline deal in 2001, and a voodoo figure distributed at a 1999 = Enron legal conference in New Orleans.=20 An Enron T-shirt parodies the company's ever-changing organizational charts= , with the title ''Enron's Formula for Success,'' and boxes labeled ''Lots = of Boxes,'' ''Lots of Arrows,'' ''Lots of Luck'' and ''Structure and Lots o= f $$.''=20 The idea for the exhibit arose among current and former employees of the co= mpany who met regularly at a local watering hole, said Drew Crispin, owner = of the Coffee Bar in 3 Allen Center. The group was laughing about the fact = that many Enron objects had appeared on eBay and were fetching high prices,= and jokes began to fly about what a ''museum of bankruptcy'' might look li= ke.=20 After they scrounged through their closets and garages for a few days, the = parody art exhibit was born. ''It was like the old Mickey Rooney movies -- = let's put on a show!'' Mr. Crispin said. Most visitors are amused, though o= ne older gentleman ''said 'harrumph' and walked away,'' he said. Many custo= mers go back into the Enron offices and return with friends.=20 Mr. Crispin, who is an Enron shareholder, said this was not his first foray= into social commentary. ''I did it back in the 60's,'' he said, ''but I do= n't remember much of that.'' Photos: A pocket calculator with the Enron logo in the exhibit.; Visitors b= rowsing through a collection of Enron memorabilia, assembled by present and= former employees of the company, at a coffee bar in a building where Enron= still has offices. (Photographs by James Estrin/The New York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A Decoding Enron 02/05/2002 The New York Times Page 24, Column 1 c. 2002 New York Times Company As the evidence of financial abuses at Enron grows, the more it looks as th= ough the company was an intricate Ponzi scheme designed to enrich top execu= tives and defraud stockholders. That, at least, is the impression left by a= scalding examination of the company's operations prepared by a special com= mittee of Enron's board of directors. The report, issued over the weekend, = suggests that rather than being a thriving corporation brought down by acco= unting shenanigans, Enron at its core may have been a corporate mirage crea= ted to deceive the public while enriching insiders. Enron's leadership come= s across as having been more concerned with managing the stock price, and p= rofiting from it, than with running a real company.=20 The report reviews the dealings between Enron and scores of partnerships se= t up by company officers. Ostensibly meant to hedge the risk associated wit= h some of the company's investments, these partnerships really served to ta= ke debt off Enron's balance sheet, inflate the company's earnings and enlar= ge the bank accounts of the executives who created them. The partnership transactions ''served no apparent business purpose for Enro= n,'' the report says. They did, however, enable Enron to improperly claim $= 1 billion in profits in the year before the company's implosion, and genera= ted bountiful but illegitimate revenues for those involved, particularly An= drew Fastow, the chief financial officer at the time. Top Enron officers ma= de even more money during that period by unloading stock that they were goi= ng to such lengths to inflate.=20 The report strongly suggests that crimes were committed, though it stops sh= ort of making concrete allegations of securities fraud. The Justice Departm= ent and the Securities and Exchange Commission will determine in the days a= head whether prosecution is warranted. Given the complexity of Enron's fina= ncial manipulations, and growing signs on Wall Street that widespread accou= nting abuses may be eroding investor confidence, the White House and Congre= ss should consider providing prosecutors with additional resources to inves= tigate such cases. Securities fraud cases are hard to prove, and there is a= lways a temptation to settle for assessing civil fines. Federal prosecutors= must pursue the Enron case vigorously.=20 The possibility of criminal prosecutions does not absolve Congress and fede= ral regulators of their duty to reform the overall financial system. Regard= less of whether crimes are ultimately proven, Enron's conduct already provi= des a primer on how current financial disclosure rules and accounting stand= ards fail to protect investors adequately. No one should be lulled into bel= ieving that this was simply a case of sound rules being broken.=20 Kenneth Lay, the former chairman of Enron, passed up an opportunity to shed= more light on the case when he called off a planned appearance yesterday b= efore the Senate Commerce Committee. The cancellation followed his wife's t= elevised assurances last week that her husband had done nothing wrong and w= as eager to set the record straight. The committee will vote today on wheth= er to issue a subpoena to force his appearance, as it should. He and his fe= llow Enron executives have a lot of explaining to do. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Enron's Culture of Corruption 02/05/2002 The Washington Post FINAL A14 Copyright 2002, The Washington Post Co. All Rights Reserved THE WEEKEND'S revelations about Enron make it tempting to see the scandal a= s an epitaph for the 1990s bubble. The firm seems to have assembled the var= ious strains of hubris found in different corners of the country: the techn= ological vanity of Silicon Valley mixed with the financial alchemy of Wall = Street, the influence-peddling of Washington fused with the ten-gallon bras= hness of Texas. Not content with earning hundreds of thousands of dollars, = Enron's senior executives cooked the books so that they could pocket millio= ns. Not content with having created a wonderful new market in energy deriva= tives, they lied and cheated to create an illusion of impossibly fast earni= ngs growth. Contemplating Enron's self-destructive arrogance, Sen. Byron Do= rgan has spoken quite accurately of "a culture of corporate corruption."=20 In time, historians may indeed choose Enron as a kind of symbol of the 1990= s, much as Michael Milken's junk-bond empire has come to stand for the exce= sses of the preceding decade. But for now the cultural dynamics of the scan= dal ought not be the focus in Washington. The architects of Enron's corrupt= ion will be punished in due course by the justice system, and there's nothi= ng to be gained by spinning a broader morality tale that might amplify the = anti-corporate rhetoric of the globalization protests. The right focus for = Congress and the administration is to fix the rules that allowed Enron's cu= lture to evolve in the first place. That means, first and foremost, fixing the audit system. The report on Enro= n released over the weekend pointed the finger at three groups of people --= the managers and board members as well as the accountants -- but it is the= third group whose behavior is most reformable. Capitalism works on the ass= umption that managers will do all they can to boost profits, much as footba= ll assumes players' aggression. Up to a point, company boards can impose di= scipline on managers, but directors who meet only infrequently can no more = be relied upon to spot foul play than a ref without line judges. This is wh= y the key constraint must come from auditors. These are the experts who get= paid millions of dollars to certify that corporate accounts are accurate.= =20 The Enron story shows how badly auditors neglect this mission. According to= the weekend's report, few managers at the company knew the extent of Enron= 's phony bookkeeping; the board, while knowingly approving some dangerous t= ransactions, was also partly in the dark. But Arthur Andersen, the auditor,= knew all about the off-balance-sheet partnerships because it had been paid= $5.7 million for advice about them; it must also have known about the illu= sory profits created by the advance booking of estimated future earnings, b= ecause it signed off on those accounts. In 2000 alone, Andersen's experts w= ere paid $25 million to understand Enron's finances. But because of the loo= seness of the laws that define auditors' responsibilities, they did not fee= l obliged to share their insights with the ordinary investors whom they are= meant to serve. If this scandalous laxity had not existed, the hubris of E= nron's managers would not have mattered. A culture of corruption cannot dev= elop if tough watchdogs are in place. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Metropolitan Desk; Section A QUOTATION OF THE DAY 02/05/2002 The New York Times Page 2, Column 6 c. 2002 New York Times Company ''I got 3,500 over 10 years, but our friend, Kay Bailey Hutchison, she got = 99,000. Heck, I'm the chairman of the committee. That wasn't a contribution= . That was an insult.''=20 ERNEST F. HOLLINGS, chairman of the Senate Commerce Committee, when asked i= f he had received contributions from Enron. [C4] Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Sarah Palmer Internal Communications Manager Enron Public Relations (713) 853-9843