Message-ID: <6336501.1075841154311.JavaMail.evans@thyme> Date: Fri, 1 Feb 2002 06:53:35 -0800 (PST) From: sarah.palmer@enron.com To: sarah.palmer@enron.com Subject: Enron Mentions -- 02/01/02 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 Joint Venture: A 1997 Enron Meeting Belies Officers' Claims They Were in th= e Dark --- Minutes Show Them Hearing Of Novel Partnerships That Inflated Ea= rnings --- Present: Lay, Skilling, Fastow The Wall Street Journal, 02/01/2002 Ex-Enron CEO Agrees to Testify Before Panel Energy: Appearance by Skilling = called critical by chairman of subcommittee looking into firm's downfall. Los Angeles Times, 02/01/2002 At Lay hearings, lawmakers out to lift 'shroud of secrecy'=20 Houston Chronicle, 02/01/2002 Enron Says It Can't Supply Data; Hill Probers Requested Partnership Informa= tion The Washington Post, 02/01/2002 Senator Says Enron Refuses To Cooperate The New York Times, 02/01/2002 Probe likely to blame former execs=20 Skilling, Fastow, auditors to be cited in report=20 Houston Chronicle, 01/31/2002 Few of Lay Family's Real-Estate Assets Are on the Market, Listing Records S= how The Wall Street Journal, 02/01/2002 Enron Report Ties the Company's Ruin To Executives Who Formed Partnerships The Wall Street Journal, 02/01/2002 Executive Privilege Enron's Top Dogs Still Flying Luxury Jets ABCNews.com, 02/01/2002 Enron exec concedes he gave poor advice=20 Student fund loses most of investment=20 Associated Press, 02/01/2002 Mighty J.P. Morgan in the Hot Seat Banking: Charges of collusion with Enron= and its recent hefty losses raise questions about firm's judgment. Los Angeles Times, 02/01/2002 Enron Bondholders Blame Brokers The Wall Street Journal, 02/01/2002 FERC to focus on Enron's role in Calif. energy crisis=20 Bush appointed 2 Lay choices to commission=20 Houston Chronicle, 02/01/2002 Bush to Unveil Proposals for Changing Pension Law The Wall Street Journal, 02/01/2002 Who Were the Friends of Enron?: Michael Lewis Bloomberg, 01/31/2002 Houston, we have a problem The city where deregulation is king is in Enron denial - and won't let go o= f its wildcatting ways. Salon.com, 02/01/2002 Texas law firm working to weather Enron storm Vinson & Elkins, one of state's largest firms, faces hard questions on its = work for company Austin American-Statesman, 02/01/2002 New Prosecutor Is an `Iron Fist In a Velvet Glove' The Wall Street Journal, 02/01/2002 Inside, Outside Enron, Audit Panel Is Scrutinized --- Links to Company Of C= ertain Members Are Called Too Cozy The Wall Street Journal, 02/01/2002 UT dean too close to Enron inquiry Editorial Board Austin American-Statesman, 01/31/2002 Watchdog Group Wants Investigation on Harvard Official The New York Times, 02/01/2002 Former Executive, Now in Washington, Denies Impropriety at His Unit The New York Times, 02/01/2002 Accountants Won't Fight Consulting Ban The Washington Post, 02/01/2002 TV Ad Assails Dole for Enron Fundraiser; In Election Year, Candidates Acros= s Country Could Face Similar Criticism The Washington Post, 02/01/2002 In Commercial, Elizabeth Dole Is Chastised For Enron Ties The New York Times, 02/01/2002 Enron Won Some and Lost Some in White House Energy Report The New York Times, 02/01/2002 Despite Recession, Perks for Top Executives Grow Pay: Hidden benefits mushr= oom as employees' retirement plans shrink. Los Angeles Times, 02/01/2002 Scribbler's Ethics The Wall Street Journal, 02/01/2002 Enron's Influence The Washington Post, 02/01/2002 Paper Giants As a Voice For Ideas The New York Times, 02/01/2002 __________________________________________________________________ Joint Venture: A 1997 Enron Meeting Belies Officers' Claims They Were in th= e Dark --- Minutes Show Them Hearing Of Novel Partnerships That Inflated Ea= rnings --- Present: Lay, Skilling, Fastow By John R. Emshwiller and Rebecca Smith Staff Reporters of The Wall Street Journal 02/01/2002 The Wall Street Journal A1 (Copyright (c) 2002, Dow Jones & Company, Inc.) HOUSTON -- On Nov. 5, 1997, the top echelon of Enron Corp. assembled for a = meeting that would help put the energy-trading giant on a fateful and ultim= ately disastrous course.=20 On that day, Enron's now-infamous outside partnership arrangements took a t= urn from the straightforward and mundane to the deceptive and possibly ille= gal. The seven-member executive committee of the company's board approved a= management proposal to provide several hundred million dollars in loan gua= rantees for a new partnership named for the Star Wars character Chewbacca. While Enron had done business with previous partnerships, Chewco Investment= s was different. Unlike others where Enron had an ownership stake, Chewco w= as supposed to be completely independent. But it would be run and partly ow= ned by an Enron executive, a young rising star named Michael Kopper.=20 Enron Chairman Kenneth Lay arrived a little late, according to minutes of t= he meeting obtained by The Wall Street Journal. He came in while Andrew Fas= tow, then senior vice president of finance, outlined a transaction that wou= ld allow Chewco to buy, for $383 million, part of Enron's stake in another = limited partnership known as JEDI. The deal kept JEDI in the Enron family, = but off its books. That's because under accounting rules, Chewco provided e= nough independent ownership of JEDI to let Enron treat it as separate.=20 However, with Enron financial guarantees and an Enron official at the helm,= there were questions from the beginning of how independent Chewco really w= as. Chewco thus set the pattern for a series of transactions that would mas= sively inflate Enron's earnings, while hiding billions in debt from shareho= lders and creditors.=20 Four years later, on Nov. 8 last year, Enron acknowledged in a federal fili= ng that it had overstated earnings by nearly $600 million since 1997. About= two-thirds of that, it told the Securities and Exchange Commission, was be= cause Chewco and JEDI had improperly been treated as separate entities able= to do income-producing deals with Enron. The disclosure sent a signal that= Enron hadn't been playing straight, and what had been an exodus of investo= rs and trading partners turned into a stampede. Within a month, Enron sough= t bankruptcy-law protection.=20 Federal investigators and private litigators are now intently trying to lea= rn who knew what about Chewco, and when. Top former officials have distance= d themselves from it. In October, after the Journal first disclosed Chewco'= s existence, Mr. Lay privately told other Enron officials that he had never= heard of the partnership, according to one company executive. His wife, Li= nda Lay, told NBC recently that her husband had been kept in the dark about= a lot of the company's doings. Mr. Lay, who resigned from Enron last month= , couldn't be reached for comment and his attorney didn't return calls.=20 Jeffrey Skilling, who resigned suddenly as Enron's chief executive last sum= mer, said in press interviews late in December that he knew few details abo= ut the partnership. Yesterday, a spokeswoman for Mr. Skilling said, "We are= n't going to comment on leaks, counter-leaks, spin or speculation." An atto= rney for Mr. Kopper declined to comment. An attorney for Mr. Fastow said on= ly that his client didn't have any financial interest in Chewco.=20 The meeting's minutes and other recently obtained documents show plenty of = people at Enron knew about Chewco. Messrs. Lay, Skilling and Fastow were pa= rt of the 1997 executive-committee meeting. So were several board members. = One -- Herbert "Pug" Winokur Jr., chairman of Capricorn Holdings Inc. in Gr= eenwich, Conn. -- felt comfortable enough with Chewco that he approved its = creation from an airport while boarding a flight.=20 W. Neil Eggleston, an attorney for Mr. Winokur and other outside directors,= says the executive committee was told that "Chewco was a special-purpose v= ehicle not affiliated with the company. The board never waived the conflict= -of-interest policy for Mr. Kopper nor was the board told that Mr. Kopper w= as involved with Chewco." The meeting minutes indicate that Mr. Kopper was = in attendance, though the document misspells his name. The minutes don't sh= ow whether he was introduced or took part.=20 During the presentation about Chewco, the meeting minutes say, Mr. Fastow "= reviewed the economics of the project, the financing arrangements and the c= orporate structure." Among the benefits the partnership was supposed to bri= ng was "positive income impact to Enron," according to a handout appended t= o the minutes. The handout included diagrams of the complex financial struc= ture.=20 Chewco isn't an issue just for Enron. Joseph Berardino, chief executive of = longtime Enron auditor Arthur Andersen LLP, told Congress in December that = his firm never would have let Enron treat Chewco and JEDI as arm's-length, = separate entities had it known the entire truth about the entities' financi= ng arrangements. At the time Chewco was being formed, Enron officials told = Barclays PLC, a lender involved in the deal, that Andersen had reviewed the= transaction's structure and approved it, according to someone familiar wit= h the discussions.=20 A Barclays spokesman declines to comment. Andersen says Mr. Berardino, who = is scheduled to testify again next week before a House committee, stands by= his statement that his firm didn't know all the relevant facts about Chewc= o four years ago.=20 Chewco altered a financial tool long used by the energy industry. Enron had= at times relied on off-balance-sheet partnerships and similar entities, as= had many competitors. Traditional "off-balance-sheet financing is the tech= nique that has been used to build the independent power industry in the Uni= ted States," says Didi Lacher, a New York executive of the German financial= firm Helaba. With such entities, companies can share the cost and risk of = developing, say, a well or pipeline. By having the partnership borrow the m= oney, the company can also keep the debt off its own balance sheet.=20 This financing is "nonrecourse," meaning the sponsoring company isn't on th= e hook for the debt. But Enron kept off its balance sheet some debt in whic= h it had to cover any shortfalls, because of the partnerships' arrangements= . Over time, Enron accumulated billions of dollars of potential liability, = little of it publicly evident.=20 To do outside partnerships, some basic accounting guidelines have to be fol= lowed. The company has to relinquish control of any assets put into the par= tnership. It can't have side deals that oblige it to repurchase or redeem t= he assets during the partnerships' lives, typically five to 10 years. Since= 1996, a partnership also has had to attract outside equity equal to at lea= st 3% of its total capital in order to be considered separate from the spon= soring company. Enron's partnerships appear to have met these standards for= many years, but eventually Enron started to look at a higher-octane partne= rship.=20 Enron under Mr. Lay assembled a team of bright young executives intent on b= uilding a global energy power. Led by Mr. Skilling, a former McKinsey & Co.= consultant, the core of the team started working together at Enron Capital= and Trade Resources, which handled energy trading and marketing. His lieut= enants included Mr. Fastow, a former Continental Bank finance specialist, a= nd Richard Causey, a former Andersen official.=20 They figured that for Enron to grow quickly, it couldn't be weighed down wi= th debt. Too much debt would threaten the company's credit rating and make = its financing costs higher.=20 Mr. Skilling and his subordinates placed an emphasis on rapid-fire trading = and deal-making, rather than on long-term investments in power plants and o= ther "hard" assets. The traditional partnership approach was too cumbersome= and confining to achieve this. Enron would have to negotiate for months wi= th partners, banks and other outsiders before getting a deal going. "Enron = didn't like being told no," says one former senior Enron executive. So Mr. = Skilling and Mr. Fastow "found a way to avoid the discussion altogether."= =20 The solution: bring the partnerships in house, without appearing to do so, = say people involved in setting up the structures.=20 In 1995, according to people familiar with the matter, Mr. Fastow began app= roaching investment banks with a novel proposal. He wanted them to help him= recruit investors for partnerships that would do business with Enron. But = the partnerships would be partly owned and run by Enron executives. Donalds= on, Lufkin & Jenrette, for one, turned him down, figuring the potential con= flicts of interest were too great.=20 Mr. Fastow and other Enron officials continued their discussions with vario= us banks to no avail. All the while, pressure was building. By 1997, compan= y executives would later acknowledge, debt levels were getting worrisomely = high. The company was also having a tough time meeting its earnings project= ions.=20 That's when Chewco was presented to the board in the November 1997 meeting.= Having met resistance from investment banks, Enron officials turned to com= mercial banks to lend money to Chewco as well as to two small entities, als= o connected to Mr. Kopper. These two put the crucial 3% of outside equity i= nto Chewco that allowed it to be treated as separate from Enron.=20 After Chewco was set up, Enron's profit performance began to improve and it= s expansion pace intensified. Mr. Skilling and his team ascended the ranks.= By 1998, he was Enron's chief operating officer, Mr. Fastow was chief fina= ncial officer and Mr. Causey was chief accounting officer.=20 Chewco became a template. In June 1999, the board held a special meeting to= hear Messrs. Skilling and Fastow outline plans for a new partnership known= as LJM Cayman LP. It was designed to resolve "certain challenges" in prote= cting the value of a growing portfolio of volatile telecommunications asset= s, according to an excerpt from the meeting's minutes. The LJM name came fr= om the initials of Mr. Fastow's wife and two children.=20 Four months later, the Enron executives proposed to the board an even more = ambitious partnership, dubbed LJM2 Co-Investment LP, to serve as a reposito= ry for other risky bets made by the company.=20 Both LJMs were managed and partly owned by Mr. Fastow. In an SEC filing, En= ron recently estimated he made more than $30 million from his participation= in the entities. At least several million dollars of this was management f= ees -- a generous sum given that, in one presentation, Mr. Fastow said he w= orked just three hours a week on partnership matters.=20 A spokesman for Mr. Fastow declines to comment on how much he made from the= partnerships or on LJM generally. In the past, representatives of the form= er CFO have pointed to Enron statements that its board and top management r= eviewed and approved both the creation and operation of the LJM partnership= s.=20 Some Enron insiders say that whatever Mr. Fastow earned from the LJM partne= rships was a pittance compared with the benefits they provided the company.= As Enron's growth exploded in the late 1990s, worries mounted over debt le= vels, and the company needed help producing cash flow and earnings. Increas= ingly, Enron came to rely on the partnerships to take debt and troubled ass= ets off its books and produce transactions that could be reported as profit= s. How much Mr. Fastow made from the LJMs was of little concern to top mana= gement, says one former Enron executive, because the CFO was the one person= who could consistently pull "their nuts out of the fire with some fancy tr= ansactions."=20 By the year 2000, the LJM partnerships were providing more than 40% of Enro= n's reported pretax income of about $1.4 billion, according to a recent SEC= filing by the company.=20 All told, the LJM partnerships raised about $400 million from outside inves= tors and eventually did billions of dollars of transactions with Enron. Sub= structures of the LJM latticework proliferated with the creation of other e= ntities. In a May 1, 2000, presentation to the finance committee of Enron's= board, management described how an LJM offshoot called Project Raptor woul= d "hedge the profit & loss volatility of Enron investments," according to i= nternal documents from that meeting.=20 As part of the project, another entity called Talon was to be created with = seed capital of $400 million and an initial capacity to provide "approximat= ely $200 million of P&L protection" to Enron, according to one document. LJ= M2 would be the outside investor in Talon and "be entitled to a 30% annuali= zed return plus fees," it said.=20 At the finance-committee meeting, its minutes show, Mr. Causey said Anderse= n "had spent considerable time analyzing the Talon structure and the govern= ance structure of LJM2 and was comfortable with the proposed transaction." = The committee approved the Raptor-Talon plan.=20 Mr. Causey's attorney, J.C. Nickens, says that his client believes the trea= tment of the partnerships "was an appropriate interpretation of the account= ing rules as they existed then and as they still exist today."=20 Though the minutes said there was "discussion" of the Raptor arrangement, n= either those minutes nor similar recountings of other board gatherings indi= cate that directors seemed particularly concerned about what was happening = under the LJM umbrella. They might well have been. By last fall, public con= cern over the transactions had plunged Enron into crisis. Now, investigator= s are trying to make sense of hundreds of other Enron-related entities with= names like Braveheart, Rawhide and Bobcat. The big question: Which, if any= , may contain LJM-like problems?=20 ---=20 John R. Wilke contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION THE FALL OF ENRON Ex-Enron CEO Agrees to Testify Before Panel En= ergy: Appearance by Skilling called critical by chairman of subcommittee lo= oking into firm's downfall. EDMUND SANDERS; RICHARD SIMON TIMES STAFF WRITERS 02/01/2002 Los Angeles Times Home Edition A-34 Copyright 2002 / The Times Mirror Company WASHINGTON -- Jeffrey K. Skilling, who unexpectedly quit as Enron Corp. chi= ef executive in August, has agreed to testify next week before Congress, a = Senate subcommittee chairman said Thursday.=20 Congressional investigators are eager to hear from Skilling, who has denied= any wrongdoing in the events leading to the energy company's Chapter 11 ba= nkruptcy filing Dec. 2. But another Enron executive, Sherron S. Watkins, wrote to Enron Chairman Ke= nneth L. Lay in August that Skilling had been warned about the company's pr= oblems by other executives, including former Vice Chairman J. Clifford Baxt= er, who died last week in an apparent suicide.=20 "Skilling is critical," said Sen. Byron L. Dorgan (D-N.D.), who chairs the = Senate Commerce Committee's subcommittee on consumer affairs.=20 The committee also has asked for the testimony of fired Enron Chief Financi= al Officer Andrew S. Fastow, who allegedly set up many of the off-the-books= partnerships that were instrumental in the company's collapse. Fastow has = not responded to the committee, Dorgan said.=20 A spokeswoman for Skilling confirmed that he had agreed to testify voluntar= ily and would do so without a grant of immunity.=20 "He wants to be open and forthcoming with all committees investigating this= matter," Judy Leon said.=20 Exactly when and where Skilling will testify next week is unclear. He is li= sted as a witness at a House Energy and Commerce Committee hearing Thursday= . Dorgan's committee and others among the dozen congressional panels invest= igating the Enron collapse also are seeking his testimony.=20 "There are competing invitations, and that is complicating the scheduling,"= Leon said.=20 Lay, who replaced Skilling as chief executive and was ousted from that posi= tion last week, is scheduled to testify before Dorgan's committee Monday.= =20 Dorgan said both men are likely to say Enron's collapse was due to circumst= ances beyond their control, but that his panel was prepared to counter such= claims with internal documents showing that Enron's board of directors kne= w about the partnerships.=20 "It's sufficient to say that the board of directors discussed on various oc= casions the creation of partnerships, the structure of the business deals,"= Dorgan said.=20 In other developments, Rep. George Miller (D-Martinez) called on House Spea= ker J. Dennis Hastert (R-Ill.) to be the "gatekeeper" in determining whethe= r immunity is granted to witnesses in the Enron investigation and what docu= ments are made public.=20 Complaining about leaks of documents that damaged other cases, Miller wrote= Hastert: "The failure to honor confidentiality, the untimely release of in= formation or the inappropriate granting of immunity all have great potentia= l to compromise and undermine [potential] criminal prosecutions of Enron an= d [accounting firm] Arthur Andersen."=20 Sen. Barbara Boxer (D-Calif.) called on the Federal Energy Regulatory Commi= ssion to provide her with a list of all meetings and phone calls that took = place between Enron executives and FERC commissioners.=20 "Every day more and more alarming information is revealed concerning Enron'= s role in prolonging the California electricity crisis," she said in a lett= er to FERC Chairman Patrick H. Wood III.=20 The FERC said this week that it would investigate allegations that Enron us= ed its market clout to artificially inflate long-term electricity prices on= the West Coast. On Thursday, at a FERC-sponsored conference in New York on= power supplies in the Northeast, Wood told Reuters news service that its i= nquiry had begun.=20 In a letter to Wood on Thursday, Gov. Gray Davis urged FERC to expedite the= inquiry and expand it to include other energy marketers.=20 "California has a special interest in getting to the bottom of such charges= , since this state bore the brunt of the marketers' price gouging," Davis w= rote. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 At Lay hearings, lawmakers out to lift 'shroud of secrecy'=20 By JULIE MASON=20 Copyright 2002 Houston Chronicle Washington Bureau=20 Feb. 1, 2002, 12:21AM WASHINGTON -- Lawmakers signaled Thursday that their questioning of former = Enron Corp. Chairman Ken Lay on Capitol Hill next week is likely to be conf= rontational when he delivers his first public explanation of the company's = collapse.=20 Congressional investigators want to know how Enron executives were able to = cash out millions of dollars in company stock while employees saw their ret= irement savings wiped out.=20 The so-called "lockdown," which prevented employees from selling stock, and= Enron's use of partnerships to shield its debt also are among issues lawma= kers want to pursue.=20 In negotiating Lay's Monday appearances before the Senate Commerce and the = House Financial Services committees, his attorneys did not seek immunity or= any restrictions on what he could say, lawmakers and Lay's attorney said T= hursday.=20 "The shroud of secrecy that has surrounded so much of what this corporation= has done shall not be allowed to stand," said Sen. Byron Dorgan, D-N.D., a= member of the Senate Commerce Committee, where Lay is to testify first.=20 Lawmakers are complaining that Enron is not cooperating with requests for i= nformation.=20 "Every day it becomes more clear that this corporation resorted to a variet= y of legal, regulatory and accounting contortions to keep investors and the= American public in the dark," said Sen. Ron Wyden, D-Ore., also a member o= f the Senate committee.=20 Dorgan said the committee has repeatedly asked Enron to provide information= about the estimated 3,000 related partnerships the company had on its book= s.=20 "To date, the corporation has provided no information to the committee abou= t these partnerships," Dorgan said. "We have sent a second letter to the co= rporation asking for that information, and again they are failing to cooper= ate."=20 Bob Bennett, attorney for Enron in Washington, said Dorgan is mistaken.=20 "I am terribly disappointed he would say that because we have been fully co= operative with them," Bennett said. "There have been some documents they as= ked for that we did not have dealing with these partnerships, nor would we = be expected to have them."=20 The disputed documents, according to Bennett, involve independent partnersh= ips and records that Enron does not have.=20 Enron's Dec. 2 bankruptcy was the largest in corporate history. The collaps= e of the company cost thousands of employees their jobs and wiped out most = of their retirement accounts, much of which were tied up in Enron stock.=20 Lawmakers want to know when Lay became aware of the company's financial pro= blems, and whether executives hid Enron's true financial picture from emplo= yees and investors.=20 "We know for example that bankruptcy didn't treat everyone alike, we know t= here are some who made millions while others lost their life savings," Dorg= an said. "We also know that this corporation created off-the-books partners= hips in a very aggressive way, thousands of them, with strange-sounding nam= es but even stranger architecture in terms of how they were created."=20 Wyden compared the conduct of Enron executives to captains on a rapidly-sin= king ship.=20 "They locked the workers down there in the boiler room," Wyden said.=20 The House and Senate hearings set for Monday are among at least 10 congress= ional investigations under way into the collapse of the one-time energy gia= nt.=20 In addition to Lay, witnesses before the House committee Monday will includ= e Arthur Andersen CEO Joseph Berardino and Harvey Pitt, chairman of the Sec= urities and Exchange Commission.=20 Since Enron's troubles first garnered national attention months ago, Lay, w= ho resigned as chairman last week, has remained publicly silent as various = investigations unfolded into possible malfeasance at the company.=20 Last week, Lay's wife, Linda, discussed the couple's troubles on a televisi= on morning show.=20 Dorgan said the Senate committee has a tentative agreement with Enron's for= mer chief executive officer, Jeff Skilling, to testify at a later date.=20 The committee also has tried to arrange for testimony from Andrew Fastow, f= ormer chief financial for Enron, with no success.=20 "We, in my judgment, will have to hear from Mr. Fastow, the question is how= ," Dorgan said. "At this point we have had no response at all from register= ed letters we've sent."=20 Skilling and Fastow, central figures in the free fall at Enron, are both sc= heduled to testify next week before the House Energy and Commerce Committee= 's subcommittee on oversight and investigation.=20 Dorgan said that more than 40 boxes of documents previously submitted by En= ron to the committee contain notes from meetings of the Enron board of dire= ctors.=20 The Washington Post on Thursday reported that Enron's board received detail= ed briefings and signed off on the use of related partnerships, dating back= at least four years.=20 Dorgan declined to provide significant details about the documents his comm= ittee received.=20 "It's sufficient to say that the board of directors discussed, on various o= ccasions, the creation of partnerships, the structure of the business deals= . But I think you will hear more about that in the hearings," Dorgan said.= =20 The controversial partnerships are a key element in the investigation of En= ron's collapse because the company used the vehicles to shield its debt and= appear more profitable.=20 President Bush, whose administration has come under scrutiny for its close = ties to Lay and Enron, made an indirect reference to the controversy Thursd= ay.=20 Speaking of the need for a "responsibility culture," he said companies must= be honest in their financial reporting.=20 "Let's make sure when you account for losses and profits that you put it al= l on your books so everybody understands," Bush said in Atlanta.=20 In addition to questions about the partnerships, Wyden said lawmakers will = have questions about Enron's foray into California energy markets, and part= icularly whether Enron manipulated markets on the West Coast.=20 "The common culprit in my view has been secrecy and a lack of cooperation f= rom this company," Wyden said. "It is now high time for Congress to flip on= the light and get to the bottom of this situation."=20 Chronicle reporter Bennett Roth contributed to this story.=20 Financial Enron Says It Can't Supply Data; Hill Probers Requested Partnership Informa= tion Kathleen Day Washington Post Staff Writer 02/01/2002 The Washington Post FINAL E01 Copyright 2002, The Washington Post Co. All Rights Reserved An attorney for Enron Corp. said yesterday that the company cannot provide = Congress with the names of the investors in the controversial partnerships = the company used to move millions of dollars in debt off its books and whos= e losses triggered the company's fall into bankruptcy.=20 "You have to go to the entities to get that information," Robert Bennett, a= Washington lawyer representing Enron, said of the partnerships. "We do not= have control over those documents. They are separate entities." Bennett made his statement after Sen. Byron L. Dorgan (D-N.D.) held a news = conference criticizing Enron for failing to provide congressional investiga= tors on the Senate Commerce Committee with the names of investors and other= information about the partnerships. The committee is holding hearings Mond= ay at which former Enron chairman Kenneth L. Lay is expected to give his fi= rst public account of the company's collapse. Lay was not granted immunity = from prosecution in exchange for his testimony, officials said.=20 "I know that Enron has some records about these entities or that would be m= alfeasance," Dorgan said. "Essentially they are just stalling."=20 Dorgan said he thinks Enron created more than 3,000 partnerships, known as = special-purpose entities. Written minutes from meetings of the company's bo= ard of directors suggest that the partnerships were a key part of Enron's g= rowth strategy and show that they were regularly reviewed by the board.=20 The partnerships are a major focus of investigators trying fathom what led = to Enron's Dec. 2 bankruptcy filing, which came less than a month after Enr= on disclosed that since 1997 financial statements audited by the big accoun= ting firm Arthur Andersen had overstated Enron's profits by almost $600 mil= lion and understated its debts by more than $1 billion.=20 A dozen congressional committees, as well as the Justice Department and the= Securities and Exchange Commission, are probing Enron's demise, which cost= investors and employees billions of dollars. A focus of the inquiries is w= hether Enron hid debt and inflated its profits by using the private partner= ships run by its chief financial officer, Andrew Fastow.=20 Dorgan said that as of yesterday evening, Fastow has failed to respond to r= epeated requests to testify before the senator's subcommittee. He said that= Jeffrey K. Skilling, Enron's former chief executive, has said he will appe= ar, but not on Monday.=20 Fastow and Skilling are scheduled to appear before the House Energy and Com= merce subcommittee on oversight and investigations next Thursday. Two other= former Enron executives and one board member are also expected to testify.= The subcommittee has subpoenaed another former executive, Michael Kopper. = Kopper handled financial transactions at Enron and headed at least two off-= the-books partnerships.=20 Skilling resigned in August. Fastow was ousted in October. When it was then= disclosed that Fastow made $30 million running partnerships with names suc= h as LJM, Raptor and Jedi, Lay announced that the board was setting up a co= mmittee to investigate.=20 Enron board member William C. Powers Jr. chairs that special committee and = is expected to testify Monday before the House Financial Services Committee= . The Powers special committee is about to release a report on its findings= .=20 Bennett has said that while Enron's board of directors was aware that speci= al-purpose entities were being set up, there was "a great deal of informati= on regarding their operation and execution that was unknown to the board of= directors."=20 Asked about the report yesterday, Bennett said he doesn't know when it will= come out or what will be in it.=20 In December, Dorgan's subcommittee sent a letter to Enron requesting "the n= umber of partnerships, the investors in the partnerships and a range of inf= ormation about these 'off the books' partnerships," Dorgan said. "To date t= he corporation has provided no information to the committee about these par= tnerships."=20 In response, Bennett said, "I think that's grossly unfair, and I'm sorry th= e senator would say that. I wish the senator had called me. I can only assu= me he's terribly misinformed. We're cooperating fully with this committee a= nd the dozen others that have contacted us." But, he said, the company can'= t produce documents it has no control over.=20 Dorgan called that explanation "implausible."=20 As to whether board members knew the names of investors in the partnerships= , W. Neil Eggleston, an attorney for the outside directors, referred questi= ons to the company.=20 The names of the investors in one partnership, LJM2 Capital Management LP, = were disclosed in a court filing by Alpine Investment Partners, the lead pl= aintiff in a suit against the partnership, Bloomberg News reported. About 9= 0 employees of Merrill Lynch invested a total of $16 million in the partner= ship. Merrill had been hired by Enron to raise money for the fund. Other in= vestors listed in the document include units of American International Grou= p, J.P. Morgan Chase & Co., Citigroup, Travelers Insurance Co., the Arkansa= s Teachers Retirement System, and the John D. and Catherine T. MacArthur Fo= undation.=20 Meanwhile, a group of students and alumni has asked Harvard University to r= eview its ties to Enron and questioned whether Enron board member Herbert W= inokur broke insider-trading laws as a member of the board that oversees Ha= rvard's investments. A report by the group questions whether Harvard made a= s much as $50 million through investments managed by Highfields Capital at = a time when Enron stock began falling. "Mr. Winokur had no involvement in H= ighfields Capital, and any suggestion that he tipped the fund to short-sell= Enron stock is just plain wrong," Eggleston said. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: THE INVESTIGATION Senator Says Enron Refuses To Cooperate By RICHARD A. OPPEL Jr. 02/01/2002 The New York Times Page 1, Column 2 c. 2002 New York Times Company WASHINGTON, Jan. 31 -- Enron has refused to turn over to a Senate panel rec= ords of controversial partnerships that are crucial to understanding the co= mpany's downfall, the panel's chairman said today.=20 The chairman, Senator Byron L. Dorgan, said that despite repeated requests,= Enron continued to refuse to turn over records of 3,000 partnerships. Inve= stigators say Enron used the arrangements to bolster the company's financia= l statements while hiding hundreds of millions of dollars in losses. ''They just simply have not cooperated,'' Mr. Dorgan said, adding that ''th= e shroud of secrecy that surrounds so much of what this corporation has don= e will not be allowed to stand.'' But he did not say whether the committee = was considering a subpoena.=20 Mr. Dorgan, a North Dakota Democrat who is chairman of the consumer affairs= subcommittee of the Senate Commerce Committee, said lawyers for Kenneth L.= Lay, Enron's former chairman and chief executive, assured his staff on Wed= nesday that Mr. Lay would appear on Monday to testify before Congress. His = lawyers have not sought immunity for the testimony, Mr. Dorgan said.=20 Mr. Dorgan also said another former Enron chief executive, Jeffrey K. Skill= ing, had agreed to testify in coming weeks. But he said the company's forme= r chief financial officer, Andrew S. Fastow, who Enron says made more than = $30 million from his dealings with the partnerships, has not responded to r= epeated registered letters asking him to testify. A spokesman for Mr. Fasto= w declined comment today.=20 Late today, another Congressional committee investigating Enron's downfall,= the House Energy and Commerce Committee, said both Mr. Skilling and Mr. Fa= stow would testify next Thursday, along with Enron's chief accounting offic= er, Richard A. Causey; its chief risk officer, Richard B. Buy; and the boar= d of directors' audit committee chairman, Robert K. Jaedicke. A former Enro= n executive who was involved in the partnerships, Michael Kopper, has also = been subpoenaed to appear.=20 A lawyer for Enron, Robert S. Bennett, disputed Mr. Dorgan's characterizati= on of the company's cooperation, saying the senator had been ''terribly mis= informed.''=20 ''We have been fully cooperative with that committee,'' Mr. Bennett said. '= 'There are some documents that the committee would like to get that we have= no access to and no control over, and I believe that may be what is raisin= g this issue. But he is getting bad information.''=20 At the Senate hearing on Monday morning, Mr. Lay, who was ousted from his j= ob by Enron's creditors last week, is expected to testify that important de= tails of the partnerships and investments were kept from him and the board.= =20 Many investigators doubt his claims of ignorance, and Mr. Lay may be presse= d about why he sold millions of dollars of Enron stock last year even as he= promoted the value of the shares to Wall Street and his own employees. Min= utes of Enron board meetings also show that Mr. Lay was present when the pa= rtnerships were discussed. Mr. Lay's lawyer, Earl J. Silbert, declined comm= ent today, but in the past he has said that Mr. Lay was disposing of stock = last year to pay down loans outside the company and that the sales did not = reflect any doubts about Enron's future.=20 Today, Mr. Dorgan said investigators had received 41 boxes of materials fro= m Enron, which he declined to characterize. But he did say it was clear tha= t members of the company's board had a fair degree of knowledge about the d= eals.=20 Some people involved in the Congressional investigations had thought Mr. La= y was unlikely to testify before first reviewing a long-awaited report by a= special committee of Enron directors into the company's deals with the par= tnerships.=20 People close to the company said the report was expected to be finished som= etime over the weekend. Before being released publicly, the report would ha= ve to be approved by the special committee and then have to be reviewed by = the full board.=20 The report is likely to draw distinctions about how much various people at = Enron, including board members, Mr. Lay and other executives, knew concerni= ng the partnerships, and how much responsibility various officials bear, a = person close to the matter said. The report may also say board committees h= ad differing levels of information about the deals, this person said.=20 In an interview today, Mr. Dorgan said he intended to spend a lot of time d= uring the hearing delving into details about the partnerships. But he said = it was ''pretty hard to limit inquiries in circumstances like this.''=20 ''I expect there will be attention to virtually all of the areas: 401(k) pl= ans, insider trading, partnership construction, a whole series of things.''= =20 Enron, he added, has said that some partnership information does not techni= cally belong to the company and that as a result it does not have all that = information. But, Mr. Dorgan said, ''in many cases, they own 97 percent of = the partnerships,'' so they should be able to get it.=20 William C. Powers Jr., the dean of the University of Texas School of Law, w= ho is chairman of the Enron special committee preparing the report, decline= d to discuss the timing of the report's release or to give details. He woul= d not even disclose whether he would be testifying before Congress next wee= k, even though he is scheduled to do so.=20 Mr. Powers said the work of the committee he heads ''is not precluding any = other investigation from going forward with investigation, charges, punishm= ent, whatever.'' The report, he said, will stand on its own, and ''governme= nt agencies can build on that if they find it useful.''=20 People at the law school said Mr. Powers was outraged at a suggestion publi= shed today in The Washington Post that he would be taking part in a concert= ed defense of Enron in his testimony before Congress. Mr. Powers has conten= ded from the beginning of his investigation that his role is to produce an = impartial report.=20 Mr. Powers has come under fire from advocacy groups and from the local news= paper, The Austin American-Statesman, over accusations that his impartialit= y is compromised by the close ties between the University of Texas, and Enr= on and the law firms that have represented the company, especially Vinson &= Elkins.=20 The critics have said that the appearance of a conflict of interest is so g= reat that Mr. Powers should not have taken on the assignment.=20 ''Dean Powers is a nice guy and a great professor, but unfortunately, looki= ng at the facts, he has multiple apparent conflicts that, rightly or wrongl= y, cast a shadow on this report,'' said Cristen Feldman, a lawyer for Texan= s for Public Justice, a group that tracks campaign contributions in the sta= te.=20 In other Enron-related developments today, Representative George Miller, De= mocrat of California, asked that no witness in the House's various Enron he= arings be given immunity without approval from Speaker J. Dennis Hastert, a= Republican.=20 Separately, the General Accounting Office, which is preparing to sue the Wh= ite House to obtain records of meetings of executives at Enron and other en= ergy companies with administration officials working on Vice President Dick= Cheney's energy task force last spring, said it had hired the law firm of = Sidley, Austin, Brown & Wood.=20 In addition, Senators Max Baucus, a Montana Democrat who is the chairman of= the Finance Committee, and Charles E. Grassley of Iowa, the committee's se= nior Republican, sent letters to the United States Export-Import Bank, the = Overseas Private Investment Corporation and the Trade and Development Agenc= y requesting information on what help the federal agencies had given Enron.= The committee is preparing for hearings into the company later.=20 The chairman of an accounting ethics board, meanwhile, reaffirmed the board= 's decision to disband in light of the sketchy proposals by the Securities = and Exchange Commission to restructure disciplinary rules. The chairman, Ch= arles A. Bowsher, had announced that the Public Oversight Board would resig= n as a group partly in protest of the proposals by Harvey L. Pitt, the comm= ission's chairman.=20 --------------------=20 Governor Seeks Inquiry=20 SACRAMENTO, Jan. 31 (AP) -- Gov. Gray Davis of California and Senator Barba= ra Boxer are asking regulators to investigate possible price manipulation b= y Enron during the state's energy crisis.=20 Mr. Davis sent a letter today to the Federal Energy Regulatory Commission a= fter the release of a memo from Enron officials to the White House that out= lines discussions between executives and the administration's energy task f= orce headed by Vice President Cheney.=20 In the memo, Mr. Lay urged Mr. Cheney to reject price caps on wholesale ele= ctricity that Mr. Davis and a host of other state officials wanted. Photos: Senator Byron L. Dorgan, Democrat of North Dakota, above left, with= Senator Ron Wyden of Oregon, said yesterday that Enron had not cooperated = in handing over partnership documents. Mr. Dorgan also said Andrew S. Fasto= w, left, a former Enron executive, had not responded to requests to testify= . (Stephen Crowley/The New York Times)(pg. C1); Jeffrey K. Skilling, a form= er chief executive, is to testify in hearings. (Paul Hosefros/The New York = Times); William C. Powers Jr., the University of Texas law school dean, lea= ds an Enron committee preparing a report on the company's partnerships. (Fr= ank Curry for The New York Times)(pg. C4)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Probe likely to blame former execs=20 Skilling, Fastow, auditors to be cited in report=20 By TOM FOWLER=20 Copyright 2002 Houston Chronicle=20 Jan. 31, 2002, 11:14PM Enron Corp.'s internal probe of partnerships that helped bring the company = down will likely focus the blame on former executives Jeff Skilling and And= y Fastow and the company's auditors, say sources familiar with the investig= ation.=20 The report, expected to be released this weekend, will probably say the two= and the accounting firm of Arthur Andersen failed to give Enron's board of= directors adequate information on the nature of the partnerships.=20 Though Enron has acknowledged the board approved the formation of the partn= erships and many of the deals, officials say the report will claim vital de= tails were withheld.=20 The leader of the investigation, William Powers, dean of the University of = Texas School of Law, is expected to testify before the House Energy and Com= merce Committee Tuesday.=20 One source critical of the board said the directors were trying to deflect = the blame.=20 "It's like blaming a roofer for cracks in the foundation of your house," th= e source said.=20 Enron's internal investigation began in late October shortly after the Secu= rities and Exchange Commission started a formal investigation of off-balanc= e-sheet partnerships formed by Fastow, then the chief financial officer. Th= e partnerships enlisted outside investors to buy Enron assets as a means of= helping the company artificially keep its debt level low and earnings high= .=20 Mistakes in the reporting of some transactions with two partnerships, LJM-C= ayman and LJM2 Co-Investment, forced the company to restate 4 1/2 years of = earnings, including a reduction in reported profit by $586 million and add = $2.5 billion in debt to its books.=20 In November, the internal committee determined that Fastow and other employ= ees had profited from investments in the partnerships. Those employees were= fired.=20 The report will be the first official word from the committee since then. A= t the insistence of creditors, it will be posted on Web sites of Enron and = the U.S. bankruptcy court in New York.=20 Enron officials declined comment on the report, as did representatives for = Fastow and Skilling.=20 An Andersen spokesman said Enron officials simply made some bad business de= cisions and are trying to blame the auditors.=20 "The notion that the leaders on the board were not aware of these issues is= absolutely implausible," said Andersen spokesman Patrick Dorton. "These we= re sophisticated people with sophisticated business advisers."=20 Patrick McGurn with Institutional Shareholders Services, a company that adv= ises shareholders on corporate governance issues, said Enron's board may ha= ve a valid argument if it can show it didn't know enough details to assess = the risk involved.=20 "There's a question as to who had the ability to see the big picture, if th= e board was so compartmentalized that they could only know one part of it a= t a time," McGurn said.=20 It's not unusual for boards to see only summaries of very complicated deals= and issues, McGurn said.=20 "But even if all of this is true, it still means either the board wasn't di= ligent enough, it willingly went along with something that was wrong, or th= ey were just stupid," he said.=20 It's not clear if the report will also criticize Enron's longtime law firm,= Vinson & Elkins. The firm did not help set up the LJM partnerships, but wa= s asked to look into concerns raised by Enron executive Sherron Watkins in = a now well-known October 2001 memo to Lay and the board.=20 In an Oct. 15 letter to Enron general counsel James Derrick, V&E's Max Hend= rick addressed some of those concerns, including the potential for conflict= s of interest in Fastow's dual roles as Enron CFO and chief partner in the = LJM partnerships, and the board's waiver of its code of ethics in meetings = on June 28, 1999, and Oct. 11, 1999, to allow him to run the partnerships.= =20 The letter concluded that -- based on its interviews -- no outside counsel = or auditors were needed to investigate the issues further. Hendrick did say= , however, that "bad cosmetics" on the LJM partnerships and its investments= in certain Enron technology and communications assets, coupled with the po= or financial performance of those assets, could lead to a "serious risk of = adverse publicity and litigation."=20 The day after the letter was written, Enron began to unwind those investmen= ts with LJM.=20 The fact that the code of ethics was waived to allow Fastow to run LJM is f= urther indication that the board should have been more vigilant, said McGur= n.=20 McGurn and other observers are already questioning the impartiality of the = investigation, given that many board members who approved parts of LJM are = involved. But the presence of William McLucas, the former director of the S= ecurities and Exchange Commission's division of enforcement, on the committ= ee as general counsel will lend it more credibility, said one source.=20 "Lucas is a notorious hard-ass," said the source, who asked not to be ident= ified. "So I can't imagine he'll go too soft on anyone."=20 Few of Lay Family's Real-Estate Assets Are on the Market, Listing Records S= how By Gary McWilliams Staff Reporter of The Wall Street Journal 02/01/2002 The Wall Street Journal A8 (Copyright (c) 2002, Dow Jones & Company, Inc.) Earlier this week, Linda P. Lay, the wife of former Enron Corp. Chairman Ke= nneth L. Lay, told a national television audience that nearly everything th= e couple owns is for sale as they struggle with a personal financial crisis= .=20 But few of the couple's vast real-estate holdings are on the market, accord= ing to Multiple Listing Service records. Altogether, Mr. and Mrs. Lay own real estate valued at more than $30 millio= n in Texas and Colorado, according to local tax records. They own 18 proper= ties in Houston, Galveston, Texas, and Aspen, Colo., according to real-esta= te records. But only two of the properties, vacation homes in the resort to= wn of Aspen, are being offered for sale.=20 On NBC's "Today," Mrs. Lay described the couple's plight in the wake of the= Enron bankruptcy as a fight for liquidity because most of their wealth was= tied up in Enron stock, now nearly worthless. "Other than the home we live= in, everything we own is for sale," she said.=20 The comments stirred a torrent of criticism in Houston, where about 4,000 E= nron employees have seen their jobs and stock holdings evaporate. Belo Corp= .'s Houston television station, KHOU, reported that the couple's Houston an= d Galveston properties didn't show any sign of being for sale.=20 The family's Houston-based investment office didn't return a call requestin= g clarification. According to tax and real-estate records, the Lays live in= a Houston penthouse valued at $7.1 million and continue to hold a home nea= r Aspen's riverfront valued at $4.1 million, as well as property valued at = $2.1 million. Two other homes, valued at more than $6.1 million each, were = listed with an Aspen real-estate firm on Nov. 12, two weeks before Enron fi= led for bankruptcy. Mr. Lay also sold a third of his stock in Compaq Comput= er Corp. at the end of October, two months before resigning from its board.= =20 However, Mr. Lay has retained significant stock holdings in Compaq, Eli Lil= ly & Co. and other companies where he once served as a director. Those shar= es are currently valued at more than $10 million.=20 Still, along with Enron, the Lays have seen some investments sour. Through = private partnerships, they are the largest individual investors in a strugg= ling Houston online company that has cut its work force four times in the p= ast year.=20 The Lays invested between $18 million and $20 million out of the more than = $150 million that Questia raised since its inception in 1998, according to = people close to the firm.=20 Questia sells access to online books to college students for $20 a month. I= nvestors say it has fallen far short of its original goal of recruiting 10%= of the 14 million U.S. college students to sign up for its service.=20 Last month, Questia cut its work force to just 28 employees from 300 a year= ago. A spokesman said recently the job cuts would enable the company to co= ntinue operations while it seeks new investors. While Mr. Lay has resigned = his seats on the boards of Compaq, Eli Lilly and i2 Technologies, he remain= s on the board of Questia, according to the company. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Economy Enron Report Ties the Company's Ruin To Executives Who Formed Partnerships A Wall Street Journal News Roundup 02/01/2002 The Wall Street Journal A2 (Copyright (c) 2002, Dow Jones & Company, Inc.) A much-anticipated report on an internal investigation into the collapse of= energy company Enron Corp. is expected to point fingers at former and curr= ent Enron executives who were behind the questionable partnerships that led= to the company's ruin, congressional aides said.=20 The report, which may be released as early as this weekend, also is expecte= d to outline the failure of internal controls at the company, the aides sai= d. The report is already being denounced by some defense lawyers and others ca= ught in the widening probe of Enron's collapse. They are raising questions = about conflicts of interest, and they fear the report will deflect blame fr= om Enron's board onto former Enron executives or Arthur Andersen LLP, its f= ormer auditor.=20 In an interview yesterday, William Powers Jr. -- the University of Texas la= w school dean who joined Enron's board in October and heads a committee of = outside directors that is conducting the investigation -- declined to comme= nt on the report. "We will file the report when it's ready and then we will= comment on it," he said. Mr. Powers is scheduled to testify at a congressi= onal hearing into the Enron collapse Tuesday.=20 Mr. Powers, chairman of the special committee, had ties to Enron executives= and its law firm, Vinson & Elkins, and helped raise millions of dollars fr= om them for the University of Texas, the defense lawyers and other said. Mr= . Powers serves on the university Capital Campaign Committee, and Enron has= given $3 million to the university, and more than $250,000 to the law scho= ol, since Mr. Powers became dean in 1998. In addition, Vinson & Elkins endo= wed a chair at the law school.=20 Critics of the expected report also point out that other Enron directors on= the special committee approved the transactions that they are now reviewin= g. The Wall Street Journal reported Jan. 2 that the board explicitly approv= ed the structure of the partnerships now under scrutiny.=20 The company announced the formation of the special committee in the fall, j= ust as the Securities and Exchange Commission initiated an investigation in= to partnerships used by Enron to move debt off its books.=20 The special committee's other two members are Raymond Troubh, a New York fi= nancial consultant named to Enron's board in late November; and Herbert S. = Winokur, a director since 1985 and chairman and CEO of Capricorn Holdings I= nc., a private investment company. Mr. Winokur also was chairman of the boa= rd's finance committee, which recommended that the board suspend the compan= y's ethics code so former company treasurer, Andrew Fastow, could run a par= tnership.=20 The committee retained William McLucas, a former SEC enforcement chief who = left after 22 years to join the Washington, D.C., law firm of Wilmer, Cutle= r & Pickering, to advise the committee. Mr. McLucas, 51, was known as a no-= nonsense securities cop in the eight years he served as the SEC's top law-e= nforcement officer.=20 Enron has said its dealings with the Fastow partnerships were legal and pro= perly disclosed to investors. According to Enron filings with the SEC, the = company did deals involving billions of dollars of assets and Enron stock w= ith entities related to the Fastow partnerships. Internal partnership docum= ents indicate that Mr. Fastow and possibly others made millions of dollars = from the partnerships.=20 The committee is expected to present the report to Enron's full board of di= rectors, then to the official committee of unsecured creditors in Enron's b= ankruptcy-court proceeding, according to someone familiar with the process.= It will then be filed publicly in federal bankruptcy court in New York.=20 Asked when Enron planned to file the report with the court, Martin Bienenst= ock of Weil, Gotshal & Manges LLP, Enron's lead bankruptcy lawyer, said, "W= e hope next week." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Executive Privilege Enron's Top Dogs Still Flying Luxury Jets By Brian Ross =20 Jan. 31 - Enron executives and lawyers appear to be going bankrupt in style= , traveling to bankruptcy court hearings in New York in the company's two r= emaining private jets.=20 An Enron spokesperson has confirmed a total of eight corporate jet trips to= New York and Washington since the bankruptcy, saying the flights were more= efficient than commercial travel.=20 A round-trip commercial flight, Houston to New York, could be as little as = $365 in coach. According to aviation executives, the same trip on an Enron = jet would cost tens of thousands of dollars.=20 The Enron executives seen leaving the airport Wednesday used the corporate = jet to attend the funeral of J. Clifford Baxter, a former Enron executive w= ho committed suicide on Jan. 25. Enron says that is the only nonbusiness tr= ip since the bankruptcy.=20 "Of course I have sympathy for the Baxter family, but for them to use the c= orporate jets to fly the total corporate entity to any function at this poi= nt again seems arrogant," said Rod Jordan, a former employee and chairman o= f the Severed Enron Employees Coalition.=20 Former Employees Outraged=20 Laid-off Enron employees, who stood in line today for $1,000 checks from a = group collecting donations and returned political contributions, were outra= ged to hear the luxury jets were still in the air.=20 "This is atrocious," said former Enron employee Cindy Cicchetti. "What's wr= ong with coach? That's what I fly."=20 The luxury private jets were part of the Enron culture created by its forme= r chairman and CEO, Kenneth Lay.=20 Not only did Lay use his $45 million jet for business, but he regularly use= d it for strictly personal trips for him and his family, at a cost of $334,= 000 in the year 2000 alone.=20 Months before the bankruptcy, Lay defended the personal trips. When asked w= hat kind of message it sends to the rest of the company, he responded, "Wel= l, I think it gives my senior people something to aspire to."=20 Enron says Lay's favorite jet has already been sold, and that the remaining= two jets are for sale.=20 --- Enron exec concedes he gave poor advice=20 Student fund loses most of investment=20 Associated Press=20 Feb. 1, 2002, 12:43AM RICHMOND, Va. -- A top Enron Corp. executive has admitted he gave poor advi= ce to students at his alma mater who lost nearly $12,000 in University of R= ichmond endowment money invested in Enron stock.=20 Jeffrey McMahon, who was promoted to president and chief operating officer = at Enron this week, said he hadn't foreseen the company's collapse. In an i= nterview with the university's newspaper, however, he acknowledged that he = had long been a critic of Enron's use of secretive partnerships, a practice= that contributed to the company's downfall.=20 McMahon, who graduated from the university in 1982, visited the school Sept= . 20 and Oct. 18, meeting with students and giving enthusiastic accounts of= his company's prospects even as its stock was slumping.=20 On Nov. 2, a student group that manages a small portion of the university's= endowment fund bought $12,771 worth of Enron stock. At the time, Enron cos= t $11.61 a share. In late November, Enron's stock crashed, and when the gro= up sold their investment shares were trading at 83 cents. They got back jus= t $913.=20 "The students said he was just so enthusiastic about the company," accounti= ng professor Joe Hoyle told the newspaper, The Collegian. "Why would a guy = who had a whole lot of knowledge of Enron's finances go to his alma mater a= nd be so enthusiastic ... when you can just keep your mouth shut?"=20 Student fund manager Devin Weisleder told the newspaper, "After listening t= o him for an hour, you want to go out and drop 10 grand to buy the stock."= =20 In his copyright interview with The Collegian, McMahon said he was unaware = the investment was made on his recommendation, but conceded, "In hindsight,= that probably wasn't good advice."=20 "The stock suffered a precipitous fall that no one could have expected," he= said. "I was running an operating division at the time, responsible for pa= per and steel. I had little knowledge of the financials of the company," he= was quoted as saying.=20 McMahon was mentioned in an internal memo, written in August by Sherron Smi= th Watkins and made public earlier this month, critical of Enron's secretiv= e partnerships.=20 "I expressed concerns about partnerships in 1999," McMahon told the newspap= er. "(Watkins) was referring (in her memo) to conversations I had internall= y relating to those concerns and possible conflicts of interest."=20 Enron filed for bankruptcy in December and laid off thousands of workers. T= he filing came after weeks of revelations that executives had concocted com= plicated partnerships that let Enron keep $500 million in debt off its book= s. Enron shares spiraled to less than a dollar from nearly $80 a year ago, = obliterating employees' retirement funds loaded with the stock.=20 Business; Business Desk Mighty J.P. Morgan in the Hot Seat Banking: Charges of collusion with Enron= and its recent hefty losses raise questions about firm's judgment. E. SCOTT RECKARD TIMES STAFF WRITER 02/01/2002 Los Angeles Times Home Edition C-1 Copyright 2002 / The Times Mirror Company In the rubble of recent financial collapses, one prestigious institution se= ems especially vulnerable: J.P. Morgan Chase & Co., the nation's second-lar= gest bank.=20 The New York company, a lead lender to Enron Corp., Kmart Corp. and telecom= munications firm Global Crossing Ltd., is at risk of losing billions in dea= lings with bankrupt firms, as well as losing heavily in Argentina's economi= c meltdown. J.P. Morgan also lost $1.1 billion last year on its stakes in businesses, i= ncluding many ailing technology companies, and is accused by insurers of he= lping Enron conceal vast losses. Morgan strongly disputes the charge, but t= he allegation, coupled with the hefty losses, raises questions about the ju= dgment of an institution that traces its roots back more than 200 years.=20 The bank's woes, accompanied by sizable losses on loans at many other finan= cial giants, also reveal chinks in a banking industry generally regarded as= a pillar for the nation's recovery from an economic slowdown and from Sept= . 11.=20 J.P. Morgan fares badly in comparison with big competitors such as Citigrou= p Inc., the largest U.S. banking concern, and Bank of America Inc., the thi= rd-largest. Despite their huge losses in Argentina, Enron and other corpora= te collapses, Citigroup earned $4 billion and BofA posted a profit of $2 bi= llion in the fourth quarter, bolstered in part by robust consumer lending.= =20 Morgan, by contrast, lost $332million in the fourth quarter, compared with = a $708-million profit a year earlier. For the year, the company still earne= d $1.6 billion.=20 Wall Street's skittishness over projected losses at J.P. Morgan has been ap= parent in the steady stock sell-off in recent weeks after a "continuing par= ade of train wrecks," in the words of analyst E. Reilly Tierney at Fox-Pitt= Kelton in New York.=20 The stock, which traded above $40 early in December, hovered near $32 this = week before closing Thursday at $34.05, up 99 cents a share, on the New Yor= k Stock Exchange.=20 Some analysts remain bullish on Morgan, saying the institution is fundament= ally sound and the financial setbacks are only temporary. And by some indus= try measures, J.P. Morgan's financials look sturdy. A key ratio of nonperfo= rming assets to total assets, for example, was just 0.87% as of Dec. 31, we= ll below the 2% figure regarded as a sign of potential trouble.=20 Investors' concerns surfaced in December after Enron's bankruptcy, when J.P= . Morgan, which had a reputation for usually disclosing bad news promptly a= nd completely, suddenly tripled its estimate of its potential Enron losses,= to $2.6 billion.=20 Nearly $1 billion of the total stemmed from insurers' refusals to pay Enron= -related claims on unfulfilled energy contracts. The insurers contended in = a lawsuit filed in federal court in New York that the losses resulted from = J.P. Morgan's setting up "sham" offshore energy trading concerns to do busi= ness with Enron.=20 J.P. Morgan contends its energy trading companies were above board, adding = that--unlike Enron--it included the results on its balance sheets.=20 The bank also says the hefty loan losses from the mammoth bankruptcies are = a result of J.P. Morgan's position as the leading arranger of the biggest c= redit lines to the biggest businesses. These so-called syndicated loans are= carved up and shared by dozens of banks.=20 "We're handling 40% of the syndicated loans, and when companies go down we = tend to be exposed," said J.P. Morgan spokeswoman Kristin Lemkau.=20 But other banks in the syndicates typically take on responsibility for more= than 90% of the amounts lent. Though J.P. Morgan arranged $1.6 billion in = credit lines for Kmart, for example, it had just $117 million in unsecured = loans when the retailer filed for bankruptcy last month. Likewise, though J= .P. Morgan had helped arrange $2.25 billion in loans for Global Crossing, i= t's now owed less than $100 million by the telecom firm, according to peopl= e close to the situation. And while J.P. Morgan still has a $500-million ex= posure to Argentina, Citigroup and FleetBoston have far more.=20 Indeed, only about 10% of J.P. Morgan's earnings come from lending these da= ys, compared with 50% a decade ago, Lemkau said, meaning its comparative cr= edit risk exposure actually has declined dramatically.=20 Still, there's no denying the bank's missteps, which include an 8% stake in= an Argentine bank accused of fraud, and loans to a European cable TV compa= ny that has threatened to default on $17.5 billion in debt.=20 Prospects looked far brighter at the end of 2000, when J.P. Morgan Chase & = Co. emerged in its current manifestation via the colossal merger of Chase M= anhattan Corp. and J.P. Morgan & Co.=20 After deregulation tore down walls separating banks, brokerages and insurer= s, the idea was to compete better with Citigroup--itself formed in the merg= er of Citicorp and Travelers Group--by selling more services to clients. Th= e newly formed giant hoped especially to persuade companies with bank loans= to use J.P. Morgan's investment banking services, which typically are more= profitable than commercial lending.=20 But the technology meltdown, the recession and Sept. 11 combined to create = the worst environment in years for stock offerings, mergers and other stapl= es of investment banking.=20 The big question now, Tierney said, is whether J.P. Morgan failed to assess= credit risks properly at companies because it figured making loans was a s= ure path to bigger profit on other services.=20 However, Lemkau said the dollar amount of corporate loans on J.P. Morgan's = books has declined for the last three years. "It's a misconception we're le= nding like a drunken sailor so we can get our hand on more profitable busin= esses," she said. "It's just not true."=20 No doubt reflecting the uncertainties facing all financial institutions aft= er Sept. 11 and the Enron meltdown, the range of expert opinions about Morg= an is astonishingly wide.=20 Some analysts, such as Michael Mayo at Prudential Financial, have slapped "= sell" ratings on the bank while others, such as Diana P. Yates at A.G. Edwa= rds & Sons Inc., rate it a "strong buy."=20 Yates characterized concerns over the insurers' allegations of collusion wi= th Enron as "overdone." She also warned against judging J.P. Morgan by its = admittedly atrocious last quarter.=20 "They're taking some hits, but they're a big company with a $41-billion equ= ity base. It's not like they're going out of business," she said. GRAPHIC: Wall St.'s Verdict; ; CREDIT: Los Angeles Times=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Bondholders Blame Brokers By Jathon Sapsford Staff Reporter of The Wall Street Journal 02/01/2002 The Wall Street Journal C1 (Copyright (c) 2002, Dow Jones & Company, Inc.) Citigroup Inc. lent money to Enron Corp. in October, when the energy compan= y's finances were sliding. At the same time, the Wall Street giant pitched = Enron bonds to clients as a solid investment.=20 Now, at least one institutional investor who bought the bonds is hopping ma= d -- and has taken the beef to court. In a suit filed recently in federal court in New York, Silvercreek Manageme= nt Inc., a Toronto investment company that bought Enron bonds in October, a= ccuses Citigroup's Salomon Smith Barney unit, as well as Goldman Sachs Grou= p Inc. and Bank of America Corp.'s Banc of America Securities LLC, of promo= ting Enron securities even when they knew the company was on the brink of c= ollapse.=20 "The brokers were calling our clients telling them that this was a wonderfu= l opportunity to buy these instruments," says Joe Cotchett, a lawyer repres= enting Silvercreek. "They were giving our client a sell job."=20 Citigroup, Goldman and Banc of America declined to comment.=20 The suit is one of the first to put the blame for Enron squarely on Wall St= reet's role in facilitating Enron's deception. "Enron's investment bankers = sold the securities which propped up the pyramid," the suit alleges. "In th= e process, these firms earned $214 million in underwriting fees alone, and = much more for lending, derivatives trading and merger advice."=20 But the case highlights a broader question. Did Enron's lenders have a duty= to their investing clients to disclose the depths of Enron's woes? Some an= alysts say that investors should probably have known that they were buying = securities from financial institutions who were in a position to know that = Enron was facing dire straits. Yet Citigroup wouldn't have to disclose its = knowledge of Enron's troubles because of lender confidentiality.=20 "When you're a bank lender, you can hide behind the confidentiality rule," = says David Hendler, an analyst at market research firm CreditSights.=20 In its suit, Silvercreek says the three financial firms were pitching Enron= securities to Silvercreek as late as October, including some new bonds tha= t would convert into Enron stock. The Canadian firm, which invested $175 mi= llion in Enron bonds in October, says it lost $120 million and is seeking c= ompensation and unspecified damages.=20 Sure, Enron had been through a rough patch over the summer, the Wall Street= sales pitch went, according to Silvercreek's lawyers. But Enron wasn't all= that bad off, and the bonds were selling at a sharp discount. That purport= ed pitch was mirrored by some of the research reports the brokerage firms h= ad released during October.=20 "We reiterate our Buy rating on Enron," an Oct. 19 Salomon Smith Barney rep= ort on Enron said, "after untangling part of a complicated story involving = their balance sheet."=20 Enron's story, of course, wasn't nearly so upbeat. Its balance-sheet high j= inks caused a sudden loss of confidence, bringing about a liquidity shortag= e so dire that Enron was forced to draw down an emergency $3 billion credit= line on Oct. 25, only a few days after Salomon's report. That move signale= d Enron was running short of crucial operating capital.=20 Citigroup's lending division knew as well as anybody that Enron was facing = trouble, since it had been one of the top banks arranging the credit line. = Yet the brokerage companies had Enron securities in their firm's inventory = to unload, according to the Silvercreek suit.=20 Enron had sold Wall Street firms about $1.9 billion in convertible bonds th= at firms such as Citigroup were free to sell to investors by June of 2001, = the court papers say. But the sales of these securities weren't going so we= ll, Silvercreek alleges.=20 So Citigroup's brokers became increasingly aggressive in pushing the Enron = bonds on institutional investors, Silvercreek's lawyers say. Citigroup sold= Silvercreek its last chunk of Enron securities on Oct. 25 -- the same day = that Enron drew down its credit line from Citigroup.=20 Executives familiar with Citigroup thinking assert that Silvercreek should = have known the risks of investing in Enron as well as any other investor. M= eanwhile, the lending side knew about the problems at Enron, but the broker= age side didn't. That is in keeping with the so-called Chinese Wall on Wall= Street, which seeks to separate businesses to reduce conflicts.=20 Further complicating the role of Citigroup in the dispute is that on Oct. 2= 5 -- the same day Enron drew down its credit line -- Citigroup met with oth= er bankers to begin discussions on a new, $1 billion Enron credit line.=20 The new financing, which was announced much later, was firmly secured by co= llateral in the form of Enron pipeline assets. Yet Citigroup effectively ro= lled some of its existing unsecured Enron financing into the new secured cr= edit line -- thereby shielding itself from Enron losses shortly after pushi= ng Enron debt on to other investors. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 FERC to focus on Enron's role in Calif. energy crisis=20 Bush appointed 2 Lay choices to commission=20 By PATTY REINERT=20 Copyright 2002 Houston Chronicle Washington Bureau=20 Feb. 1, 2002, 12:21AM WASHINGTON -- Federal energy regulators Thursday launched an investigation = into whether Houston's embattled Enron Corp. helped prolong last year's ele= ctricity crisis in California by unfairly manipulating wholesale power pric= es.=20 Federal Energy Regulatory Commission Chairman Pat Wood III, a Texas Republi= can who was appointed by President Bush last year at the behest of Enron Ch= airman Ken Lay, confirmed that an inquiry had begun but declined to elabora= te on its scope.=20 FERC spokeswoman Barbara Connors said Wood's decision to look into Enron's = activities came at the request of several Western Democratic lawmakers, inc= luding Sens. Barbara Boxer and Dianne Feinstein of California, Ron Wyden of= Oregon and Maria Cantwell of Washington. California Gov. Gray Davis, a lon= gtime Enron critic, also requested an investigation.=20 Calls for FERC to look into Enron's business dealings in California came as= early as 2000 as power prices soared after the state's failed attempt to d= eregulate its energy markets. But pressure on federal energy regulators has= mounted in the past month amid investigations by numerous congressional co= mmittees, the Labor Department, Securities and Exchange Commission and the = Justice Department.=20 Enron officials did not return calls seeking comment on the latest investig= ation, but the company has denied any wrongdoing in the California energy c= risis.=20 Boxer cited a 30-minute meeting that Lay, who since has left Enron, had wit= h Vice President Dick Cheney on April 17 to discuss the California crisis. = The senator said a memo from that meeting offers possible evidence that Enr= on officials, who were huge financial contributors to the Bush presidential= campaign, influenced the administration's energy policies.=20 The eight-point memo that Lay reportedly gave Cheney during their meeting w= as published earlier this week by the San Francisco Chronicle.=20 In it, Lay suggested that the administration "reject any attempt to re-regu= late wholesale power markets by adopting price caps or returning to archaic= methods of determining the cost base of wholesale power."=20 He added that even temporary price caps would be detrimental to power marke= ts.=20 The day after his meeting with Lay, Cheney said price caps wouldn't solve C= alifornia's problems.=20 Boxer called the revelations "quite disturbing" and said they raise questio= ns about whether Enron also may have tried to influence FERC directly.=20 In addition to an investigation of Enron, Boxer requested information on me= etings and phone calls between Enron executives and FERC commissioners and = staff between August 2000 and June 2001.=20 The FERC investigation comes one day after the General Accounting Office sa= id it would take the unprecedented step of suing the White House in the nex= t few weeks unless Cheney reconsiders his refusal to turn over information = on meetings between Enron and other energy executives and the administratio= n's energy task force.=20 Meanwhile, in an interview scheduled for broadcast tonight on PBS' Now With= Bill Moyers, Lay says that during a meeting at the White House he gave Bus= h administration officials a list of candidates for seats on the five-membe= r FERC. Of the eight names, Bush appointed two -- Wood and Nora Brownell of= Pennsylvania.=20 "I brought a list, we certainly presented a list. ... As I recall, I signed= a letter which in fact had some recommendations as to people that we thoug= ht would be good commissioners," Lay said in the interview, which was taped= last May but never aired.=20 White House spokeswoman Anne Womack confirmed Thursday that Lay gave the na= mes to Clay Johnson, Bush's personnel director.=20 Wood, who served as head of the Texas Public Utility Commission under then-= Gov. George W. Bush, is an advocate of market-oriented utility regulation, = an approach favored by Lay and other Enron officials.=20 Bush selected Wood for the FERC job to replace Curt Hebert, who says in ton= ight's PBS program that he and Lay had long disagreed about issues before t= he commission. Lay had "asked me to take certain positions, but I've had th= ose conversations with Ken Lay for a long time -- and have disagreed with h= im for a long time," said Hebert, a former Mississippi legislator.=20 Enron, once the world's largest energy trader, plunged into bankruptcy Dec.= 2 after admitting it had overstated its profits by $586 million since 1997= .=20 Lay is scheduled to testify before Congress next week as part of numerous i= nquiries launched in the wake of Enron's collapse. Information yielded by c= ongressional investigators so far has rekindled the ire of officials in Wes= tern states who have long claimed Enron was at least partly to blame for th= e region's energy woes almost two years ago.=20 "If there is any doubt in your mind about whether an investigation is warra= nted, the latest revelations should answer that question," Davis wrote to W= ood in a letter released Thursday. "Clearly, an investigation is needed."= =20 Davis, a Democrat, first called on FERC to investigate allegations of marke= t manipulation by Enron and other power generators and traders in the summe= r of 2000.=20 By fall of that year, wholesale power prices in California had risen tenfol= d and continued at high levels through the following spring as angry custom= ers began to suffer through blackouts.=20 The price jump was blamed on the state's failed attempt at deregulating ele= ctricity markets.=20 FERC eventually voted to impose price caps on electricity sold in Californi= a. That move, along with the state's signing long-term contracts with power= companies to lock in prices and milder weather that spring, ended the cris= is.=20 Blaming Enron and other marketers for the crisis, the state of California h= as sought $9 billion in refunds for alleged overcharges. That case is pendi= ng before a FERC administrative judge; no decision is expected for several = months.=20 Economy Bush to Unveil Proposals for Changing Pension Law By Jeanne Cummings and Kathy Chen Staff Reporters of The Wall Street Journal 02/01/2002 The Wall Street Journal A2 (Copyright (c) 2002, Dow Jones & Company, Inc.) WASHINGTON -- Workers would have more flexibility to diversify retirement a= ccounts, senior executives would be held to the same blackout periods on st= ock sales as rank-and-file employees, and workers could receive more indepe= ndent investment advice under pension proposals to be unveiled by President= Bush today.=20 Based on the recommendations of a cabinet task force, Mr. Bush is expected = to announce those changes and others during an appearance before congressio= nal Republicans at the Greenbrier resort in West Virginia, a senior White H= ouse official said. The proposals stem from a three-week review of pension law commissioned by = the president in response to the collapse of Enron Corp. As the Houston ene= rgy-trading company spiraled toward its Dec. 2 bankruptcy, workers' retirem= ent savings that were bottled up in frozen 401(k) accounts evaporated with = the shrinking stock price. Some senior executives, whose holdings weren't u= nder the same restrictions, sold off millions of dollars in stock and cashe= d in deferred compensation accounts.=20 The White House study, conducted by Treasury Secretary Paul O'Neill, Labor = Secretary Elaine Chao, and Commerce Secretary Donald Evans, was designed to= provide greater protection for workers in the future and to give the presi= dent some political cover in the scandal that involves one of his largest f= inancial backers.=20 The proposal, which would require legislation or regulatory action before t= aking effect, doesn't go as far as some bills supported by consumer and lab= or organizations. But some provisions are likely to meet resistance from bu= sinesses.=20 To give employees greater flexibility to diversify their portfolios, employ= ers would be required to allow workers to sell employer-company stock after= they have participated in their 401(k) plans for three years. Many employe= rs currently require workers to hold on to company shares, especially those= that are given by the employer as a "match" to employee contributions, for= many years, or even until retirement. Employers enjoy tax benefits for iss= uing company stock to retirement accounts, and the practice is also cheaper= than making cash retirement contributions. But, in the case of a bankruptc= y such as Enron's, the restrictions can wipe out employee nest eggs, advoca= tes of change argue.=20 The president's package wouldn't limit the amount of employer-company stock= that could be held in 401(k) plans. Such caps have been proposed in legisl= ation, including a bill introduced by Democratic Sens. Barbara Boxer of Cal= ifornia and Jon Corzine of New Jersey that is supported by consumer and lab= or groups.=20 Calling for increased access to investment advice, Mr. Bush embraced a bill= sponsored by Rep. John Boehner (R., Ohio) and passed by the House last yea= r. The White House now will push for action in the Senate.=20 The Boehner bill would encourage employers to provide more investment advic= e to their workers by shielding them from lawsuits and fiduciary responsibi= lity for investment decisions made based on advice given by other parties. = But the bill also would allow pension-plan managers to provide such advice,= a move which consumer groups say would result in a dangerous conflict of i= nterest.=20 The National Association of Manufacturers, which is leading a coalition to = oppose major pension changes, and other industry groups have voiced support= for Mr. Boehner's bill.=20 Mr. Bush's proposals also would raise the stakes for employers when they im= pose "blackout periods" on stock trading for pension plans. Companies routi= nely impose such periods when they are changing plan administrators, for in= stance.=20 In addition to requiring senior executives to face the same blackout period= s as lower-level workers, Mr. Bush is calling for a 30-day notice before a = blackout begins. He also will recommend that employers be held responsible = for what happens to workers' investments during the periods when their stoc= k is frozen. Under current regulations, employers are protected from that l= iability. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Who Were the Friends of Enron?: Michael Lewis 2002-01-31 16:25 (New York) Berkeley, California, Jan. 31 (Bloomberg) -- The only people who are go= ing to explain what happened at Enron Corp., and why, are the people who wo= rked there. So I'm delighted to report the trickle of notes and letters fro= m Old Enronians has become a torrent. My inbox runneth over. This week's pile of cards and letters offers several different kinds o= f information. The first is the sort of colorful detail that will be useful= to whoever eventually makes the crummy TV movie about the energy trader's = collapse. It's fun to know, for instance, that Enron's chief risk officer had a = picture of the Titanic on the wall of his office, and that Enron's chief ac= countant drove a Ferrari. It's even more fun to know there was plenty of se= xual scandal in the halls at Enron, to go along with the financial one. Off= ice affairs are common at any big company, but Enron's steamy Texas culture= seems to have created a particularly juicy hothouse. Book Fodder The next category of information is the deeper understanding that will= be useful to whoever writes the respectable best-selling book about Enron. For the first time since the scandal broke, for example, I've read a s= atisfying explanation for Enron's many disastrous investments in foreign as= sets. As this correspondent put it, the main motive for paying ridiculously = big sums for Indian power plants and Brazilian pipelines and so on was not = foreign market information, or access to foreign politicians, but the need = to be able to cover a short position. In its attempt to create the same sort of trading markets in developin= g countries as it had in the U.S., Enron exposed itself to a new kind of ma= rket risk. It was one thing to be caught short in U.S. natural gas, in which you = could hedge your position on a well-established futures exchange. It was an= other to be caught short Indian electricity. Owning the underlying physical= assets ensured that would never happen. (But also ensured Enron would be c= onstitutionally long all new markets.) Friends and FOEs The final category of information is the sort of corporate intrigue th= at will be gold to the investigative reporters newly assigned to the Enron = beat. For example, there was, according to one former Enron employee, a grou= p of individual investors known as the Friends of Enron. These people, ironically known as FOEs, were offered the following dea= l: Agree to put your name on a million dollar investment in a private offsh= ore partnership stuffed to the gills with junky assets, and Enron would len= d 95 percent of the money and guarantee you at least a 15 percent annual re= turn. In other words, put up fifty grand and Enron would ensure you receive= d 150 grand at the end of the year. So, who was offered this deal? My Enron correspondent contends the lis= t of people on it will read "like a Who's Who.'' Bloomberg News this week revealed that some individuals who put money = into Enron partnerships run by former Chief Financial Officer Andrew Fastow= were executives at Merrill Lynch & Co. This is interesting -- and not merely because of the blatant conflict = of interest in employees of a firm taking huge sums of money from Enron whe= n it is the role of their firm, in part, to serve as a detached observer of= Enron. The conceit that Wall Street firms evaluate U.S. companies honestly= was dropped long ago. (Merrill is a passive minority investor in Bloomberg= LP, the parent of Bloomberg News, and has said the investments didn't repr= esent a conflict of interest.) Looking the Other Way No, what's astonishing is that the people who were offered these deals= by Enron didn't acknowledge what they said about a company that last year = ranked as the seventh largest in the U.S. by sales. A lot of well placed pe= ople knew such a giant company was rotten and yet no one said anything abou= t it, or altered his behavior in any way towards the company. Or almost no one. A couple of local Houston institutional investors who= declined similar sweet deals could see clearly enough what it meant. Danny Bowers, the chief investment officer of the Houston Fireman's Re= lief and Retirement Fund, has said "there was a pretty blatant conflict of = interest. It was kind of a stinky deal.'' David Long, who runs the Houston Municipal Employees Pension Fund, tol= d Bloomberg News that, "We had a lot of discussion about potential conflict= s of interest. You had the CFO of Enron, who's an employee of Enron, acting= as general partner of a partnership which for the most part could be const= rued to be adversarial to Enron.'' Need Not to Know So why didn't any respectable person respond the same way to Enron's o= ffer of free money? One of the curious aspects of the Enron scandal is the way the world c= onfigured itself so that it didn't need to know the truth about the company= . There was a need, both financial and psychological, not to know. Now we know the partnership structure was an open secret on Wall Stree= t. There was a lot of money to be made on the short side by a Wall Street p= erson if he leaked Enron's moral infrastructure to, say, the Wall Street Jo= urnal. But, at least as far as we know, no one at Merrill did this. So, who else was offered a sweet deal by Enron and yet failed to be sh= ocked or alarmed? Anyone currently residing in Washington? I await your car= ds and letters. -- Michael Lewis in Berkeley, California, at mlewis1@bloomberg.net through = the New York newsroom (212) 318-2320/ Editor: Rooney Houston, we have a problem The city where deregulation is king is in Enron denial - and won't let go o= f its wildcatting ways. - - - - - - - - - - - - By Katharine Mieszkowski, Salon.com Feb. 1, 2002 | HOUSTON -- In a skyscraper just across the street from Enron= 's sparkly new downtown headquarters, Pamela Lovett explains why the bigges= t bankruptcy in history isn't something to get all worked up about. "This i= s not the first company to declare bankruptcy," she says. "Personally, I ha= ve very high regard for Ken Lay."=20 Lovett is the head of economic development for the Greater Houston Partners= hip, a local business group with 135 CEO members, which Lay was the chairma= n of in 1994. Her job is wooing big companies to come set up shop in the la= issez-faire, pro-business Promised Land of Houston.=20 She lowers her voice to remind me reverently that in this country we assume= the accused are "innocent until proven otherwise," and when it comes to En= ron "a lot of things are being tried by speculation." But the civics lesson= is interrupted when Lovett's colleague David McCollum comes bursting in to= announce that the FBI has just occupied Enron's headquarters, based on rep= orts that employees were still shredding documents there a few days earlier= .=20 "We're just having so much fun now!" McCollum jokes before popping back out= , leaving Lovett to continue to argue that in spite of the Enron collapse t= hings here in Houston are just fine, thanks.=20 Congress is holding hearings, criminal investigations are under way and cla= ss action suits are bubbling over, but in Houston, civic leaders don't want= to jump to any untoward conclusions. Despite all the sob stories generated= by thousands of local laid-off Enron workers and retirees, Mayor Lee Brown= has been careful not to cast blame. When Ken Lay resigned as the CEO of En= ron, the mayor said in a statement: "Only those who are working all day, ev= ery day on this situation are in a position to know all the details." Oh, a= nd by the way, Lay sponsored a $50,000 fundraiser for Brown's election last= year.=20 The Houston City Council isn't exactly warming up the tar-and-feathers eith= er. Instead, it's busy awarding a $198,000 consulting contract to Arthur An= dersen, a company now feverishly attempting to escape its own immolation af= ter its failure to competently audit Enron's books. "That disgusted me," sa= ys Amy Oberg, a former Enron employee who lost retirement savings in her 40= 1K as well as her job. "The fact that the city went and did that in the mid= dle of the federal investigation just blows my mind. For the people here wh= o were hurt by Enron, that was a slap in the face."=20 Greetings from Houston, the city that tries too hard. Houston is a city tha= t is proudly unapologetic about its status as an icon of anything-goes dere= gulation. Nowhere will you find a place more consciously devoted to living = the free-market version of the American dream. But there's an insecurity lu= rking beneath the pride, an inferiority complex bred in part by the spectac= ular flameouts and huge busts that are a natural consequence of living with= as few rules as possible. It is, as one resident notes, a place where "peo= ple come to make money, and then they go someplace else. Nobody retires in = Houston."=20 Enron's fall from grace is but the most recent disaster to bring out the co= ntradictions inherent in the Houston way. Even as many Houstonians feel a l= ingering sense of betrayal and disappointment and no shortage of embarrassm= ent, they are still unwilling to ask themselves: Why did Enron happen here = in Houston? And can anything be done to prevent the next catastrophe?=20 Probably not. Because to do anything substantive would be a betrayal of Hou= ston's founding myth -- the idea that the city is a place where a guy can c= ome to make a lot of money without being held back by a bunch of party-poop= ing naysayers and regulators. It's a myth that fits neatly into the explici= t deregulation platform so heavily promoted by Ken Lay and Enron, and it's = not something that Houstonians will give up on easily.=20 "There will be no reform in Houston," predicts Dr. Alvin Tarlov, a physicia= n and policy advisor at the Baker Institute for Public Policy in Houston.= =20 There never is.=20 "This is a city where you can make your fortune and not have people looking= over your shoulder saying: 'You can't do that,'" says Houston native Carlo= s Hernandez, with evident pride, adding quickly: "Enron was taking that to = the extreme. That's just criminal."=20 But from the beginning, Houston's wide-open ethos has been an invitation to= criminals. "Houston is a city that started as a land scam. It's still a wi= ldcatters town," says Jim Hightower, the Texas writer and wisecracker. Back= in the 1820s the city's roguish developers sold scrip for 5 or 10 cents an= acre that didn't actually convey property rights to any land. It was a sca= m that makes pushing stock that's not based on real revenues look pretty ta= me.=20 To this day, locals eschew government oversight so much that many suburbani= tes here don't even live under any city government. They inhabit unincorpor= ated districts run by the residents, in a barely governed super-sprawl of c= heap housing. Here's how it works: A developer buys a piece of the endless = raw prairie land outside city limits. He puts a trailer on it and has his c= onstruction foreman move in. Then, an only-in-Texas "election" is held. The= sole voter -- the construction foreman -- votes in favor of developing the= property, and voila! -- a new district is created complete with tax-exempt= bond status.=20 When the new 'burb is built and inhabited, the developer turns it over to t= he citizens, who repay the debt from the bonds with property taxes. There a= re some 400 of these unincorporated districts in the Greater Houston area, = and you only really hear about them when the City of Houston cherry-picks a= wealthy one, annexing it to assume its lucrative tax base -- usually again= st vehement "Don't tread on me!" protests from the residents.=20 In the unincorporated areas and the city proper that together make up the s= prawling greater Houston area, population 4.5 million, lies a case study in= what is wrought by living according to the commandment "There shall be no = zoning." Sublime, helter-skelter juxtapositions are everywhere. Right next = to an eight-lane freeway, a Discount tire store huddles near a traveling ca= rnival; children spin themselves silly on blinking rides that rival NASA's = anti-gravity chambers, under the vacant gaze of an overly made-up model loo= ming down from a billboard advertising an all-night porn store. And don't m= iss the 20-story office building right across the street from a neighborhoo= d of brand-new monster houses, with no niceties like landscaping buffering = the commercial district from the residential one. Neighborhood deed restric= tions impose some conformity, but those rules end at the property lines -- = then, hallelujah! Anything goes! There were a few years there in the early = '90s when the Houston City Council did impose zoning, albeit after the fact= , but by 1994 the citizens had voted to repeal this brazen act of governmen= t intervention.=20 "Strip malls and strip clubs. There's a Gap on every corner next to a Starb= ucks," says Tracy Delmer, a speech pathologist who has lived here all her l= ife. "It's all about trying to make your strip mall prettier than the other= strip mall down the street."=20 The flip side to freedom from nasty government oversight is some of the wor= st air pollution in the country. Some 2.5 percent of the world's total refi= ning capacity lies in the greater Houston area, and Houston's high ozone re= adings are rivaled only by Los Angeles. The state, in true Texas laissez-fa= ire style, has been notoriously lax on environmental regulation, allowing o= ld petrochemical plants to be grandfathered in when introducing new, watere= d down environmental rules, which just means that those old, polluting plan= ts never seem to die off.=20 "That's Texas. If the federal government forces Texas to do it, they do it,= " says Jim Blackburn, a Houston environmental lawyer. "But otherwise, it's = all up for grabs."=20 Is it any wonder that few people seem to come here just for fun? "People do= n't say 'I went to Houston last summer,'" says Delmer, "like they say 'I we= nt to Seattle.'"=20 "All over the country, if people hear they're being transferred to Houston = they want to commit suicide," says Amy Jaffe, a local energy policy advisor= , who still finds the distaste outsiders have for Houston puzzling. It's no= t as if Houston is some kind of cultural wasteland, she notes, enumerating = a laundry list of Houston's sophisticated worldly charms, from the opera to= the ballet to the symphony.=20 All of which, it should be noted, are funded almost entirely by private sou= rces.=20 Nationally, Enron's demise is stirring debate on a huge range of issues, fr= om campaign finance reform to accounting rules to the very ascendancy of th= e idea of deregulation.=20 But not here in Houston.=20 "None of us blame President Bush or free-market capitalism for Enron's coll= apse," says Raymund Eich, a local patent agent, who believes that liberals = are using the Enron bankruptcy as an excuse to smear both. Only Dallas and = Washington gave more money to Bush's 2000 campaign than Houston, and Enron = is well known to be Bush's single biggest corporate backer, but Eich doesn'= t think the government owes anything to hard-hit Enron employees or investo= rs, noting that "Houstonians are more self-reliant than people in other pla= ces."=20 Take Houston accountants -- a phrase that in February 2002 sounds like the = punchline to a very bad joke waiting to happen. Here's a group who would li= ke very much to remain self-reliant, even as they fear that their days of s= elf-regulation may be numbered, thanks to Andersen's bad behavior. Over lun= ch -- beef stew on noodles -- the members of the Houston Chapter of the Tex= as Society of Certified Public Accountants at their annual business meeting= at the J.K. Marriott dish about Andersen's role in the Enron debacle.=20 "I think someone should pay," says Ann-Marie Curtin, a CPA at Prime Asset M= anagement, a Houston property company. "There's no way that there wasn't a = significant amount of illegal activity going on."=20 But new rules to help prevent such nefarious activities? They won't hear of= it. Patrick L. Durio, president-elect of the local group and the chairman = of the -- voluntary! -- ethics committee of the Texas Society of CPAs, says= : "Government regulation is not the answer. I don't want to see the governm= ent setting accounting standards," noting that the industry has been self-r= egulating for 100 years. "And I don't think that politicians should be gett= ing involved in it."=20 In Houston, they probably won't. Because no matter how big Enron's corporat= e implosion appears on the national scale, such colossal busts are hardly u= nusual in Houston history. In fact, Enron is a mere blip compared to the ci= ty-wide bust that occurred in the mid-'80s. Houston is always trying to sha= ke the perception that it's just an urban pit stop for roughnecks who rip n= atural resources out of the ground on the way to getting really, really ric= h. Because many Houstonians remember what happened when those roughnecks an= d their moneymen ran the town right into the ground.=20 "Imagine a city where everybody had gone to Las Vegas for the weekend and l= ost everything they owned," says Jaffe.=20 In the mid-'80s, the city lost a quarter of a million jobs in the oil and r= eal estate bust. "There were a lot of people who went from owning lots of r= eal estate in West Houston and driving a Porsche to having to take a job se= lling aluminum siding. Everybody was a kazillionaire," says Jaffe, "and all= of a sudden, everybody was bankrupt over the course of, like, three years.= " Banks just couldn't keep up with all the foreclosures on the suburban hou= ses stocked with '80s amenities -- the backyard swimming pool, the built-in= wet bar and the Jacuzzi.=20 The bust inspired a favorite Houston bumper-sticker, begging God for a seco= nd chance, for another oil boom: "God, if you bring it again, we won't scre= w it up this time."=20 Things were so depressed circa 1986 that a volunteer civic organization cal= led Houston Proud formed to try to cheer up the beleaguered populace. The H= ouston Proud theme song was a relentlessly upbeat ditty that tried too hard= . Sample lyric: "We're Houston Proud! Proud of the things we've done togeth= er!" Commercials aired on local TV pairing the song with chipper images of = smiling Houstonians to market Houston to its own people, as if to plead, "P= lease don't lose faith. Just don't move away."=20 And maybe that's where the inferiority complex comes from: This is a city t= hat knows what it feels like to fall flat on your face, to go from driving = a Porsche to selling aluminum siding. Or maybe a city where the free-market= conquers all knows it's inevitably a little rough around the edges.=20 Congratulations, Houston! You've just been named "The Fattest City in Ameri= ca" by Men's Fitness magazine for the second year in a row. To respond to t= he salvo, Mayor Brown recently launched a campaign to inspire Houstonians t= o slim down, by starting with his own waistline. If you can't rule by polic= y, why not govern by example?=20 The taxes are so low here that the city government needs a public referendu= m to do anything beyond barely keeping the surface streets functional. Behi= nd the scenes, it's businesspeople, both informally and through the Greater= Houston Partnership, who push civic projects and sweetheart deals along, f= rom downtown revitalization to building new stadiums. In Houston, the busin= ess agenda is the civic agenda.=20 "The shadow government decided where the football stadium is going to be, h= ow much public money was going to be put into it, and where the money would= come from," explains Tarlov. Ken Lay led the approval process of the new b= aseball stadium, which now bears the name of his disgraced company.=20 The sign that says Enron Field, which the now-bankrupt company pledged to p= ay $100 million for, is the most vivid symbol that Enron's shame is also a = big black eye for Houston. But neither Enron Field nor the Compaq Center --= Compaq cut 8,500 jobs last spring and may still be absorbed by Hewlett-Pac= kard -- has soured local politicians on the naming game. Right now, the Cit= y Council is considering selling off different rooms of the new convention = center for corporate branding.=20 Houston has struggled since the catastrophic oil bust of the '80s to change= its wildcatting ways. And like an investor who learned her lesson the hard= way when her 401K turned out to be composed 80 percent of Enron stock, Hou= ston has shed its overdependence on the energy industry, with some success.= The city now boasts that while 82 percent of all economic activity in the = early '80s was energy-related, now it's about 49 percent. That still means = it's a town whose fortunes are tied to the price of oil, just less so.=20 But even with big local employers Compaq and Continental on the ropes, Enro= n evaporating and the price of oil down from $30 a barrel in early 2000 to = $18 a barrel today, the city has lost only 5,700 seasonably adjusted jobs, = according to the University of Houston's Institute for Regional Forecasting= . That means while the country has shed about 1 percent of its job base in = the recession, even with Enron's fall, Houston has lost only a quarter perc= ent of its base. Houston may be down, but it is still ahead of the rest of = the country.=20 But the collapse of Enron means something more here than the loss of jobs o= r money or even face. Lay was the archetypal Good Houston Businessman: a yo= ung man from somewhere else who comes to town, makes a lot of money and sho= wers it back on the community, while building his good name. He was widely = thought to be a promising candidate for mayor when Brown's term expires on = term limits next year, prompting comparisons to Houston's great-granddaddy = of civic business leaders, Jesse "Mr. Houston" Jones.=20 And before its collapse, Enron represented Houston's best idea of itself --= an innovative, technocratic, deregulation innovator that might be a bit on= the arrogant and greedy side but was also philanthropic and civic-minded, = a company transforming itself out of the oil and gas business into a new ec= onomy conglomerate that even sold broadband services. Enron was the New Hou= ston.=20 Not even the city's official civic pride cheerleaders can entirely brush of= f Enron. Lynn Nutt, chair of Houston Proud, confides: "The self-esteem here= in Houston is very depleted."=20 But in a city that's always trying to prove itself, there's no time for nav= el-gazing about whether Enron's collapse means that there's something inher= ent in Houston's culture that breeds such colossal screwups. The Houston wa= y isn't to wallow and whine. It's to declare -- all together now! -- your p= ride in your city, while leaving the congressional investigators, the FBI a= nd the courts to sort out that Enron mess. In bike-riding, eco-friendly, gr= anola-eating Portland, Ore., they may be singing the "Enron Blues," but her= e in Houston, headquarters for the largest bankruptcy in history, they're s= till Houston Proud!=20 Just in time for all the Enron fuss, there's a new Houston Proud "Rally Son= g" by local songwriter Phil Blackman: "Houston is the Place to Be." It's a = twangy Texas two-step blues number with a country twist.=20 "I've been up, I've been down,=20 Searchin' for a place to be=20 I've been around, the world you see=20 But Houston is the place for me."=20 Ah, the good-natured earnestness, the protesting-too-much! It's enough to m= ake the heart skip a beat for Houston, or maybe just make you want to skip = town.=20 salon.com Texas law firm working to weather Enron storm Vinson & Elkins, one of state's largest firms, faces hard questions on its = work for company By Bruce Hight American-Statesman Staff Friday, February 1, 2002 For now, at least, Vinson & Elkins LLP, the big Houston law firm that repre= sented Enron Corp., sits quietly in the eye of the hurricane of outrage tha= t stormed the city after the collapse of the energy giant into bankruptcy a= nd scandal. But the investigations have only begun. So far, the firm says, it has not lost any clients and even continues to re= present Enron on some matters, although it says Enron owes the firm $5 mill= ion for past services. And while Vinson & Elkins faces questions about its role in the creation an= d operation of the partnerships that contributed to Enron's failure, the fi= rm - one of the largest in the state - has not been directly implicated in = Enron's collapse. That's a marked contrast to Arthur Andersen LLP, which was fired as Enron's= auditor last month and has fired one of its own top partners. It has also = acknowledged destroying Enron-related records and admitted this week that i= t has lost clients. Some analysts have suggested that Andersen might be so = heavily damaged that it will have to seek a merger with another accounting = firm. Harry Reasoner, who was Vinson & Elkins' managing partner until the end of = last year, said the law firm is not free to comment in detail about its wor= k for Enron because of attorney-client privilege. "It is particularly frustrating because we're confident that when the full = facts come out that it will be clear that we have conducted ourselves in a = manner that is both professional and is required by our ethical obligations= ," he said. One aspect of the firm's work for Enron already has raised eyebrows: At Enr= on's request, it investigated internal warnings last fall of possible wrong= doing involving some of the partnerships that eventually led to the company= 's bankruptcy, despite a warning that Vinson & Elkins had previously provid= ed some legal advice pertaining to the partnerships. Outside legal experts agree that it's too soon to tell whether the firm act= ed legally and ethically. But that doesn't mean it has nothing to worry abo= ut, they added. "Even if Vinson & Elkins is determined to have no legal liability in this m= atter, its reputation has been tarnished," said Milton "Mitt" Regan, who te= aches a course on professional responsibility and corporate lawyers at Geor= getown University Law Center in Washington. One issue, Regan said, is just what role Vinson & Elkins played in the crea= tion of the partnerships that were used by Enron to move debt off its own b= ooks, which apparently benefited some Enron executives and helped lead to b= ankruptcy. "We will need to know whether Vinson & Elkins was confined to the narrow ta= sk of opining on the legality of business proposals that others developed, = or whether it took a more expansive role as a member of the team that devel= oped business strategies," Regan said in an e-mail interview. John Dzienkowski, a University of Texas law professor who also teaches prof= essional responsibility, said even if Vinson & Elkins did nothing wrong, th= e firm probably won't avoid legal action against it. "Given their deep pockets and high profile, they're likely to be targets of= plaintiffs looking for remedies," he said. Just last August, another prominent Texas law firm, Locke Liddell & Sapp LL= P, paid $8.5 million to settle a lawsuit brought against it by investors of= Brian Russell Stearns, who was convicted of running a phony investment sca= m. And in April 2000, the same firm agreed to pay $22 million to settle a l= awsuit brought by investors in Austin Forex International, a failed foreign= currency firm run by former UT football star Russell Erxleben. Investors claimed that Locke Liddell helped Stearns and Erxleben defraud th= em. Locke Liddell denied any wrongdoing but said it settled to avoid length= y and expensive litigation - a decision that Vinson & Elkins may face event= ually, said Dzienkowski. Still, he said, Vinson & Elkins' professional reputation is so strong that = he doubts it will suffer permanent harm. To make sure, Vinson & Elkins has hired some of the top names in the legal = profession to defend it. One is Joe Jamail, a renowned Houston trial lawyer= better known for battling firms such as Vinson & Elkins than helping them.= But Jamail already has persuaded plaintiffs' lawyers in two lawsuits again= st Enron to drop Vinson & Elkins as a defendant. Another top gun hired by Vinson & Elkins is John Villa, of the top Washingt= on firm of Williams & Connolly LLP. He specializes in defending prominent l= aw firms. Reasoner said Villa is overseeing Vinson & Elkins' cooperation with the var= ious investigations: "I don't believe in our lawyers representing themselve= s when they're called on to testify as witnesses." Founded in 1917, Vinson & Elkins is the second-largest law firm in Texas, a= ccording to a survey last year by a trade publication, Texas Lawyer. It has= 860 lawyers, including 110 in its Austin office, making it one of the city= 's largest law firms. (Don Wood, partner in charge of the Austin office, sa= id none of the Austin lawyers were assigned to Enron.) It also has offices = in other cities, including Dallas, Washington, London, Moscow and Singapore= . Its revenues last year were about $455 million. "Enron was only 7-plus percent of our revenue," Reasoner said. "That's sign= ificant, but I mean, it's not material to us economically in the sense of h= arming us. And of course people are upset by reading unpleasant publicity. = But I don't think anyone is concerned that it will affect us in the long ru= n." Vinson & Elkins is the kind of firm people have in mind when they talk abou= t "establishment" or "white shoe" lawyers, those representing banks, major = corporations, insurers and wealthy individuals. It is well-connected, politically and otherwise. Al Gonzales, general couns= el to President Bush and a former Texas Supreme Court justice, is a former = Vinson & Elkins partner. And some of Enron's 200-plus in-house lawyers used= to work at Vinson & Elkins, including the company's general counsel, James= Derrick. (Another major Houston law firm that has done work for Enron, Bracewell & P= atterson, has severed all ties with the company. Two of its partners, Marc = Racicot, chairman of the Republican National Committee, and Greg Abbott, a = candidate for Texas attorney general, have been criticized for their links = to a firm working for Enron.) Vinson & Elkins recruits some of the top law school graduates in the countr= y - first-year associates start at $110,000 - and the firm, as well as Enro= n, has contributed to the UT Law School foundation. Reasoner serves on the = foundation's board, as did Derrick until October. Those connections have attracted some criticism of the Law School dean, Wil= liam Powers, after he was elected last year to the Enron board and named ch= airman of a special committee to investigate the company's finances. Powers= has denied any conflict. The most obvious cloud on Vinson & Elkins' Enron dealings at this point app= ears to be the investigation it undertook last fall, at Enron's request, re= garding warnings from an Enron executive that the company could "implode in= a wave of accounting scandals." The executive, Sherron Watkins, also advised former Enron Chairman Ken Lay = not to use Vinson & Elkins for the investigation because it had provided le= gal advice in the past to some of the entities whose actions she was questi= oning.=20 Most of her concerns, however, centered on the accounting of the transactio= ns between the partnerships and Enron, warning that although they had the b= lessing of Arthur Andersen, "none of that will protect Enron if these trans= actions are ever disclosed in the bright light of day." But Enron nevertheless selected Vinson & Elkins, which on Oct. 15 sent a se= ven-page letter to company executives that reported no apparent law-breakin= g and advised that there was no need to hire independent counsel or auditor= s.=20 However, it warned that some of the transactions in question had "bad cosme= tics," with "a serious risk of adverse publicity and litigation." Reasoner said that Watkins' warnings did have an effect; Enron afterward ac= knowledged the problems and reported publicly its major financial losses. And he hints that Vinson & Elkins did more than suggested by its report: "T= he notion that this was a whitewash or that the company didn't deal with it= - I'm not free to say what our oral advice is or why they did what they di= d, but they certainly did deal with it." And, Reasoner said, the firm "was not asked to examine our own legal work" = in the investigation. Others will, however, including Congress and the Securities and Exchange Co= mmission. You may contact Bruce Hight at bhight@statesman.com or (512) 445-3977.=20 =20 New Prosecutor Is an `Iron Fist In a Velvet Glove' By Jerry Markon Staff Reporter of The Wall Street Journal 02/01/2002 The Wall Street Journal B1 (Copyright (c) 2002, Dow Jones & Company, Inc.) When James Comey was a federal prosecutor in Richmond, Va., he riled up the= area's three federal judges in a way that prosecutors rarely do. In a high= ly unusual joint opinion, the judges criticized Mr. Comey's pet project to = crack down on gun crimes by prosecuting them in federal courts, where sente= ncing was tougher, rather than state courts.=20 "It's a total intrusion on the sovereign state of Virginia," Richard Willia= ms, one of the judges, says in an interview. At the same time, he adds: "I = have a very high regard for Jim Comey. . . . He did an outstanding job." Such sentiment is often heard about Mr. Comey, who is expected to be confir= med soon by the Senate as the new U.S. attorney in Manhattan. Imposing at 6= -foot-8 and reputed for his tenacity, Mr. Comey -- who's been involved in h= ighly charged cases from terrorism to an earlier Enron Corp. case -- seems = the classic tough-as-nails prosecutor. But as one Richmond defense lawyer, = Steven Benjamin, puts it, Mr. Comey is "an iron fist in a velvet glove. He'= s extremely pleasant, but if you challenge him, you go to war. He will not = yield an inch on something that matters to him."=20 Allan Applbaum, a former New York federal prosecutor who worked with Mr. Co= mey in the early 1990s, notes: "He has this combination of strength and boy= ish charm that really does disarm people."=20 Mr. Comey, 41 years old, will need these qualities in his new job, which he= began on an interim basis last month. With its focus on Wall Street crime,= the Mafia and, in recent years, terrorism, Manhattan's federal prosecutor = is traditionally the most visible of the country's 93 U.S. attorneys.=20 But since Sept. 11, the Bush administration has centralized terrorism inves= tigations in Washington, saying the events required a coordinated national = response. It's a significant change: Since the first World Trade Center att= ack in 1993, most major terrorism cases had been handled in New York. Now, = key terrorism cases are being filed in Mr. Comey's old district in Virginia= .=20 A native of Yonkers, N.Y., Mr. Comey won the attention of Attorney General = John Ashcroft and President Bush with accomplishments such as his quick ind= ictment last year of 14 men in the 1996 terrorist bombing of military barra= cks in Saudi Arabia, which killed 19 American airmen. FBI officials had bee= n frustrated at the slow pace of the government's investigation, and reques= ted that the case be transferred to Mr. Comey, who was then in Richmond.=20 As an assistant U.S. attorney in Manhattan during the early 1990s, Mr. Come= y won guilty pleas from two former executives of Enron's oil-trading subsid= iary to charges of conspiring to defraud the parent company through a serie= s of phony oil- trading contracts. He also oversaw the hunt for fugitive Ma= rc Rich, who was later pardoned by President Clinton.=20 Mr. Comey recalls a 1992 trip to a mountaintop hotel in Zurich, Switzerland= , expecting to meet Mr. Rich and his lawyers to arrange the fugitive's surr= ender. But Mr. Rich's side argued instead that the racketeering and tax-eva= sion charges he faced had no merit, and Switzerland had already refused the= U.S.'s extradition request.=20 "It was a bit frustrating. We felt we had wasted an enormous amount of time= ," Mr. Comey says. "The chocolates were lovely though."=20 Mr. Comey had more success with his gun-crime program in Virginia starting = in the mid-'90s. Facing concerns that Project Exile was anti-black because = most gun crimes involve blacks, he met with the critical federal judges and= community leaders to emphasize that the program would help victims. He eve= ntually won widespread support for the program, which helped cut the murder= rate in Richmond by half. At least 12 other cities, including Baltimore an= d Oakland, Calif., have started their own version of Project Exile.=20 Mr. Comey calls his new position "a dream job," and seems confident that th= e New York office's central role in prosecuting high-profile cases will be = maintained. "There's always a healthy tension between an aggressive, indepe= ndent U.S. attorney's office and headquarters [in Washington], but I don't = see any kind of sea change," he says. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Inside, Outside Enron, Audit Panel Is Scrutinized --- Links to Company Of C= ertain Members Are Called Too Cozy By Joann S. Lublin Staff Reporter of The Wall Street Journal 02/01/2002 The Wall Street Journal C1 (Copyright (c) 2002, Dow Jones & Company, Inc.) When the board audit committee of Enron Corp. gathered for a regular meetin= g at its Houston headquarters a year ago, the session should have been anyt= hing but routine.=20 After all, Enron management wanted a blessing for every transaction during = 2000 between the energy-trading company and two partnerships run by then-Ch= ief Financial Officer Andrew Fastow. The controversial partnerships kept si= gnificant debt off the books, pumped up profits -- and earned Mr. Fastow mo= re than $30 million. Yet committee members, all of them outside directors, didn't challenge a si= ngle transaction, according to knowledgeable people and excerpts of the Feb= . 12 meeting's minutes. Their indifference wasn't a complete surprise. The = full board twice had taken the rare step of suspending the corporate-ethics= code, so Mr. Fastow could head the partnerships.=20 Subsequent disclosure of losses related to the partnerships hastened Enron'= s collapse. Now, amid finger-pointing at top management and the company's o= utside auditors at Arthur Andersen LLP, the audit committee is under harsh = scrutiny from a slew of civil, criminal and congressional investigations --= and the board itself.=20 A special board committee looking into the debacle is expected to partly bl= ame the six-member audit panel in a report to be issued as early as this we= ekend. The report will cite slick presentations by sophisticated financial = people along with lethargy on the part of audit-committee members, says an = individual close to the situation. The panel discovered significant defects= in procedures for monitoring financial results and controls, the individua= l adds.=20 Critics who contend Enron's audit panel fell short cite several key reasons= : Several members held cozy ties with the company, they say. The panel's ch= airman -- Robert K. Jaedicke, retired accounting professor and former dean = of Stanford University's business school -- preferred a relatively passive = role. And Andersen auditors apparently weren't persuaded that they should b= e answerable to the audit committee as their client. "It's the worst audit = committee I have ever seen," asserts John Nash, president emeritus of the N= ational Association of Corporate Directors.=20 "This audit committee worked pretty well based on the information it was pr= ovided," retorts W. Neil Eggleston, counsel for Enron's outside directors a= nd a partner at Howrey Simon Arnold & White in Washington. Andersen signed = off on accounting practices and didn't alert members about "any impropriety= or irregularity" until November, Mr. Eggleston adds. Audit-committee membe= rs either declined to comment about their role or didn't return calls.=20 An Andersen spokesman, asked to respond to Mr. Eggleston's critique, said t= he notion that "the audit committee or senior management wasn't aware of th= e risks of the business decisions they were making is entirely implausible.= " Regarding criticism of its auditing work, Andersen says Enron withheld cr= ucial information and misled the auditors about the partnerships; Enron fir= ed Andersen last month.=20 At first glance, Enron's pivotal audit panel, made up of prominent executiv= es, looks well-qualified. But in reality, governance specialists contend, t= he committee's makeup is far from ideal.=20 For one thing, half its members live abroad -- an uncommon practice at audi= t panels, which meet often and require a keen grasp of business practices h= ere. As an American citizen, Hong Kong billionaire property developer Ronni= e Chan may understand U.S. business. But he has the worst recent attendance= record of any Enron director. He missed more than 25% of board and committ= ee meetings during 1996, 1997 and 2000, according to proxy statements. (In = 1998 and 1999 he missed fewer meetings, though the percentage wasn't report= ed because it was less than 25%.)=20 Corporate-governance experts doubt some other audit-committee members are t= ruly independent. Lord John Wakeham joined the board in 1994, four years af= ter the then-British energy secretary approved plans for Enron to build a p= ower plant in the United Kingdom. Since 1996, proxy statements show, he has= earned $72,000 a year advising its European unit -- more than his $50,000 = annual stipend for being a director. In a statement last week, Lord Wakeham= 's office said it "would clearly be wrong of him" to make any comments abou= t his position at Enron while the matter is being investigated.=20 John Mendelsohn is president of University of Texas M.D. Anderson Cancer Ce= nter, which has received nearly $1.6 million in donations from Enron and re= lated entities since 1985, the year his predecessor Charles A. LeMaistre be= came an Enron director. Dr. Mendelsohn has said the center doesn't depend h= eavily on Enron philanthropy.=20 Dr. Jaedicke, who is 73 years old, is the most important -- and, to corpora= te governance experts, perhaps most problematic -- member of Enron's audit = panel. The unpretentious retired academic commands respect for his meticulo= us thoroughness. But he has led the Enron audit panel since he obtained his= board seat in 1985. Big-business boards typically switch committee heads e= very three to five years to maintain distance from management.=20 Dr. Jaedicke feels his lengthy tenure never crimped his outside perspective= , Mr. Eggleston says. But some question whether Dr. Jaedicke's long service= to Enron may have contributed to his approach.=20 He took a relatively passive role, for example, when the board first waived= the ethics code in mid-1999. To form a private partnership called LJM Caym= an LP, Mr. Fastow needed a special board ruling that his activities wouldn'= t violate policies intended to protect against executives being involved in= activities that might pose a conflict of interest or harm Enron.=20 The audit committee's charter, disclosed in the latest proxy statement, des= cribes its responsibility for overseeing ethics-code compliance. Yet the pa= nel took no action about suspending the code before the full board met; nor= did Dr. Jaedicke propose an audit-committee review during that board meeti= ng, Mr. Eggleston reports.=20 "The audit committee should have made the code suspension part of their wor= k, especially since the partnership would involve the CFO," says Charles El= son, director of the Center for Corporate Governance at the University of D= elaware's business school. And Dr. Jaedicke, as the committee's chairman, "= should have been upset over the proposed waiver of the code."=20 To the contrary, according to excerpted minutes from Enron's board meeting = on June 28, 1999, it was Dr. Jaedicke who seconded the motion suspending th= e ethics code when directors approved a resolution that Mr. Fastow's partne= rship participation "will not adversely affect the interests of the Company= ."=20 He saw the partnership as a "one-off, isolated transaction. It didn't look = like there was much risk at that time," Mr. Eggleston explains. In addition= , the lawyer continues, committee members "believed that Arthur Andersen wa= s involved in blessing the LJM partnerships."=20 Also raising eyebrows is the audit committee's lack of involvement in decid= ing which law firm would conduct the nearly two-month probe into a letter w= arning of questionable accounting last August by Enron Vice President Sherr= on Watkins. Her letter raised alarms about the unorthodox partnerships and = their potential danger to Enron's finances and public image.=20 At numerous companies, the audit-committee chairman decides which law firm = should probe a serious whistle-blowing complaint. "That's the only way you = maintain the integrity of the company," says Roderick M. Hills, a former Se= curities and Exchange Commission chairman who has led more than six audit c= ommittees.=20 Instead, at Enron, management made the decision to retain Houston law firm = Vinson & Elkins to explore concerns described in the letter Ms. Watkins sen= t and discussed with then-chairman Kenneth Lay. Her letter cautioned agains= t using Vinson & Elkins as investigators because it had issued legal opinio= ns endorsing some of the partnerships.=20 Dr. Jaedicke didn't learn about the Watkins letter or the outside lawyers' = inquiry until it ended, when Vinson & Elkins briefed him about the finding,= Mr. Eggleston says. He maintains this didn't bother Dr. Jaedicke because h= e knew corporate policy required that in-house attorneys review employee co= mplaints from any level and decide whether to seek outside legal help. Crit= ics say that the Vinson & Elkins Oct. 15 report in effect ignored the accou= nting problems, by concluding that Enron's practice of forming special-purp= ose entities to keep debt off its books was "creative and aggressive" but w= asn't "inappropriate from a technical standpoint."=20 Enron's auditors also knew about the Watkins allegations long before the au= dit committee did. An Aug. 21 Andersen memo summarizes a conversation in wh= ich the whistle-blowing executive, a former Andersen auditor, shared her co= ncerns about Enron's questionable accounting with an Andersen audit partner= not assigned there. The partner passed along what he termed "a very troubl= esome scenario" to several Enron auditors at Andersen and to the firm's law= yers. Andersen says it also informed Enron management.=20 By Oct. 9, Andersen analysts had determined there was "a red alert: a heigh= tened risk of financial-statement fraud" at Enron, according to an Andersen= e-mail. The Andersen spokesman says the financial-statement test described= in the e-mail was conducted on an "experimental basis" using software late= r found to be flawed and doesn't know what actions auditors took to address= the "red alert."=20 Again, however, Enron's audit committee didn't immediately learn of this. N= ot until Nov. 2, when the company's financial condition had seriously deter= iorated, did Andersen tell the Enron board of "possible illegal acts within= the company" concerning one partnership, Andersen Chief Executive Joseph B= erardino told lawmakers. Six days later, the complex partnerships caused En= ron to restate nearly $600 million in earnings reported over five years.=20 Some suspect Andersen auditors failed to keep Enron's audit committee well-= informed because they saw their main responsibility as serving the company'= s management, and not the full board or the audit committee. "It's usually = the comptroller that recommends to the audit committee who the auditors sho= uld be," a former Enron official observes. Andersen auditors worked "with t= he company day by day. They saw the audit committee once a quarter."=20 Yet at some companies audit-panel chairmen aggressively try to reverse that= misconception, thereby protecting auditors against management mischief. "Y= ou're there to make sure [auditors] report to you" and that only directors = can fire them, Mr. Hills says. So, he occasionally spends all day at audito= rs' offices making sure they consider conservative accounting methods. "Enr= on is emblematic of a culture in corporate life that needs to be rooted out= ," he maintains.=20 ---=20 Christopher Cooper, Peter Wonacott, Matt Pottinger and Jonathan Karp contri= buted to this article.=20 ---=20 Journal Link: What should investors know about "impairment" charges appeari= ng on some company balance sheets? Learn more about this and other complex = accounting issues in Numbers Game, a new online-only weekly column, in the = Online Journal at WSJ.com/JournalLinks.=20 --- Who's Who on Enron's Audit Committee Name and Title: Robert K. Jaedicke; Chairman of the audit committee; Professor emeritus of accounting, Stanford University Prior or Related Roles: Former dean, Stanford University's Graduate School of Business Other Enron Links: He has headed committee since 1985; critics say such long tenure impedes independence. Name and Title: Ronnie C. Chan; Chairman of Hang Lung Group, Hong Kong property conglomerate Prior or Related Roles: Also a director of Motorola and Standard Chartered Other Enron Links: He missed more than 25% of board and committee meetings in 1996, 1997 and 2000. Name and Title: John Mendelsohn; President, M.D. Anderson Cancer Center, University of Texas Prior or Related Roles: Also a director of ImClone Systems Other Enron Links: Enron or related entities have donated $1,564,928 to M.D. Anderson since 1985. Name and Title: Paulo V. Ferraz Pereira; Brazilian investment banker and executive vice president of Grupo Bozano Prior or Related Roles: Former head Banco Bozano Simonsen; former president and CEO State Bank of Rio de Janeiro Other Enron Links: He won his Enron directorship through a personal relationship there. Name and Title: Lord John Wakeham*; Member, U.K. House of Lords and prominent Conservative politician Prior or Related Roles: Former leader House of Commons and House of Lords Other Enron Links: He has earned $72,000 a year as a consultant for Enron's European unit since fall 1996. Name and Title: Wendy Gramm; Director, Regulatory Studies Program, Mercatus Center, George Mason Univ. Prior or Related Roles: Former chairman Commodity Futures Trading Commission Other Enron Links: Enron has given Mercatus Center $50,000 since 1996. *Yesterday, he temporarily resigned as head of U.K.'s Press Complaints Commission due to Enron investigations Source: WSJ reporting and Enron proxy statements Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 UT dean too close to Enron inquiry Editorial Board Austin American-Statesman Thursday, January 31, 2002 University of Texas Law School Dean William Powers Jr. has been described a= s a man with an unswerving moral compass.=20 There is no reason to believe otherwise. But frankly, the dean's moral comp= ass is not the issue in the debate over whether he should lead Enron's inte= rnal investigation of what went wrong with the Houston-based energy trader.= =20 Public trust is the issue.=20 Powers is a member of the Enron board. His law school has close ties to Enr= on and its money. The dean is probing partnerships that hid the company's l= osses. As lead investigator, Powers will issue a report on the nature of th= ose transactions.=20 The goal of the investigation -- to get to the bottom of Enron's financial = scandal -- clearly is compromised with Powers at the helm. Powers should st= ep down from that role to ensure that there can be no questioning or doubt = about the objectivity of the inquiry. Enron, a publicly traded company, owe= s its shareholders an investigation. Investors, out-of-work employees and o= thers are entitled to a comprehensive probe that steers clear of conflicts = -- even perceived ones.=20 That is why the Enron board should hire a third party with no ties to the c= ompany for the job.=20 The larger principle at stake in the board's investigation is public confid= ence. U.S. Attorney General John Ashcroft as well as Texas Attorney General= John Cornyn set an example by recusing themselves from investigating Enron= , which contributed heavily to both. Ashcroft lost his U.S. Senate seat las= t year in his native Missouri. Ashcroft and Cornyn wisely understood that t= he issue was not whether they could conduct fair investigations, but whethe= r the public would trust their investigations given their financial ties to= Enron and its former CEO, Ken Lay.=20 That is the issue at the heart of the debate over Powers. Unfortunately, th= e Enron board doesn't seem to get it. It downplays ties between Enron and U= T, including the close connection between Powers and top Enron executive Ja= mes Derrick Jr.=20 Derrick is a major fund-raiser for the UT law school and, until recently, w= as a member of its Law School Foundation that supplements Powers' UT salary= . He resigned after Powers joined the Enron board.=20 After Enron made the last installment of its $250,000 pledge to the UT law = school last year, Powers sent Derrick a handwritten note, "Thank you for al= l you do for us!"=20 The Enron-UT-Powers connections go deeper. Houston-based Vinson & Elkins, w= ith offices in Austin, is a generous donor to the law school. Enron is one = of the firm's major clients.=20 We wanted to discuss these issues with Powers. But we were referred to Kare= n Denne, an Enron public relations representative in Houston.=20 Denne said the board doesn't see anything wrong with Powers heading the inv= estigation. It appointed him to the board last fall for that very purpose, = she said. The company had begun its financial free fall when Powers joined = the board in October.=20 "The board specifically brought Dean Powers on board to head up this specia= l investigation so we would have a comprehensive, independent review and in= vestigation of the partnerships in question."=20 Denne added that the board concluded, "Powers' credentials and reputation i= n the legal field outweigh any perceived legal conflict."=20 It's not the board's view that matters most. It's the public's, and the pub= lic is not likely to trust a report produced by someone with Powers' connec= tions to Enron. Then there are the real people who got hurt -- former Enron= employees, teachers and others who saw their pensions and life savings eva= porate as Enron stock crashed. They are even less likely to trust an inquir= y by Powers.=20 Those are legitimate doubts. They already are clouding Powers' investigatio= n and will surely taint his findings -- however reliable they might otherwi= se be.=20 Texas' economy will feel aftershocks from Enron's fall. The public deserves= an accounting it can trust from an impartial outsider. Powers should step = aside. Business/Financial Desk; Section C ENRON'S MANY STRANDS: COLLEGE REACTION Watchdog Group Wants Investigation on Harvard Official By NEELA BANERJEE and REED ABELSON 02/01/2002 The New York Times Page 4, Column 2 c. 2002 New York Times Company A group of Harvard students and alumni called yesterday for the university = to investigate whether a member of its governing body might have given insi= der information to an investment fund that manages part of Harvard's endowm= ent, permitting it to profit from the fall in Enron's stock price late last= year.=20 The group acknowledged that it had no evidence. The focus of the group, HarvardWatch, is Herbert S. Winokur Jr., a longtime= Enron director who is also a member of the Harvard Corporation, which runs= the university.=20 Mr. Winokur has no direct ties to the fund. Mr. Winokur is chairman of the = finance committee on Enron's board.=20 In a statement issued last night, the university said: ''Mr. Winokur is a v= alued member of the Harvard Corporation. The university is reviewing the si= tuation for any developments that have a genuine bearing on Harvard.''=20 HarvardWatch, a relatively new organization, said that Highfields Capital M= anagement, an investment manager with ties to Harvard, profited by acquirin= g options last year betting that Enron's stock would fall.=20 The group estimated that the positions would have yielded $50 million to $1= 20 million in profit.=20 Highfields declined to comment on the assertions. But W. Neil Eggleston, a = lawyer who is representing Enron's outside directors, said: ''Mr. Winokur h= as a long history of personal and financial commitment to Harvard, and he h= as no plans to walk away from the institution. Mr. Winokur had no involveme= nt with Highfields Capital and any suggestion that he tipped the fund to sh= ort sell Enron stock is just plain wrong.''=20 HarvardWatch wants an inquiry into any contact between Mr. Winokur, a Harva= rd alumnus, and Highfields.=20 ''We by no means have evidence of insider communications, but we feel the s= ituation certainly warrants investigation,'' said Molly McOwen of HarvardWa= tch. ''Why did Highfields have the confidence to sell the stock when no one= else did?''=20 Highfields was skeptical about Enron's performance far earlier than most mo= ney managers.=20 Mr. Winokur did not sell any of his own shares in Enron last year, records = show.=20 Mr. Winokur is a director of the Harvard Management Company, which oversees= the university's endowment.=20 HarvardWatch said it was also pursuing potential conflicts concerning other= ties with Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: THE ARMY SECRETARY Former Executive, Now in Washington, Denies Impropriety at His Unit By JAMES DAO 02/01/2002 The New York Times Page 5, Column 1 c. 2002 New York Times Company WASHINGTON, Jan. 31 -- Thomas E. White, the secretary of the Army, vigorous= ly defended today the business practices of a major Enron division that he = helped manage until early last year, rejecting in an interview assertions b= y former employees that there was improper accounting at the unit.=20 Mr. White and Enron officials said that the division, Enron Energy Services= , was getting out of the business of providing energy services to military = bases before Mr. White was named Army secretary last spring. As a result, M= r. White said, he has not needed to disqualify himself from any decisions r= elating to Enron after he took office in May. Several former employees of Enron Energy Services have said that while Mr. = White was vice chairman of the unit, it overstated its profits by hundreds = of millions of dollars, using shoddy accounting practices to create illusor= y earnings. Those assertions have come under scrutiny by several committees= on Capitol Hill investigating Enron's collapse.=20 Mr. White denied the ex-employees' accusations. ''As far as I am concerned,= Enron Energy Services was a great business,'' he said in an interview that= ranged widely across military issues and the Enron matter. ''We built it f= rom nothing. There were no accounting irregularities that I was aware of.''= =20 Questions about Enron Energy Services became public last week with news rep= orts of an e-mail message sent last year by a former employee, Margaret Cec= oni, to Kenneth L. Lay, Enron's chairman at the time. Ms. Ceconi, a former = sales manager, said that Enron Energy Services had hidden losses on contrac= ts worth more than $500 million.=20 ''This is common knowledge among all the E.E.S. employees, and is actually = joked about,'' she said in the message, dated Aug. 29, 2001. Since Enron's = bankruptcy filing in December, Enron Energy Services has laid off most of i= ts 1,000 employees and walked away from many of its contracts. Those includ= e a $25 million contract to provide services to Fort Hamilton in New York t= hat Enron won when Mr. White, a retired Army brigadier general, was a compa= ny executive.=20 The Army is in negotiations with Enron Energy Services over its default on = the Fort Hamilton contract.=20 Other former employees have said that the division used aggressive projecti= ons and accounting to overstate earnings during Mr. White's tenure. The emp= loyees said that they did not know whether Mr. White or Lou L. Pai, the uni= t's chairman at the time, were aware of this.=20 On Wednesday, the House Energy and Commerce Committee sent a letter to Mr. = Lay asking him to explain what Enron did in response to Ms. Ceconi's e-mail= message.=20 Senator Carl Levin, a Michigan Democrat who is chairman of the investigatio= ns subcommittee of the Senate Governmental Affairs Committee, also raised q= uestions about Mr. White's financial ties to Enron in a letter to the Offic= e of Government Ethics. Mr. Levin's office said today that he had not recei= ved a response from the ethics office.=20 In the interview today, Mr. White dismissed Ms. Ceconi's claims of impropri= eties, and he argued that most of her e-mail message was devoted to complai= nts about how the company had treated her. Her personal complaints seemed v= alid, he said, though he suggested that the management team that succeeded = him was responsible for her problems.=20 ''I think she has a case from what I know about it and what I've read about= it that her employment at Enron was not properly handled,'' Mr. White said= . ''She was recruited into a specific area of the business, and the new lea= dership team at Enron Energy Service decided to head the business in a new = direction. Unfortunately, she got caught in the middle of it.''=20 In the e-mail message, Ms. Ceconi said she was recruited to leave her job a= t GE Capital by Enron Energy Services with promises of a compensation packa= ge worth as much $1 million a year. Instead, she was laid off in less than = a year as the company began to crumble. Ms. Ceconi did not return calls for= comment.=20 While Mr. White was at Enron Energy Services, the company created a unit ca= lled Enron Federal Solutions that aggressively pursued contracts with the P= entagon to provide energy services at military bases. Congress had authoriz= ed the privatization of utility services at bases in 1997, and the followin= g year the secretary of defense, William S. Cohen, ordered the armed servic= es to try to privatize electric, natural gas and other utilities at all bas= es by 2003.=20 A spokeswoman for Enron Energy Services said that by March 2001, before Mr.= White was nominated to be Army secretary, the division had already decided= to stop bidding on military contracts. At the time, the company had bid on= five contracts to provide services to about a dozen bases, including some = Army bases.=20 When Mr. White took office, he strongly endorsed the Army's energy privatiz= ation policy. Some consumer groups, including Public Citizen, have raised q= uestions about possible conflict of interest.=20 In a letter last week to Representative Henry A. Waxman of California, the = ranking Democrat on the House Committee on Government Reform, Mr. White sai= d he had been in contact with 13 different Enron employees, including Mr. L= ay, on 29 occasions since taking office. But Mr. White said that all of tho= se contacts had been personal in nature.=20 Today, Mr. White said that no decisions regarding Enron had come to his off= ice. ''I have taken no action at any point or at any time that would benefi= t Enron corporations in any way with utilities privatization or any other e= ndeavor,'' he said.=20 According to government disclosure filings, Mr. White's final salary at Enr= on was $5.5 million. To comply with ethics rules, he was compelled to sell = 405,710 shares of Enron last year at prices ranging from $50 to $12.85 a sh= are, well below the stock's peak. Still, he received $12 million.=20 ''I guess I would say that there is a terrible tragedy that has unfolded th= ere,'' Mr. White said today. ''I have many friends, as well as myself, who = have suffered losses.'' Photo: Thomas E. White, the secretary of the Army and a former Enron execut= ive, has defended his conduct at the failed company. (Paul Hosefros/The New= York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Accountants Won't Fight Consulting Ban Jackie Spinner Washington Post Staff Writer 02/01/2002 The Washington Post FINAL E01 Copyright 2002, The Washington Post Co. All Rights Reserved Arthur Andersen, KPMG and the American Institute of Certified Public Accoun= tants said yesterday that they will drop their opposition to a ban on accou= nting firms providing certain consulting services.=20 That sharp reversal of the position they took two years ago was viewed by l= awmakers as an effort to head off new restrictions that Congress is conside= ring in the wake of the Enron collapse and other corporate accounting blowu= ps. Meanwhile, PricewaterhouseCoopers announced plans to split off its $6.7 bil= lion management-consulting business into a separate public entity, an attem= pt to reassure the public of the independence of the firm's audits.=20 At the same time, one of PricewaterhouseCoopers auditing clients, Walt Disn= ey Co., said it would no longer use PwC for consulting projects because of = the debate over auditor independence.=20 And New York State Comptroller H. Carl McCall also called for a ban on audi= tors providing consulting services in most cases. McCall oversees the state= pension fund, which lost millions on Enron stock.=20 The federal government gave the accounting industry the valuable franchise = of auditing companies that sell shares to the public after the stock market= crash of 1929. The auditors are supposed to be independent watchdogs and d= o their best to make sure investors can trust corporate financial statement= s.=20 Over the years, accounting firms have done increasing amounts of consulting= work for their clients. Former Securities and Exchange Commission chairman= Arthur Levitt Jr. feared that auditors would be reluctant to get tough wit= h clients and risk losing lucrative consulting work.=20 In 2000, Levitt tried to ban auditors from providing information technology= and consulting services, and from conducting internal audits for their cli= ents.=20 KPMG, Deloitte & Touche, Arthur Andersen and the AICPA opposed that effort,= threatening to go to court to block the SEC. Ultimately, they got lawmaker= s to pressure Levitt to back off.=20 Now, however, the Enron scandal and other corporate accounting blowups have= cost investors billions of dollars and created a new political climate for= reform.=20 Stephen G. Butler, chief executive of KPMG, said he hoped that by lifting i= ts opposition, the industry could steer the regulatory debate away from aud= itor independence and the services limitations Levitt had wanted, which he = called "a red herring" for the profession.=20 Barry Melancon, the AICPA president who was also a fierce critic of Levitt'= s efforts, said he believes that limiting the type of services that an audi= t firm can perform would not have prevented the Enron meltdown. But Melanco= n said industry representatives recognize that the auditor independence iss= ue is "front and center."=20 "We need the profession to address it," he said. "If we didn't address thes= e two issues, people would be saying that we are trying to deflect. We are = saying we are stepping up to the plate first."=20 Andersen, which has been criticized for its handling of Enron's audits, als= o decided yesterday to drop its opposition to the scope-of-services restric= tions. "Andersen went voluntarily before Congress in December and made a co= mmitment that it would look at its practices and that it would be making ch= anges," said Andersen spokesman Charlie Leonard. "We are pleased to say the= direction the industry is moving toward is something Andersen supports."= =20 Deloitte & Touche, the other major accounting firm that had opposed Levitt'= s ban, did not follow Andersen and KPMG yesterday. A spokeswoman for Deloit= te & Touche said in a statement that the firm would not "accept or reject a= ny single proposal whether we agree with it or not, because the effectivene= ss of a complete set of reforms is what ultimately needs to be assessed."= =20 PricewaterhouseCoopers and Ernst & Young did not oppose the SEC two years a= go and said they would maintain that position.=20 PricewaterhouseCoopers announced two years ago that it planned to spin off = several businesses, including its consulting business. PwC officials said y= esterday that they decided to speed up their plans for an initial public of= fering for PwC Consulting because of the current concerns about auditor ind= ependence. PwC's IPO plans were first reported in the Wall Street Journal.= =20 Lawmakers said it's unclear whether these various moves by accounting firms= will be sufficient to head off legislative actions. "I'm delighted by thei= r conversion, but too little, too late," said Rep. John D. Dingell (D-Mich.= ), the ranking Democrat on the House Committee on Energy and Commerce.=20 "The culture has changed," said Sen. Ron Wyden (D-Ore.). "Congress has got = to get the consumer protections into a statute. It doesn't count unless you= get it into a federal statute."=20 In the Senate, Christopher J. Dodd (D-Conn.) and Jon S. Corzine (D-N.J.) ha= ve proposed legislation that would prohibit firms from providing audit and = consulting services to the same client.=20 "We've got a serious public confidence issue that needs to be addressed," h= e said.=20 Dodd called the industry's action a "positive development." But noting that= the accounting industry was not united in this action, he said it "also hi= ghlights the need for uniformity in the industry.=20 Rep. Richard H. Baker (R-La.), chairman of the House Financial Services sub= committee on capital markets, said that Congress would be aggressive about = pursuing reforms but that legislation may not be needed to change many thin= gs.=20 "We're dealing with a culture, not just an accounting rule change," Baker s= aid.=20 Barbara Roper, director of investor protection for the Consumer Federation = of America, said the industry has agreed to stop fighting only "the most mi= nimally accepted reform."=20 "It shouldn't shift the focus away from broader issues of auditor independe= nce," Roper said. "Leaving aside the pension issue, auditor independence is= the central focus of Enron. It's the only thing that explains why Andersen= would sign off on books they knew were misleading." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section TV Ad Assails Dole for Enron Fundraiser; In Election Year, Candidates Acros= s Country Could Face Similar Criticism Thomas B. Edsall Washington Post Staff Writer 02/01/2002 The Washington Post FINAL A07 Copyright 2002, The Washington Post Co. All Rights Reserved It was, says Elizabeth Dole's Senate campaign, just an afterthought.=20 In the wake of the Sept. 11 terrorist attacks, the North Carolina Republica= n suspended campaign activities. But she kept a Sept. 20 speaking engagemen= t to a Christian women's gathering in Houston. Then, in what aides called a= "last-minute decision," she agreed to let Kenneth L. Lay, then Enron Corp.= 's chairman, host a fundraising lunch for her at a Houston hotel. It proved a costly decision. North Carolina Democrats today begin airing a = TV ad attacking Dole for the Enron event, making her the first prominent po= litician to be targeted by a well-financed effort for having connections to= the bankrupt energy company.=20 She is unlikely to be the last.=20 In Colorado, Connecticut, Texas and other states, the Enron scandal has see= ped into state and congressional races, forcing Republicans to defend even = modest brushes with the company now under widespread investigation. The tar= gets include the president's brother, Gov. Jeb Bush of Florida, where the s= tate pension fund lost $325 million when Enron stock plummeted last fall.= =20 It is unclear whether the criticisms will stick, let alone influence voters= nine months from now. Even some Democratic strategists urge caution, notin= g that many Democrats also have accepted Enron money. But with polls showin= g high presidential approval ratings -- along with greater voter confidence= in Republicans than in Democrats on an array of issues -- some Democrats s= ee the unfolding Enron saga as their best hope for a surge in the November = elections.=20 "Enron has the potential to shape the entire political environment for 2002= , impact other issues and reduce confidence in the Bush administration and = Republicans," three well-known Democratic advisers wrote in a recent memo t= o members of Congress. "The more people hear, the more corrosive it becomes= ," wrote James Carville, Stanley Greenberg and Robert Shrum.=20 North Carolina may provide the first test. Dole, a former Cabinet member an= d one-time presidential contender, is strongly favored to win the GOP nomin= ation to succeed retiring Sen. Jesse Helms (R). Democrats haven't settled o= n a nominee, but they have eagerly criticized Dole for collecting $20,000 a= t Lay's luncheon.=20 Dole has given $5,000 of that amount -- which came directly from Lay or his= relatives -- to a special fund for displaced Enron employees. But that has= n't stopped a barrage of news stories and critical editorials.=20 Now comes the Democratic TV ad, to air in three North Carolina cities over = 12 days. It says Dole attended "a secret fundraiser" hosted by Lay. It quot= es a Winston-Salem Journal editorial that said, "while Dole's campaign was = publicly stating it had put its activities on hold, it was conducting fundr= aisers at the house of a scoundrel."=20 In a section not cited in the ad, the editorial also said, "The state Democ= ratic Party, which has looked silly trying to find mud to throw at Dole, ha= s uncovered a whole puddle." The Houston fundraiser "shows that Dole is one= more politician into whom Lay appears to have sunk his financial claws."= =20 Democrats note Dole's campaign hired Washington-based consultant Edward Gil= lespie, a key Enron link to Republican House leaders and the White House. C= ampaign sources said Gillespie's Enron lobbying did not overlap with his wo= rk for Dole and he was not involved in the Houston fundraiser.=20 In Florida, Gov. Jeb Bush is trying to get out in front of his potential En= ron problem. The governor, who is seeking reelection this fall, has joined = others in calling for an investigation of the state employee pension fund's= $325 million loss in Enron stock. Much of the stock was bought after Oct. = 22, when the U.S. Securities and Exchange Commission warned it was investig= ating the company.=20 Bush is one of three board members who oversee the fund. He joined Florida = Attorney General Robert A. "Bob" Butterworth (D) in calling for an inquiry = focusing on Alliance Capital Management LP, the New York firm that made the= Enron purchases.=20 Through Alliance, the pension fund paid $9 to $82 a share for Enron stock, = which it sold for 28 cents a share on Nov. 30, according to Florida news ac= counts. While newspapers have noted the governor's role in overseeing the p= ension fund, Democrats are moving cautiously.=20 Florida Democratic Chairman Bob Poe said, "Right now, I don't see where [Bu= sh] had control of Alliance Capital. Maybe someone shows me how he should b= e responsible, but right now, I don't see that."=20 Poe was more critical of Bush's decision to attend a January fundraiser for= the Florida GOP at the Houston home of Richard D. Kinder, who was presiden= t of Enron until 1996.=20 "It's a tremendous lapse of judgment," Poe said. "For the people who lost t= heir life savings and for the participants of the Florida pension fund that= lost $300 million, this seems incredibly insensitive."=20 In Connecticut, the Manchester Journal Inquirer reported that Enron spent $= 297,150 from 1999 to 2001 for legal and lobbying services. Most of the mone= y went to a firm employing Michael J. Martone, a former top aide to Gov. Jo= hn G. Rowland (R). Martone lobbied the state to fund a fuel-cell project pr= oposed by Enron and the Connecticut Resource Recovery Association.=20 In Texas, Enron's collapse has touched scores of politicians. Gov. Rick Per= ry (R) has declined to return roughly $200,000 in Enron-related contributio= ns. The money includes $25,000 that Lay donated the day after Perry appoint= ed Lay's choice, former Enron official Max Yzaguirre, to the Public Utility= Commission. Yzaguirre later resigned.=20 In Colorado, Democratic Senate challenger Tom Strickland accused Sen. Wayne= Allard (R) of contributing to Enron's collapse by opposing prompt enactmen= t of a proposed rule change governing accounting firms.=20 "Allard asked for the rules to be delayed, which in effect caused the rules= to be killed, which killed any chance of preventing the Enron debacle," St= rickland campaign manager Brian Hardwick told the Denver Post.=20 Allard campaign manager Dick Wadhams told the newspaper that the senator so= ught "a delay so that Congress could spend more time considering the measur= e. The request was made by senators of both political parties." http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: THE POLITICS In Commercial, Elizabeth Dole Is Chastised For Enron Ties By ALISON MITCHELL 02/01/2002 The New York Times Page 5, Column 6 c. 2002 New York Times Company WASHINGTON, Jan. 31 -- In their first effort to turn the Enron collapse int= o an overt campaign issue, Democrats today unveiled a commercial attacking = Elizabeth Dole, one of the Republicans' best-known Senate hopefuls, for att= ending a fund-raiser given by Kenneth L. Lay, the former chairman of Enron.= =20 The 30-second spot, sponsored by the North Carolina Democratic Party with f= inancial assistance from the Washington-based Democratic Senatorial Campaig= n Committee, takes to task Mrs. Dole, the former presidential candidate who= is the prohibitive favorite in the Republican primary for the North Caroli= na Senate seat being vacated by Jesse Helms. The Democrats have not yet cho= sen their Senate candidate. In the advertisement, an announcer intones that Mrs. Dole said she had put = her campaign on hold in the wake of the Sept. 11 terrorist attacks but then= nine days later flew to ''a secret fund-raiser'' given by Mr. Lay. ''Tell = Elizabeth Dole we expect the truth,'' the announcer says.=20 Mary Brown Brewer, a spokeswoman for Mrs. Dole, called it ''sad that the De= mocrats have already resorted to personal attack ads.'' Ms. Brewer added, '= 'It's this kind of bitter partisanship and reckless negativity that voters = are tired of.''=20 The commercial -- unusual at a time when both parties are still holding pri= mary contests in North Carolina -- comes as Democrats have begun trying to = use the Enron collapse to portray the Bush administration and Congressional= Republicans as tied to wealthy special interests.=20 Ms. Brewer took issue with the Democrats' advertisement. She said Mrs. Dole= flew to Houston in late September to speak to a Christian women's group, t= hen went to the fund-raiser. She said that it was not secret and that Mrs. = Dole would give all contributions from Enron, its executives or its employe= es to a fund for Enron employees. She said that about $5,000 raised at the = Houston event came from Enron.=20 Until now, Democrats had largely used Enron as a metaphor and as a way of r= aising doubts about Republican policies.=20 ''I think we are slowly Enronizing the economy, Enronizing the budget,'' Se= nator Tom Daschle, the majority leader, said this month, speaking about the= reappearance of federal deficits.=20 In a Jan. 28 memo to Democrats, three prominent Democratic strategists, Sta= n Greenberg, James Carville and Bob Shrum, said the Enron collapse ''has th= e potential to shape the entire political environment for 2002, impact othe= r issues and reduce confidence in the Bush administration and the Republica= ns.''=20 They wrote that polls showed that the more people heard about the company, = ''the more corrosive it becomes.''=20 ''This is an issue where Democrats ought to talk about right and wrong, gre= ed and responsibility,'' they wrote.=20 More than a dozen Congressional investigations into Enron are under way. Bu= t Democrats have been cautious until now about being too overtly political = and have focused on policy. Some party strategists say they do not want to = overplay their hand.=20 This week, after the memo surfaced, Mr. Daschle said, ''The last thing we s= hould do is politicize the scandal.''=20 But the Democratic Senatorial Campaign Committee is closely tied to Mr. Das= chle and is in charge of preserving and increasing the Democrat's fragile m= ajority.=20 James M. Jordan, the executive director of the Senate Democrat's election c= ommittee, argued that the ad ''fundamentally is not about Enron. It's about= her campaign's lack of honesty and about politics as usual.''=20 He said the commercial would run for at least 12 days in major media market= s in North Carolina and on cable television in Washington ''so the Doles ca= n watch the ad in their home at the Watergate.''=20 Mrs. Dole's primary residence is in Washington along with her husband, Bob.= Democrats have accused her of being a carpetbagger though she grew up in N= orth Carolina. She recently took title to the North Carolina house where sh= e grew up and her mother still lives.=20 Three Democrats are also in a primary battle for Mr. Helms's seat: Erskine = B. Bowles, a former White House chief of staff; Daniel T. Blue Jr., a state= representative; and Elaine F. Marshall, the secretary of state. Republican= s in Washington say that if Mr. Bowles wins the primary, they are prepared = to use the Clinton administration's own ties to Enron against him.=20 Enron was a major donor to the Democratic National Committee in the Clinton= years. Mr. Lay played golf with Mr. Clinton and stayed overnight in the Wh= ite House. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S MANY STRANDS: THE ENERGY TASK FORCE Enron Won Some and Lost Some in White House Energy Report By JOSEPH KAHN 02/01/2002 The New York Times Page 5, Column 1 c. 2002 New York Times Company Though the General Accounting Office plans to sue the White House to learn = how much influence Enron and other energy companies had on the Bush adminis= tration's energy policies, one scorecard has been publicly available for mo= nths.=20 In its National Energy Strategy, a 170-page list of recommendations release= d in May, the Bush administration detailed its views on regulating electric= ity transmission, using coal and natural gas resources and controlling poll= ution, all vital to Enron. The company and its executives were among the largest contributors to Presi= dent Bush, and company officials including Kenneth L. Lay, the chief execut= ive who resigned last week, had at least five meetings with administration = officials to discuss energy. Yet the company's record on shaping the admini= stration approach is mixed.=20 Energy experts and lobbyists say Enron had reason to celebrate some of the = administration's recommendations, especially its efforts to create a nation= wide electricity transmission grid. But the energy plan rejected or ignored= many other Enron priorities, including the company's hopes of expanding th= e use of natural gas, controlling emissions of carbon dioxide and stripping= states of their control of electricity transmission lines.=20 ''It never looked like an Enron wish list to me,'' said Jonathan Weisgall, = Washington representative for MidAmerican Energy Holdings, a utility compan= y that also lobbied to shape the administration's energy policies.=20 ''There were some things they and many other companies wanted that showed u= p there,'' Mr. Weisgall said. ''On some things Enron wanted the most, they = got nothing at all.''=20 Take electricity transmission. Because Enron specialized in trading supplie= s of electricity, it pushed for years to create a more open, less-regulated= transmission grid that would allow it to buy or sell electricity regardles= s of where the power was produced.=20 In interviews last spring with The New York Times and the PBS program ''Fro= ntline,'' Mr. Lay said that removing transmission bottlenecks was critical = to the company. ''It's the high-voltage backbone for the electric industrie= s,'' he said. ''It's kind of like a superhighway system for electricity.'' = (Fresh excerpts from the interview will be broadcast tonight on the PBS pro= gram ''Now With Bill Moyers.'')=20 An Enron memo drafted before Mr. Lay met Mr. Cheney to discuss energy polic= y in April expanded on the company's transmission goals. The memo, a copy o= f which Enron gave The Times last spring, called transmission failures a bi= g reason ''the benefits of competition have yet to be realized and have not= yet reached consumers.''=20 The final energy report reflects some of Enron's positions. The administrat= ion said it would urge federal regulators to promote open transmission. It = also called for a new, self-regulatory body to oversee transmission grids, = as Enron wanted.=20 Enron also asked the Bush administration to agree to seize private land for= construction of more transmission towers. The energy plan endorsed that id= ea.=20 But the administration declined to pursue the most aggressive of Enron's re= commendations. Enron wanted the states to lose any jurisdiction over transm= ission and proposed to have federal regulators take full control because th= ey would presumably break up regional monopolies. But the energy plan endor= sed no such action.=20 Representative Henry A. Waxman, the California Democrat whose inquiries pro= mpted the General Accounting Office inquiry last spring, argues that Enron'= s apparent influence was so sweeping that a thorough investigation was need= ed into how the administration compiled the energy plan.=20 Last month, Mr. Waxman identified 17 items in the report that he said benef= ited Enron. He added that ''numerous policies in the White House energy pla= n are virtually identical to the positions Enron advocated.''=20 Yet some energy experts and lobbyists said that most of the items were not = specific favors for Enron, but broad policy goals that reflected a consensu= s of many energy companies, including Enron's competitors. When Enron's pol= icy goals did not enjoy broad support, the company often struck out.=20 As a natural gas trader, Enron has long promoted the use of natural gas ove= r coal. It has even advocated that the government cap carbon dioxide emissi= ons by power plants as a way of encouraging utilities to switch to cleaner-= burning natural gas. Enron also hoped to profit by trading emission rights.= =20 The administration did not deliver for Enron on these counts.=20 On other issues, Enron's track record was uncertain. During the California = energy crisis last year, the administration pleased Enron and other energy = traders by taking a strong stand against caps on electricity prices. The ad= ministration also selected two candidates backed by Mr. Lay to serve on the= Federal Energy Regulatory Commission, which oversees electricity trading.= =20 But after the two Republican commissioners took office, they quickly adopte= d a plan to impose price controls in California. Some experts argue that th= is step eased price spikes and denied continued high trading profits to Enr= on and other companies.=20 Still, some critics said that even if the substance of the administration's= energy policies did not always meet Enron's expectations, they often mirro= red longstanding industry goals and neglected the concerns of environmental= ists and consumer groups.=20 ''It was the lips of industry to the ear of God,'' said Mark Cooper of the = Consumer Federation of America. ''This is an issue about process more than = substance.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION THE FALL OF ENRON Despite Recession, Perks for Top Executives Gr= ow Pay: Hidden benefits mushroom as employees' retirement plans shrink. LIZ PULLIAM WESTON TIMES STAFF WRITER 02/01/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company The lavish retirement plans, low-interest loans and other perquisites showe= red on Enron Corp. managers have put a spotlight on a growing corporate tre= nd--one of ever-richer executive benefits packages whose costs often can be= hidden from shareholders.=20 Compensation experts say companies are increasingly using executives' benef= its packages, which already are far more generous than those offered to ran= k-and-file workers, as a way to quietly beef up total pay for top managers = regardless of how their company performs. Sumptuous paychecks for executives are nothing new. But shareholder activis= ts say weak regulatory requirements, along with a faltering stock market, a= re leading to unchecked growth in executive retirement plans and other bene= fits even as lower-ranking workers face losses and cutbacks in their own pl= ans.=20 "The trend has been [for executives] to be greedier and greedier, even thou= gh there's a recession," said Cynthia Richson, director of corporate govern= ance for the State of Wisconsin Investment Board. "All this is designed to = keep executives whole while the rank and file loses ground."=20 As many workers' 401(k) retirement plans shrink, executives at some compani= es get guaranteed returns on their investments. Other companies pour hundre= ds of millions into special executive-only retirement accounts. Firms also = pay for big insurance policies and offer executives multimillion-dollar loa= ns, complete with below-market interest rates and a company promise to forg= ive some of the payments.=20 Unlike salaries, bonuses and stock options--which must be laid out in gover= nment filings--the true cost of these benefits is often difficult, if not i= mpossible, for outsiders to determine, said Ken Bertsch, director of corpor= ate governance for TIAA-CREF, the world's largest pension fund manager.=20 For a variety of accounting and regulatory reasons, companies often are not= required to report the price tag for many of their executive benefits to t= he Securities and Exchange Commission. When benefits are disclosed, their c= osts can be tucked into footnotes or lumped into a catchall category of "ot= her compensation," said Nell Minow, editor of the Corporate Library, which = tracks compensation trends.=20 The costs of many executive retirement plans are particularly easy to hide,= since companies have to reveal few details, compensation experts said.=20 "The regulatory disclosure rules are so weak, [companies] can get away with= one or two ambiguously worded sentences in the middle of a paragraph about= the rank-and-file [retirement] plan," Richson said.=20 These feeble disclosure requirements, combined with poor stock market perfo= rmance, have spawned a cottage industry in the last year of compensation co= nsultants who are promoting supplemental executive retirement arrangements,= benefits experts said. These plans are designed and promoted specifically = as a way to enhance compensation that's "off the radar screen of shareholde= rs," Richson and other compensation experts said.=20 Unlike stock options or bonuses, which are tied to the company's performanc= e, executives benefit from these supplemental retirement plans whether or n= ot the company does well.=20 Executives can lose these retirement benefits if the company declares bankr= uptcy, since the plans are not protected by the government-run Pension Bene= fit Guaranty Corp. But shareholder activists say most executives are at lit= tle risk because relatively few companies actually go broke.=20 Companies say they need to offer ample benefits to attract and retain top-f= light managers. In addition, many of the plans designed for rank-and-file w= orkers don't provide enough retirement pay for executives used to living on= much higher salaries, compensation consultants said.=20 Traditional pension plans limit benefits to highly paid executives because = the plans can take into account no more than $200,000 of salary when determ= ining benefits. The IRS also requires companies to cap the 401(k) contribut= ions of their highest-paid workers, so many executives are prevented from m= aking the full $11,000 annual contributions the law otherwise allows.=20 About 60% of the executive retirement plans Mercer surveyed in 1998 made up= for the benefits that otherwise would have been lost to IRS rules, said Ja= net M. Den Uyl, head of executive benefits and compensation for William M. = Mercer Inc., a compensation consultant.=20 The 40% of companies that offer richer plans--either to all their executive= s or to their top one or two leaders--often are trying to lure talent from = other firms or prevent defections, Den Uyl said.=20 The richest arrangements of all, not surprisingly, are aimed at the compani= es' top leaders.=20 "There's more license at the CEO level," Den Uyl said. Most CEOs already ha= ve rich compensation packages, "and they're not ready to throw those away" = when hired by a new company.=20 Here are some of the non-salary perks companies have made available to top = managers:=20 * Guaranteed returns on investment. Top executives at Enron could contribut= e salary and bonuses to so-called deferred compensation accounts with guara= nteed minimum annual returns of 12%. Struggling telecom-equipment giant Luc= ent Technologies Inc. has a similar plan that promises to pay five percenta= ge points more than the 10-year Treasury rate. Currently, that Treasury rat= e is about 5%, which means Lucent executives in the plan get a 10% return o= n their investments.=20 Enron and Lucent are far from alone. About half the companies that offer de= ferred compensation plans provide a guaranteed minimum return, according to= a Mercer study.=20 * Bigger company matches. The typical company match for a 401(k) defined co= ntribution plan is 50 cents for every dollar the employee contributes, up t= o 6% of the worker's salary. For a worker who takes full advantage of the c= ompany match, the employer's contribution represents 3% of his or her pay, = or $1,500 a year for a worker making $50,000.=20 The company contribution for an executive version of a 401(k) is typically = 60% higher. The average company contributes 5%, and nearly half of the comp= anies surveyed contribute even more, the Mercer study found.=20 The dollar amounts contributed can be substantial. Intel Corp. contributed = $1.3 million to the defined contribution accounts of its top five executive= s in 2000, including nearly $400,000 to the account of Chief Executive Crai= g R. Barrett, whose salary and bonuses that year totaled $3.4 million. But = unlike many other firms, Intel makes such contributions for all of the abou= t 10,000 employees whose ability to contribute to the regular 401(k) is res= tricted, Intel spokesman Chuck Mulloy said.=20 * Huge low-cost loans. SEC filings show telecom company Global Crossing Ltd= ., which filed for bankruptcy protection this week, made an $8-million loan= to then-Chief Executive Thomas J. Casey in November 2000 and a $1.8-millio= n loan to President David Walsh in March 2001. Both loans were secured by t= he executives' homes, but the interest rates they paid--6.01% for Casey, 4.= 75% for Walsh--were three to four percentage points below prevailing rates = on standard home equity loans at the time.=20 Enron's former chief executive, Kenneth L. Lay, frequently tapped a $7.5-mi= llion line of credit he could repay with company stock that Enron had given= him or that he had purchased with low-cost company-provided options. His p= redecessor, Jeffrey K. Skilling, was given a $2-million loan. Enron had off= ered to forgive the payments if Skilling stayed with the company until Dec.= 31, 2001, but he resigned Aug. 14.=20 * Lavish life insurance. Many workers get some life insurance through their= employers--typically $50,000 or one year's pay.=20 Executives can get much more. About one-quarter of companies in the Mercer = study have special executive life insurance programs that typically pay for= coverage equal to three to four times the executives' annual pay.=20 Sometimes the benefit is much higher. In 2000, Cendant Corp., a travel and = real estate company, paid $3.7 million in premiums on a $100-million life i= nsurance policy for its chief executive, Henry R. Silverman, 60. Under the = arrangement, known as a split-dollar policy, Cendant will recoup its premiu= ms from the life insurance proceeds when Silverman dies, with Silverman's h= eirs receiving the rest of the money, according to Cendant's latest SEC fil= ing.=20 * Company-paid taxes. Companies pay a variety of tax bills for certain exec= utives. When benefits are so great that they incur a tax bill from the IRS-= -as they often do--some executives are given money to pay the tax. Because = that cash payment also incurs income tax, companies often add an additional= sum to cover the extra tax--a process known as "grossing up."=20 Lucent Chairman Henry B. Schacht was given $57,325 to pay tax on "certain f= ringe benefits" in 2000, according to the company's SEC filings. Ray R. Iri= tani, chief executive of Occidental Petroleum, was reimbursed $486,918 for = taxes in 1999--and $95,000 for tax preparation services, SEC filings show.= =20 * Fringe benefits. Other perks, such as the personal use of corporate jets,= company-provided chauffeurs and company-paid financial planning, can add t= ens of thousands of dollars to an executive's total compensation.=20 The footnotes of Lucent's SEC filings show the company paid $26,351 for per= sonal financial planning advice for Schacht in a year in which he received = a $1.1-million paycheck. At Enron, Lay's personal use of a corporate jet in= 2000 was worth $334,179.=20 Shareholder activists note that many of the most lavish arrangements have b= een uncovered at companies that have since hit hard times--among them Enron= , whose compensation philosophy, according to SEC filings, was "to reward e= xecutive performance that creates long-term shareholder value."=20 "At a minimum, it's inconsistent for companies and executives to just keep = feasting" when financial performance falters, stock prices drop and other e= mployees face cutbacks, Richson, of the Wisconsin Investment Board, said. "= It's bordering on unethical." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 REVIEW & OUTLOOK (Editorial) Scribbler's Ethics 02/01/2002 The Wall Street Journal A18 (Copyright (c) 2002, Dow Jones & Company, Inc.) With the fall of Enron, public and professional ethics are back in the news= , including the mores of journalists and including our own. So maybe it's a= good time to rescue ethical behavior from the professional ethicists.=20 We've come in for criticism lately because one of our contributors, the Bri= tish conservative writer Roger Scruton, wrote an essay for our European edi= tion while being paid by a Japanese tobacco company. The British Guardian t= urned up an e-mail in the name of his wife and business partner Sophie to J= apan Tobacco proposing an increase in their retainer, in return for placing= articles in the "WSJ, the Times, the Telegraph, the Spectator, the Financi= al Times, the Economist" and so on. Now, Professor Scruton -- a free-marketeer with well-known views -- was a c= ontributor for us long before he took a dime from Big Tobacco. His point of= view is of course precisely why the left-wing Guardian wants to portray hi= m as tainted by filthy lucre. These are the same ethicists who lack the sam= e passion for disclosure when it comes to finding out, for example, whether= Ralph Nader is financed by trial lawyers.=20 Our own view is that the financing of the advocate matters far less than th= e quality of the advocacy. But our long-time standard is also that such fin= ancial ties should be disclosed, so readers can make up their own minds. Mr= . Scruton had an obligation to tell us and his readers about his tobacco fi= nancing when he was writing about tobacco issues; he didn't, and so he will= be taking a holiday from our pages.=20 Meanwhile, the Internet ethicist, Andrew Sullivan, has been denouncing any = journalist who's ever taken a dollar from Enron. This includes our contribu= tor Peggy Noonan, who disclosed last week in her OpinionJournal.com column = that she billed Enron $250 an hour for 100 to 200 hours of speech-writing w= ork. In other words, she got paid like any other contract employee, which i= s called business between consenting adults. The first time she wrote about= Enron for us was also when she disclosed her Enron fees, so she has nothin= g to apologize for.=20 Certainly not to Mr. Sullivan, who recently wrote a fine piece for this pag= e on the failure of Talk magazine but then without asking re-sold the artic= le to the Times of London, which didn't bother to give us credit. Mr. Sulli= van's explanation is that he didn't think we had international publication = rights, although The Wall Street Journal Europe is distributed in London. L= eaving aside the fine points of copyright law, Mr. Sullivan's behavior may = not have been "unethical" but it wasn't very nice.=20 Which brings us to a larger point this page has often made about conflicts = of interest and honesty. Avoiding the first is not the same as the latter; = sometimes persnickety rules can become a license for larger dishonesty. So,= for example, the U.S. Senate poses as a more honest place because it passe= s a ban on accepting gifts. But then New Jersey Senator Bob Torricelli is a= ble to evade the ban by claiming that the Italian suits he received from a = campaign contributor were from a "friend," a legal loophole.=20 The same applies to intellectual honesty in journalism. At least Mr. Scruto= n, whatever his disclosure oversight, took money from people he agrees with= . But New York Times columnist Paul Krugman has recently given himself a fr= ee ethical pass because he says he disclosed his former Enron ties once he = became a columnist.=20 Mr. Krugman wrote a puff piece on the company for Fortune magazine while he= was getting $50,000 as an Enron adviser, but he now denounces politicians = and anyone else close to Enron for "crony capitalism." We'll let our reader= s judge the ethics of that. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Enron's Influence 02/01/2002 The Washington Post FINAL A24 Copyright 2002, The Washington Post Co. All Rights Reserved Despite the accurate reporting of The Post about the nature of the phone ca= ll I received from Kenneth Lay on Oct. 11 [front page, Jan. 18], Henry Waxm= an altered the facts in his op-ed column of Jan. 24.=20 Predictably, his misrepresentation has been repeated on television by his n= ational party chairman. This is how falsehoods enter history. To repeat information that I volunteered earlier, the two-minute phone call= with Mr. Lay was solely about the legislative prospects, not the content, = of an economic stimulus bill.=20 Contrary to Rep. Waxman and Terry McAuliffe, no lobbying occurred. In fact,= the provision to make the corporate alternative minimum tax relief retroac= tive had not even surfaced then, and neither I nor anyone else to my knowle= dge had even heard of the idea.=20 MITCHELL E. DANIELS JR.=20 Director=20 Office of Management and Budget=20 Washington http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Metropolitan Desk; Section A FORUM IN NEW YORK: PROTESTERS Paper Giants As a Voice For Ideas By ANDREW JACOBS 02/01/2002 The New York Times Page 19, Column 6 c. 2002 New York Times Company Looking like an arts and crafts teacher who had been dropped into a Fellini= film, David Taylor was struggling to clothe a papier-mache giant and simul= taneously direct paint-splattered volunteers when yet another reporter aske= d the question: Were he and his fellow protesters planning to clash with th= e police over the next few days? Mr. Taylor, a 24-year-old computer program= mer from Oakland, Calif., put down the puppet he was wrestling and tried to= stifle his indignation.=20 ''If you want to know what those young crazy radical activists are up to, y= ou've come to the right place,'' he said, glancing around a vast industrial= space buzzing with politically minded artisans and packed with their handi= work. ''I'm really getting sick of that question.'' While the police on the streets seemed to be steeling themselves for civic = unrest, the atmosphere yesterday morning inside the garage, along the West = Side Highway at 57th Street, was anything but martial. The message from Mr.= Taylor and two dozen other volunteers was clear: make art, not war.=20 There was, however, a looming sense of panic as the hours passed and the af= ternoon debut of this cardboard pageantry neared. There were robber-baron s= tyle top hats bearing the words ''WEF: We Are All En-Wrong'' and beachball-= sized wine goblets painted like globes that read ''Earth For Sale.'' A blow= n-up photograph of Kenneth L. Lay, the former chairman and chief executive = of Enron, leaned against a pillar, not far from a row of huge pretzels, an = apparent reference to the snack food that recently felled President Bush as= he watched a football game.=20 Over the past week, scores of volunteers from across the country have been = flocking to the space to glue, paint and stitch together props that will an= imate the street protests accompanying the World Economic Forum. Two New Yo= rk organizations, Arts in Action and Time's Up, helped put together the mak= eshift workshop.=20 But alongside the levity yesterday afternoon there was an undercurrent of f= ear. Many of those planning to join the protests said they were worried abo= ut the potential for violence at the hands of the police. Others said they = were frustrated by journalists' single-minded focus on the potential for Se= attle-style disturbances. ''We're not out there to fight with the police,''= said Payal Parekh, 28, an oceanography graduate student from Boston who wa= s helping to organize the puppet making. ''We're trying to get our voices h= eard but the media is obsessed with security issues.''=20 Whether or not their fears are real, even those organizing the puppet works= hop were not taking any chances. Bill DiPaola of Time's Up tried to find a = backup location, just in case something were to go awry. ''You can't be too= careful about these things,'' he said.=20 Still, with the demonstration at the Gap at 54th Street near Fifth Avenue a= lready under way, there were more pressing concerns. Clapping to get the ro= om's attention, someone urged the crowd at the garage to head east and ''he= lp animate the images we created.'' A pickup truck was loaded with props; e= veryone else took the crosstown bus. Ten minutes later, the truck pulled up= to the curb at 54th Street and into the arms of the police. ''I promise th= ere are no rocks or bottles,'' one woman joked to an officer who was visibl= y suspicious. ''It's just a bunch of goofy puppets.'' After a brief verbal = tussle and a few tense moments, the police relented, gave the group five mi= nutes to unload and everyone, it seemed, was happy. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Sarah Palmer Internal Communications Manager Enron Public Relations (713) 853-9843