Re:

Rick:

Thanks for the note to David. It had the desired impact as David walked
around first thing and was very appreciative. As I said before, this is the
right message in this situation based on the actions taken by David which now
tend to get a bit lost in the current noise (ie. exposure having now
increased to $ 18 MM).

Relative to the M-to-M, David had questioned both Beasley and Sweeney (Comm.
Suppt.) about the M-to-M starting well before the September pre-pay of 2.8 to
Vnesh. Beasley said the prudency would cover the exposure while Sweeney
simply evaded the questions and was not forthcoming. Sweeney's responses
were most curious as I understand he's among the strongest in Commercial
Support and my experience with him to date is consistent with this view. We
learned in the last couple of days that e-mails were circulating within
Liquids (commercial support and commercial) back to early summer concerning
the situation and need to hold the prudency (first booked in July). Hardy
did not press for copies of these e-mails yesterday since, at this point, it
would not be terribly productive but I find it very troubling that this kind
of communication was taking place so early in the process and all involved
were not informed beyond those close to Beasley. The key issue here is that
David was asking for the information at the right time but was kept out of
the loop (not that his exposure reports did not include the M-to-M starting
in Nov. when we learned of the magnitude of the problem). In hindsight, we
should not have allowed the Sept. 2.8 pre-pay to Vnesh until we had received
a satisfactory response. However, given the fact that David was asking the
right people, it is unreasonable for anyone to be critical of his actions in
the least.

Thoughts or questions?

SY

Rick Buy
01/02/2000 00:34
To: David Hardy/LON/ECT@ECT
cc: (bcc: Steve W Young/LON/ECT)

Subject:

David- Would rather have done this by phone but there is no chance for the
next couple of days so I thought I would send you an e-mail.

Steve tells me that the message from Helsinki investigation has been
misinterpreted by you and you are feeling like you have been unjustly blamed
for at least part of the problem here. This is not how this situation is
being thought of here, as a matter of fact we in RAC are quite pleased with
the level of coverage on this deal from the outset and I believe it was RAC
that started sounding warning bells long before any other group did.

Your coverage of this deal has been of the highest level. All of us should
have picked up on the MTM vs cash issue but the DASH clearly stated that the
pre pay was the determining control here which was monitored carefully and
nicely plotted historically. We could not produce that result in any other
area where we do business.

In any event, your performance is not being called into question here in the
least and you should take pride in the fact that we were on top of this deal
from the outset.

Having said all that, I believe there are some valuable lessons that RAC
needs to learn here and I think we need a meeting to discuss these. I think
one of the biggest problems here was that strong detective measures, AA
audit, RAC issues, etc were pointed out to commercial people and basically
ignored. This is what we have to focus on. More about this later.

In the mean time, continue to focus on this. It is a good lesson for the rest
of the group to amplify how important what we do is.

Keep up good work and have a beer.

Cheers, Rick