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Enron Mail |
Cover Story: THE ENRON SCANDAL CAN YOU TRUST ANYBODY ANYMORE? The scope of the Enron debacle undermines th= e credibility of modern business culture. Let's get back to basics BusinessWeek, 01/28/2002 Cover Story: THE ENRON SCANDAL: THE WHISTLE-BLOWER A HERO--AND A SMOKING-GUN LETTER Watkins' memo spoke volumes about Enron's = behavior. So did higher-ups' tepid response BusinessWeek, 01/28/2002 Cover Story: THE ENRON SCANDAL THE PERFECT SALES PITCH: NO DEBT, NO WORRIES BusinessWeek, 01/28/2002 Cover Story: THE ENRON SCANDAL: DISCLOSURE WHO ELSE IS HIDING DEBT Moving financial obligations into off-book vehicles= is now a common ploy BusinessWeek, 01/28/2002 Special-purpose vehicles used to control market, credit rating=20 Houston Chronicle, 01/28/2002 Enron's hazy legal landscape: Were strong laws violated by bad people, or d= id weak laws render such violation unnecessary? National Post, 01/28/2002 Enron Executive's Suicide-Note Release Delayed by Texas Police Bloomberg, 01/28/2002 Former Enron CEO's Wife Says Scrutiny Is Fair, MSNBC Says Bloomberg, 01/28/2002 USA: Kenneth Lay's wife says ex-Enron CEO is honest man. Reuters English News Service, 01/28/2002 Lay's wife says couple trying to avoid personal bankruptcy=20 Associated Press, 01/28/2002 Enron Employees Group Files Suit Seeking Lost Savings Dow Jones News Service, 01/28/2002 Enron staffers contemplate future amid gloom=20 Houston Chronicle, 01/28/2002 Crippled energy trader's workers consider futures amid gloom Associated Press Newswires, 01/28/2002 Fedl Judge Gives Enron 60 Days To Decide On Commodities Dow Jones News Service, 01/28/2002 Cheney refuses to release energy plan documents to Enron investigators=20 Houston Chronicle, 01/28/2002 Did Andersen Speed Up the Shredding? Documents just released by a House sub= committee suggest the firm may have rushed its document destruction after l= earning of the SEC probe BusinessWeek Online, 01/28/2002 ENRON'S TROUBLES ENSNARE LEADING TEXAS LAW FIRM Pittsburgh Post-Gazette, 01/28/2002 "Enron Is Just the Worst Example"; Billy Tauzin says his panel's probe has = alerted him to "real problems...in the structure of Corporate America" BusinessWeek Online, 01/28/2002 UK govt denies wrongdoing in connection with Enron, Arthur Andersen AFX News, 01/28/2002 SEC's Top Cop Says Enron 'Not Going To Distract Us' Dow Jones News Service, 01/28/2002 UBS' Wuffli says Enron trading ops takeover to level out earnings fluctuati= ons AFX News, 01/28/2002 INDIA: Gaz de France to bid for Enron with Indian partner. Reuters English News Service, 01/28/2002 A year of good luck. The Times of India, 01/28/2002 News - International - Americans `do not believe the White House'. The Daily Telegraph, 01/28/2002 Energy Trading: Still Thriving: Enron could become what Drexel was to junk = market that survived it Investment Dealers Digest, 01/28/2002 Enron's Web site shows irony of a ruined regime --- In virtual world, every= one's smiling and all's well for discredited company The Toronto Star, 01/28/2002 Enron: even the grammar is bankrupt Kitchener-Waterloo Record, 01/28/2002 _______________________________________________________________ Cover Story: THE ENRON SCANDAL CAN YOU TRUST ANYBODY ANYMORE? The scope of the Enron debacle undermines th= e credibility of modern business culture. Let's get back to basics Essay by Bruce Nussbaum 01/28/2002 BusinessWeek 30 (Copyright 2002 McGraw-Hill, Inc.) There are business scandals that are so vast and so penetrating that they p= rofoundly shock our most deeply held beliefs about the honesty and integrit= y of our corporate culture. Enron Corp. is one of them. This financial disa= ster goes far beyond the failure of one big company. This is corruption on = a massive scale. Tremendous harm has befallen innocent employees who have s= een their retirement savings disappear as a few at the top cashed out. Terr= ible things have happened to the way business is conducted under the cloak = of deregulation. Serious damage has been done to ethical codes of conduct h= eld by once-trusted business professionals.=20 It is difficult not to contrast the professionalism of modestly paid firefi= ghters and police doing their duty on September 11 with the secretive and s= quirrely behavior of six- and seven-figure accountants, lawyers, CEOs, bank= ers, and financial analysts who failed at their duty with Enron. The remark= able letter by Enron whistle-blower Sherron Watkins to Chairman Kenneth L. = Lay in August that presciently warns of accounting scandals reads like a ro= ad map of corporate corruption, subterfuge, and manipulation. She worries a= bout the world perceiving Enron's ``past successes as nothing more than an = elaborate accounting hoax'' (page 34). The Enron debacle calls into question a host of other aggressive accounting= techniques used across a wide spectrum of Corporate America--most of them = quite legal. And that's precisely the point. It's getting harder and harder= to know what a company actually earns and what its stock is actually worth= . An astonishing 723 companies have been forced to restate and lower their = earnings since 1997. With enormous pressures to produce earnings growth, au= ditors are being turned into enablers. They forsake their traditional role = of outside skeptic for that of inside business partner and they reject thei= r age-old function of discloser of information for that of master magician = who hides the financial rabbit (page 44).=20 Investor confidence is crucial to the success of our economic system. This = confidence is threatened by not only the Enron scandal but by the dramatic = decline in accounting standards. People increasingly feel the game is rigge= d. Unless Washington and business professionals seize the moment to clean u= p the mess in the market economy, they risk a major populist backlash.=20 In the end, Enron was able to enlist precisely those referees who, in the p= ast, would oversee and check its behavior--accountants, lawyers, bankers, l= egislators, even regulators--in the pursuit of higher earnings. Many were t= empted by a piece of the equity action and compromised their integrity. Enr= on paid big fees to many of these professionals to help manufacture its ear= nings, and together they created the mechanisms for evading the financial t= ruth.=20 Watkins says as much. She talks of partnership deals that temporarily infla= te the stock price, allowing execs to cash out options: ``It's a bit like r= obbing the bank in one year and trying to pay it back two years later.'' Sh= e adds, ``nice try but investors were hurt'' when they bought stock that la= ter fell. In a free-market economy, companies are supposed to fail because = of the business cycle or bad business decisions. Failure from loose and sle= azy practices, if not outright fraud, is another matter.=20 We now know that something went seriously wrong in the march to deregulatio= n. There is no question that deregulated markets are generating lower costs= , higher growth, and lower unemployment for the U.S. economy. But dereg ide= ologues, such as Enron's President Jeffrey K. Skilling and the company's po= litical allies in Washington, convinced the nation deregulation meant no re= gulation. A big mistake. Enron and other companies used the transition to d= eregulation to gain access to Congress and regulators and write their own r= ules. They persuaded the Commodity Futures Trading Commission to let Enron = and a few other companies run largely unregulated energy-derivatives tradin= g businesses. Wendy Gramm, who at the time was head of the CFTC, later join= ed Enron's board of directors--on the audit committee.=20 Financial complexity made it easy to mask the truth and play financial game= s. The financialization and securitization of the real economy into mathema= tical bits and bytes allowed Enron and others to massage earnings results i= n infinite ways. Off-balance-sheeting financial engineering became the requ= isite way to boost earnings and stock prices. Hundreds of companies have do= ne it (page 36). Common standards were replaced by idiosyncratic measures. = Slowly but surely, the financial truth disappeared. No one, not the account= ants or lawyers or bankers or Wall Street analysts, protested as the bottom= line became a fiction. On the road to deregulation, basic building blocks = of capitalism--clarity, transparency, fairness, openness--were sacrificed. = Everything the public needs to evaluate risk, value stocks, and participate= in an equity culture was undermined. Americans embraced the equity economy= in the '90s because they believed they could participate in it fairly. The= y didn't expect to see their 401(k)s go up in smoke.=20 Who can come to the rescue? The reputations of many of the professionals wh= o were counted on to safeguard the economic system lie in tatters. Corrupte= d by the chase for an ever-greater piece of the action, accountants, lawyer= s, analysts, and managers have shirked their duty on a scale not seen since= the 1920s. Conflicts of interest abound as accounting firms sell services = to the companies they audit and accountants jump to the corporations whose = books they examine. The accounting profession has successfully fought all a= ttempts at reform, rebuffing efforts to end conflicts of interest, impose s= tricter oversight, or increase liability for their actions. In short, most = certified public accountants feel little duty to the public at large.=20 Nor do lawyers see themselves as officers of the court, which they are. Vin= son & Elkins LLP was asked by Enron Chairman Lay to check out whether Watki= ns' seven-page warning of financial deceit warranted action. It came back w= ith a ``No.'' Wall Street analysts stopped being honest when their compensa= tion became contingent on their firms getting investment-banking business f= rom the companies they covered. And bankers are too busy selling fee-based = services to carry out due diligence on loans and debt. They have enormous c= onflicts of interest. The Glass-Steagall Act was passed in 1933 to stop tho= se conflicts. Its repeal in 1999 has ushered in their return.=20 What's to be done? Restoring investor confidence in the system of equity ca= pitalism is crucial to the economy's health. The continued deregulation of = the economy and the privatization of services depends on the integrity of t= he financial reporting system. If the investing public is going to particip= ate, it must see a fair and transparent system.=20 The pendulum is swinging toward reform. The accounting changes required are= all too obvious. But change must go beyond the scope of the financial impl= osion. The buying and selling of political access is not in the best intere= sts of the country. It is unseemly to have the head of the Justice Dept., a= s well as the entire Houston branch, recuse themselves because of conflicts= on the Enron case. A sense of outrage is growing. The lesson from the Enro= n debacle should be to restore basic integrity to the bottom line, ethics t= o business professionals, and clout to overseers that even a deregulated ec= onomy need. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Cover Story: THE ENRON SCANDAL: THE WHISTLE-BLOWER A HERO--AND A SMOKING-GUN LETTER Watkins' memo spoke volumes about Enron's = behavior. So did higher-ups' tepid response By Wendy Zellner, with Stephanie Forest Anderson, in Dallas and with Laura = Cohn in Washington 01/28/2002 BusinessWeek 34 (Copyright 2002 McGraw-Hill, Inc.) At last, someone in the sordid Enron Corp. scandal seems to have done the r= ight thing. Thanks to whistle-blower Sherron S. Watkins, a no-nonsense Enro= n vice-president, the scope and audacity of the accounting mess is becoming= all too clear. Her blunt Aug. 15 letter to Enron CEO Kenneth L. Lay warns = that the company might ``implode in a wave of accounting scandals.'' And no= w that her worst fears have been realized, it is also clear that Watkins' l= etter went far beyond highlighting a few accounting problems in a handful o= f off-balance-sheet partnerships. Watkins' letter lays bare for all to see = the underbelly of Enron's get-rich-quick culture.=20 Watkins, 42, a former Arthur Andersen accountant who remains Enron's vice-p= resident for corporate development, put her finger on the rot: top execs wh= o, at best, appeared to close their eyes to questionable accounting maneuve= rs; a leadership that had lost sight of ordinary investors and the basic pr= inciples of accounting; and watchdogs--the outside auditors and lawyers who= se own involvement may have left them too conflicted to query the nature of= the deals. Perhaps the question shouldn't be how Enron collapsed so quickl= y--but why it didn't implode sooner. Lay's response to Watkins' complaints is nearly as damning as her letter it= self. Yes, he talked to her for an hour. And, yes, he ordered an outside in= vestigation. But contrary to Watkins' advice, he appointed the company's lo= ngtime Houston law firm, Vinson & Elkins, despite the obvious conflict: V&E= had worked on some of the partnerships. And Enron and V&E agreed there wou= ld be no ``second-guessing'' of Andersen's accounting and no ``detailed ana= lysis'' of each and every transaction, according to V&E's Oct. 15 report. T= he inquiry was to consider only if there was new factual information that w= arranted a broader investigation. V&E declined comment.=20 Surprise: V&E concluded that a widespread investigation wasn't warranted. I= t simply warned that there was a ``serious risk of adverse publicity and li= tigation.'' And Watkins' letter reveals the inadequacy of Lay's response in= the months following CEO Jeffrey K. Skilling's sudden Aug. 14 resignation = for ``personal reasons.'' His departure triggered the letter. Lay never ful= ly disclosed the partnerships or explained their impact to investors, even = as he vowed there were no accounting issues and ``no other shoe to fall.'' = Even after Enron revealed on Oct. 16 a $1.2 billion hit to shareholder equi= ty related to the partnerships, Lay continued to express ignorance about de= tails of these deals and support for Chief Financial Officer Andrew S. Fast= ow, who managed and had stakes in certain partnerships. But on Oct. 24, Fas= tow was removed from his job and promptly left the company.=20 Watkins, an eight-year Enron veteran, is not some disgruntled naysayer who = is easy to dismiss. Her lawyer, Philip H. Hilder, says she became familiar = with some of the partnership dealings when she worked in June and July in F= astow's finance group. Her position allowed her to review the valuation of = certain assets being sold into the partnerships, and that's when she saw ``= computations that just didn't jibe,'' says Hilder.=20 Former executives say the Tomball (Tex.) native was tenacious and competent= . ``She wasn't really an alarmist,'' says one former Enron employee. Her mo= ther, Shirley Klein Harrington, a former high school accounting teacher, ca= lls her daughter ``a very independent, outspoken, good Christian girl, who'= s going to stand up for principle whenever she can.'' Watkins had previousl= y worked at Andersen in Houston and New York and then for Germany's Metallg= esellschaft AG.=20 At those companies, she befriended Jeffrey McMahon, whom she helped recruit= . Now the CFO at Enron, McMahon ``complained mightily'' about the Fastow pa= rtnerships to Skilling, Watkins told Lay in the letter. ``Employees questio= n our accounting propriety consistently and constantly,'' she claimed. McMa= hon didn't return calls. Skilling has denied getting any warnings about acc= ounting.=20 Watkins didn't stop there. Five days after she wrote to Lay, Watkins took h= er concerns directly to an Andersen audit partner, according to congression= al investigators. He in turn relayed her questions to senior Andersen manag= ement on the Enron account. It's not known what, if any, action they took.= =20 Of course, Skilling and Andersen execs shouldn't have needed a letter and a= phone call from Watkins to figure out something was seriously amiss. Red f= lags abounded. And Watkins, for one, had no trouble putting her finger on q= uestionable accounting practices. She wondered if Enron was hiding losses i= n off-balance-sheet entities while booking large profits from the deals. At= the same time, the outside partnerships were backed with Enron stock--a ta= ctic sure to backfire when it was falling--and no outsiders seemed to have = any capital at risk. Was Enron creating income essentially by doing deals w= ith itself? ``It sure looks to the layman on the street that we are hiding = losses in a related company and will compensate that company with Enron sto= ck in the future,'' she wrote.=20 In the end, Watkins grasped one thing that Enron's too-clever-by-half dealm= akers didn't: Enron's maneuvering didn't pass the smell test. Even if Enron= and its high-priced auditors and lawyers can ultimately show that they fol= lowed the letter of the law, it matters little. As Watkins herself wrote, i= f Enron collapses, ``the business world will consider the past successes as= nothing but an elaborate accounting hoax.'' And that seems destined to bec= ome Enron's epitaph. Photograph: IN-HOUSE CRITIC: Watkins wondered if Enron was creating income = by essentially doing deals with itself PHOTOGRAPH COURTESY OF ABC NEWS=20 Photograph: TAKING ISSUE Lay, left, says he ordered a probe. Skilling denie= s being warned about accounting improprieties PHOTOGRAPH COUTESY OF WYATT M= cSPADDEN=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Cover Story: THE ENRON SCANDAL THE PERFECT SALES PITCH: NO DEBT, NO WORRIES By Wendy Zellner in Dallas and Michael Arndt in Chicago 01/28/2002 BusinessWeek 35 (Copyright 2002 McGraw-Hill, Inc.) At Enron Corp., debt avoidance wasn't merely a strategy for managing its ow= n balance sheet. It was a way of life that pervaded the company's dealmakin= g culture. Consider Enron Energy Services, which managed energy needs and e= quipment for big corporate customers. The company held regular seminars to = teach EES employees how to use complex financial vehicles to woo customers,= manage earnings, and, naturally, keep debt off balance sheets at Enron and= its clients. Former Enron executive Michael R. Boutcher recalls a class on= structured finance that described the financings as ``accounting nirvana''= --able to not only get debt off the books but even out of accounting footno= tes.=20 No one is claiming that these structures were akin to the off-balance-sheet= partnerships at the heart of Enron's accounting scandal. These deals gave = tax and other benefits to customers who outsourced their energy management = to Enron. But they certainly highlight Enron's aggressive philosophy of lev= eraging its financial acumen. Boutcher, manager of business development at = EES until Enron's December collapse, says that creating complex financings = with clients was standard practice. And, he says, Enron used them far more = aggressively than its rivals. ``We could always sweeten the pot, and the ob= jective was to beat out anybody that was competing against us,'' says Boutc= her. An Enron spokeswoman says such equipment financing was common in the i= ndustry. But several rivals disagree. In a presentation on Nov. 9, 2000, to some 60 employees in Houston, Boutche= r says, a company lawyer explained how structured-finance deals could manag= e and accelerate earnings for Enron and take debt ``off credit'' for custom= ers, so that it wouldn't be reflected in credit ratings. The objective laid= out in one page of the presentation couldn't have been clearer: ``Off cred= it: Difficult to achieve. ...Must make it look like the company has no fina= ncial obligation at all under any circumstances, including default by them.= ''=20 EES says it never actually did one of the ``off-credit'' deals. There were = some things even Enron couldn't peddle. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Cover Story: THE ENRON SCANDAL: DISCLOSURE WHO ELSE IS HIDING DEBT Moving financial obligations into off-book vehicles= is now a common ploy By David Henry, with Heather Timmons and Steve Rosenbush in New York and Mi= chael Arndt in Chicago 01/28/2002 BusinessWeek 36 (Copyright 2002 McGraw-Hill, Inc.) When energy trader Enron Corp. admitted to hiding billions of dollars of li= abilities in mysterious off-book entities, it trotted out the lame excuse o= f scoundrels: Everyone does it. And this time, it was the gospel truth.=20 Hundreds of respected U.S. companies are ferreting away trillions of dollar= s in debt in off-balance-sheet subsidiaries, partnerships, and assorted obl= igations, including leases, pension plans, and take-or-pay contracts with s= uppliers. Potentially bankrupting contracts are mentioned vaguely in footno= tes to company accounts, at best. The goal is to skirt the rules of consoli= dation, the bedrock of the American financial reporting system and the sour= ce of much its credibility. These rules, set clear in 1959, aim to make pub= lic companies give a full and fair picture of their business--including all= the assets and liabilities of any subsidiaries. But accountants, lawyers, = and bankers have learned to drive a coach and horses through them. Because of a gaping loophole in accounting practice, companies create arcan= e legal structures, often called special-purpose entities (SPEs). Then, the= parent can bankroll up to 97% of the initial investment in an SPE without = having to consolidate it into its own accounts. Normally, once a company ow= ns 50% or more of another, it must consolidate it under the 1959 rules. The= controversial exception that outsiders need invest only 3% of an SPE's cap= ital for it to be independent and off the balance sheet came about through = fumbles by the Securities & Exchange Commission and the Financial Accountin= g Standards Board. In 1990, accounting firms asked the SEC to endorse the 3= % rule that had become a common, though unofficial, practice in the '80s. T= he SEC didn't like the idea, but it didn't stomp on it, either. It asked th= e FASB to set tighter rules to force consolidation of entities that were ef= fectively controlled by companies. FASB drafted two overhauls of the rules = but never finished the job, and the SEC is still waiting.=20 It's not just the energy industry that exploits the loophole and stashes ma= jor liabilities in the never-never land of SPEs. Increasingly, companies of= all stripes routinely use them to offload potential balance-sheet bombshel= ls such as loan guarantees or the financing of sales of their own products.= For example, the accounts of data processor Electronic Data Systems Corp. = don't show $500 million--half of last year's earnings--that it would owe if= its customers were to cancel their contracts and leave it holding the bag = for loans on their computer equipment. The arrangement is acknowledged only= in a footnote. An EDS spokesman says the tactic is common in the industry = and does not put the company at undue risk.=20 Airlines keep appearances aloft by shunting billions worth of airplane fina= ncing into off-balance-sheet vehicles, says credit analyst Philip Baggaley = of Standard & Poor's Corp. United Airlines Inc. parent UAL Corp.'s publishe= d balance sheet for 2000 shows $5 billion of long-term debt. But only a foo= tnote describes the bulk of its lease payments, which Baggaley estimates ha= ve a present value of $12.7 billion, due over 26 years on 233 airplanes. AM= R Corp., parent of American Airlines Inc., is on the hook for $7.9 billion = in lease payments not on its balance sheet. ``Everyone who's involved in th= e industry knows that the true leverage is higher'' than what's shown on th= e balance sheet, says Baggaley. UAL and AMR declined to comment.=20 Banks arrange many of the devices and are big users themselves. J.P. Morgan= Chase & Co., for example, has revealed in the Enron bankruptcy that it has= nearly $1 billion in potential liabilities stemming from a single 49%-owne= d Channel Islands entity called Mahonia that traded with Enron. The liabili= ties bring the bank's total Enron exposure to $2.6 billion. And J.P. Morgan= is not alone. A suit filed earlier this month shows that many U.S. finance= companies are among 52 partners in LJM2, an Enron off-balance-sheet entity= with over $300 million in assets. The partners, including Citigroup, Wacho= via, and American International Group, may all have to takes losses on it.= =20 The banks' participation in SPEs is attracting scrutiny of federal regulato= rs. A Federal Reserve spokesman said it is ``concerned about'' off-balance-= sheet exposures and hopes new accounting rules will be put in place. How ma= ny more Mahonia or LJM2-like entities are there? The Channel Islands tax ha= ven boasts more than 350 SPEs and similar entities, though it is impossible= to know how many should really be consolidated on balance sheets of U.S. c= ompanies. Assets in the entities total more than $635 billion, according to= Fitzrovia International PLC, a London-based research firm. The Cayman Isla= nds, which has been competing for the business since the 1980s, claims anot= her 600 trusts and banks, most of which have SPE expertise.=20 With some of the vehicles, it is impossible for investors to know from fina= ncial reports who could be responsible for what. For example, Dell Computer= Corp. has a joint venture with Tyco International Ltd. called Dell Financi= al Services that last year originated $2.5 billion in customer financing, a= ccording to a footnote to Dell's accounts. According to the note, Dell owns= 70% of DFS, but does not control it and therefore keeps DFS debts off its = own balance sheet. What if DFS has trouble from customers not paying? Dell = spokesman T.R. Reid says any obligations of DFS are Tyco's responsibility a= nd Tyco agrees. Jeffrey D. Simon, president of the global vendor financing = business at Tyco Capital, says Tyco would look to Dell's customers to pay a= nd not to Dell. Tyco's balance sheet reflects borrowing to finance Dell's c= ustomers.=20 Companies argue that off-balance-sheet vehicles benefit investors because t= hey enable management to tap extra sources of financing and hedge trading r= isks that could roil earnings. Maybe so, but they sure make the companies, = and their executives, look good: Return on capital looks better than it is = because balance sheets understate the amount employed. And investors and re= gulators don't freak out as corporate debt balloons. But critics charge tha= t the widespread use of off-balance-sheet schemes encourages contempt for a= ccounting rules in the executive suite and spreads confusion among investor= s. ``The nonprofessional has no idea of the extent of the real liabilities,= '' says J. Edward Ketz, accounting professor at Pennsylvania State Universi= ty. ``Professionals can be easily fooled, too.''=20 Worse yet, many SPEs have provisions that can throw their users into a full= -blown financial crisis. To get assets off its books, a company typically s= ells them to an SPE, funding the purchase by borrowing cash from institutio= nal investors. As a sweetener to protect investors, many SPEs incorporate t= riggers that require the parent to repay loans or give them new securities = if its stock falls below a certain price or credit-rating agencies downgrad= e its debt. It was just such triggers in its notorious off-balance-sheet pa= rtnerships that sent Enron into a death spiral. And triggers fueled the cri= ses last year at Pacific Gas & Electric, Southern California Edison, and Xe= rox, according to Moody's Investors Service. ``All of this hidden debt and = these triggers could make the next economic downturn a lot worse than it wo= uld otherwise be,'' says Lynn Turner, who was chief accountant at the Secur= ities & Exchange Commission until July.=20 Despite the risks, SPEs remain very appealing to companies. And any attempt= to curb them or abolish the 3% rule will run into furious opposition. Sinc= e the early '90s, an army of accountants, lawyers, and bankers built a huge= industry to concoct ever more creative ways to evade consolidated reportin= g. So reform won't come easily. ``It will be a phenomenal fight,'' says Tur= ner.=20 Maybe so, but Enron's demise shows how quickly a tiny loophole can tear the= country's economic fabric. And there may never be a better time to close i= t. Out of Sight Many companies keep debts and other obligations out of investors' view in partnerships and other entities. Often, financial liabilities are secured by physical assets such as planes or computers. A sample: ESTIMATED EXPOSURE COMPANY ITEM NOT ON BALANCE SHEET (BILLIONS) UAL Plane leases $12.7 AMR Plane leases 7.9 J.P. MORGAN CHASE Liability for trading units 1.0* DELL COMPUTER Debt of consumer financing venture N/A** ELECTRONIC DATA Payments for SYSTEMS customers' computers 0.5 * Exposure to Enron through Mahonia ** Joint venture partner Tyco Intl. is responsible for losses Data: Standard & Poor's, company reports Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Special-purpose vehicles used to control market, credit rating=20 By DAN FELDSTEIN=20 Copyright 2002 Houston Chronicle=20 Jan. 28, 2002, 6:31AM As accountants, stockbrokers and others study Enron's collapse, they focus = on the company's now-infamous "special-purpose vehicles" -- independent com= panies that propped up Enron's income and hid its debt.=20 They want to know whether the vehicles' goosing of Enron's financial statem= ents was a side effect or their sole purpose.=20 One good clue is the list.=20 In the last year at Enron Global Finance group, managers were sometimes han= ded a list of Enron assets and instructed to go out and sell some to the ve= hicles, said an employee with direct knowledge of the procedure.=20 "Knowing what I do now, I know that was used directly to manipulate the (st= ock) market," the employee said.=20 A manager would pick something, from a plant to stock to a piece of a start= -up company. Then he would walk the deal through a team of internal lawyers= and auditors.=20 The bigger the "sale," the bigger his bonus.=20 What actually happened was that a bank or other investor lent money to the = newly created company to finance the purchase. The new company, in turn, pa= id the money to Enron.=20 Why didn't Enron just get a loan itself without going through a middleman? = Because the loan now belonged to the new company, not Enron, and thus didn'= t count as a debt on Enron's financial statement.=20 Instead, it counted as income to Enron when the new company passed on the p= roceeds.=20 Less debt and more income do wonders for a quarterly report. The procedure = assured Enron would keep its high credit rating, saving big bucks, and woul= d keep the stock price up.=20 After a while, the employee said, employees joked that there would be no as= sets left to deal.=20 "Every associate on up knew. We used to joke about, `I want this thing to s= tand up until I get my money and go,' " he said.=20 Two former Enron employees who worked on the special-purpose vehicles spoke= at length to the Chronicle about what they did for a living. One met with = a reporter in the offices of a Rice University accounting professor.=20 The employees, graduates of top schools, spoke on the condition that they n= ot be identified.=20 Both said there were many uses for the vehicles that they considered legiti= mate, such as bringing in outside partners to share the risks of a particul= ar venture. But there was little question, especially toward the end in the= finance group, that many had no real "business purpose" other than improvi= ng financial appearances.=20 "They are created merely to make the income statement look better. An avera= ge person would say there's something wrong," said Michael Granof, a Univer= sity of Texas accounting professor.=20 The employee with direct knowledge of the process didn't disagree. It's jus= t sort of what they did, he said, and he never realized the extent of the c= ompany's debt.=20 The anatomy of the deal was simple, he said.=20 Say the asset was 100 shares of IBM stock. Enron would divide each share in= to two parts, one called a "control interest" and one called an "economic i= nterest." Then it would sell the economic interest to a newly created speci= al-purpose vehicle.=20 The asset was rarely as simple as 100 shares of another company's stock. So= Enron had to put a value on it. Because there wasn't really an outside buy= er, it decided the price itself and had that number blessed by its auditor,= Arthur Andersen.=20 The deal was placed with a bank, insurance company or other major lender, w= hich put up 97 percent of the money. Sometimes the promise of Enron stock w= ould be put up to guarantee the loan, as a sort of collateral, although Enr= on stockholders were never told of the risk that their shares could be dilu= ted if such new shares had to be issued, the employee said.=20 To qualify as "independent" from Enron for accounting purposes, an SPV had = to be owned by someone else. So an outside entity would be brought in to ma= ke the required investment, which was just 3 percent of the SPV's total sta= rt-up cash.=20 In some cases, Enron is alleged to have lent that money to the outside equi= ty partners, though the employee said he had no direct knowledge of that.= =20 Enron no longer owned the economic interest in the asset, but it did own co= ntrol over it. In the sales contract with the vehicle, Enron promised alway= s to act in the interest of the SPV. Lawyers and auditors said all this was= OK.=20 As the asset made money for the SPV -- if it did, and many didn't -- it mad= e principal and interest payments to the lender and issued dividends to the= outside equity partners, just like in a normal company.=20 So what was left for Enron? Unlike a normal company, the yield to the equit= y partners was capped. If the partner's yield cap was 15 percent and the as= set made 20 percent, Enron got 5 percent.=20 Most important, Enron got to report the proceeds of the sale of the asset a= s earnings. It had to repay the loan, of course, but the debt didn't show u= p on Enron's financial statements.=20 A basic question is why Enron didn't just sell the assets normally to raise= money. The answer is control, the employee said. If the asset were a plant= , perhaps Enron would give itself the operating and maintenance contract. I= f it were private shares of another company, maybe Enron was technically fo= rbidden to sell, or it could make another deal later.=20 By keeping its visible debt low, Enron retained a higher credit rating and = thus paid a lower interest rate on money it borrowed and money borrowed by = the SPVs, the employee said.=20 When Enron was forced to restate its earnings last year to include some of = that debt, and as debt from other sources also surfaced, Moody's Investor S= ervices downgraded Enron's bond rating. With a trading company such as Enro= n, where the ability to borrow vast sums at favorable interest rates is key= , that was fatal. Bankruptcy quickly followed.=20 Such accounting practices were a factor in the company's fall, but the real= problem was that many of Enron's recent major investments -- broadband and= water divisions, New Power and an Indian power plant -- did not work out, = said the employee and Rice University accounting professor Bala Dharan, who= also questioned the employee.=20 "Investors don't like to hear you say, `Oh, I was wrong.' So you start havi= ng a yard sale to boost CFO (cash flow from operations) and net income," th= e employee said.=20 The second employee said many SPVs were easier to justify. Sometimes they w= ere created to bring two other parties together, with Enron merely providin= g the expertise. Both said investors were happy to get involved in the deal= s.=20 But in recent years, the first employee said, their use became more questio= nable.=20 "Is any of that illegal? No, but it's shady. The investor couldn't truly kn= ow what Enron owned or what Enron owed. People don't pay attention to the f= ootnotes," he said.=20 And the footnotes in Enron's required financial statements also weren't muc= h help. Granof, an author of accounting textbooks with an MBA and doctorate= , said he found them "unintelligible."=20 "That was conscious. No two ways about it," the employee responded.=20 Granof said he still couldn't quite understand why SPVs are considered legi= timate. While expressing disappointment with Andersen for "deceiving" inves= tors while meeting the letter of the law, he said, "there but for the grace= of God go four other major accounting firms" of the Big Five that could ha= ve been similarly ensnared in the Enron fiasco.=20 "Something is wrong with the rules," he said.=20 Financial Post: World Enron's hazy legal landscape: Were strong laws violated by bad people, or d= id weak laws render such violation unnecessary? Diane Henriques with Kurt Eichenwald The New York Times 01/28/2002 National Post National FP12 © National Post 2002. All Rights Reserved. It was called "rotten, horrible, indefensible" and "shocking." With those w= ords, securities law experts around the country condemned the way Enron had= structured and sold a partnership called LJM2, which offered investors a c= hance to profit from confidential information about Enron's investment plan= s -- and gave the partnership investors more information about the company'= s finances than Enron's shareholders received. "This is potentially the mos= t serious revelation about Enron to date," said Joel Seligman, a securities= law historian and dean of the Washington University Law School. "You can't= overstate how shocking it is."=20 But did the arrangement, however unfair it seems to stockholders, actually = violate the nation's securities laws and regulations? That is far more difficult to answer, legal scholars say -- and far more im= portant. For them, the fundamental question about the sprawling Enron scand= al is whether it is a case of strong laws being violated by bad people, or = of weak laws rendering such violations unnecessary. "If a company of this s= ize, advised by top-tier accountants and law firms, could conclude that our= laws permit some of what happened here, then our laws are inadequate," sai= d Richard C. Breeden, a former chairman of the Securities and Exchange Comm= ission. "Clearly it violates the spirit and intent of securities laws and t= he whole concept of full and fair disclosure."=20 The quandary is particularly acute in the case of this partnership, because= it seemed to thrive on arrangements -- procedural barriers known as "Chine= se walls" -- that were actually intended to protect investors. These legal = barriers prevented investment bankers who were privy to information about t= he partnership from legally sharing that information with shareholders. Ins= tead, investors remained in the dark about Enron's actual financial conditi= on.=20 But the partnership, lawyers and finance experts say, raises novel question= s about the effectiveness of other parts of the securities laws, as well. T= hese include prohibitions against trading on inside information; rules agai= nst selectively disclosing information to some shareholders and not others;= efforts to police corporate conflicts of interest and the wisdom of removi= ng restrictions on the roles that investment banks can play. "No matter how= good you make the laws, there will always be a small group of people who w= ill push them," said John Pound, a former finance professor at Harvard and = the president of Integrity Partners, an investment management firm in Bosto= n. "But the Enron case has raised a lot of useful and important policy ques= tions that will need to be addressed. And the Chinese-wall issue is a perfe= ct example of that."=20 Enron's swift fall, culminating in its bankruptcy filing in early December,= came after the company revised its past financial statements to more accur= ately reflect partnership deals like the LJM2 arrangement. The company and = its auditor, Arthur Andersen, are the subjects of both criminal and regulat= ory investigations, and are being examined by nearly a dozen Congressional = committees.=20 One important focus of those investigations is the way that partnerships li= ke LJM2 contributed to the company's collapse.=20 Confidential records of that specific partnership, disclosed in The New Yor= k Times, show that Enron tried to attract investors by dangling the prospec= t of potentially remarkable returns, driven by access to inside information= about Enron's financial dealings.=20 Potential investors were told, in detail, about the company's off-the- book= s transactions and assets, information that Enron had not disclosed to its = public shareholders. Indeed, partnership investors knew that Enron controll= ed at least 50% more assets than the company had disclosed in its audited f= inancial statements, filed with the SEC and provided to public shareholders= .=20 That lopsided flow of information strikes many legal experts as a direct ch= allenge to traditional thinking about Chinese walls, the common nickname fo= r the procedures that assure that the confidential information Wall Street = firms obtain from their corporate investment banking clients remains confid= ential, even within the firm itself.=20 Chinese walls came into being in the late 1960s, as a regulatory response t= o the increased complexity of Wall Street firms and a more vigorous SEC res= ponse to insider trading, said Michael Perino, a securities law professor a= t St. John's University.=20 Their purpose, quite simply, was to prevent an investment banker from using= confidential information about a corporate client to make trades in that c= lient's stock -- trades in which the banker would have an advantage over ot= her investors.=20 In 1988, at the end of a decade punctuated by insider trading scandals, Con= gress made such "informational partitions" mandatory, citing the need to pr= event Wall Street insiders from taking advantage of Main Street investors.= =20 But in this case, it appears that the protection backfired, legal experts s= aid. Investment bankers who worked on the Enron partnerships were privy to = information that may have raised doubts about the information Enron had pro= vided to public investors -- but they were forbidden by law from raising an= y red flags.=20 "The purpose of the Chinese wall is to help public investors, but this work= ed backwards," said Mr. Pound, the former Harvard professor. "What amazes m= e is that the people who knew they had information adverse to the public in= vestors would not feel a need to find a way, within the institution, to add= ress that issue -- to go up in the institution high enough to say, `We have= a policy problem here.' "=20 The LJM2 partnership points up Chinese-wall problems that courts and regula= tors have been struggling to resolve for years, said John Coffee Jr., a sec= urities law expert at Columbia University Law School.=20 If the investment banking divisions of a brokerage firm had information tha= t raised questions about the value of a public company's stock, there is no= thing under the current law that the bankers could do to help the firm's re= tail investors. But there are more limited actions the firm could take, Mr.= Coffee said.=20 "They can't go out and privately tell their clients the full information th= ey have received without being part of an insider trading scheme," he said.= "But they could arguably use the information to withdraw their recommendat= ion on the stock." That, he added, "will cause some consternation and adver= se publicity that would alert the market to a problem.=20 Other legal experts worry that the investment banks dealing with Enron were= constrained by conflicts between their role as lenders and their work as u= nderwriters.=20 This conflict, too, has roots deep in U.S. financial history. In the decade= before the 1929 crash, banks would sometimes help a failing firm sell stoc= k to the bank's customers to raise money to repay loans. As part of the New= Deal, Congress passed the Glass- Steagall Act, which prevented banks from = providing both underwriting and traditional banking services.=20 But long before Congress officially repealed Glass-Steagall in 1999, Street= firms found legal detours around the prohibition. Now, some securities law= experts said, Congress may need to take a fresh look at whether these dual= roles in any way affected the flow of significant information to public in= vestors in Enron.=20 Mr. Breeden, the former SEC chairman, said no direct parallels to the class= ic pre-1929 conflicts have appeared. But Enron's evolution "was a very subt= le situation, and very complex. In any case," he added, "the public should = be able to conclude where the investment banks' greatest interests lie."=20 That investors in the LJM2 partnership apparently got information that publ= ic investors could not get -- because Enron had moved certain operations of= f its balance sheet -- also underscores the importance of preventing select= ive disclosure by corporations, one former SEC commissioner said.=20 Until last January, corporate executives would routinely hold private brief= ings for analysts, slipping them details that were not available to public = investors. To "level the playing field," the SEC enacted Regulation FD, whi= ch forbids such selective disclosure.=20 It is not clear from available documents whether partnership investors cont= inued to learn about Enron's finances after the new rule went into effect. = "But if they did, that raises blazing questions of selective disclosure," t= he former commissioner said. More broadly, he said, regulators should deter= mine whether other corporations that use off-balance- sheet entities are gi= ving investors in those entities more information than public stockholders = receive.=20 Sheldon Elsen, a securities lawyer at Orans Elsen & Lupert in New York, sai= d the structure of the LJM2 partnership "really presents some very troublin= g problems. I don't know that there is anything illegal here," Mr. Elsen sa= id, "but there is a terrible odour about it."=20 James Moriarty, a Houston lawyer who has represented plaintiffs in a number= of securities fraud cases, said: "That they would tell the truth to the ri= ch investors, and lie to their stockholders, is outside the realm of the co= mprehensible."=20 Enron might argue that the information potential partnership investors got = was not important enough to require disclosure.=20 But lawyers said the fact Enron disclosed the information to them would be = evidence in itself that such details were material. "Given that they give t= he information to somebody else as part of their bargain to raise money for= another deal, there is a strong likelihood that it would reach the materia= lity level," said Stanley Arkin, a New York corporate and securities lawyer= .=20 But the information gap between partnership investors and public stockholde= rs is just one of the conflicts that litter the Enron battlefield, legal ex= perts say.=20 Congress is already wrestling with the potential conflicts that confront ou= tside accounting firms, like Arthur Andersen. The firms act both as indepen= dent auditors -- which companies must have, by federal law -- and consultan= ts on tax and technology issues.=20 But that, too, just scratches the surface. The LJM2 partnership, like sever= al others set up by Enron, was run by a general partnership, LJM2 Capital P= artners, and managed by a second partnership, LJM2 Capital Management. The = people behind both partnerships -- the "principals" -- were all Enron execu= tives, including Andrew S. Fastow, Enron's chief financial officer, and Mic= hael J. Kopper, managing director at Enron's global equity markets group. "= Investors should be aware that there will be occasions where the general pa= rtner and its affiliates may encounter potential conflicts of interest in c= onnection with the partnership's activities," the partnership sales documen= ts said. It explained that the principals "are employees at Enron and owe f= iduciary duties to Enron and its subsidiaries; such fiduciary duties may fr= om time to time conflict with fiduciary duties owed to the partnership and = its partners."=20 Enron's board specifically approved Mr. Fastow's role by exempting him from= the corporate conflict- of-interest policy -- a step that Mr. Breeden foun= d inexplicable. "The very notion that the chief financial officer of a majo= r corporation could have divided loyalties to this degree of magnitude is s= omething I wouldn't have believed any board of directors would allow -- or = that any CFO would accept," Mr. Breeden said. "The CFO is the financial con= science of the company, the guardian of the numbers. If he has a conflict, = how can the system work?"=20 What is known about Enron's partnership arrangements so far, he said, revea= ls an even more profound conflict between management and shareholders. Beca= use Enron had guaranteed the solvency of certain partnerships, obligations = that were not disclosed on its balance sheet were secretly but steadily ero= ding its financial health.=20 "It is as if Enron and its top officers had set up a loaded machine gun and= aimed it at the company -- and the shareholders didn't know it," Mr. Breed= en said.=20 Two things, however, seem certain, legal experts said.=20 The first is that these fresh disclosures about how Enron's partnerships we= re structured and sold will expand the number of defendants named in the sh= areholder lawsuits aimed at trying to recover some of investors' market los= ses, which have been estimated at more than US$60-billion.=20 Every large institution -- whether an underwriter or partnership investor -= - that was aware of material information withheld from Enron investors coul= d find itself in court, securities lawyers said.=20 Already, they said, lawyers are discussing which investors, institutions an= d advisers are potential defendants. "The image I have in my mind is a long= , long line of the wealthy and the powerful who made money out of these dea= ls, all set up to hand it over to the people who lost everything in their E= nron investments," said Mr. Moriarty.=20 The second consequence is likely to be systematic Congressional action to a= mend the nation's securities laws, said Mr. Seligman. Black & White Photo: James Estrin, The New York Times / The Enron office to= wers in Houston were shrouded in fog last week.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Executive's Suicide-Note Release Delayed by Texas Police 2002-01-28 11:20 (New York) Sugar Land, Texas, Jan. 28 (Bloomberg) -- Former Enron Corp. Vice Chai= rman John Clifford Baxter's suicide note will remain under seal until an in= vestigation of his death is completed, the Sugar Land Police Department sai= d in a statement. Police previously promised to release the note this week, possibly as = early as today, following a review by the Harris County Medical Examiner's = Office, which ruled Baxter's Friday death Friday a suicide. Police decided = Saturday to extend the investigation and delayed disclosure of the note, ac= cording to the statement. Baxter, 43, was found in his 2002 Mercedes-Benz at 2:23 a.m. Friday wi= th a self-inflicted gunshot would to the head. He was the lone occupant of = the car and a revolver was found near his body. Sugar Land Police Chief Earnest Taylor said in a statement Saturday th= at his department wasn't disagreeing with the autopsy results, but making s= ure ``we cross all the T's and dot all the I's.'' A suicide note found at the scene said Baxter was distraught over Enro= n's fall and the prospect of testifying against friends who worked there, C= NBC reported late Friday. Baxter resigned in May after a decade with Enron. The company is the s= ubject of numerous shareholder lawsuits, as well as Congressional and crimi= nal investigations, after filing the largest bankruptcy in corporate histor= y in December. --Jim Kennett in Houston at (713) 353-4871, or jkennett@Bloomberg.net, thro= ugh the Chicago newsroom. Editor: Stroth. Former Enron CEO's Wife Says Scrutiny Is Fair, MSNBC Says 2002-01-28 11:32 (New York) Houston, Texas, Jan. 28 (Bloomberg) -- Former Enron Corp. Chief Execut= ive Officer Kenneth Lay's wife Linda said she understands why her husband i= s under scrutiny after the company he ran filed for Chapter 11 bankruptcy p= rotection in December, MSNBC reported, citing an interview on NBC's ``Today= '' Show. ``I don't think it seems unfair,'' MSNBC quoted Linda Lay as saying. `= `The buck stops at his desk. Absolutely. He is at the top. That is where it= ought to be. If I were back there listening to all the things that were be= ing said, I would absolutely have to say, `What is wrong here?' How can all= of this be happening without someone doing something terribly evil?'' Lay said she and her husband are ``fighting for liquidity'' and everyt= hing is for sale except their home, MSNBC reported. She said former Enron Vice Chairman John Clifford Baxter's suicide las= t week is a ``perfect example of how the media can play such havoc and dest= ruction in people's lives.'' ``This is a mass hysteria of who can get the news first on when, how, = why, suspicion, and they're lumping everybody together,'' Lay said, accordi= ng to MSNBC. ``Nobody really even knows what the truth is yet. The only tru= th I know for sure is that my husband is an honest, decent, moral human bei= ng who would do absolutely nothing wrong. That I know 100 percent.'' --Chris Dolmetsch in the Princeton newsroom (609) 750-4652, or cdolmetsch@b= loomberg.net. Editor: Byrd USA: Kenneth Lay's wife says ex-Enron CEO is honest man. By Sue Pleming 01/28/2002 Reuters English News Service (C) Reuters Limited 2002. WASHINGTON, Jan 28 (Reuters) - The wife of former Enron CEO Kenneth Lay def= ended her husband on Monday, saying he was an "honest, decent, moral" man w= ho did nothing wrong in the devastating collapse of the energy trading gian= t.=20 In an interview with NBC's "Today" show, Linda Lay said her husband, who qu= it as chairman and chief executive officer of Enron Corp. last week, had be= en grossly misunderstood and was victim of "mass hysteria" surrounding the = biggest bankruptcy case in U.S. history. "Nobody even knows what the truth is yet. The only thing I know, 100 percen= t for sure, is that my husband is an honest, decent, moral human being who = would do absolutely nothing wrong. That I know 100 percent," she said.=20 Linda Lay, whose five children also defended their father, said she could u= nderstand the anger and loss felt by Enron employees when they recalled her= husband's publicly upbeat attitude toward the company before it dived.=20 Much of the criticism of Lay has centered on mounting evidence he knew of t= he energy company's debt-ridden position even as he was advising his staff = to buy Enron stock, which is now worthless.=20 "If I were back there listening to all the things that were being said I wo= uld absolutely have to say, 'What is wrong here? How can all of this be hap= pening without someone doing something terribly wrong?'" Linda Lay said.=20 But she said there were man things her husband had not been told that would= come out in the many investigations now under way.=20 "Those things will all come to light and that's what we're all praying for.= "=20 Congressional hearings began in Washington last week into Enron's fall and = the role of its auditor, Big Five accounting firm Andersen. Legislators are= very interested in the destruction of thousands of documents related to En= ron audits.=20 REALITY SET IN IT WAS OVER=20 Linda Lay broke down as she recalled a couple of days before Enron collapse= d when her husband came home from work and said he could not turn the compa= ny around.=20 "He said he had tried everything he could think of and he could not stop it= ," she sobbed, adding: "(He was) devastated, devastated for his employees."= =20 Asked how she felt toward those who said her husband betrayed them, she rep= lied, "We've lost everything but I don't feel Ken has betrayed me. I'm sad,= I'm desperately sad but I don't know where to place the anger. I don't kno= w who to get mad at. I just know my husband did not have an involvement."= =20 Like many of those affected by Enron's woes, Linda Lay said her own family = was fighting for survival and that everything except their home was for sal= e.=20 "We are fighting for liquidity. We don't want to go bankrupt," she said, ad= ding that nearly all of their fortune had been locked into Enron stock, whi= ch is now worthless.=20 According to a lawsuit filed in federal court in Houston, Lay received $101= million in proceeds from the sale of Enron stock between October 1998 and = November 2001.=20 The Enron saga took a tragic turn last Friday with the apparent suicide of = J. Clifford Baxter, who had resigned as vice chairman of Enron Corp last ye= ar and who was said to have opposed the accounting practices of the company= .=20 Mrs. Lay said her family was devastated by Baxter's death, adding that her = husband had spoken to him not too long ago.=20 "Cliff was a wonderful man. It's a perfect example of how the media can pla= y such havoc and destruction in people's lives. This is the ultimate. This = is a loss of life."=20 "It makes my heart, it makes Ken's heart ache," she added. "Had we known we= would have picked up the phone and called him. We would have gone and been= with him. We would have done anything we could to have helped him, helped = his family but we had no idea he was in that kind of pain."=20 Lay came out of retirement last year to return to his old job as CEO. Asked= how she would change her life, if given the chance, his wife said: "Selfis= hly, probably that my husband never went back to Enron." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Lay's wife says couple trying to avoid personal bankruptcy=20 Associated Press=20 Jan. 28, 2002, 9:06AM The wife of former Enron Corp. chairman and chief executive officer Kenneth= Lay said the couple is working to avoid personal bankruptcy.=20 "Everything we had mostly was in Enron stock," Linda Lay told NBC's Today s= how today.=20 "We've had long-term investments and those long-term investments have cash = calls," she said. "Virtually -- other than the home we live in -- everythin= g we own is for sale."=20 She said her husband, who built a modest pipeline company into an energy gi= ant, is an "honest, decent, moral human begin who would do absolutely nothi= ng wrong."=20 Kenneth Lay resigned last week as chairman and chief executive, though he r= emains on the Enron board.=20 Linda Lay said the full truth isn't out about the Enron debacle, in which t= he nation's seventh-largest corporation crumbled into bankruptcy because of= questionable accounting practices.=20 "There's some things (Kenneth Lay) wasn't told," Linda Lay said. "That will= all come out in the investigation."=20 She said outside counsel, law firm Vinson & Elkins, and accounting firm Art= hur Andersen LLC had told her husband everything was fine.=20 Kenneth Lay had no idea former Enron executive J. Clifford Baxter -- who co= mmitted suicide -- was in some kind of pain, his wife said.=20 Baxter was found dead Friday in his Mercedes-Benz, a few miles from his hom= e in suburban Sugar Land. On Saturday, the Harris County Medical Examiner's= Office confirmed Baxter killed himself.=20 "It makes my heart ache, it makes Ken's heart ache," Linda Lay said. "Had w= e known, we would have picked up phones and called -- we would have gone an= d been with him."=20 "If what he did had anything to do with what's been going on, it's a real t= ragedy," she said.=20 Enron's collapse is the biggest bankruptcy in U.S. history. Its downfall an= d accounting practices are being investigated by federal prosecutors, the F= BI, securities regulators and 11 congressional committees and subcommittees= .=20 Enron Employees Group Files Suit Seeking Lost Savings 01/28/2002 Dow Jones News Service (Copyright © 2002, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- A group of former Enron Corp. (ENRNQ) employees has f= iled suit against the failed energy trader in Houston federal court seeking= to regain lost savings.=20 In a press release Monday, a group of 400 present and former employees, cal= ling itself the Severed Enron Employees Coalition, or SEEC, filed action se= eking to recover the "staggering losses" suffered by employees who contribu= ted to Enron's 401(k) savings plan. The group, which seeks to represent some 4,500 laid-off Enron employees, is= banding together to focus "on winning for disenfranchised Enron employees = a greater voice in asserting claims resulting from Enron's bankruptcy," acc= ording to the prepared statement Monday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron staffers contemplate future amid gloom=20 `It's mostly about survival our own and the company's'=20 By DAVID KAPLAN=20 Copyright 2002 Houston Chronicle=20 Jan. 28, 2002, 12:26AM Every day, the scandal at Enron brings a new shock, with no letup in sight.= =20 The complex and jaw-dropping developments have even most jaded news consume= rs shaking their heads.=20 Now, just imagine what it's like to still be working there.=20 In the morning, the papers are full of disturbing news about your employer'= s business practices. At work, reporters are waiting outside the building. = During the drive home, talk radio fills your ears with invective. At home, = TV repeats the day's bad news and adds more.=20 On Friday, Enron workers learned of the suicide of former company Vice Chai= rman Cliff Baxter, a member of upper management whom the employees admired.= =20 "The stress has gotten so bad on me, so intense and so sustained, my brain = could no longer take it," said one Enron employee.=20 He stopped watching and reading the news, because it had begun to affect hi= m physically, though he knows he's missing out on information important to = him.=20 "I feel like I'm flying blind," he said.=20 As might be expected, the mood at work is grim. Many wonder if Enron can so= mehow survive. If not, will the employees be left out in the cold?=20 At this point, he said, "it's mostly about survival -- our own and the comp= any's."=20 Understandably, all those who spoke to the Chronicle asked to remain anonym= ous.=20 In mid-October, when Enron reported big third-quarter losses and the Securi= ties and Exchange Commission began its inquiry, one trader began to see in = his colleagues' eyes "a desolate, transparent, stare-out-in-space look."=20 "People were losing an enormous amount of money" in stock holdings and 401(= k)s, the trader said.=20 By early November, when Dynegy announced its plan to buy Enron, employees w= ere fearing for their jobs. Just before Thanksgiving, the apprehension inte= nsified. The trader said he started getting 25 to 30 e-mails a day from peo= ple saying, "If I'm not here tomorrow, here's my home phone number. In case= you hear of a new group starting up, here's how you can get ahold of me."= =20 Then came Black Monday, when 4,200 people were laid off. Those who didn't l= ose their jobs were nonetheless shocked and had a sense of mourning for the= ir co-workers.=20 Recalling that day, a woman who works in the pipeline group said she, too, = wanted to stay at her desk with her head buried.=20 "I felt guilt and hurt," she said. "Now, I'm more depressed. You
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