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Enron Mail |
THE NATION THE ENRON INQUIRY Now, the $51-Million Severance Question Pay: E= nron's Chapter 11 status may jeopardize compensation for ex-CEO Kenneth Lay= . Los Angeles Times, 01/25/2002 Accounting for Enron: Enron's Top Choice For Acting CEO Is Stephen Cooper The Wall Street Journal, 01/25/2002 ENRON'S COLLAPSE: THE COMPANY'S FUTURE Trying to Salvage What Can Be Salvaged While the Creditors Line Up The New York Times, 01/25/2002 Andersen Knew of `Fraud' Risk at Enron --- October E-Mail Shows Firm Antici= pated Problems Before Company's Fall The Wall Street Journal, 01/25/2002 October memo warned of 'heightened risk' of fraud=20 Houston Chronicle, 01/25/2002 Enron Hid Losses, Ex-Worker Says Energy: Manager warned executives $500-mil= lion deficit was attributed to another unit to create illusion of profit. Los Angeles Times, 01/25/2002 ENRON'S COLLAPSE: SELLING ENERGY Ex-Workers Say Unit's Earnings Were 'Illusory' The New York Times, 01/25/2002 Andersen Officials Grilled on Shredding; Fired Enron Auditor Declines to Te= stify The Washington Post, 01/25/2002 Judge OKs depositions on shredding=20 Houston Chronicle, 01/25/2002 ENRON'S COLLAPSE: THE CHAIRMAN An Optimist Sees the Chaos Become Surreal Spectacle The New York Times, 01/25/2002 ENRON'S COLLAPSE: THE OVERVIEW Enron Hearings Open, Focusing on Destroyed Papers The New York Times, 01/25/2002 ENRON'S COLLAPSE: THE IMPACT Bipartisan Outrage but Few Mea Culpas in Capital The New York Times, 01/25/2002 ENRON'S COLLAPSE: THE PARTNERSHIPS Investors Lured To Enron Deals By Inside Data The New York Times, 01/25/2002 ENRON'S COLLAPSE How LJM2 Tripped Up Enron The New York Times, 01/25/2002 ENRON'S COLLAPSE: MUTUAL FUNDS Many May Be Surprised To Be Enron Investors The New York Times, 01/25/2002 ENRON'S COLLAPSE Ruling Accelerates Key Depositions The New York Times, 01/25/2002 Why Bush Stiffed Enron The Wall Street Journal, 01/25/2002 Trading Charges: Lawsuit Spotlights J.P. Morgan's Ties To the Enron Debacle= --- Insurers Balk at Paying Bank Up to $1 Billion in Claims On Complex Tra= nsactions --- Update in a Glass Room The Wall Street Journal, 01/25/2002 Accounting for Enron: Former SEC Chief Levitt Reverses Stand, Calls for New= Laws on Accounting Rules The Wall Street Journal, 01/25/2002 A Renewed Call to Redo Accounting Reform: Two years after initially urging = changes in industry, a former SEC chairman has Senate panel listening close= ly. Los Angeles Times, 01/25/2002 Accounting for Enron: Grand Jury to Investigate Plaintiffs' Firm Involved i= n Shareholder Suit Against Enron The Wall Street Journal, 01/25/2002 After Enron, a Push to Limit Accountants to...Accounting The Wall Street Journal, 01/25/2002 NSC Aided Enron's Efforts; Agency Sought Lay Meeting With Indians on Plant The Washington Post, 01/25/2002 ENRON'S COLLAPSE: THE SECRETARY Army Chief Being Challenged on Ties to Company The New York Times, 01/25/2002 THE NATION With the Theater or PACs, Texans Saw Kenneth Lay as 'On Top of t= he World' Influence: The former Enron chief 'was a guy with swagger and loo= t who bought his way into whatever needed buying.' Los Angeles Times, 01/25/2002 Spreading It Around The New York Times, 01/25/2002 Enron Fraud: Appoint a Special Prosecutor Los Angeles Times, 01/25/2002 Business Spin; It's just like political spin, only not quite as dishonest. The Washington Post, 01/25/2002 ENRON'S COLLAPSE Excerpts From a House Hearing on Destruction of Enron Documents The New York Times, 01/25/2002 ___________________________________________________________________________= _____ Financial Desk THE NATION THE ENRON INQUIRY Now, the $51-Million Severance Question Pay: E= nron's Chapter 11 status may jeopardize compensation for ex-CEO Kenneth Lay= . NANCY RIVERA BROOKS; JAMES F. PELTZ TIMES STAFF WRITERS 01/25/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company Ousted Enron Chief Executive Kenneth L. Lay could get a severance package w= orth at least $25 million--and perhaps exceeding $51 million--although his = ability to collect that payday is clouded by the company's Chapter 11 bankr= uptcy filing.=20 Lay, who resigned Wednesday under fire, also could get parting gifts that i= nclude a lifetime annual pension of nearly $475,000, a $12-million life ins= urance policy and payment of taxes on any severance pay. But Lay may never see a dime because, with most of Enron Corp.'s operations= tangled in U.S. Bankruptcy Court, he slipped overnight from corporate comm= ander to yet another among the thousands of Enron creditors.=20 "I would be incredulous if he got any money, and if he did take any money h= e'd be spending the entire amount on bodyguards," compensation expert Graef= Crystal said.=20 Lay, who received more than $200 million in compensation from Enron since 1= 999, has been accused of misleading shareholders about Enron's finances as = it plunged toward ruin last year.=20 In his 15 years building Enron from a small pipeline company to the world's= largest energy trader, Lay was paid handsomely, and his severance agreemen= t and other benefits reflect that, according to documents on file with the = Securities and Exchange Commission.=20 Exactly how much Lay might receive in severance is only vaguely spelled out= in Enron's most recent proxy statement, filed with the SEC in March. Enron= representatives declined to clarify the matter and hinted that the payout = might not be a sure thing.=20 "The terms of Mr. Lay's separation are still being determined," Enron spoke= sman Vance Meyer said.=20 Three Times His Salary and Bonus, Plus=20 Lay's severance is based on payments he received in 2000, multiplied by the= three full calendar years left on his contract. That means Lay would be en= titled to a lump sum of about $25 million, or three times his 2000 salary o= f $1.3 million and bonus of $7 million.=20 That $25-million tab would be further swelled by an unspecified "long-term = grant value" received in 2000, according to the proxy statement. Compensati= on experts said that could include the $7.5 million of restricted stock and= a $1.2-million cash payment that Lay also received in 2000, which Enron ca= lled "long-term compensation."=20 If that assessment is correct, the total payout would be $51 million.=20 The SEC filing also said that Lay is entitled to a lifetime pension that wo= uld have been valued at $475,042 if Lay, 59, had stayed until 65. In additi= on, the company said it would pay all taxes on Lay's severance if the IRS r= ules that the severance package is an "excess parachute payment."=20 What is more, Lay, as of the end of 2001, owns a $12-million life insurance= policy that Enron helped him buy, according to Lay's 1996 employment agree= ment, also filed with the SEC.=20 Lay also remains as an Enron director, and they are paid at least $50,000 a= year.=20 Compensation experts said it is unlikely Lay will get his severance package= and most of his pension because all preexisting contracts are invalidated = by the bankruptcy filing and the fact that Lay technically resigned, rather= than being terminated. But the refusal of the company to rule out a severa= nce is "troublesome," Crystal said.=20 In any event, even as Enron was hiding losses in a murky series of off-the-= books partnerships and using questionable accounting on its way to the nati= on's largest bankruptcy filing, the company served another purpose that nea= rly was hidden from public view: It effectively was a personal bank for Ken= Lay.=20 The company last year provided Lay with an unusual line of credit of as muc= h as $7.5 million that he used repeatedly, often to help cover soured inves= tments he made elsewhere, his lawyer has said. This despite the fact that L= ay has received more than $200 million in compensation from Enron since 199= 9.=20 And the collateral securing the line of credit apparently was Lay's own Enr= on stock, shares of which were showered on him by the thousands either dire= ctly or through stock options that were part of his compensation package du= ring Enron's explosive growth in the late 1990s.=20 Lay typically repaid the credit line with his Enron shares, then would draw= down the loan again and repeat the process, Earl Silbert, Lay's lawyer, sa= id. Lay did this on 15 occasions between February and October, just as Enro= n's collapse was accelerating.=20 Lay Expected to Face Huge Legal Bills=20 Lay's apparent financial problems, signaled by his repeated tapping of the = credit line, are compounded by the specter of huge personal legal bills fac= ing him. Lay is the subject of more than 50 lawsuits resulting from Enron's= financial meltdown, as well as numerous federal investigations.=20 His credit line is a perk that has surprised several experts in executive c= ompensation, a field already chock-full of various stock options, bonuses a= nd other benefits paid to Corporate America's leaders.=20 To have a standing credit line for an executive who can pay back the loan w= ith stock the company has awarded him is "very unusual," said Alan Johnson,= managing director of Johnson Associates, a compensation consultant in New = York. The arrangement, approved by Enron's board, allowed Lay "to treat the= company as a personal piggy bank," he said.=20 Bill Coleman, senior vice president of compensation at Salary.com, an Inter= net compensation site, said that "there is something fundamentally odd abou= t a company loaning money to an executive and collateralizing it with the c= ompany's own stock."=20 "Why is Enron in the business of loaning money?" he asked.=20 Company Loans to Top Management=20 It is common for a company to make one-time loans to senior managers--say t= o help them relocate or to buy the company's shares. Sometimes corporations= will even waive the interest, or total repayment, as part of the executive= 's future compensation. Indeed, Enron in 1997 made a $4-million loan to Jef= frey K. Skilling, its chief executive who abruptly quit in August.=20 Also, the dollar amount of Lay's credit line isn't sizable relative to the = billions of dollars of debt that sank Enron. After a series of financial se= tbacks that sent its stock plunging and eroded investors' confidence, Enron= filed for Bankruptcy Court protection Dec. 2, citing more than $31 billion= in debt and $50 billion in assets.=20 The stock, which traded around $80 a share a year ago, now trades for just = pennies, and the options that Lay and others still have are virtually worth= less.=20 Silbert did not return calls requesting elaboration on Lay's arrangement, a= nd Enron spokesman Meyer said he could provide no further details.=20 No one has suggested that Lay's arrangement involved any wrongdoing, and En= ron's proxy statement last year disclosed--in two sentences--that the credi= t line existed. About the same time that the proxy appeared, in March, was = when Lay was starting to use the credit line repeatedly.=20 He typically repaid it by returning shares of his Enron stock to the compan= y, said Silbert, who said he made the public disclosure to offset speculati= on that Lay was aggressively dumping shares because the executive knew the = company was headed toward disaster.=20 But that disclosure--coming on top of so many other revelations, including = that some top Enron executives had financial interests in partnerships that= helped finance Enron's operations--adds to the appearance that "there is a= n awful lot of self-dealing going on in this case, and this is symptomatic = of that," said Rajesh Aggarwal, an assistant business professor at Dartmout= h College.=20 In September, at the same time Lay was using his Enron stock to support his= line of credit, he urged company employees to buy more shares only weeks b= efore Enron disclosed the worst financial results in its history.=20 The stock then was selling for about $25 a share, and two months later for = $4 a share. The stock's collapse wiped out billions of dollars of investor = holdings and the retirement savings of Enron employees who owned the stock.= =20 In general, Lay's credit-line arrangement "is not one that's shareholder fr= iendly," said Salary.com's Coleman. The whole point of executive compensati= on is to give top managers incentives to build the company and boost its st= ock price for all shareholders, he said, yet Lay's credit line gave him pro= tection from having to reach into his own wallet even when Enron's stock no= se-dived.=20 "He doesn't get hurt," Coleman said.=20 The credit line served another purpose not afforded the average Enron stock= holder, said Kevin Murphy, a finance professor at USC. Letting Lay repay hi= s credit line with Enron stock "allowed him to get liquidity out of his sto= ck that was easier than going to the open market," he said. In other words,= Lay didn't have to first sell $4 million or so of Enron shares on the stoc= k exchange--an event that likely would have depressed Enron's price on the = market--each time to pay back his Enron loans.=20 "That gives him an advantage that most stockholders don't have," Murphy sai= d.=20 The credit line also raises questions about the amount of risk Lay was pers= onally accepting at the same time he was leading Enron's fight for survival= .=20 It's unclear why, in light of his enormous compensation at Enron, he was ha= ving to repeatedly tap his credit line.=20 Besides his salary and bonuses, Lay realized $43.8 million from stock optio= ns that he cashed in during 1999, and $123.4 million from exercising option= s in 2000, according to Enron's government filings.=20 Lay sometimes borrowed from his Enron line of credit last year when he expe= cted to face margin calls from other lenders, Silbert has said. That meant = he had bought other investments partly with borrowed funds--or on "margin"-= -and now had to repay some or all of those amounts because their underlying= investments had tumbled in value.=20 Lay recently put several properties up for sale, including vacation homes i= n Aspen, Colo.=20 Now that Lay is gone, Enron is searching for a restructuring specialist to = run the company. Sources close to the company said an interim chief executi= ve will be announced in the next few days.=20 Enron reportedly has narrowed the candidates for its interim chief executiv= e, and the front-runners are three New York companies that specialize in co= rporate turnarounds, according to Bloomberg News. Those companies--Alvarez = & Marsal, Glass & Associates and Zolfo Cooper--all declined to comment.=20 *=20 Times staff writer Mark Fineman in Washington contributed to this report, a= nd Times wire services were used in compiling it. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Accounting for Enron: Enron's Top Choice For Acting CEO Is Stephen Cooper By Rebecca Smith and Joann S. Lublin Staff Reporters of The Wall Street Journal 01/25/2002 The Wall Street Journal A4 (Copyright © 2002, Dow Jones & Company, Inc.) Reorganization specialist Stephen F. Cooper is the front-runner to be named= acting chief executive of Enron Corp., following the resignation earlier t= his week of Kenneth Lay as chairman and CEO, people close to the matter sai= d.=20 Mr. Cooper, a managing principal of Zolfo Cooper, a 20-year-old consulting = firm that specializes in bankruptcy reorganization, is set to fly to Housto= n from New York today along with Tom Roberts, Enron's counsel at Weil Gotsc= hal & Manges, these people said. Mr. Cooper, who couldn't be reached, is scheduled to meet with senior manag= ement during the next few days. Enron's board could confirm his appointment= as soon as today, but more likely will act during the weekend. Mr. Cooper,= who has worked with Federated Department Stores Inc., Morrison Knudsen Cor= p. and a host of other companies, "is one of those guys who's done bankrupt= cies his whole life," said one person familiar with the situation. "You don= 't want somebody learning on the job with a bankruptcy this big."=20 If Mr. Cooper is named, the board next will turn its attention to finding a= chairman.=20 While Enron wants a chief executive who will manage its complicated day-to-= day operations and shepherd the firm through bankruptcy, which it entered o= n Dec. 2, the board is seeking a chairman who can play a different role. On= e person said the chairman's post -- for which there is no clear front-runn= er yet -- will be offered to someone who can act as the company's ambassado= r to Washington, where Enron is being investigated by nine congressional co= mmittees, the Justice Department and the Securities and Exchange Commission= .=20 Mr. Lay stepped down at the request of Enron's bankruptcy creditors' commit= tee after it said it had lost faith in the energy company's management. Who= ever is named as CEO is expected to work closely with Chief Financial Offic= er Jeffrey McMahon, who has been the firm's public face in recent weeks aft= er the departure of Enron's former finance chief, Andrew Fastow. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE COMPANY'S FUTURE Trying to Salvage What Can Be Salvaged While the Creditors Line Up By NEELA BANERJEE 01/25/2002 The New York Times Page 7, Column 1 c. 2002 New York Times Company When he resigned as chairman and chief executive of Enron on Wednesday unde= r pressure from outside creditors, Kenneth L. Lay said he was stepping asid= e to ensure the survival of the company. But as Enron tries to sort through= creditors' claims and to tally the billions of dollars in debt parked off = its balance sheet, its chances of surviving, even in a greatly diminished f= orm, remain far from certain.=20 The creditors' committee, which represents the big banks and other companie= s Enron owes, wants to extract the greatest value from the assets remaining= . So do the company's own lawyers. But to do so probably will require selli= ng off most, if not all, of what the company still owns, industry analysts = and energy executives said. ''There's a high likelihood that it just gets liquidated and never gets out= of Chapter 11,'' said Andre Meade, a senior energy analyst with Commerzban= k. ''Enron doesn't have a business with a critical mass that it could be re= organized around.''=20 The company is moving quickly to hire an outside executive who specializes = in restructuring bankrupt companies, said Martin J. Bienenstock of Weil Got= shal & Manges, the law firm that is representing Enron in the bankruptcy pr= oceedings. Mr. Bienenstock declined to identify the candidates for the job.= But he said the list had been narrowed to three executives, at most, and t= hat Enron would probably announce its decision in less than a week.=20 Right now, Enron is being run day to day by Jeffrey McMahon, who was elevat= ed to chief financial officer to replace Andrew S. Fastow, who was forced o= ut last fall after his role in managing the off-the-books partnerships that= contributed to Enron's fall came to light.=20 Mr. McMahon is working alongside Raymond M. Bowen Jr., the treasurer, and S= tan Horton, who is in charge of gas pipeline operations.=20 ''The creditors' committee thinks this is a step in the right direction to = maximize value for all creditors,'' said Luc Despins of Milbank Tweed Hadle= y & McCloy, which represents the committee.=20 Exactly how Enron's value will be maximized at the hands of its lawyers and= creditors will determine the future shape of the company. When it filed fo= r bankruptcy protection on Dec. 2, Enron reported that it had $50 billion i= n assets and $31 billion in debt. But many industry experts are skeptical o= f the claims that its assets are fairly valued, given how misleading Enron'= s accounting has turned out to be.=20 Moreover, the reported debt does not include transactions that were kept of= f the books by the company to inflate its profits, Mr. Bienenstock said. Th= e $50 billion in assets includes contracts in its trading and power marketi= ng businesses, industry analysts said. But with its trading operation paral= yzed ever since the bankruptcy, no one knows what those deals are really wo= rth.=20 The sell-off at Enron has already begun. The company recently turned over i= ts energy trading business to UBS Warburg. In return for assuming the contr= acts of about 600 employees and acquiring things like computers and proprie= tary software, UBS Warburg will give Enron a third of its profits over the = next 10 years, although it has an option to buy out Enron's claim early. It= made no upfront payments.=20 Enron still owns the network of natural gas pipelines that it began with in= the mid-1980's. But that business, while profitable, is far smaller than t= he other units at the company. It also has a utility in Portland, Ore., tha= t is being sold. Enron's overseas holdings, widely considered money-losers,= include a troubled power plant in Dabhol, India, and a utility in Argentin= a.=20 ''The main business, the one anyone would really care about -- their tradin= g business -- they sold to UBS,'' said Gordon Howald, an energy analyst wit= h Credit Lyonnais. ''Their international portfolio is horrible. Their broad= band business has been disbanded. There is very, very little of value left.= ''=20 But Mr. Bienenstock contended that through a mix of asset sales and consoli= dation of remaining business, some version of Enron can still survive. Enro= n's lawyers are discussing with the creditors' committee the best way to se= ll those businesses that they think are worth the most intact while trying = to rebuild others that might bring profits and revenue in the future. Those= remaining businesses would form the core of a new company in which credito= rs would receive equity positions.=20 At the same time, Enron faces a sea of shareholder and employee losses. Mr.= Bienenstock said those suing for mismanagement of 401(k) retirement accoun= ts would have the same rights as creditors with unsecured debt. But those c= harging stock fraud would be at the back of the creditors' line, along with= Enron shareholders. Still, such plaintiffs retain the right to pursue laws= uits against Arthur Andersen and individual officers and board members of E= nron.=20 ''The creditors' committee is economically rational,'' Mr. Bienenstock said= , explaining why he does not think that Enron will melt away in a fire sale= . ''If the shares in a reorganized company are more valuable than selling t= he assets immediately, the creditors will take the shares.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Andersen Knew of `Fraud' Risk at Enron --- October E-Mail Shows Firm Antici= pated Problems Before Company's Fall By Tom Hamburger and Jonathan Weil Staff Reporters of The Wall Street Journal 01/25/2002 The Wall Street Journal A3 (Copyright © 2002, Dow Jones & Company, Inc.) Arthur Andersen LLP analysts determined during the fall that there was sign= ificantly "heightened risk of financial-statement fraud" at Enron Corp., a = newly released document shows.=20 That determination came from a test on the Houston energy company's financi= al statements described in an Oct. 9 e-mail sent by Mark Zajac, a risk-mana= gement employee in Chicago, to Andersen auditors on the Enron account. Mich= igan Rep. John Dingell, the senior Democrat on the House Energy and Commerc= e Committee, released the e-mail as the panel's investigations subcommittee= opened hearings on Enron's collapse. At the hearing, which focused on document destruction at Andersen, firm exe= cutives acknowledged that they retained a law firm in early October in part= because they feared being sued over Enron -- but waited another month befo= re telling the Houston office to preserve Enron-related documents.=20 Andersen's lead Enron auditor, David Duncan, was fired this month for alleg= edly overseeing a massive document-destruction effort after the Securities = and Exchange Commission opened an inquiry into Enron's accounting practices= in late October. Yesterday, Andersen acknowledged that personnel outside H= ouston also destroyed documents.=20 The Zajac e-mail provides another indication that Mr. Duncan and other Ande= rsen auditors were increasingly uncomfortable with Enron's practices as it = spiraled toward collapse. The e-mail also offers a clue to Mr. Duncan's sta= te of mind as he and his subordinates were shredding documents. The e-mail = was dated a week before a previously disclosed Oct. 15 memo that recounted = Mr. Duncan warning Enron that its upcoming third-quarter earnings announcem= ent might be misleading. The Oct. 16 earnings news release characterized $1= .01 billion of losses as "nonrecurring charges," a characterization Mr. Dun= can opposed.=20 Mr. Zajac's analysis was based on a "financial statement fraud risk identif= ication" test. Such tests are routine in auditing, but the Enron results we= ren't. Mr. Zajac wrote that a complete test was impossible because sufficie= nt data about administrative expenses were lacking. But a test of the rest = of Enron's financial statements triggered a "red alert: a heightened risk o= f financial fraud." Mr. Zajac's e-mail explained that such red alerts somet= imes are false alarms, but must be taken seriously because the risk of frau= d is "significantly heightened."=20 The results were relayed to Mr. Duncan a month before Enron announced on No= v. 19 that it would restate its financial statements going back to 1997, cu= mulatively reducing earnings by nearly $600 million. "In the context of the= Enron debacle, this is tantamount to yelling that the barn door is open lo= ng after the horses have fled the scene and shown up in the next county," R= ep. Dingell wrote in a letter to Andersen Chief Executive Joseph Berardino = inquiring about the matter.=20 Andersen spokesman Charlie Leonard said he didn't know what actions its aud= itors took to address the "red alert." But he emphasized that Andersen had = been conducting the particular test referred to in the e-mail only "on an e= xperimental basis" since 2000 and that past runs "have shown that it needs = further refinement," especially when applied to companies such as Enron.=20 At the hearing, Andersen officials continued to pin responsibility for the = shredding on Mr. Duncan and his Houston team, but committee members peppere= d them with questions and evidence aimed at shifting the blame toward Chica= go headquarters.=20 Andersen's internal "investigation indicated that [Mr. Duncan] directed the= purposeful destruction of a very substantial volume of documents," said C.= E. Andrews, Andersen's global managing partner. "This is the kind of conduc= t that Andersen cannot tolerate."=20 Subcommittee Chairman James Greenwood, a Pennsylvania Republican, remained = skeptical as the hearing closed: "What I got after four hours here is a lar= ger question of whether Mr. Duncan is a fall guy for others at Arthur Ander= sen."=20 The hearing provided the most detailed chronology yet of the circumstances = surrounding the document destruction.=20 Members focused much of their questioning on the decision to hire the New Y= ork law firm of Davis Polk & Wardwell, which was retained Oct. 9 -- the sam= e day as Mr. Zajac's e-mail about financial fraud -- and now represents And= ersen in Enron litigation. Mr. Andrews said the firm was retained to help d= eal with Enron financial-reporting issues as well as "possible litigation."= By then, headquarters officials already were aware of a whistleblower's al= legations of possible fraud at Enron.=20 On Oct. 12, Andersen attorney Nancy Temple sent an e-mail from Chicago to r= emind the Houston office of the firm's document-retention policy, which cal= ls for preserving final audit papers but destroying nearly all other record= s unless litigation is "threatened." By about that time, Ms. Temple testifi= ed she had learned of the whistleblower's allegations, too, but she rejecte= d suggestions that the reminder amounted to a document-destruction order. S= he insisted she was merely responding to questions in prior conference call= s "about how to appropriately document several different matters."=20 Three days after sending that e-mail, Ms. Temple had her first discussions = with lawyers from Davis Polk about the Enron matter, which included documen= t-retention issues. That same day, Ms. Temple asked the Houston office in a= n e-mail to remove her name from a draft memo, in part because she didn't w= ant to be called as a "witness." Ms. Temple explained that she was afraid t= hat, because the memo discussed advice she offered, the inclusion of a refe= rence to her might breach attorney-client privilege.=20 On Oct. 22, the SEC announced an informal inquiry into Enron. The next day,= Ms. Temple testified, she and Mr. Duncan talked by telephone. Ms. Temple s= aid her notes indicate that Mr. Duncan said Andersen personnel were "trying= to gather all docs re transactions from around the world."=20 "Do your notes indicate that the documents were gathered and preserved or s= imply gathered?" Colorado Democratic Rep. Diane DeGette asked, prompting la= ughter. Ms. Temple responded that she understood Mr. Duncan to mean gathere= d "in one place to have it available."=20 In fact, that was the day that, according to Andersen's account, Mr. Duncan= called an urgent meeting of the Enron team that led to widespread destruct= ion of documents. Before declining to testify, he told committee investigat= ors that he provided his team with copies of Andersen's document policy but= didn't directly order document destruction, according to an account releas= ed by the panel. A follow-up memo from another Houston manager the next day= advised "everyone to do what is necessary to adhere to the guidelines" and= to work overtime if necessary to do so.=20 Buried in the Andersen officials' written testimony -- but not read aloud a= t the hearing -- was an acknowledgment that "Enron-related documents were d= estroyed by others" outside Mr. Duncan's team. Mr. Leonard, the Andersen sp= okesman, confirmed that personnel outside Houston also disposed of Enron-re= lated items -- mostly e-mails that the firm expect to recover -- but he dec= lined to say which other offices were involved or if Chicago was one of the= m.=20 It was only after Andersen received an SEC subpoena Nov. 8 that Ms. Temple = sent Houston a memo advising all employees to preserve all Enron-related do= cuments.=20 Asked why she waited so long, Ms. Temple said it was company policy to send= out such advisories whenever a subpoena was received. Otherwise, Ms. Templ= e and Mr. Andrews testified, account executives -- in this case, Mr. Duncan= -- are expected to make reasonable judgments. "The responsibility for that= rests with the engagement partner," Mr. Andrews said.=20 "I never counseled any destruction or shredding of documents," Ms. Temple t= estified. "And I only wish that someone had raised the question so that we = could have consulted and addressed the situation."=20 Rep. Billy Tauzin, chairman of the full committee, urged Andersen to recons= ider its policy of leaving such matters to auditors. "If all your policies = are to let accountants decide when it is legal to destroy documents in a pe= nding investigation, an awful lot of people are going to be in trouble down= the road," he said. "If you don't change it, I promise you, we will." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 October memo warned of 'heightened risk' of fraud=20 Firm draws fire for delay before halt of shredding=20 Compiled from staff and wire reports=20 Jan. 25, 2002, 9:10AM WASHINGTON (Houston Chronicle) -- Some officials at Arthur Andersen were wo= rried about a "heightened risk" of fraud in Enron's books a week before the= energy company shocked stockholders with huge losses, an auditor's memo fr= om last October shows.=20 The e-mail by Andersen auditor Mark Zajac warned that a computer analysis o= f Enron's financial activities in the third quarter of last year indicated = "a red alert: a heightened risk of financial statement fraud," according to= investigators.=20 The document, released by Rep. John Dingell, D-Mich., added to mounting evi= dence that Enron's outside accounting firm had strong misgivings about Enro= n business practices.=20 "We have considerable rascality," Dingell, ranking Democrat on the House Co= mmerce Committee, summed up today on CBS's The Early Show. "We have to find= out who is at fault for what."=20 But a House hearing Thursday into the Enron Corp. collapse left lawmakers s= till certain of only one thing: Thousands of documents were destroyed by En= ron's blue-ribbon accounting firm.=20 Questions about who ordered the shredding, and whether it was intended to s= tifle government investigations, were left unresolved after a Commerce subc= ommittee concluded its first public hearing into the largest and perhaps mo= st devastating bankruptcy in history.=20 A week after the "red alert" memo, Enron reported a $638 million third-quar= ter loss and disclosed a $1.2 billion reduction in shareholder equity, part= ly because of hidden debt built up by a complex web of partnerships.=20 On the same day that Zajac wrote his memo to the head of the Enron auditing= team, Andersen also hired a law firm in anticipation of possible lawsuits = involving Enron, the Houston-based energy giant that spiraled into bankrupt= cy Dec. 2.=20 Andersen played down the significance of the computer analysis. And Zajac i= n the memo acknowledged the system produces "false alarms."=20 Lawmakers on Thursday ferociously criticized Arthur Andersen for waiting we= eks after a federal investigation was under way before halting in-house des= truction of Enron documents. Andersen executives in turn tried to blame fir= ed auditor David Duncan for sole responsibility in the shredding -- a claim= met with skepticism by House inquisitors.=20 Duncan, denied immunity by the House Energy and Commerce Committee, appeare= d briefly before the subcommittee on oversight and investigations, where he= twice invoked his Fifth Amendment right against self-incrimination.=20 "Mr. Duncan, Enron robbed the bank, Arthur Andersen provided the getaway ca= r, and they say you were at the wheel," said Rep. Jim Greenwood, R-Pa., aft= er Duncan took his seat at the witness table.=20 A tense-looking Duncan, flanked by his lawyers, informed the committee he w= ouldn't be answering any questions.=20 "I would like to answer the committee's questions, but on the advice of my = counsel I respectfully decline to answer the question based on the protecti= on afforded me under the Constitution of the United States," Duncan said.= =20 The exchange kicked off a new round of congressional hearings into the coll= apse of Enron and the involvement of its former auditors at Andersen.=20 On the other side of Capitol Hill, the Senate Governmental Affairs Committe= e was hearing from former SEC officials and academic experts on whether Enr= on's troubles should have been spotted earlier and how to strengthen curren= t safeguards.=20 The two panels are among at least nine looking into various aspects of what= lawmakers are calling the Enron debacle.=20 The Securities and Exchange Commission and the Labor Department also are in= vestigating, and the Justice Department has opened a criminal probe.=20 At the House subcommittee hearing, lawmakers repeatedly grilled Andersen at= torney Nancy Temple about why she waited until Nov. 10 to instruct employee= s to start saving Enron documents.=20 As early as Oct. 9, Andersen had hired an outside law firm in anticipation = of possible litigation in the Enron matter, lawmakers said.=20 Enron's highly public financial free fall began Oct. 15, when the company r= eported more than $600 million in quarterly losses and a $1.2 billion reduc= tion in shareholder equity.=20 Enron also had disclosed as early as Oct. 22 that the SEC was probing its b= ooks.=20 Gesturing dramatically and thumping his desk in the hearing room, Rep. W. J= . "Billy" Tauzin, R-La., chair of the committee, asked Temple why she was s= ilent for so long about the need to preserve documents.=20 "I never counseled any shredding or destruction of documents. I only wish s= omeone had raised the question," Temple said.=20 Tauzin fired back, "Does anybody have to raise it, or is it somebody's resp= onsibility in the company to raise it themselves? Whose responsibility is i= t but yours?"=20 Andersen fired Duncan last week, saying he had organized a massive destruct= ion of Enron documents beginning Oct. 23.=20 C.E. Andrews, an Andersen global managing partner who also appeared before = the committee, said it was Duncan's responsibility to protect the documents= .=20 "I cannot say it more strongly, Mr. Duncan was not following company policy= . Mr. Duncan was violating company policy," Andrews said.=20 The claim, echoed by other Andersen witnesses, drew fresh scorn from Tauzin= , who questioned why such a sensitive legal issue was left to an accountant= .=20 "I hope you're all OK, I don't know," Tauzin warned, referring to the legal= ramifications the testimony raised. "I don't know what's going to come out= of all this."=20 Several lawmakers said they suspect Andersen is making a scapegoat of Dunca= n, when it appears many employees may have been involved in destroying Enro= n documents.=20 In an internal, Oct. 24 Andersen document the committee released Thursday, = a manager instructs staff to use overtime if necessary in complying with th= e company's policy, which at the time called for destruction of all but the= final auditing documents.=20 Noting that retaining documents is largely a passive act, Greenwood asked w= hy complying with the Andersen policy would require staff to use overtime.= =20 "If the emphasis is on retaining documents, it doesn't seem to us that a wh= ole lot of overtime is required," Greenwood said.=20 Tauzin added that investigators believe documents may have been destroyed b= y Andersen in both the Houston and Chicago offices.=20 Andersen, which is rewriting its policy on document retention, called a hal= t to the destruction of Enron materials on Nov. 10, the day after the SEC s= ubpoenaed the auditing firm.=20 "My mother would say your policy was dumb like a fox," Greenwood told the A= ndersen executives.=20 Dorsey Baskin, managing director for Andersen, said the firm took decisive = steps to remedy the issues surrounding the document shredding.=20 "We certainly are not proud of the document destruction, but we are proud o= f our decision to step forward and accept responsibility," Baskin told the = committee.=20 Although the committee had originally subpoenaed Andersen CEO Joseph Berard= ino, they accepted Baskin as a substitute to answer questions about company= wide policy and the firm's response to the Enron crisis.=20 Subpoenas also were issued to Temple and Andersen manager Michael Odom, whi= ch investigators said would give them legal cover in the event of future li= tigation involving Enron.=20 Odom, an Andersen employee since 1969, was moved out of management duties i= n Houston the day Duncan was fired. Odom told lawmakers Andersen officials = didn't specify why he, Odom, was being disciplined.=20 "I asked what the reason was and I was told the firm felt it had to make so= me bold moves to restore confidence in the Houston community," Odom said.= =20 Rep. Gene Green, D-Houston, a member of the committee, told lawmakers that = Enron's collapse had devastated the city.=20 Hearing the stories of former employees, "literally, the tears would come t= o your eyes," Green said. "Clearly the insiders knew what was going on."=20 Lawmakers in the coming weeks will be expanding the probe of document destr= uction, and also looking at the financial and other problems that brought a= bout Enron's historic collapse.=20 Several said that changes in the law or federal regulations may result from= various issues illuminated through testimony.=20 It was unclear whether any of the four who testified Thursday would return = for more questioning when hearings resume in the House committee next month= .=20 Duncan's request for immunity from prosecution is not likely to be granted = by the committee, since it could later impair the Justice Department's ongo= ing criminal probe.=20 Duncan, who also was subpoenaed by the committee, began cooperating with Ho= use investigators the day after he was fired from Andersen. Since then, his= immunity request has cast a chill on his relationship with investigators.= =20 Greenwood complained that Duncan's ongoing silence could impede the committ= ee's work -- including unraveling the mysteries surrounding the fired audit= or.=20 "I still haven't made up my mind on whether Mr. Duncan was a rogue employee= or whether Mr. Duncan was set up as a scapegoat," Greenwood said.=20 Business; Business Desk Enron Hid Losses, Ex-Worker Says Energy: Manager warned executives $500-mil= lion deficit was attributed to another unit to create illusion of profit. LEE ROMNEY and WALTER HAMILTON TIMES STAFF WRITERS 01/25/2002 Los Angeles Times Home Edition C-1 Copyright 2002 / The Times Mirror Company A former Enron Corp. manager warned top company brass in August that more t= han $500 million in losses from the firm's energy services unit were being = hidden in another division so the unit could misleadingly report profit to = Wall Street, a copy of her e-mail reveals.=20 The allegations by former employee Margaret Ceconi were made in an Aug. 29 = e-mail to Chairman Kenneth L. Lay, who Wednesday resigned from the empire h= e built. Ceconi's e-mail apparently wasn't connected to another whistle-blower memo = sent by Vice President Sherron S. Watkins to Lay in mid-August.=20 Although Watkins warned that losses hidden in off-balance-sheet partnership= s could cause Enron to "implode in a wave of accounting scandals," Ceconi's= concerns focused on the juggling of losses within Enron units. A copy of h= er e-mail was obtained by The Times.=20 According to Ceconi, whose allegations were reported Thursday in the Housto= n Chronicle, losses of more than $500 million were transferred from Enron E= nergy Services to Enron Wholesale Services--the firm's lucrative trading un= it--in a financial sleight of hand to deceive investors and analysts.=20 Until last spring, the energy services unit was co-headed by Thomas E. Whit= e Jr., who now is Army Secretary. He could not be reached for comment Thurs= day.=20 "EES has knowingly misrepresented EES' earnings," Ceconi wrote. "This is co= mmon knowledge among all the EES employees, and is actually joked about. Bu= t it should be taken seriously."=20 Ceconi wrote the e-mail--a rambling memo in which she lashes out at Enron m= anagement--after she was fired from EES. She complains in the memo that she= was "fraudulently" recruited with misleading information about EES and the= n unfairly let go.=20 Enron spokesman Mark Palmer could not be reached Thursday. In the Chronicle= he characterized Ceconi as a "disgruntled" employee, but would not comment= on the specifics of her memo.=20 Ceconi could not be reached for comment. But her attorney, Demetrios Anaipa= kos, said her concerns about the accounting practices outweighed her person= al beefs with Enron. "She felt that EES was being portrayed as a money-maki= ng operation when it was exactly the opposite," he said.=20 EES provided energy services to commercial and industrial firms, promising = them predictable long-term energy supplies and improved energy efficiency. = Enron touted the unit as having huge growth potential.=20 According to a filing with the Securities and Exchange Commission, Enron re= vamped the EES unit last year, moving some commodity "risk-management activ= ities" to the Wholesale unit.=20 As part of the restructuring, Enron restated its second-quarter 2000 result= s for EES. Originally, the unit had revenue of $840 million and operating i= ncome of $24 million. After the restatement, revenue was cut in half to $42= 0 million, but profit almost doubled to $46 million.=20 The restructuring could have been "an attempt to move a money-losing operat= ion into a segment that was more profitable," said Randy Beatty, dean of th= e accounting school at USC, who reviewed the SEC document for The Times.=20 Some analysts said Enron repeatedly restructured operations to boost the fi= nancial results of individual units. "They kept restructuring the business = segments so they could shift earnings from one section to another," said Pr= udential Securities analyst Carol Coale.=20 Accounting experts said companies can freely restructure their operations, = thus altering the reporting of profits and losses. But, said William Kinney= , an accounting professor at the University of Texas in Austin, such reorga= nizations should be done for valid business purposes, not just to "move thi= ngs around."=20 "It's subject to abuse if you're trying to hide bad performance," Kinney sa= id. But proving intent is difficult, he said.=20 Anaipakos said Ceconi, who left a senior job at GE Capital to join Enron in= late 2000, received a call from someone in human resources after she sent = the e-mail. "She was told her allegations were being taken seriously, [but]= I can say she never heard from them again," he said.=20 Ceconi, now employed by a Houston consulting firm, also contacted the SEC b= y phone twice in August and September to voice her concerns, Anaipakos said= .=20 "Some would say the house of cards [is] falling," Ceconi wrote in the e-mai= l to Lay, which also complained of favoritism and discrimination at the com= pany.=20 "You have to decide the moral or ethical things to do, to right the wrongs = of your various management teams. I wish you luck." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section A ENRON'S COLLAPSE: SELLING ENERGY Ex-Workers Say Unit's Earnings Were 'Illusory' By ALEX BERENSON 01/25/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company A major division of the Enron Corporation overstated its profits by hundred= s of millions of dollars over the last three years, and senior Enron execut= ives were warned almost a year ago that the division's profits were illusor= y, according to several former employees.=20 The division, Enron Energy Services, competed with utilities to sell electr= icity and natural gas to commercial and industrial customers. It was run by= Lou L. Pai, who sold $353 million in Enron stock over the last three years= , more than any other Enron executive, and Thomas E. White, who left Enron = to become secretary of the Army last June. Energy Services accounted for a small part of Enron's revenue but was promo= ted by the company as a big growth opportunity. Unlike the complex partners= hips and other entities that Enron used to move debt and losses on outside = investments off its books, this unit was a real business with more than 1,0= 00 employees and customers like J. C. Penney.=20 But former employees, including three who were willing to be identified, su= ggest that Energy Services used shoddy accounting practices to create ''ill= usory earnings,'' in the words of Jeff Gray, who joined Enron in 2000 and w= orked at the division for most of 2001.=20 For example, by estimating that the price of electricity would fall in the = future, Enron could book an immediate profit on a contract.=20 The employees' allegations raise fresh questions about Mr. White's role at = Enron, where he was an executive for 11 years. In a disclosure last May, ju= st before he became Army secretary, Mr. White reported that he owned more t= han $25 million of Enron stock and would be paid $1 million in severance fr= om Enron.=20 Because he went from the Army to Enron and back to the Army, Public Citizen= and others have voiced concerns about potential conflicts. While he was at= Energy Services, it sold a $25 million contract to the Army. As secretary,= he said that he would move energy services at bases to private companies, = like Enron.=20 A spokesman for Mr. White did not return repeated calls for comment. Mr. Pa= i, the former chairman, and a spokesman for Enron also did not return calls= . Peggy Mahoney, a spokeswoman for Energy Services, said the division's fin= ancial results had accurately reflected its business. ''It was no pie in th= e sky,'' she said.=20 Enron created Energy Services in 1997 to take advantage of the deregulation= of electricity markets nationally. It promised to cut its clients' energy = costs by installing energy-saving equipment and finding cheaper natural gas= and electricity.=20 Energy Services operated as essentially a freestanding company, but its res= ults were included in Enron's financial statements, which were audited by A= rthur Andersen. Energy Services organized itself so that it could use a fin= ancial reporting technique called mark-to-market accounting, which Mr. Gray= and other former employees said the division had abused to inflate its pro= fits.=20 Under traditional accounting, companies book profits only as they deliver t= he services they have promised to customers. But Energy Services calculated= its profit very differently. As soon as it signed a contract, it estimated= what its profits would be over the entire term, based on assumptions about= future energy prices, energy use and even the speed at which different sta= tes would deregulate their electric markets.=20 Then Energy Services would immediately pay its sales representatives cash b= onuses on those projections and report the results to investors as profits.= By making its assumptions more optimistic, the division could report highe= r profits.=20 As a result, the sales representatives and senior managers pressed the mana= gers who made the central assumptions about deregulation and energy prices,= said Glenn Dickson, a manager at Energy Services who was fired in December= .=20 ''The whole culture was much more sales driven than anything else,'' Mr. Di= ckson said. ''The people that were having to sign off on the deals with a g= un to their head knew that it wasn't a good deal.''=20 Mr. Dickson and other former employees said senior executives at Energy Ser= vices knew that their assumptions were unreliable. At the same time, expens= es ballooned as Energy Services found that the costs of managing its contra= cts were higher than it had projected.=20 ''They knew how to get a product out there, but they didn't know how to run= a business,'' said Tony Dorazio, a former product development manager at E= nergy Services.=20 In 1999 and 2000, under the leadership of Mr. Pai and Mr. White, Energy Ser= vices would sign almost any deal, a former employee said. But by the end of= 2000, the executives were no longer paying much attention to daily operati= ons, Mr. Dickson said.=20 None of the former employees said they knew whether Mr. Pai or Mr. White we= re aware of any accounting lapses at Energy Services. With Energy Services = hemorrhaging cash in 2000, even as it began to report profits to investors,= the unit began reviewing some of the contacts to determine whether it had = overstated its profits. But publicly, Enron continued to promote Energy Ser= vices' prospects. A year ago, Jeffrey K. Skilling, Enron's president at the= time, told Wall Street that the division was worth about $20 billion.=20 ''They said at one point they expected it to be as large as wholesale,'' sa= id Jeff Dietert, an analyst at Simmons & Company in Houston. Enron's wholes= ale trading division, which bought and sold electricity and natural gas wor= ldwide, was the source of most of its profits.=20 The division generated $165 million in operating profit on $4.6 billion in = sales in 2000, in contrast to a loss of $68 million on sales of $1.8 billio= n in 1999, according to Enron's 2000 annual report.=20 Even as Enron promoted the division's potential, it accelerated its review = of the contracts and brought in new management. By February 2001, Enron had= transferred Mr. Pai out of the division and named David Delaney, who came = from the wholesale business, as its top executive. A former brigadier gener= al, Mr. White remained until he became secretary of the Army.=20 A former employee said that in February or March 2001, senior managers with= in Energy Services spoke to Richard A. Causey, Enron's chief accounting off= icer, to discuss potential losses associated with a handful of large contra= cts. The potential losses on those deals topped $200 million, the employee = said.=20 About the same time, Mr. Delaney discussed the potential losses with Mr. Sk= illing and other top corporate executives, this employee said.=20 Sales slowed last year as Mr. Delaney forced the division to use more conse= rvative and accurate projections when deciding on a contract, Mr. Dickson s= aid. The move frustrated some sales representatives, but stemmed losses, he= said.=20 Although Energy Services publicly reported profits until Enron collapsed, i= t continued to lose money last year because of the unprofitable contracts, = employees said.=20 Margaret Ceconi, a former sales manager, sent a letter in August to Kenneth= L. Lay, then Enron's chairman, saying that Enron had hidden losses on its = contracts by putting them in the wholesale division.=20 ''It will add up to over $500 million that E.E.S. is losing and trying to h= ide in wholesale,'' Ms. Ceconi wrote in her letter, which was previously re= ported in The Houston Chronicle.=20 Today, Energy Services is essentially a shell. After filing for bankruptcy = Dec. 2, Enron walked away from many contracts, an action allowed under bank= ruptcy rules.=20 Energy Services' decision to exit so many contracts, including its largest,= a $2.2 billion contract signed only last year with Owens-Illinois, the gia= nt glass and plastic maker, is proof of the problems at the division, forme= r employees said.=20 ''They kept telling me, and I heard it many a time, that it was a sound bus= iness plan,'' Mr. Dorazio said. ''After being in this business for 21 years= , it didn't seem sound to me.'' Chart: ''Many Variables, One Profit'' Enron Energy Services sold contracts = to provide natural gas and electricity to companies for long periods. The c= ompanies found the prices attractive. But when it had the chance in bankrup= tcy court, Enron walked away from many of the contracts, a tacit acknowledg= ement that they were not profitable. A HYPOTHETICAL 10-YEAR ENERGY CONTRACT= 1. Enron would agree to provide electricity and natural gas at a fixed pri= ce for 10 years. 2. It then used a computer model to project the cost and p= rofit of providing this service. Among the many variables that Enron consid= ered were the prices of power in states that were deregulating, the expecte= d dates when states would deregulate power supplies and the expected demand= , based in part on the installation of energy-saving devices at the company= . Such factors are very hard to project. ENRON'S ACCOUNTING: 10 YEARS IN ON= E 3. Even though most of Enron's contracts were unprofitable at first, and = would only become profitable later if its projections proved accurate, Enro= n could book those profits as soon as it signed them under mark-to-market a= ccounting.(pg. C6)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 A Section Andersen Officials Grilled on Shredding; Fired Enron Auditor Declines to Te= stify Robert O'Harrow Jr. and Kathleen Day Washington Post Staff Writers 01/25/2002 The Washington Post FINAL A01 Copyright 2002, The Washington Post Co. All Rights Reserved House members probing the sudden demise of Enron Corp. pressed executives a= t the company's auditor, Arthur Andersen, yesterday on why they didn't do m= ore to preserve Enron audit documents last fall, after they learned that fe= deral regulators were investigating the energy trader's finances.=20 Lawmakers cited an e-mail showing that an Andersen official in October had = urged auditors on the Enron account in Houston to work "overtime" to follow= the company's rules on document retention and destruction. The e-mail did = not specifically say to retain documents. One committee member said he inte= rpreted the memo as a veiled suggestion to destroy documents. Another Andersen document said a computer analysis of Enron financial activ= ity showed that the company warranted a "red alert" of possible fraud. It w= as dated Oct. 9, a week before Enron announced a large loss.=20 Andersen officials played down the significance of the fraud warning, sayin= g later that the software was unreliable.=20 The Andersen witnesses staunchly defended the firm's actions, saying they s= ent out a detailed reminder to preserve documents as soon as the big accoun= ting firm received a subpoena in November. They blamed the shredding on Dav= id B. Duncan, the lead Enron auditor, who was fired last week.=20 Duncan, citing the advice of his attorney, declined three times to answer q= uestions in a brief appearance before the committee. He invoked his Fifth A= mendment privilege against self incrimination.=20 "Mr. Duncan, Enron robbed the bank," said Rep. James C. Greenwood (R-Pa.), = chairman of the House Energy and Commerce Committee's subcommittee on overs= ight and investigations. "Arthur Andersen provided the getaway car. And the= y say you were at the wheel."=20 Greenwood questioned after the hearing whether Duncan was "a villain or a s= capegoat."=20 C.E. Andrews, a global managing partner at Andersen, tried to deflect respo= nsibility from others at the accounting firm. "Destruction of documents dur= ing that period was wrong, and we admitted that," he said. "I cannot say mo= re strongly Mr. Duncan was not following company policy."=20 Andrews acknowledged that others at Andersen also destroyed Enron-related d= ocuments, although he said the volume and circumstances were different.=20 Andrews said the document policy was later suspended because it was not cle= ar enough. It was dropped Jan. 10 when Andersen first announced that some o= f its employees had destroyed Enron-related documents.=20 As House lawmakers sought to determine exactly what Andersen knew about the= shredding -- and when the firm knew it -- Federal Reserve Board Chairman A= lan Greenspan made pointed statements about the potential impact of Enron's= accounting practices in an appearance before the Senate Budget Committee.= =20 A visibly passionate Greenspan said that if "everybody did what is alleged = in the Enron accounting system, our [economic] system could not work" becau= se investors have to be able to rely on the information they receive. He re= ferred to Enron's use of off-balance-sheet partnerships to conceal a large = amount of corporate debt as "an egregious act."=20 While saying that he is not worried that Enron's collapse will hinder inves= tment in U.S. companies or cause interest rates to rise, he said the case "= is going to create a really major rethinking in a lot of people about wheth= er there is a spin game going on with respect to information coming out of = business into the investment community."=20 An Enron hearing before the Senate Governmental Affairs Committee also took= a broader view of the issues raised by the nation's largest bankruptcy. Se= n. Joseph I. Lieberman (D-Conn.), chairman of the committee, said his panel= 's examination will include questions about whether industry regulators and= agencies such as the Securities and Exchange Commission tracked Enron's ac= tivity closely enough. "And if not, why not?" Lieberman added.=20 One Senate witness, former SEC chairman Arthur Levitt Jr., chided an array = of people, including analysts, rating agencies and government regulators, f= or failing to do enough to prevent the Enron debacle.=20 "Enron's collapse did not occur in a vacuum," Levitt said, adding that it w= as partly a result of a "culture of gamesmanship" among go-go businesses th= at believe "it's okay to bend the rules."=20 Yesterday's hearings were part of nearly a dozen congressional investigatio= ns into Enron's collapse and allegations that it misled investors and, alon= g with Andersen, tried to hide questionable business practices.=20 The Justice Department is investigating Andersen's document destruction as = part of its criminal probe of Enron's collapse. In Houston yesterday, FBI a= gents were inside Enron's headquarters investigating the shredding of docum= ents there, which was disclosed earlier this week.=20 In remarks after the four-hour House hearing, Rep. W.J. "Billy" Tauzin (R-L= a.), chairman of the House Energy and Commerce Committee, said more people = than previously disclosed knew about document destruction by Andersen, "per= haps in Chicago," at the company's headquarters.=20 Greenwood scoffed at the idea of Andersen employees working overtime to uph= old the document-retention policy. "It doesn't seem to us it takes a lot of= overtime to retain documents," he said.=20 The testy House session demonstrated the complexity, disagreement and postu= ring that are quickly coming to characterize the widening investigations of= Enron's fall.=20 Lawmakers from both parties have pledged to examine how the energy trader c= ollapsed, the allegations of corporate fraud and coverups, and the impact o= n thousands of investors who lost billions of dollars when Enron's share pr= ice dropped to less than a dollar in recent months.=20 Greenwood opened the House subcommittee hearing by calling it "just the fir= st step in a thorough and rigorous investigation." He and other panel membe= rs were aggressive in their questioning -- and openly skeptical of the resp= onses of Andersen executives.=20 A focus of much of the questioning was the role of Nancy Temple, an Anderse= n lawyer who wrote an Oct. 12 memo that she said was meant to remind Duncan= and others about the company's policy, which calls for the retention of so= me documents and the destruction of others. Temple told lawmakers her memo = was not intended as a directive to shred documents.=20 The 35-page policy statement said that under normal circumstances, employee= s were to retain only final work papers supporting client audits, and to th= row out drafts, but that if litigation was anticipated, all documents were = to be retained. In her testimony, Temple said she meant employees to unders= tand that they were to retain documents.=20 "Your memo was interpreted, as you know, as a shredding order," said Rep. E= dward J. Markey (D-Mass.). Duncan's attorneys say he interpreted it to mean= he should destory Enron-related documents.=20 Temple's testimony also revealed that she contacted Andersen's outside lega= l advisers, Davis Polk & Wardwell, before sending an Oct. 16 e-mail to Dunc= an asking that he delete her name and other references to legal advice from= a memo he had written about potentially misleading statements in an Enron = news release about its earnings.=20 She said the outside lawyers recommended she do that so that if Andersen wa= s sued or investigated over its Enron auditing, discussions between Duncan,= Temple and other lawyers would be protected by attorney-client privilege.= =20 Andrews said Davis Polk had been retained by Arthur Andersen on Oct. 9 beca= use of "potential litigation" stemming from Enron's troublesome financial s= tatements.=20 Tauzin and other lawmakers yesterday questioned why Andersen's general coun= sel or compliance officer didn't issue clear instructions that day about pr= eserving documents.=20 Temple said she e-mailed an explicit directive to preserve Enron audit docu= ments on Nov. 10, in response to a subpoena the company had received two da= ys earlier from the SEC. Temple said she called Duncan directly the day bef= ore to underscore the message. After that call, Duncan's assistant sent out= an e-mail to other secretaries in the Houston office saying "no more shred= ding."=20 Among the questions Duncan would not answer yesterday was why, if he though= t the Oct.
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