|
|
Enron Mail |
Blockbuster Deal Sowed Seeds Of Enron Fiasco The Wall Street Journal, 01/17/2002 Blockbuster Deal -2: Partnership Ill-Structured The Wall Street Journal, 01/17/2002 Pricewaterhouse, KPMG Have A Link To Enron The Wall Street Journal, 01/17/2002 McKinsey Held Close Enron Ties For Many Years The Wall Street Journal, 01/17/2002 Enron Board's Actions Raise Liability Questions The Wall Street Journal, 01/17/2002 New memo uncovered in Enron probe CNN.com, 01/17/2002 Enron Auditor Questioned by House Investigators (Update) Bloomberg, 01/17/2002 Arthur Andersen Knew Of Enron Woes A Year Ago The Wall Street Journal, 01/17/2002 Arthur Andersen Confronts Role In Enron Debacle The Wall Street Journal, 01/17/2002 DJ Texas Lawmakers Want Probe Into Enron, Arthur Andersen AP, 01/17/2002 Column: Enron's Political Contacts Key To Scandal The Wall Street Journal, 01/17/2002 Critics: SEC's Pitt Should Avoid Enron Probe The Wall Street Journal, 01/17/2002 SEC Chief Pitt Has Hands Full With Enron, Critics, Papers Say Bloomberg, 01/17/2002 UPDATE: Bush Adviser Watched Enron's Woes Spread The Wall Street Journal, 01/17/2002 Former Lieberman Aide Worked for Enron as Lobbyist, AP Says Bloomberg, 01/17/2002 US Govt Agencies To Study Retirement-Plan Security The Wall Street Journal, 01/17/2002 Enron Europe's Eric Shaw Comments on Collapse, Implications Bloomberg, 01/17/2002 IntercontinentalExchange Gaining From Enron's Collapse, FT Says Financial Times, 01/17/2002 AMERICAN ELECTRIC POWER BUYS ENRON NORDIC ENERGY CRL, 01/17/2002 ________________________________________________________________________ Blockbuster Deal Sowed Seeds Of Enron Fiasco 2002-01-17 23:05 (New York) By Rebecca Smith Staff Reporter of The Wall Street Journal When Enron Corp. and Blockbuster Inc. joined forces in mid-2000, it looked like they were onto something big. The companies announced they would soon be allowing consumers across America to choose from among thousands of movies, including hot new features, sent via telephone lines to watch on their TVs at home. Announcing the partnership in July 2000, Enron Chairman Kenneth Lay called it the "killer app for the entertainment industry." Blockbuster Chairman John Antioco said the two companies had come up with the "ultimate bricks-clicks-and-flicks strategy." Oracle Corp. Chairman Larry Ellison later committed his private company, nCube Corp., to provide critical computer hardware and $2 million. Mr. Ellison said he was "proud" to be part of the venture. It looked like another brilliant move by Enron, already a hero on Wall Street. The Houston company had aligned itself with the nation's leading video retailer. The 20-year deal would bring traffic to Enron's fledgling fiber-optic telecommunications network. And the venture reaffirmed the notion that Enron, already America's pre-eminent energy trader, would soon be a lucrative middleman for a vast range of other products, as well. But within eight months of its launch, the partners had split. Enron blamed Blockbuster for not getting the biggest movie studios to sign licensing deals that would have guaranteed the hottest titles. Blockbuster said the criticism was unfair. The video-rental company had expected to build the business cooperatively over two decades. Enron's impatience "didn't add up," says Blockbuster spokeswoman Karen Raskopf. As it turns out, Blockbuster didn't know the half of it. Within months of inking the deal, Enron had set up an affiliated partnership, code-named Project Braveheart, an apparent allusion to the 1995 Mel Gibson movie. Enron obtained a $115.2 million investment in the partnership from CIBC World Markets, the investment-banking arm of Canadian Imperial Bank of Commerce in Toronto. In return, CIBC received a promise of almost all earnings from Enron's share of the venture for the first 10 years. Blockbuster didn't know about Braveheart at the time, Ms. Raskopf says. The partnership had no separate staff and no assets other than Enron's stake in the venture with Blockbuster, which was barely getting off the ground in late 2000. Still, in an audacious accounting move, Enron claimed $110.9 million in profits from Braveheart in the fourth quarter of 2000 and the first quarter of 2001. That amount sharply limited the overall losses suffered by Enron's young fiber-optics division in the two periods. At its peak, in March 2001, the venture with Blockbuster provided only about 1,000 test customers with movies in four U.S. cities. Many of those customers didn't even pay. "It was nothing but a pilot project," says Blockbuster's Ms. Raskopf. "I don't know how anyone could have been booking revenues." Blockbuster, a unit of Viacom Inc., never accounted for any financial gain or loss from the short-lived venture, she says. Project Braveheart was one of dozens of outside partnerships that Enron officials created to burnish the company's financial results at a time when it felt under pressure to show high profits that would justify its soaring stock price, according to current and former company executives. One of the reasons Enron began sliding toward bankruptcy court last fall was the abandonment of some of these accounting maneuvers, which contributed to huge losses and the collapse of its stock. Some of the partnerships were designed to shift large debts off Enron's balance sheet and make the company appear more robust in the eyes of investors and credit-rating agencies. Others, such as Braveheart, raised fast cash needed to fund Enron's ever-expanding array of new businesses. The company had a grand vision -- to move away from its roots in the energy business and build futuristic electronic markets in everything from newsprint to bandwidth. But the vision wasn't panning out financially, according to the current and former executives and internal company documents. Enron's current chief financial officer, Jeffrey McMahon, says he had nothing to do with Braveheart or related partnerships. "I'm not going to defend them," he says. An Enron spokeswoman says the company has no other comment. Whether Braveheart or any of the other partnerships involved deception that could constitute civil or criminal fraud is a question that federal investigators are only beginning to explore in their probes of Enron and its auditor, Arthur Andersen LLP. Irving Einhorn, former head of the Securities and Exchange Commission's Los Angeles office, says a company or individual can be held liable in a civil lawsuit for failing to "disclose all material facts" that might influence a "reasonable investor to invest or not invest." To prove criminal fraud, a prosecutor must show "beyond a reasonable doubt" that a defendant intended to mislead, Mr. Einhorn says. "You look for a guilty state of mind." Andersen's possible role in signing off on the structure of some or all of the partnerships came into the spotlight Tuesday. The Big Five accounting firm announced it had fired a partner in its Houston office who oversaw the Enron account because he allegedly ordered the destruction of related e-mails and documents. The Braveheart partnership was vetted and approved by Enron's internal risk department and by Andersen, Mr. McMahon says. As Enron's ambitions grew more diverse in the late 1990s, getting into telecommunications struck some executives as appealing. In 1998, the company launched a new unit with the idea of obtaining fiber-optic lines over which it could deliver business data and entertainment. The unit, headed by Kenneth Rice, a right-hand man of Enron's then-chief executive, Jeffrey Skilling, also pioneered the trading of access to fiber-optic, or "broadband," networks it and others would control. Enron in 1998 acquired Portland General Electric, an Oregon utility that had a budding fiber-optic network for phone and data traffic in the Pacific Northwest. Enron expanded the network aggressively, hoping that businesses would use it during weekdays to send information, while on nights and weekends, consumers could receive movies on demand. The Blockbuster venture announced in July 2000 was supposed to provide the movies, which customers could control with a TV set-top box. Viewers would select from a catalogue expected eventually to contain thousands of titles and watch them whenever they wanted to for about the price of a rental. With the Blockbuster venture under way, Enron incorporated its Braveheart venture in Delaware on Dec. 28, 2000, giving it the legal name EBS Content Systems LLC, according to Delaware public records. Internal Enron documents describing Braveheart show a complicated financial structure in which there were three classes of stock but EBS exercised effective control. Enron assigned the partnership a value of $124.8 million based on its projections of the revenue and earnings potential of the Blockbuster venture, according to the company documents. Blockbuster Deal -2: Partnership Ill-Structured 2002-01-16 23:09 (New York) From The Wall Street Journal These documents indicate that Enron sought to structure the partnership so that 3% of it was owned by outside investors. That is the minimum amount required for such a partnership to be considered a legitimate "arms-length" entity, separate from the company or person creating it, according to the Financial Accounting Standards Board, the accounting industry's private rule-setting organization. Achieving this status would allow Enron to treat Braveheart's finances separately, rather than as part of Enron's own balance sheet, and shield the partnership from public scrutiny. To begin to piece together the 3% outside interest, Enron went to nCUBE, a technology company controlled by Oracle's Mr. Ellison. The Portland, Ore., company, which as a contractor was supplying the Blockbuster venture with computer hardware, also made a $2 million investment in Braveheart in late 2000, says Michael Pohl, nCube's president. Mr. Pohl says Enron promised to return the $2 million in early 2001. "It was never a long-term thing," he adds. Enron still needed another $1.74 million to hit the 3% goal. It obtained the money from another partnership, known as SE Thunderbird LLC, according to the company documents. Defining this as outside money was complicated, since Enron itself owned 71.5% of SE Thunderbird, while outsiders owned 28.5%. (SE Thunderbird's ostensible purpose couldn't be determined.) Here is how Enron got to 3%, according to the documents: The company took $7.1 million from SE Thunderbird and moved it to Braveheart. Enron classified 28.5% of that -- or about $2 million -- as outside money. That meant that the 3% threshold had been exceeded. Andersen signed off on the structure of the deal and the $124.8 million valuation of the Braveheart partnership assigned by Enron, according to the company documents. Andersen spokesman David Tabolt says the accounting firm can't talk about the Braveheart venture "due to client-confidentiality issues." In exchange for its $115.2 million investment, CIBC was supposed to receive 93% of Braveheart's cash flow for 10 years. But Enron made the investment in the embryonic partnership more attractive by promising to repay CIBC the full value of its investment if the partnership failed to be a money maker. Three former Enron employees familiar with the partnership deals say that this kind of guarantee was designed specifically to attract investors who otherwise might worry about the viability of the deals. "The banks didn't care about the assets they invested in, and that's how it got out of control," says one former Enron employee who helped create some of the partnerships. In late November, CIBC said its total unsecured potential losses related to Enron amounted to $115 million. That amount is roughly equal to the sum CIBC invested in Braveheart. The bank also said it has secured-debt exposure to Enron of another $100 million. Citing "client confidentiality," Rob McLeod, a CIBC spokesman, declined yesterday to comment on its investment in Braveheart or other Enron partnerships. Mr. Pohl, the nCube president, says his company is "still on the hook for that $2 million" it invested in Braveheart and is considering filing a claim with the U.S. bankruptcy court in New York. Raising money, such as the CIBC investment, through its partnerships was essential to Enron. Andrew Fastow, then chief financial officer, discussed the issue in general before the finance committee of the company's board of directors in October 2000. Mr. Fastow was involved in putting many of the partnerships in motion, although he apparently didn't play a direct role in Braveheart, according to Mr. McMahon. Mr. Fastow told the board members that the company needed a "private-equity strategy" that would fund "significant capital investments by the company, some of which would not generate cash flow or earnings for a number of years," according to excerpts of minutes of the meeting. The capital investments included Enron's plans to expand trading of such things as broadband access. A lawyer for Mr. Fastow didn't return a phone call seeking comment. Enron began using Braveheart for accounting purposes in the fourth quarter of 2000. For that period, Enron claimed its ownership of Braveheart resulted in a $53 million profit, even though the Blockbuster venture was only two weeks into its pilot program and not generating any profit at all. One of the former Enron employees familiar with Braveheart recalls wondering at the time, " `How can they monetize this asset when we're still putting it together?' It didn't make any sense to me." In the following quarter, the first of 2001, Enron claimed an additional $57.9 million gain from Braveheart. "I was just floored," says the former employee. "I mean, I couldn't believe it." At the time, the Blockbuster venture was just starting in New York, Seattle, Portland, Ore., and Salt Lake City, the former employees say. The profits Enron claimed in its public financial disclosures contributed to the impression that its broadband unit was promising, although still losing money overall, and that the parent company's earnings were growing in line with Enron's rising stock price. As a result of Braveheart's contribution, Enron Broadband's losses were limited to a total of $67 million during the two quarters. At a stock analysts' meeting in Houston in January 2001, Enron presented printed material in which it said it had achieved "critical mass roll-out of broadband services strategy" in 2000. The material added that Enron's "premium content-delivery business [was] firmly established." Enron told the analysts that the broadband-content business eventually would generate $45 billion in revenue, although it wasn't stated over what time period that would occur. Analysts around this time continued recommending Enron stock as a "strong buy." The stock was trading at close to its all-time peak of $90. Mr. McMahon, who replaced Mr. Fastow as Enron's chief financial officer in October, now says that timing and atmosphere were critical to obtaining the CIBC investment in Braveheart. In late 2000, "the whole thought was that the market was hot for broadband services," he says. But by March 2001, the marriage between Blockbuster and Enron was on the rocks. Both sides pointed fingers about what went wrong. After terminating the pilot program, the two companies vowed to press ahead on their own in delivering video on demand. Termination of the Blockbuster deal, though, created accounting problems for Enron. Braveheart had lost its source of potential revenue. Pressed by analysts and investors to explain its many opaque partnership deals, Enron in October announced a stunning third-quarter loss of $618 million. Lumped into that amount were losses from Braveheart -- basically a reversal of the $110.9 million in profits it had claimed earlier -- as well as losses related to soured investments in water-utilities and retail-energy businesses. Within weeks, there were more disastrous financial announcements, word that the Securities and Exchange Commission was investigating and a growing sense that the once-mighty company was headed for insolvency. Pricewaterhouse, KPMG Have A Link To Enron 2002-01-16 22:25 (New York) By Henny Sender and Susanne Craig Staff Reporters of The Wall Street Journal Accounting giants PricewaterhouseCoopers LP and KPMG LLP became the third and fourth Big Five accounting firms to have a role in the Enron Corp. meltdown, though they so far appear to have had only bit parts. Pricewaterhouse provided advice to the energy-trading firm in connection with two now-controversial partnerships with which Enron did business, people familiar with the matter say. Specifically, Pricewaterhouse's role was to provide an opinion to Enron about the fairness of the proceeds that Enron received when it transferred assets to the two partnerships. KPMG provided the independent auditor's report on the two partnerships, according to a spokesman. Various partnerships figure prominently in Enron's spiral into bankruptcy court. While these partnerships were marketed as investment opportunities to a small group of investors, in fact they came to serve as a sort of off-balance-sheet dumping ground for bad assets and securities, critics now contend. Pricewaterhouse's valuation advice concerned assets transferred to LJM Cayman LP and LJM2 Co-Investment LP, two partnerships set up by Andrew S. Fastow, Enron's former chief financial officer, at the time he worked for the company. References to Pricewaterhouse appear in internal Enron documents dated June 28, 1999. At that time, the Enron board discussed the transfer of an investment worth $50 million to the first LJM partnership. It is standard practice for accounting firms to make such appraisals on asset transfers, according to Jeffrey Cohen, who heads the securities-law practice for Coudert Brothers in New York, speaking generally. A spokesman for Pricewaterhouse says the firm isn't currently an auditor, and never has been, of either partnership and has never participated in, or given accounting advice to, Enron on its consolidated statements. Pricewaterhouse's link to Enron appears less controversial than that of rival Arthur Andersen LLP, Enron's auditor. The links between Arthur Andersen and Enron are now the subject of multiple government investigations. In 2000, Enron paid Arthur Andersen $27 million for nonaudit work and $25 million in audit fees. The other Big Five firm to be touched by the Enron scandal is Deloitte & Touche LLP, which in a Dec. 21 report gave Andersen a clean bill of health as part of a "peer review." Though Deloitte noted what it described as a few minor shortcomings, it found no cause for any action against Andersen and said Andersen's system of accounting and audit quality control provided "reasonable assurance of compliance with professional standards." Deloitte says its review is in accordance with all prevailing standards. Separately, three Canadian institutional investors that invested more than $175 million in Enron debt securities in October filed a wrongful-conduct lawsuit against the company's investment bankers and auditor. The suit, filed yesterday in federal court in Manhattan, names Citigroup's Salomon Smith Barney unit, Goldman Sachs Group Inc., Bank of America Corp.'s Banc of America Securities LLC and accounting firm Arthur Andersen. The plantiffs are investment managers based in Toronto: Silvercreek Management Inc. and two of its funds, Onex Industrial Partners Ltd. and Pebble Limited Partnership. Bank of America, Goldman and Andersen couldn't be reached for comment. Salomon Smith Barney declined to comment. Calls to Enron weren't returned. Enron officials initially said they set up the partnerships to minimize financial risk; in November, they conceded that some of the partnership transactions were improperly accounted for. McKinsey Held Close Enron Ties For Many Years 2002-01-16 23:00 (New York) By Suein Hwang and Rachel Emma Silverman Staff Reporters of The Wall Street Journal Back in the heady days of October 2000, at a sumptuous hotel ballroom in Palm Beach, the finance committee of Enron Corp.'s board heard then-Chief Financial Officer Andrew Fastow describe Enron's need for outside private partnerships to help drive the company's explosive growth -- partnerships that would sow the seeds of Enron's current woes. According to internal company documents, one outsider also attended that meeting: Richard N. Foster, a senior partner with McKinsey & Co. Mr. Foster was an advisor to Enron's board between October 2000 and October 2001 and attended about six board meetings, according to a McKinsey spokesman. Indeed, the celebrated consulting firm was a major force at Enron almost from the company's birth in the mid-'80s. McKinsey was where former Enron CEO Jeff Skilling worked before jumping to Enron, and McKinsey was instrumental in advising Enron during its decade-long transformation from a natural-gas-pipeline company into a massively complex trading operation with far-flung interests in water, timber, and high-speed Internet. McKinsey typically stationed its own personnel at Enron's offices, and dispatched about five to 15 consultants to the Houston headquarters to advise on strategy and operations, according to former Enron executives. At a time when Enron's collapse is churning up thorny ethical and legal problems for its accountants, lawyers and executives, the question arises: How accountable should McKinsey, its strategy advisor, be? Though courts generally haven't found consultants liable for their advice, McKinsey's long and close relationship to Enron inevitably raises questions about how much the company knew about financial irregularities that only surfaced last summer. A McKinsey spokesman said: "In serving Enron, McKinsey was not retained to provide advice to Enron or any Enron-affiliated entity with respect to the company's financial reporting strategy, methods of financing, methods of disclosure, investment partnerships or off-balance-sheet financing vehicles." In exchange for its strategic advice to Enron, McKinsey received millions of dollars in consulting fees. When Enron's stock began to soar, the consulting firm made the Enron success story a cornerstone of the management gospel it preaches in part to woo other clients. In an article published in the March 22, 1997, edition of its academic publication, McKinsey Quarterly, the authors celebrated Enron's "new breed of tightly focused and vertically specialized `petropreneurs.'" Later in that same article, Mc-Kinsey writers extolled how Enron had created a trading, finance and risk management business worth more than $250 million in five years, and how "its deployment of off-balance-sheet funds using institutional investment money fostered its securitization skills and granted it access to capital at below the hurdle rates of major oil companies." Though such writings suggest McKinsey knew about Enron's extensive use of off-balance sheet funds, there is no indication that anyone at the consulting firm knew fully how Enron was using those partnerships. Late last year, Enron had to restate four years of earnings because of improper accounting for some of those entities. A McKinsey spokesman said it was a 75-year old policy of the firm not to comment specifically on client matters. Enron also played a featured role in McKinsey-partner Mr. Foster's recent book "Creative Destruction," published last year. "How do the concepts of control, permission and risk fit together?" asked authors Mr. Foster and Sarah Kaplan, a former McKinsey employee. "Enron offers one good example of managing these elements to a favorable outcome." Speaking on behalf of Mr Foster, a McKinsey spokesman said "the main thesis of Creative Destruction is that in the long run markets outperform companies because companies have not yet found a way to change at the pace and scale of the markets without losing control." Enron didn't return calls seeking comment about Mc-Kinsey's relationship with Enron. McKinsey has seen rocky times of late. The slowing economy has impacted the firm, forcing McKinsey to trim its work force last year. McKinsey was embroiled in a public display of finger-pointing with a Chinese computer firm last year, and the firm parted ways with Swissair after an ambitious plan it devised was blamed for the airline's collapse. McKinsey declined to comment on those relationships as well. Enron could represent more than just an embarrassing client for McKinsey. Its plunge into bankruptcy has sparked numerous investigations, as congressional leaders and others search to understand what drove its collapse, which jolted financial markets and left thousands of its current and former employees with little or no retirement savings. McKinsey says it has not been contacted by government investigators regarding Enron. Though there is no indication that McKinsey may itself become a subject of investigation, it could be caught up as a third party in the investigation of its client. Legal experts say McKinsey, unlike Enron's lawyers and accountants, has no privilege of confidentiality that would shield it from disclosing information to government investigators. For decades, McKinsey has been revered -- even feared -- for its influence in boardrooms and its extensive and powerful old-boy network among major corporations. Its alumni list reads like a who's who of the Fortune 500, including the likes of IBM Corp. Chief Executive Lou Gerstner. In recent years, that network has helped privately held McKinsey win lucrative consulting contracts from companies run by its former partners. Mr. Skilling, a vital bridge between McKinsey and Enron, described McKinsey's approach in an interview with this newspaper in 1993, three years after joining Enron: "In the old days, we'd do one project and go away," he said of his days at McKinsey. But over time, "the relationships got closer and bigger." McKinsey was central to Enron's "asset-light" strategy, the notion of building an industrial powerhouse with few hard assets; McKinsey also advised Enron as it considered entering new businesses, according to former Enron executives. In one McKinsey Quarterly article in 1999, the consultants praised Enron's water-industry investment, "despite a lack of obvious linkages to energy," they wrote, "as a chance to leverage intangibles such as project management, network operations, and infrastructure development skills." The water foray ended in disaster last October, when Enron took a $287 million write-off to exit the business. One former executive who developed and managed power projects said he was ordered to check with McKinsey when he wanted to make an arcane type of gas-transmission investment. A team of McKinsey experts was sent to Enron's offices to check out the deal. "They were all over the place," he says. Suggestions that McKinsey was a "decision maker or a necessary review body on Enron's asset investments are flat-out wrong," McKinsey says. Enron Board's Actions Raise Liability Questions 2002-01-16 23:00 (New York) By Joann S. Lublin and John R. Emshwiller Staff Reporters of The Wall Street Journal It is a queasy time to be an Enron Corp. director. This week's disclosure that the board of the collapsed Houston energy company twice waived the corporate ethics code to allow creation of controversial partnerships raises significant red flags about directors' potential liability. According to a report that Houston law firm Vinson & Elkins prepared for Enron, the full board twice suspended the company's ethics code during 1999 in order to allow two outside partnerships to be headed by a top Enron executive who stood to financially benefit from them. The subsequent widespread disclosure of those partnerships last fall fueled Enron's downward spiral toward a bankruptcy-court filing. The law-firm report could increase Enron directors' legal exposure and represents another example of "a culture of sloppiness on conflict-of-interest issues," says Nell Minow, a veteran shareholder activist and editor of the Corporate Library, an online database of corporate-governance information. Enron board members seem to have "a real sense of unreality about conflicts of interest," she adds. An Enron spokeswoman didn't have any comment yesterday. In the past, the company has defended its actions regarding the partnerships. Also, individual Enron directors didn't return phone calls or couldn't be reached to comment. Things could soon get even messier for its 15-member board. Several insurance carriers that underwrite liability coverage for Enron directors and officers are exploring ways they might suspend their policies, says an individual close to the situation. One possibility: declare that Enron misled insurers by renewing D&O policies based on earnings that it subsequently restated. In November, weeks before its bankruptcy-court filing, Enron reduced its previously reported net income dating back to 1997 by $586 million, or 20%, mostly due to improperly accounting for its dealings with partnerships run by some company officers. It is increasingly common for insurance companies to seek rescission of D&O policies "based on fraudulent applications" for new or renewed coverage, says Stephen Weiss, a partner with Holland & Knight, a Washington law firm and an expert on D&O insurance. "A restatement in earnings can certainly raise the specter of insurers seeking to rescind their policies on the basis of apparent fraud." A spokesman for Minnesota-based St. Paul Cos., one of Enron's providers of D&O insurance, declined to comment on whether it will maintain coverage. Canceling such coverage following earnings restatements doesn't always get insurers off the hook, however. Consider Sunbeam Corp. A unit of New York-based American International Group Inc. dropped liability insurance for Sunbeam directors and officers shortly after the Boca Raton, Fla., consumer-products concern restated financial results for the six quarters ended March 31, 1998. The restatement covered essentially the entire tenure of Albert J. Dunlap, who was ousted as chairman and chief executive in mid-1998 amid massive accounting irregularities. Sunbeam subsequently sued the AIG unit in federal district court in Miami, seeking restoration of its halted coverage. Under a settlement reached early last year, the AIG unit agreed to pay Sunbeam $10 million -- but refused to reinstate the canceled policy, informed individuals say. The extent of Enron directors' potential liability for waiving the ethics code may depend on whether a court decides this was intentional misconduct. "Any time [directors] abrogate a company's code of conduct, you raise serious questions," said Charles Elson, a board member at three publicly traded concerns who runs the University of Delaware business school's Center for Corporate Governance. "Are their actions reckless or negligent?" On the other hand, Mr. Weiss noted that corporate codes of ethics sometimes permit waivers under appropriate circumstances. You can't automatically assume that suspending an ethics code is wrong, he added. At Enron, the first waiver was in June 1999, when finance chief Andrew Fastow was looking to set up a private partnership to be known as LJM Cayman LP. Because the partnership would do business with Enron, Mr. Fastow needed a special ruling from the board that his activities wouldn't violate company rules on outside business interests. According to an excerpt of the minutes of the company's June 28, 1999, board meeting, there was a "discussion" of Mr. Fastow's involvement in the LJM partnership. The minutes don't go into details about what was discussed. However, the board adopted a resolution that ratified a recommendation from top management that Mr. Fastow's partnership participation "will not adversely affect the interests of the Company," according to the minutes. Directors' approval of the partnership also included "waiver of Enron's code of ethics to permit Mr. Fastow to act as the general partner" of the partnership, the Vinson report stated. The waiver involved a suspension of corporate policies intended to protect against executives being involved in activities that might pose a conflict of interest or be detrimental to Enron. Later that year, Mr. Fastow was looking to set up the larger and more ambitious LJM2 Co-Investment LP. (LJM Cayman had $16 million from outside investors; LJM2 had nearly $400 million.) An excerpt from an Oct. 11, 1999, meeting of the finance committee of Enron's board recounts Mr. Fastow telling the committee that Enron's "Conduct of Business Affairs Policies" would "prohibit him from participating in LJM2 as managing partner . . . absent appropriate reviews and waivers from the Board." The excerpt shows that the finance panel voted to recommend such a waiver to the full board. The next day, Oct. 12, the full board approved that waiver for Mr. Fastow on LJM2. The resolution used essentially the same language as in the case of LJM Cayman. Enron estimates that Mr. Fastow eventually made over $30 million from the two partnerships. Enron has between $250 million and $350 million in current D&O coverage, says a person close to the situation. But even if the firm retains all its insurance for directors and officers, no one knows if that will be enough to cope with the pending litigation. The full board is named in nearly all of the 50 pending shareholder derivative suits. New memo uncovered in Enron probe January 17, 2002 Posted: 1:44 a.m. EST (0644 GMT) WASHINGTON (CNN) -- The House Energy and Commerce Committee uncovered another memo Wednesday from Enron whistleblower Sherron Watkins detailing her concerns about the company's problems -- this one describing a phone call in which she shared her worries with a partner at Arthur Andersen. The latest memo -- dated August 20 -- indicated she called a senior official at Andersen, who was also a friend of hers, and talked about her concerns. Watkins later wrote a seven-page memo to Enron Chairman and CEO Kenneth Lay that said she was worried that "... we will implode in a wave of accounting scandals." Andersen, the energy giant's accounting firm, is also under scrutiny in probes on the fall of Enron, which declared bankruptcy in December. After speaking to Watkins, the senior official convened a meeting with three Andersen partners, including David Duncan, the Anderson partner overseeing the Enron audit, a source told CNN. Duncan has since been fired. The accounting firm said Duncan, a former lead partner in the firm's Houston office, instructed others to destroy Enron documents, but a spokesman for Duncan said he acted on the advice of an in-house Andersen lawyer. Duncan was quizzed Wednesday by eight investigators for the House Energy and Commerce Committee -- one of several committees and subcommittees probing the collapse of Enron. The meeting was not public. The Enron scandal began when the energy company, with $62.8 billion in assets, filed for Chapter 11 bankruptcy protection December 2. Many Enron employees had invested most of their 401(k) savings in company stock and lost much of their life savings when it went bust. Latest developments * The White House refused to say whether it was conducting a formal review to determine if Enron officials contacted more government officials. Press secretary Ari Fleischer, in a somewhat contentious exchange with reporters, said the administration planned to look into contacts between Bush administration officials and Enron executives only if there are any allegations of wrongdoing or in response to specific questions. * The FBI sent out an internal bulletin seeking 38 agents who are also certified public accountants to relocate to Houston to staff the Enron task force, officials told CNN Wednesday. * According to a report by Rep. Henry Waxman, D-California, who has been critical of the White House for not releasing records related to the closed-door meetings of Vice President Dick Cheney's energy task force, "there are at least 17 policies in the White House energy plan that were advocated by Enron or that benefited Enron." A spokeswoman for Cheney dismissed the Waxman report as "election-year maneuvering." * Sen. Patrick Leahy, the chairman of the Senate Judiciary Committee, warned the Justice Department Wednesday it might have a conflict of interest with Arthur Andersen. In a letter to Deputy Attorney General Lawrence Thompson, Leahy, D-Vermont, noted that the accounting firm has a contract worth more than $700,000 with the Justice Department to complete a review of the FBI as it undergoes a reorganization. * A former federal regulator said Enron tried to manipulate U.S. energy policy. Curtis Hebert Jr., a former commissioner with the Federal Energy Regulatory Commission in the Clinton administration, said in an interview with CNN: "Everything they espoused to Congress and to state leaders was always what's in the best interests of Enron, never what's in the best interests of American energy companies."( Enron Auditor Questioned by House Investigators (Update) 2002-01-16 21:05 (New York) (Adds Enron executive's call to Andersen in August in second and 10th through 15th paragraphs.) Washington, Jan. 16 (Bloomberg) -- U.S. House investigators interviewed David Duncan, the Arthur Andersen LLP partner who oversaw Enron Corp.'s audit, about his role in destroying thousands of e-mails and documents related to the collapse of the largest energy trader. Duncan answered questions from investigators of the Energy and Commerce Committee for 4 1/2 hours, a day after Andersen said it fired him for ordering the document destruction in October after the Securities and Exchange Commission asked for information about Enron's books. A committee member also said an Enron executive raised concerns with Andersen about accounting irregularities in August. ``It was an informal interview,'' Ken Johnson, a committee spokesman, said of the meeting with Duncan. ``He was not sworn-in, but was warned about giving false testimony. He fully cooperated.'' The committee, six other Congressional panels and the Justice Department are investigating the unraveling of Enron, which filed the largest bankruptcy in history last month. Hearings, which begin next Tuesday, will focus on the partnerships the Houston- based company created to hide debt, Andersen's conduct and the secrecy of energy trading. The loss of documents from Andersen may go beyond negligent or unethical behavior, particularly in light of a Securities and Exchange Commission probe, Johnson said earlier in the day. ``It might have been illegal,'' he said. Bound for Houston Duncan provided investigators with some leads to pursue, Johnson said, refusing to give details. Tomorrow and Friday investigators from Congress will be in Houston to interview more people, he said. Democrats said Duncan's statements did not answer all the questions they had about Enron's accounting and transactions. ``Our investigators were disappointed by the limited nature of Mr. Duncan's memory,'' said Laura Sheehan, a spokesman for Representative John Dingell, senior Democrat on the panel. ``We expect documents and other witnesses to fill in the blanks.'' Andersen had indications there were questions being raised about how some of Enron's partnerships were being accounted for before the SEC requested information in October, Representative James Greenwood, a member of the house panel, said. The questions came from within Enron. A Warning Enron Vice President Sherron Watkins warned Enron Chairman Kenneth Lay on Aug. 16 of looming ``accounting scandals,'' according to a copy of the memo she wrote that was released by the committee. Greenwood, a Pennsylvania Republican, said that Watkins followed up that warning with a telephone call to an Andersen audit partner on Aug. 20. Details about the call were given in an internal Andersen memorandum, Greenwood said. ``This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents,'' Greenwood said in a statement. Patrick Dorton, a spokesman for Andersen, said the company contacted Enron's general counsel after Watkins' call and was told that Enron had begun investigating. ``What additional steps were taken, we're still looking at,'' Dorton said. ``We're still trying to learn all the facts.'' Pressing for Punishment Andersen's firing of Duncan and its decision to place three other partners on administrative leave yesterday may not satisfy government officials, some of whom are pressing for prosecution of employees and changes in accounting procedures. ``If rules were broken, rule breakers should be punished,'' Peter Fisher, the Treasury Department's undersecretary for domestic finance, said during a speech today to insurance executives in Boca Raton, Florida. ``If rules were bent, we should improve the means of enforcing those rules.'' Enron executives in October and early November asked Fisher to contact banks on behalf of the company, a request he rejected. Bush administration officials also are attracting scrutiny because of their own ties to Enron and Andersen. SEC Chairman Harvey Pitt said he's not managing his agency's investigation of Enron or Andersen and that he may disqualify himself from any involvement. Pitt represented Andersen in his private law practice. Democratic Senator Patrick Leahy, chairman of the Judiciary Committee, wrote in a letter to the Justice Department that he was concerned that Andersen may have access to confidential information from the FBI. Andersen has a $700,000 contract to study and advise the FBI on some internal operations, including its computer system. Deputy Attorney General Larry Thompson, who is leading the Justice Department investigation, said the consulting unit hired by the FBI is ``different and separate'' from Andersen's accounting unit. Stock Trading Democrats also are calling for more information on whether administration officials got any inside information from Enron before selling the stock. ``If Hillary Clinton had sold millions of dollars of stock like the secretary of the Army did, some of my colleagues on the other side would be raising questions,'' said Representative Peter Deutsch, senior Democrat on a House subcommittee probing Enron. Before joining the administration, Army Secretary Thomas White was vice chairman of Enron Energy Services, an Enron subsidiary. Representative Henry Waxman of California, senior Democrat on the House Government Reform panel, again raised questions about Enron's access to Vice President Dick Cheney's Energy Task Force. The White House last week disclosed that Enron representatives met with Cheney or his staff six times before completion of the report. Waxman released a report saying at least 17 policies recommended by Cheney's task force benefited Enron, including support for trading energy derivatives and proposals to aid natural gas projects. Waxman urged the White House to release to the non-partisan General Accounting Office all records of industry contacts with the energy task force. ``This creates the unfortunate appearance that a large contributor received special access and obtained extraordinarily favorable results in the White House energy plan,'' Waxman wrote in a letter to Cheney today. Revelations about the document destruction also have drawn the scrutiny of a California state Senate committee, which today decided to subpoena Enron to determine if Andersen destroyed documents that they were seeking last June. The panel decided not to subpoena Andersen. The Senate subpoenaed documents in June as part of a probe into whether power companies manipulated California's energy market. Arthur Andersen Knew Of Enron Woes A Year Ago 2002-01-17 00:00 (New York) By Tom Hamburger and Ken Brown Staff Reporters of The Wall Street Journal WASHINGTON -- Arthur Andersen LLP officials discussed Enron Corp.'s aggressive accounting practices and potential conflicts of interest at a February 2001 meeting called to decide whether to retain the energry-trading company as a client, an internal memo from the accounting firm shows. A second memo, cited by congressional investigators, shows that an Enron executive who warned the company's chief executive that it was in danger of being swamped by accounting irregularities also voiced concerns to Andersen in August 2001. The first memo -- drafted Feb. 6, 2001, by an Andersen auditor on the Enron account named Michael Jones -- recounts a meeting the day before of Andersen executives about whether the accounting firm should continue working for Enron. Such a "retention meeting," as the memo calls it, isn't unusual in itself. But, the memo recounts the executives discussing many of the alleged problems that have become the focus of criminal, civil and congressional investigations into Enron's collapse. Enron, of Houston, filed for bankruptcy-court protection under Chapter 11 of the U.S. Bankruptcy Code on Dec. 2, the largest such filing ever, and investigators increasingly are focusing on Andersen's role. "Significant discussion was held regarding the related-party transactions with LJM, including the materiality of such amounts to Enron's income statement and the amount retained `off balance sheet,' " the memo says, referring to a private partnership that kept Enron debt off the company's books. The memo specifically mentions "conflicts of interest" by then-Enron Chief Financial Officer Andrew Fastow, who controlled that partnership and others like it, and the fact that he received compensation from it. Such partnership arrangements contributed greatly to Enron's collapse. Widespread publicity of them last fall caused a crisis of investor confidence in the company that helped drive down the company's stock. Written eight months before Enron's downward spiral began, the memo raises nearly every accounting issue that led to the energy-trading company's downfall, including its need to maintain a high credit rating. Decisions by rating agencies to downgrade Enron's rating were followed soon after by the company's bankruptcy filing. The memo describes discussions of how the partnership transactions were described in footnotes in Enron financial statements and mentions efforts to make sure Andersen auditors "fully understand the economics and substance of the transactions." Another "significant discussion" was held about how Enron valued its earnings on such transactions and "the fact that it was `intelligent gambling.' " The memo notes that Enron was "aggressive in its transaction structuring. "Ultimately, the conclusion was reached to retain Enron as a client [because] it appeared that we had the appropriate people and processes in place to serve Enron and manage our engagement risks," the memo says. During the discussion, the Andersen executives noted Enron's fees to the firm eventually could total $100 million a year -- an amount that would have made Enron the accounting firm's biggest client by far. The executives discussed whether their decision to retain Enron was colored by the size of the fees, and the memo suggests they were concerned about whether too much of Andersen's Enron income was coming from nonaudit advisory work. "Such amounts did not trouble the participants as long as the nature of the services was not an issue," the memo says. David Tabolt, an Andersen spokesman, said he was unaware of the memo and the meeting it recounts. "I am unable to provide any comment until I look into this," he said. Accounting firms regularly review clients to determine if auditing the books puts the accounting firm at risk. The Andersen memo doesn't specify if this was one of those regular meetings or if it was called for a particular reason. Mr. Tabolt stressed that Andersen doesn't hesitate to drop risky clients for various reasons. "We've dumped thousands of clients in recent years," he said. The memo was addressed to two Andersen officials, including David Duncan, who headed the Enron account and who Andersen this week said it fired for overseeing the destruction of Enron-related documents after learning that federal regulators were examining the energy-trading company's finances. Mr. Duncan was quizzed at length yesterday by investigators for the House Energy and Commerce Committee and the Justice Department in separate, closed-door sessions. Much of the congressional questions related to the February 2001 memo. Mr. Duncan told the investigators he called the meeting because he was aware the Enron account posed "significant risk," according to one person present during the questioning. The memo provided a "To Do" list that included recommending that Enron's board review the fairness of transactions with the LJM partnership. Asked whether he followed up on that and other items on the list, Mr. Duncan answered "no" to most, often suggesting it was the responsibility of others at the accounting firm. The second memo, by another Andersen executive, recounts an Aug. 20, 2001, phone conversation with Enron Vice President Sherron Watkins, a former Andersen employee who that same month alerted Enron Chief Executive Kenneth Lay to possible conflicts of interest and potential accounting irregularities that she feared could bring the company down. Congressional aides who have read the memo said it shows that Ms. Watkins detailed her concerns about Enron to an Andersen auditor. The three-page memo indicates Ms. Watkins's concerns were relayed to senior Andersen management, including Mr. Duncan. Ken Johnson, spokesman for committee Chairman Billy Tauzin (R., La.), said the memo was apparently written after a meeting of Andersen executives to discuss Ms. Watkins's warnings. The internal memo includes a summary of Ms. Watkins's allegations and concludes by noting that the officials from Andersen "agreed to consult with our firm's legal adviser about what actions to take." "This document raises additional concerns about Andersen's knowledge of potential accounting irregularities and the subsequent destruction of Enron-related documents," said Rep. James Greenwood (R., Pa.), chairman of the Energy and Commerce's oversight subcommittee. Andersen's Mr. Tabolt acknowledged the accounting firm knew about Ms. Watkins's issues with Enron's finances. "We were made aware of her concerns and we confirmed that Enron's general counsel was aware and we were advised that the CEO was being notified, and we were told that Vinson & Elkins [Enron's law firm] was doing an investigation," Mr. Tabolt said. "We think that that was the right thing to do." Andersen had a major financial incentive to keep Enron, which paid $52 million in auditing and other fees to Andersen in 2000 alone. "There are a lot of $25 million clients, but $50 million clients, Enron might have been it," a former Andersen partner said. The Houston office was one of Andersen's biggest and most profitable, mainly because it dominates the auditing of the oil-and-gas industry, handling by some estimates 80% of its mid- and large-size companies. "Texas is a stronghold," the former partner said. Indeed, Andersen employs more than 1,400 people in Houston and boasts that it is the biggest of the Big Five accounting firms in the city, even though it is the smallest of the Big Five overall. (END) DOW JONES NEWS 01-17-02 Arthur Andersen Confronts Role In Enron Debacle 2002-01-16 20:48 (New York) By Vanessa O'Connell, Wall Street Journal ARTHUR ANDERSEN has a message for those who think the Enron scandal will bring the accounting firm down: This saga isn't over yet. In a full-page newspaper ad yesterday, Joseph Berardino, the firm's chief executive, sought to assure the public that "Andersen will do what is right." The declaration of intent, which appeared in The Wall Street Journal, the New York Times and the Washington Post, was Andersen's first significant effort to convince the public that it will survive the financial scandal now unfolding. In crisis-management situations, newspaper ads from chief executives have become a common first step. Andersen's reputation suffered a major blow after the disclosure that its employees shredded key documents related to Enron's shaky financial condition. Andersen, Enron's auditing firm, now is a subject of a Securities and Exchange Commission investigation. Until recently, the crisis has been handled almost exclusively by Andersen's internal public-relations team, led by David Tabolt, a former editor and reporter for the Associated Press. Mr. Tabolt, 51 years old, joined Andersen in 1999 following stints at some public-relations firms. But last week, Mr. Tabolt and the Andersen public-relations team were given some outside help. At the suggestion of its outside lawyers and lobbyists, Andersen hired the big guns at the Washington crisis-management team Chlopak, Leonard, Schechter & Associates, a unit of Omnicom Group. Formed in 1992 by three former political communications strategists, Chlopak, Leonard specializes in managing a client's reputation around the globe. Its clients include the American Red Cross, the organization stung by controversy last fall when it disclosed that not all the funds collected after the attacks would go to Sept. 11 causes. The Red Cross later said it would redirect the money earmarked to help families of victims of the attacks. Charlie Leonard, a partner at the firm, says his firm was part of a team that suggested Andersen run the ad. "Advertising is one means of telling the complete story of what Andersen is willing to do to," he says. Mr. Leonard, a former strategist for the onetime presidential candidate Ross Perot, is the firm's point person in its efforts to get the scandal under control. The Enron episode marks the third major public-relations fiasco for Andersen auditors in less than a year. In May, the firm agreed to pay Sunbeam shareholders $110 million to settle a securities lawsuit. Shortly after that, Andersen had to pay $20 million to holders of Waste Management after regulators found accounting problems. Mr. Berardino and his Chicago-based company face a combined legal and public-relations horror that threatens to destroy the Andersen brand. "This is catastrophic for them," says Alan Siegel, chief executive of Siegelgale, an independent branding firm based in New York. "Not only is this going to hurt Andersen very much in terms of contracting new business, but it also will be a distraction for all Andersen employees." If you haven't noticed the ad yet, keep looking. Andersen intends to expand its public-image campaign in the coming weeks, as its chief executive seeks to spread his message to consumers and businesses across the country. Newspapers in Houston, Chicago, Los Angeles and Phoenix are expected to begin running the ad today. Robert Chlopak of Chlopak Leonard says, "One of the things we try to do is to encourage our clients to communicate about their actions to show they are taking responsibility and trying to act in a manner the business community and public would expect them to," he says. "When an institution like the Red Cross does that, they tend to fare much better than if they were simply to bunker down and wait it out." DJ Texas Lawmakers Want Probe Into Enron, Arthur Andersen 2002-01-16 22:01 (New York) AUSTIN (AP)--A Texas lawmaker on Wednesday asked the state's accounting board to investigate whether Arthur Andersen LLP. violated state auditing standards in its handling of Houston-based Enron Corp. The request from state Rep. Steve Wolens, D-Dallas, also asks the board to investigate the auditing standards of Enron's accountants. A subcommittee of the Texas State Board of Public Accountancy met Wednesday but William Treacy, the board's executive director, said he couldn't say if the committee will recommend that the board investigate. He said possible investigations are confidential by statute. Wolens, who chairs the House State Affairs Committee, said he asked for the investigation because "the acts of destroying thousands of Enron documents occurred in Texas and the Texas State Board of Public Accountancy has legal jurisdiction to police accountants for fraud and dishonesty in the performance of their professional services to Texas," Wolens said. Arthur Andersen has said that a "signficant but undetermined" number of documents relating to the failing Enron have been destroyed. Enron Corp. declared bankrupty Dec. 2, after acknowledging that the company overstated its profits by more than $580 million since 1997. Calls to Arthur Andersen and Enron were not immediately returned. Besides asking the board to investigate whether the companies violated auditing standards, Wolens also asked the board to investigate whether Arthur Andersen or Enron illegally engaged in fraud or dishonesty in the performance of their services. Wolens also asked the board to investigate: - Whether Arthur Andersen and/or Enron's accountants violated their internal records' retention policy or the professional records' retention policy. - Whether Enron's accountants subordinated their judgment to Enron's management. - Whether Arthur Andersen and Enron's accountants violated rules of professional conduct. In his letter, Wolens said he was disturbed by news reports that Arthur Andersen destroyed documents related to its work for Enron. The Justice Department is pursuing a criminal investigation of Enron. Arthur Andersen said Tuesday it is firing a senior auditor who organized the disposal of Enron documents last fall. "It is important that your office pursue this matter," Wolens said in his letter. "It is imperative as a matter of public policy to maintain the integrity of Public Accountancy profession." Column: Enron's Political Contacts Key To Scandal 2002-01-16 21:40 (New York) By Albert R. Hunt, Wall Street Journal At an American Enterprise Institute-sponsored seminar on energy last summer in Vail, participants, including Federal Reserve Chairman Alan Greenspan, White House counselor Larry Lindsey and some prominent corporate CEOs, were appropriately deferential to Vice President Cheney. They all referred to him as "Mr. Vice President" with one exception: Kenneth Lay. To the Enron executive, he was "Dick." There no longer are Enron apologists. But there are plenty of Bush apologists on this mushrooming scandal: Not bailing out the now-bankrupt company, they assert, was a "tribute to American capitalism." Enron was a non-partisan briber, they say, or this is a private industry scandal, not a political one. Not quite. Treasury Secretary Paul O'Neill is right when he says the government shouldn't have rescued this deceitful company, though arguably he might have alerted the regulators sooner. But that in no way lessens the shame of a scandal in which top corporate executives lie to the investing public and bail out to the tune of more than a billion dollars of their own equity, while thousands of lower-level employees see their life savings plummet. Government is necessary to protect against such abuses. If the press, Congress and prosecutors are vigilant, more exposes are inevitable: Who was cut in on some of Enron's illicit partnerships, what other governmental favors were given? Let's examine critical connections: The Cheney Connection: Enron's generosity to this administration paid off in the Bush/Cheney energy plan. The Vice President has largely kept mum on the details of this connection and the press has been remarkably acquiescent. The General Accounting Office wants to know the role played by vested interests in the Cheney Task Force. The White House has refused: Only under pressure recently did Mr. Cheney acknowledge that Ken Lay or Enron had met with him and his task force on six separate occasions. The principle here is no different than Hillary Clinton's refusal to reveal the private deliberations involving special interests in assembling her 1993 health-care proposal. The political right justifiably criticized and brought legal action against her. Mr. Cheney's stonewalling is likewise an attempt to avoid embarrassing revelations. Yesterday Democratic Rep. Henry Waxman released a report detailing sixteen provisions of Mr. Cheney's energy recommendations that had been advocated by Enron. Many, no doubt, would have been included without Enron's input. But when the details of the secret deliberations emerge -- the only question is when -- it'll be instructive to see what role the Texas company had in proposals for electricity restructuring, boosting energy production in India or the glowing description of trading derivatives as "sophisticated and customizable." The Bush Connection: Last Thursday, the President of the United States broke a campaign pledge to restore integrity to the White House. Seeking to distance himsef from Mr. Lay -- whom he'd affectionately called "Kenny Boy" and sent an effusive birthday greeting a few years ago -- he declared the Enron CEO had supported his opponent Ann Richards in his first gubernatorial run in 1994. The company did give money to both political parties in that race. But as Mr. Bush knows, Mr. and Mrs. Lay gave three times more to him, and Mr. Lay endorsed him. Indeed, over the last eight years, Enron has given over $700,000 dollars to George W. Bush -- more than any other donor -- and more than it's given to anyone else. Mr. Lay was one of the "Pioneers," raising more than $100,000 for the Bush presidential quest. The company contributed to the Florida recount fund and the Bush inaugural festivities as well. And Mr. Bush has been appreciative. While governor, his regulators were Enron-friendly. He even lobbied his friend, then-Pennsylvania governor Tom Ridge, on behalf of Enron. These close ties continued in the Bush presidency. Curtis Hebert Jr., then chairman of the Federal Energy Regulatory Commission, said Mr. Lay told him he could stay on as chairman if he changed his views on electricity deregulation. He didn't, and not too long afterwards President Bush replaced him with an old Enron ally from Texas. Sen. Joe Lieberman should put Messrs. Herbert and Lay under oath about this conversation when he holds hearings next week. The Contribution Connection: The greatest canard in the miserable saga is that because the government didn't bail out Enron in October, it proves the company's massive campaign contributions didn't work. Actually, some of this sleazy scam might not have occurred if not for the special favors Enron got from its connections and 6 million in contributions over the past 12 years -- to Democrats as well as Republicans. Sen. Phil Gramm and his wife Wendy are the Enron "poster couple." She took care of the company's interests as head of the Commodity Futures Training Commission then was handsomely rewarded as a director and member of its so-called audit committee. As a senator, he raked in big campaign bucks and produced legislation like the Commodity Futures Modernization Act, which deregulated financial derivatives and relaxed oversight of commodity exchanges. One of the worst perpetrators is Arthur Andersen, which not only was asleep at the switch but shredded Enron documents. Andersen was Enron's auditor and consultant to the company, a sweetheart deal arrangement that would never have been if former Securities and Exchange Chairman Arthur Levitt had had his way. Mr. Levitt, who says there are a "multitude of villains" -- rating agencies, investment bankers, company and board officials as well as accountants -- sees a clear conflict of interest: "When a firm is paid a million dollars a week, half of which comes from consulting, when it comes down to making a subjective judgement -- and there were probably hundreds of subjective judgements in an Enron audit -- it's obvious who they're going to side with, management or shareholders." But when Mr. Levitt tried to end such conflicts, accounting firms, armed with $24 million in campaign contributions the past two elections, persuaded Congress to threaten the SEC budget and make him retreat. One lawmaker who sided with the accountants was Sen. Lieberman. Mr. Levitt is right, there are numerous private sector culprits; this should lead to some serious reforms. But let's not let the politicians off the hook; they're culpable too. Critics: SEC's Pitt Should Avoid Enron Probe 2002-01-16 23:00 (New York) By Wall Street Journal staff reporters Charles Gasparino and Susan Pulliam in New York and Michael Schroeder in Washington As Enron Corp. was imploding i
|