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Judge will tell Enron to release internal report Houston Chronicle, 01/31/2002 Ex-Enron CEO Skilling to Testify at Senate Hearing Bloomberg, 01/31/2002 USA: Senate probe finds Enron uncooperative - Dorgan. Reuters English News Service, 01/31/2002 US Sen. Says Enron Has Failed To Provide Key Information Dow Jones Energy Service, 01/31/2002 Enron's Web of Complex Hedges, Bets L. A. Times, 01/31/2002 Enron Counsel Warned About Partnerships L. A. Times, 01/31/2002 Post-Enron Changes May Scrap 3% Rule on Partnerships Bloomberg, 01/31/2002 Dynegy Acquires Northern Natural Gas Pipeline; Dan Dienstbier Named Preside= nt Business Wire, 01/31/2002 Law Firm Hagens Berman Announces Class Action Lawsuit Against Enron Business Wire, 01/31/2002 Cooper says Enron can be fixed=20 CBS MarketWatch.com, 01/31/2002 As Enron Searches for Auditor, Some Big Names Don't Apply New York Times, 01/31/2002 Calif Davis To FERC: Probe Possible Enron Mkt Manipulation Dow Jones Energy Service, 01/31/2002 USA: US energy regulator joins increasing Enron probes. Reuters English News Service, 01/31/2002 Fund to assist ex-Enron employees collects $396,000 in a week Associated Press Newswires, 01/31/2002 WSJ: Barclays Cap Hires Enron's Joseph Gold, Richard Lewis Dow Jones International News, 01/31/2002 DESTRUCTION OF ENRON AUDIT DOCUMENTS Congressional Testimony by Federal Document Clearing House (Andrews), 02/24= /2002 DESTRUCTION OF ENRON AUDIT DOCUMENTS Congressional Testimony by Federal Document Clearing House (Markey), 02/24/= 2002 ___________________________________________________________________________= ____ Judge will tell Enron to release internal report=20 By ERIC BERGER=20 Copyright 2002 Houston Chronicle=20 Jan. 30, 2002, 11:14PM NEW YORK -- A federal bankruptcy judge said Wednesday he will order Enron C= orp. to release an internal report investigating its questionable partnersh= ips and accounting practices.=20 The report will be posted early next week on the Web site of the U.S. Bankr= uptcy Court of Southern New York, Enron lawyer Brian S. Rosen said.=20 The report could shed light on the murky investment vehicles used by Enron = to move assets, and debts, off its balance sheet.=20 Losses from these off-balance-sheet deals helped trigger the crisis in conf= idence that led to the Houston company's downfall.=20 The partnerships are a prime target of the investigations by Congress and r= egulators.=20 Judge Arthur Gonzalez issued the order at the request of creditors committe= e attorney Luc Despins, who said the document should be made public as part= of the company's Chapter 11 bankruptcy process.=20 Rosen did not oppose the release of the report, conducted by a committee ap= pointed by the company's board of directors after Enron's collapse.=20 "We're trying to work as best we can with the creditors committee," Rosen s= aid.=20 In October, Enron appointed the four-member panel, chaired by University of= Texas law school dean William Powers, to look into the financial partnersh= ips headed by the former Enron Chief Financial Officer Andrew Fastow.=20 Reports have suggested that Fastow and a handful of Enron associates made m= illions in 2000 as general partners of LJM2, the bigger of the two partners= hips.=20 As part of its investigation, the board of directors' special committee hir= ed William McLucas, former head of the SEC's enforcement division and now a= partner at Wilmer, Cutler & Pickering in Washington.=20 The move last fall came as Enron disclosed that it was being investigated b= y the Securities and Exchange Commission for these partnerships.=20 SEC investigators have subpoena powers and their investigation is ongoing.= =20 In other business before the bankruptcy court Wednesday, Gonzalez approved = an Enron motion to transfer software and real estate contracts affiliated w= ith the energy marketing and trading business -- now named UBS Warburg Ener= gy -- it has sold to Swiss bank UBS Warburg.=20 Gonzalez also disclosed Wednesday that his wife, through her membership in = the New York City Teacher Retirement Service, had a financial stake in Enro= n.=20 The retirement fund, valued at about $87 billion, lost about $109 million a= s Enron stock collapsed, the judge said.=20 But because his wife's ownership was in a mutual fund that held the stock, = and she herself was not a director of the fund, Gonzalez said he did not ha= ve an interest in Enron stock and could continue hearing the bankruptcy cas= e.=20 Ex-Enron CEO Skilling to Testify at Senate Hearing 2002-01-31 15:55 (New York) Washington, Jan. 31 (Bloomberg) -- Former Enron Corp. Chief Executive = Jeffrey Skilling will answer questions from a Senate subcommittee investiga= ting the unraveling of the energy trader, the chairman of the panel said. "Having Mr. Skilling express a willingness to testify is another big s= tep,'' Senator Byron Dorgan, a North Dakota Democrat, said at a news confer= ence. "It is a totally consistent approach Mr. Skilling has taken all along,= '' said Judy Leon, a spokeswoman for the former executive. "He has been ope= n and honest with the investigations ongoing.'' Enron founder Kenneth Lay is scheduled to testify Monday before Dorgan= 's Consumer Affairs Subcommittee. A separate hearing will be scheduled for = Skilling, who quit Houston-based Enron last August, two months before the c= ompany announced losses in several partnerships that preceded its slid into= bankruptcy. Lay has agreed to testify without promises of immunity from prosecutio= n, Dorgan said. Skilling's lawyers haven't sought such a promise from the c= ommittee. Dorgan said he will ask Lay and Skilling about 3,000 partnerships Enro= n created to hide debt and losses. Investigators at 10 congressional commit= tees, the Justice Department and Securities and Exchange Commission are foc= using what role the two executives played in overseeing the partnerships. B= oth men denied any wrongdoing, Partnership Documents Dorgan said Enron still hasn't provided documents the panel requested = about the partnerships, such as LJM Cayman LP and Chewco Investments LP. Th= e committee is renewing two earlier queries about how they were set up and = who invested in them. "The shroud of secrecy that surrounds so much of what this corporation= has done will not be allowed to stand,'' Dorgan said. An SEC investigation into Enron's bookkeeping forced the company last = year to restate earnings for the previous four-and-a- half years, lowering = them by $586 million. It also reported third quarter losses in many of its = operations and terminated several of its limited partnerships, wiping out $= 1.2 billion in shareholder equity. Documents released by a U.S. House committee investigating Enron's fai= lure, show that some Enron managers warned Lay shortly after Skillings depa= rted that the company was hiding losses in the partnerships. Lay returned t= o the job of chief executive after Skilling left. He resigned Jan. 23 under= pressure from creditors. --Jeff Bliss in Washington (202) 624-1975 or jbliss@bloomberg.net <mailto:j= bliss@bloomberg.net< Editors: Sobczyk, Willen. USA: Senate probe finds Enron uncooperative - Dorgan. 01/31/2002 Reuters English News Service (C) Reuters Limited 2002. WASHINGTON, Jan 31 (Reuters) - Enron Corp. has not cooperated with a Senate= Commerce Committee inquiry into the energy trading firm's collapse, but fo= rmer executives of the company have agreed to testify before the committee,= said U.S. Sen. Byron Dorgan on Thursday.=20 "The Enron Corp. is not cooperating with the committee's request for inform= ation," said Dorgan, a North Dakota Democrat and chairman of the Senate Com= merce subcommittee on consumer affairs probing Enron's downfall. In a press conference, Dorgan said the committee expects to hear from forme= r Enron chairman Kenneth Lay at a hearing on Monday in his first public rem= arks about the Enron collapse. Lay resigned as an Enron executive on Jan. 2= 3.=20 Former Enron chief executive Jeffrey Skilling "has declined the committee's= request to appear before it on Feb. 4, but has agreed to testify before it= at a later date," said Dorgan, adding another hearing would be set to hear= from Skilling.=20 Dorgan said former Enron Chief Financial Officer Andrew Fastow "has not res= ponded to any of the committee's communications." Both Skilling and Fastow = had been invited to testify at Monday's hearing.=20 Senate Commerce is one of nine congressional committees probing the stunnin= g collapse last fall of Houston-based Enron, which devastated investors and= destroyed thousands of jobs.=20 The committee has asked Enron to provide it with information about hundreds= of partnerships that the company used to move debt off its books and enhan= ce profits. The partnerships were central to Enron's financial unraveling.= =20 "To date, the corporation has provided no information to the committee abou= t these partnerships," Dorgan said. "The corporation has provided some info= rmation, not enough and not the critical information we need, especially ab= out off-the-books partnerships."=20 Dorgan displayed a chart showing that Enron had 2,832 subsidiaries, with 87= 2 of them in offshore tax havens - the highest subsidiaries tally among U.S= . corporations in 2001.=20 The chart showed that the U.S. company with the next highest number of subs= idiaries was automaker General Motors Corp. with just 316 subsidiaries.=20 "The shroud of secrecy that has surrounded so much of what this corporation= has done will not be allowed to stand. Congress will insist on receiving a= ll the information about the partnerships," the senator said.=20 Dorgan said that the boxes of information that the committee has received i= nclude minutes of board meetings. "I'm sure we will raise those at the hear= ing, we'll certainly be discussing with Mr. Lay a range of those issues."= =20 The Washington Post reported on Thursday that members of Enron's board rece= ived detailed briefings as early as four years ago about the Enron's contro= versial partnerships.=20 Dorgan said, "It's sufficient to say that the board of directors discussed,= on various occasions, the creation of partnerships, the structure of the b= usiness deals. But I think you will hear more about that in the hearings." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 US Sen. Says Enron Has Failed To Provide Key Information 01/31/2002 Dow Jones Energy Service (Copyright © 2002, Dow Jones & Company, Inc.) WASHINGTON (AP)--Enron Corp. (ENRNQ) has failed to provide a Senate committ= ee with important information about a web of partnerships used to conceal m= assive debts, a senator leading an investigation said Thursday.=20 Enron officials "just simply have not cooperated" in providing the document= s sought, said Byron Dorgan, D-N.D., chairman of a Senate Commerce subcommi= ttee. "We again renew our request." An estimated 3,000 partnerships, some with names of "Star Wars" characters = such as Jedi, were created by Enron _ which took a 97% stake in each of the= m and brought in outside investors for the remainder. The partnerships were= kept off Enron's books and helped create the accounting debacle that pushe= d the company into the biggest U.S. corporate bankruptcy ever on Dec. 2.=20 Dorgan said the committee didn't immediately plan to issue a subpoena to th= e company.=20 Attorneys representing Enron didn't immediately return a telephone call see= king comment.=20 Kenneth Lay, Enron's chairman until his resignation last week and a support= er of President Bush, has agreed to testify at the committee's hearing on M= onday, Dorgan told reporters. He said Lay's attorneys have not asked for im= munity from prosecution as a condition. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's Web of Complex Hedges, Bets Finances: Massive trading of derivatives may have clouded the firm's books,= experts say.=20 By MICHAEL A. HILTZIK, L. A. Times Staff Writer January 31, 2002 As accountants and investigators begin poring over Enron Corp.'s books, the= y are likely to collide head-on with a factor that makes its finances parti= cularly impenetrable--the extent to which the company relied on financial i= nstruments known as commodity derivatives to inflate income, hide losses an= d misrepresent the true nature of its business.=20 Although to this day Enron is generally known as an energy trading company,= a close review of financial records and interviews with accounting experts= show that at its heart it had become a massive trading operation in deriva= tives, which are financial contracts that can entail significant risks.=20 Missteps in such trading have cost highly sophisticated investors billions = in past years. Among other cases, derivatives trading was behind Orange Cou= nty's bankruptcy filing in 1994 and the failure of Barings Bank in 1995.=20 Derivatives, which come in many forms, allow investors to bet with other in= vestors on changes in an underlying asset or index, such as stocks, interes= t rates, weather or electricity prices. Properly used, derivatives are effe= ctive at hedging against an almost infinite variety of business risks rangi= ng from crop failures to changes in interest rates and oil prices. But they= can sharply exaggerate market gains or losses.=20 There are signs that, in the company's hands, derivatives evolved into more= than risk-hedging devices. They became tools of fiscal concealment and man= ipulation, some experts say.=20 Among other things, derivatives allowed Enron to inflate the value of its a= ssets and transactions while understating their risks and obscuring their r= eal nature, they say.=20 "Enron used derivatives to manipulate accounting standards and tax reportin= g," said Randall Dodd, head of the Derivatives Study Group, an economics wa= tchdog. "They used them to fabricate income. It was a bit of a shell game."= =20 Enron spokesman Mark Palmer on Wednesday declined to discuss the company's = accounting. He said the issue "is being investigated by a special committee= of our board, the Securities and Exchange Commission and the Department of= Justice. They may reveal facts that may lead us to take further action."= =20 It is still unclear to investors and government investigators how big a rol= e losses on these contracts played in Enron's collapse. Nor is the full ext= ent of the damage yet known. Some analysts believe the company still may be= losing money on some contracts.=20 Much Derivatives Trading Unregulated Enron could engage in its complex trading strategy without fear of regulato= ry intervention because the government explicitly exempted much derivatives= trading from oversight. That's at least in small part because of a ruling = by the Commodity Futures Trading Commission's former chairwoman, Wendy L. G= ramm, just five weeks before she joined the Enron board in 1993. Gramm is t= he wife of Sen. Phil Gramm (R-Texas).=20 The trading market for the contracts has blossomed in the last decade, with= nearly $100 trillion traded worldwide as of last June, according to the Ba= nk for International Settlements.=20 Most of these were so-called over-the-counter or OTC derivatives--those not= traded on a registered futures or options exchange, but rather contracts b= etween big investors.=20 Enron did not entirely conceal that aspect of its business. As early as Oct= ober 1999, its then-chief financial officer, Andrew S. Fastow, told CFO Mag= azine that the company's finance business would "buy and sell risk position= s."=20 "Enron may have been just an energy company when it was created in 1985," s= aid Frank Partnoy, a law professor at the University of San Diego who testi= fied before the Senate last week. "But by the end it had become a full-blow= n OTC derivatives trading firm."=20 The world of derivatives was almost tailor-made for the aggressively secret= ive Enron. Accountants still have not settled on a consistent way to repres= ent their value and risk on a company's books. The relevant standard set by= the Financial Accounting Standards Board, an independent agency that sets = guidelines for corporate auditors, is Rule 133--a behemoth that stands at m= ore than 800 pages.=20 Enron's derivatives-related assets soared to $21 billion in 2000 from $3.1 = billion the year before, according to the company's 2000 annual report. Thi= s enormous growth, apparently related to its Internet trading system, Enron= Online, made it the fifth-largest commodity derivatives dealer in the U.S.= , according to figures compiled by Swaps Monitor, a market research firm.= =20 Nevertheless, the company also reported last year that its net financial ex= posure to derivatives was only $66 million. Although that figure tripled fr= om the year before, analysts contend that it is absurdly low, considering t= hat a large portion of the contracts covered long-term energy deals subject= to dramatic price fluctuations.=20 "Clearly these values are no longer credible," said Robert McCullough, a Po= rtland, Ore., energy consultant.=20 Enron's accounting treatment of these highly complex transactions, includin= g stock options and loan guarantees, raises the possibility that millions m= ore in liabilities lie concealed in transactions yet to be unwound.=20 In one deal alone, a financing arrangement with a partnership called Whitew= ing, formed to hold a melange of Enron assets including a Brazilian utility= and European power plants, Enron's exposure to losses may be as much as $2= .1 billion rather than the $600 million the company has disclosed.=20 "These are transactions evolving daily, but disclosed only periodically," s= aid McCullough, who analyzed the deal. "This is a bucking bronco by any inv= estment standard."=20 Moreover, because trades in OTC contracts are entirely unregulated, "OTC de= rivatives dealers don't have to register, report, maintain a capital base,"= Dodd said. "You could set up a lemonade stand and run a $250-billion deriv= atives book."=20 Former regulator Gramm's ruling covered only a small category of swaps nego= tiated between two parties. But it helped open the floodgates to a huge var= iety of derivatives contracts, which were labeled "swaps" to fit within the= ruling.=20 Still, it was unclear whether all OTC derivatives could remain unregulated = indefinitely.=20 Banks, hedge funds and traders, including Enron and its fellow energy tradi= ng companies, strove desperately to keep government hands off. They argued = that the participants in the market were mostly huge institutions savvy eno= ugh to protect themselves from fraud without government help.=20 When the Commodity Futures Trading Commission proposed in 1998 regulating t= he OTC market, "the large derivative interests, including Enron, went up in= arms," recalled I. Michael Greenberger, then the commission's director of = trading and markets and now a law professor at the University of Maryland.= =20 The traders won the battle in December 2000, when Congress passed a law ren= dering OTC derivatives permanently exempt from regulation.=20 Around that time, Enron's participation in the market mushroomed.=20 Enron's ability to keep losses off its books through complex swaps and opti= on contracts is demonstrated in its deal with Raptor, one of the investment= partnerships about which Enron Vice President Sherron S. Watkins raised qu= estions in a now-famous anonymous letter in August to Chairman Kenneth L. L= ay.=20 Enron had transferred to Raptor ownership of $1.2 billion in shares in Rhyt= hms NetConnections, a high-tech company whose stock had rocketed in value a= fter Enron invested in it. Enron recorded the transfer as a financial gain,= but did not clearly disclose that it also entered a derivatives contract t= hat required it to cover Raptor's losses if Rhythms declined in value, as i= t eventually did.=20 Inside the web of this transaction, hundreds of millions of dollars in loss= es in Rhythms fell through the cracks, unrecorded on Enron's books. The com= plexity confounded Watkins.=20 "I can't find an equity or debt holder that bears that loss," Watkins told = Lay. Nevertheless, she suspected the truth--that the losses belonged on Enr= on's books. "If it's Enron," she wrote, "then I think we do not have a fact= pattern that would look good to the SEC or investors."=20 In at least one case, Enron apparently used derivatives to help inflate the= value of an asset as it was transferred off its books. This may have allow= ed the company to revalue similar assets that remained in its hands, using = the inflated value as a benchmark.=20 The asset in question was "dark" fiber-optic cable that Enron transferred i= n June 2000 to LJM2, a partnership managed by Fastow, then its own CFO. At = the time the real value of dark fiber--installed data lines not yet equippe= d to carry traffic--was conjectural. About 40 million miles of fiber optics= had been installed in the U.S., but within a year a glut would bankrupt se= veral communications companies.=20 LJM paid $100 million in cash and credit to Enron, which promptly claimed a= $67-million profit on the deal, suggesting that the real value of the fibe= r was $33 million.=20 LJM subsequently transferred most of the fiber to yet another Enron-associa= ted partnership, this time for $113 million. This step implicitly revalued = the fiber at more than triple its original value.=20 Supporting the second sale, however, was a derivative issued by Enron, in e= ffect covering any loss the buyers might incur if the fiber's value collaps= ed, as it did during 2001.=20 Eventually Enron would have to declare the loss on its own books. But Watki= ns' letter suggests that this would not happen until the partnerships were = closed out in 2002 and 2003--years after Enron reported a profit from the o= riginal sale.=20 'Not the Only One of Its Kind' Analysts suspect deals like this were more common than Enron has disclosed.= =20 "It seems likely that the 'dark fiber' deal was not the only one of its kin= d," Partnoy said last week in testimony before Congress.=20 He and others also believe that Enron traders may have manipulated their pr= ofit and loss figures by improperly valuing derivative contracts in illiqui= d markets--that is, those in which there is so little activity that a small= transaction can move prices sharply. These include contracts to deliver en= ergy at some point far in the future; indeed, the company disclosed that at= year-end 2000, it held about $13 billion in energy contracts denominated i= n terms of up to 24 years.=20 Palmer, the Enron spokesman, rejected any suggestion that the company's tra= ders manipulated energy prices. "This is stuff that's in the past and been = investigated by half the Western world," he said, referring to probes of We= st Coast electricity price spikes during the power crisis last year. "We ne= ed to look ahead, not engage in this sort of proctology."=20 Accountants are well aware that such derivatives are prone to "mismarking."= =20 "We recognize that some fair values are more difficult to set than others,"= said Timothy S. Lucas, director of research and technical activities for t= he Financial Accounting Standards Board. "In some cases, we may not have a = really good idea of fair value."=20 To some professionals this is only a further sign that Congress erred in re= moving OTC derivatives from regulatory oversight.=20 "OTC derivatives are as powerful as futures and securities," Greenberger sa= id. "If there's anything we're learning, it's that the big boys maybe can't= take care of themselves."=20 --- Enron Counsel Warned About Partnerships Probe: Company's legal vice president asked opinion of law firm in April. C= ongressional investigators say it was to "halt this practice." By RONE TEMPEST, L. A. Times Staff Writer January 31, 2002 HOUSTON -- The earliest warning sign yet about Enron Corp.'s outside invest= ment partnerships may have come from the company's in-house legal counsel. In April of last year, Enron legal Vice President Jordan Mintz asked a prom= inent New York law firm to review the partnerships and provide legal advice= . The resulting opinion, issued six weeks later by law firm Fried, Frank, Har= ris, Shriver & Jacobson, advised Enron to "halt this practice," according t= o congressional investigators. Sources in Enron said Mintz was concerned about the partnerships and took a= ction without the knowledge or approval of senior management, including Enr= on General Counsel James V. Derrick Jr. and Chief Financial Officer Andrew = S. Fastow. Mintz's action came four months before Vice President Sherron S. Watkins se= nt her memo to Chairman Kenneth L. Lay warning of the energy company's impe= nding collapse. Mintz used the law firm's opinion to write one of several memos opposing th= e network of off-the-books partnerships in which some senior executives, no= tably Fastow, had financial interest. Enron used some of the partnerships t= o hide debt from shareholders' view. At the time, it was a precarious route for Mintz, a 45-year-old father of f= ive, in the still-highflying corporation. Fastow had recruited him for vice= president and general counsel for Enron Global Finance. Contacted Wednesda= y, Mintz declined to comment, citing attorney-client privilege. Mintz's role in the Enron saga began to emerge this week as congressional i= nvestigators asked Enron to provide a copy of the Fried Frank report. The disclosure of Mintz's concerns is seen by investigators as more evidenc= e that top Enron executives were aware of the company's problems long befor= e they were publicly acknowledged. Financial analysts began scrutinizing the company when Jeffrey K. Skilling = resigned as chief executive Aug. 14, but Skilling and Lay insisted that the= company was on solid footing. Another executive who may have been aware of the company's problems was Jef= frey McMahon, the former company treasurer promoted to president this week. In an Aug. 22 memo to Lay, Watkins identified McMahon (and former Vice Chai= rman J. Clifford Baxter, who was found dead last week from what police say = was a suicide) as one of the executives concerned about the partnerships. McMahon was asked Wednesday about his objections to the partnerships. But M= cMahon, speaking to reporters in a conference call about the company's rest= ructuring, declined to comment. "All these things are under investigation by a variety of departments and a= uthorities and whatnot. So in lieu of that, I think I'd prefer just to stic= k on the restructuring topic today," McMahon said. Mintz was recruited to Houston to work with Exxon Corp. and later was hired= by a large local law firm, Bracewell & Patterson, where he worked as a tax= attorney for nine years. In 1996, Enron was one of his firm's clients during a thwarted hostile take= over attempt by Houston energy magnate Oscar Wyatt. Impressed with his work= , Enron hired Mintz later that year to work in the corporate tax division. In October 2000, Fastow recruited Mintz to the legal team of Enron Global F= inance. It was there that Mintz first encountered the system of partnership= s. Mintz was one of several in the legal department wary of the possible confl= ict of interest involved in doing business with entities controlled by othe= r Enron insiders. By April of last year, Mintz's concern was such that he believed Enron coul= d benefit from outside scrutiny. One reason for this, as Watkins noted in h= er memo to Lay, was that Enron law firm Vinson & Elkins had approved many o= f the controversial partnerships. Derrick was a former partner at Vinson & = Elkins. Among colleagues at Enron, it was understood that one of the main reasons M= intz hired Fried Frank was that it had strong expertise in securities law a= nd had no affiliation with Enron. Six weeks later, the New York law firm, according to a letter to Derrick fr= om the chairman of a House congressional committee, the review concluded th= at Enron should "halt this practice" of the special partnerships. In the letter to Derrick, Reps. W.J. "Billy" Tauzin (R-La.), chairman of th= e House Energy and Commerce Committee, and James C. Greenwood (R-Pa.), chai= rman of the subcommittee on oversight and investigations, asked for a copy = of the law firm report.=20 --- Post-Enron Changes May Scrap 3% Rule on Partnerships 2002-01-31 13:45 (New York) New York, Jan. 31 (Bloomberg) -- U.S. accounting rulemakers may abando= n a measure that allowed Enron Corp. to shift debt off its books through pa= rtnerships with investors who took as little as 3 percent of the risk. Enron used the so-called 3 percent rule to keep $2.6 billion in debt f= rom three partnerships off its balance sheet, then was forced to consolidat= e the debt and wipe out $502 million in profits back to 1997. The rule perm= its companies to shed debts or assets onto affiliated partnerships if indep= endent investors contribute at least 3 percent of the partnerships' funding= . The Financial Accounting Standards Board plans to propose measures by = June addressing how much outside capital an affiliate must have to be treat= ed as an independent entity. A test like the 3 percent rule encourages fina= ncial engineering and should be replaced by a standard that looks at whethe= r outsiders control the partnership and bear the risks, accounting experts = said. "The issue is control,'' said Jack Murray, vice president and special = counsel for First American Title Insurance Co., an expert on off-balance-sh= eet financing. ``If you set up an entity as a pass-through vehicle, and all= it can do is what you tell it to do, you should have to put it on your bal= ance sheet.'' Broader Review The scrutiny of the 3 percent rule is part of a wider review by FASB o= f the standards governing "special purpose entities.'' Many U.S. companies = use such vehicles. Some airlines create trusts to finance their planes, and= financial companies use them to fund credit card debts. In most cases, the= partnerships are controlled, and majority owned, by outsiders, experts sai= d. Enron took SPEs to a new level, creating more than 3,000 affiliated pa= rtnerships and subsidiaries that collapsed in the largest bankruptcy in U.S= . history, accounting experts say. Ray Simpson, project manager for FASB, said the accounting group has t= wo priorities for rules it hopes to propose in the second quarter: guidelin= es to guard against entities with "insufficient independent economic substa= nce'' and standards to prevent use of a ``straw man'' as the third-party in= vestor. FASB's decisions determine what meets ``generally accepted accounti= ng principles.'' 'Skin in the Game' Initially proposed by the Securities and Exchange Commission in 1990 a= s a minimum to ensure outsiders had some ``skin in the game,'' in the words= of former SEC Chief Accountant Lynn Turner, the 3 percent rule has evolved= into the primary test for when companies can avoid consolidating the resul= ts of special purpose entities they sponsor. The point of SPEs is to avoid consolidation, allowing the sponsoring c= ompany to keep the debts and assets of the SPE off its books while recordin= g gains and losses from transactions with the affiliate. To meet the standards for off-balance sheet treatment, an SPE's assets= must be legally isolated from the parent company and an independent third = party must have a substantive investment at risk. Many accounting experts a= rgue FASB's new standards should avoid setting a specific level of investme= nt, such as 3 percent, that is sufficient for an outside investor. 'Bright Lines' "If you try to build a system or a process that eliminates judgment to= the maximum extent, the auditor can go to the client and point at the rule= and say, 'This is what you can do,''' said Michael Sutton, who was the SEC= 's chief accountant between 1995 and 1998. "It's inevitable you are going t= o have these financial engineers that find ways to work around those rules.= '' The 3 percent rule highlights a broader debate in accounting between a= dvocates of "principles-based'' rules that require auditors to look at the = economic substance of a transaction and those who argue for "bright lines''= that clearly define what a company can and cannot do. Adopting a more principles-based approach will be difficult because wi= thout specific rules "companies are going to say, 'Where does it say I can'= t do it?'' said Jim Harrington, head of accounting and SEC technical servic= es for PricewaterhouseCoopers LLC, the biggest accounting firm. Still, he s= aid he thinks accounting should shift in that direction because "it does aw= ay with the financial engineering.'' Outside the United States, accounting standards focus on determining w= ho is in control and provide a series of tests that auditors can use. "There are indicators, but the concept is control,'' said Mary Barth, = an accounting professor at Stanford University and a member of the Internat= ional Accounting Standards Board. "It's a philosophical difference. The U.S= . has seemed more comfortable with bright line rules, but the international= standards have much less of that. It all comes down to judgment.'' 'Forest for the Trees' Under IASB rules, even majority ownership wouldn't necessarily require= the entity be included on the balance sheet if, for example, someone else = owned convertible bonds or another security that could become equity owners= hip. "When you write these really detailed rules, sometimes you lose the fo= rest for the trees,'' said Robert Herz, a partner at PricewaterhouseCoopers= who also is on the International Accounting Standards Board. ``In IAS rule= s, you look more at substance than form. There's no 3 percent rule and in f= act the presumption is the opposite. If the special purpose entity is thinl= y capitalized, you'd presume it should be consolidated.'' FASB officials said their goal is to approve the first revisions of ru= les on SPEs by the end of the year. FASB Priorities "We're going to approach this issue in a fairly narrow way in an effor= t to get some answers that are particularly relevant to special purpose ent= ities approved quickly,'' said FASB President Edmund Jenkins. Drawing the line on what constitutes a "straw man'' in an SPE may be d= ifficult. Regulators will try to address cases where "a relative, a former = or current employee, or somebody else who has a de facto agency relationshi= p'' with the sponsoring company may not be truly independent, Simpson said. Once FASB deals with the first revisions of rules on SPEs, the group p= lans to address two more areas: treatment of convertible securities or deri= vatives that might change the distribution of equity in the affiliate, and = treatment of different types of shareholder rights that define who is in co= ntrol, Simpson said. Chewco Case Study Enron's use of two partnerships, Chewco and JEDI, illustrates the kind= of "aggressive accounting'' described by Enron's auditor, Arthur Andersen = LLP, in internal documents subpoenaed by Congress. Enron employees set up C= hewco in 1997 when the California Public Employees' Retirement System, the = largest U.S. pension fund, wanted to exit the JEDI joint venture it had wit= h Enron. Calpers' JEDI stake was valued at $383 million, and Enron needed a new= investor. Enron made a loan of $132 million to Chewco, and guaranteed anot= her loan for $240 million, putting the company on the hook for exactly 97 p= ercent of Chewco's total funding, which was used to buy out Calpers from JE= DI. Michael J. Kopper, an Enron employee, was manager of the Chewco general= partner at the time. In testimony to Congress, Andersen Chief Executive Joseph Berardino sa= id the auditor was told the rest, $11.4 million, came from a "large financi= al institution.'' Andersen said last year it learned that half of that $11.= 4 million actually came, indirectly, from Enron. Calls for Change That meant Chewco wasn't independent, and therefore JEDI wasn't either= . So because of a $6 million difference in the outside funding for Chewco, = Enron erased $399 million in profits over four and a half years and added b= ack $2.6 billion in debt that had been inappropriately kept off the books. = A similar violation of the 3 percent rule with another partnership, LJM1, e= rased another $103 million in previously reported profits. The restatements, coming on top of revelations that Enron's former chi= ef financial officer, Andrew Fastow, had made $30 million from other Enron = partnerships, increased concern about Enron's accounting and helped spark t= he final collapse. "What little we know about Enron to date suggests that the 3 percent r= ule is inadequate and certainly seems to have been the cover under which so= me pretty egregious things went on,'' said Damon Silvers, associate general= counsel at the AFL-CIO, which has more than $400 million invested in membe= r benefit funds. ``The potential that this had to essentially warp a compan= y's balance sheet was not something we were aware of until Enron.'' 'Mind-Boggling' Previous efforts to tighten regulations on off-balance-sheet financing= met resistance from accounting firms and companies who said the proposals = were impractical. Now Andersen is being sued by shareholders and creditors = and investigated by Congress and the Justice Department for its role in Enr= on's collapse. "Contingent liability risk got the accounting firms' attention,'' said= Glenn Reynolds, chief executive officer of Creditsights, an independent cr= edit-research company. "There's a mind-boggling amount of stuff that FASB h= as been debating and it's clear there are vested interests all over the pla= ce, but now the accounting firms are all worried about getting sued so they= 'll get behind the change.'' SEC Chairman Harvey Pitt, who met recently with FASB President Jenkins= to discuss the issue, said the commission will tighten rules on disclosure= of special purpose entities. SEC regulators tell companies what to report = in public filings, while FASB controls the accounting rules. President Geor= ge W. Bush on Monday said corporations must be required to make "full discl= osure of liabilities'' to prevent another Enron. -- Rob Urban in the New York newsroom (212) 893-5192 or at robprag@bloombe= rg.net, with reporting by Todd Shriber in Princeton/ Editors: Rooney, Brown= e Dynegy Acquires Northern Natural Gas Pipeline; Dan Dienstbier Named Preside= nt 01/31/2002 Business Wire (Copyright © 2002, Business Wire) HOUSTON--(BUSINESS WIRE)--Jan. 31, 2002--Dynegy Inc. (NYSE:DYN) today annou= nced it has closed its acquisition of Northern Natural Gas (NNG) and that D= aniel L. Dienstbier has been named its president.=20 Dynegy exercised its rights to acquire the common equity of NNG's parent af= ter termination of its merger agreement with Enron Corp., through which Dyn= egy invested $1.5 billion to acquire preferred stock and other rights in an= Enron subsidiary that owns NNG. Enron maintains the option to repurchase t= he pipeline from Dynegy until June 30, 2002. In his role as president, Dienstbier will be responsible for the day-to-day= operation of the pipeline. He will report to Dynegy Inc. President and Chi= ef Operating Officer Steve Bergstrom and will continue to serve as an unpai= d member of Dynegy's board of directors.=20 Dienstbier has more than 30 years of experience in the oil and gas industry= . He held various executive positions at NNG, including president, before b= eing named president of Enron's Gas Pipeline Group in 1985. In 1988 Dienstb= ier became president and chief executive officer of Dyco Petroleum Corporat= ion and executive vice president of Diversified Energy in Minneapolis. He s= erved as president of Jule Inc., a private company involved in energy consu= lting and joint venture investments in the pipeline, gathering and explorat= ion and production industries from February 1991 through June 1992, preside= nt and chief operating officer of Arkla Inc., from July 1992 through Octobe= r 1993 and president and chief operating officer of American Oil & Gas Corp= . from October 1993 through July 1994. Dienstbier has been a member of Dyne= gy's board of directors since 1995.=20 "Dan's extensive knowledge of and experience with Northern Natural Gas and = Dynegy will be very important as we integrate the pipeline into our existin= g energy delivery network," said Chuck Watson, chairman and chief executive= officer of Dynegy Inc. "Dan is committed to maintaining NNG's focus on pro= viding excellent customer service and ensuring the safe operation of the pi= peline."=20 Dienstbier holds a bachelor's degree in business from the University of Neb= raska in Omaha and a master's in business administration from Creighton Uni= versity. He and his wife currently reside in Omaha, where NNG is headquarte= red.=20 NNG provides transportation and storage services to its customers and provi= des cross-haul and grid transportation between other interstate and intrast= ate pipelines in the Permian, Anadarko, Hugoton and Midwest areas.=20 NNG's 16,600 miles of pipeline extend from the Permian Basin in Texas to th= e Upper Midwest, providing extensive access to major utilities and industri= al customers. NNG's storage capacity is 59 billion cubic feet (Bcf) and its= market area capacity is approximately 4.3 billion cubic feet per day (Bcf/= d).=20 Enron will provide transition services related to the pipeline through the = end of the repurchase period of June 30, 2002.=20 Dynegy Inc. is one of the world's premier energy merchants. Through its glo= bal energy delivery network and marketing, logistics and risk management ca= pabilities, Dynegy provides innovative solutions to customers in North Amer= ica, the United Kingdom and Continental Europe. The company's web site is w= ww.dynegy.com. CONTACT: Dynegy Inc., Houston Media: John Sousa or Steve Stengel, 713/767-5= 800 or Analysts: Arthur Shannon or Katie Pipkin, 713/507-6466=20 13:45 EST JANUARY 31, 2002=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Law Firm Hagens Berman Announces Class Action Lawsuit Against Enron 2002-01-31 13:56 (New York) HOUSTON--(BUSINESS WIRE)--Jan. 31, 2002--=20 Enron Employees File Class Action Citing=20 Phantom Stock Compensation Scheme=20 In a class-action lawsuit filed today, Enron employees charge that forme= r Enron CEO Kenneth Lay, Andersen LLP and other Enron executives negligentl= y misrepresented the value of Enron stock when the energy trading company o= ffered employees the option of converting salary and bonuses into Enron sto= ck through a "phantom stock program."=20 The suit, filed in Texas District Court, is on behalf of thousands of En= ron employees nationwide who opted to receive the phantom stock payments fr= om the now-bankrupt energy trading company.=20 According to Steve Berman, the attorney representing the plaintiffs, bot= h Enron and its accounting firm, Andersen LLP, played a role in the phantom= stock plan, which encouraged employees to accept payment for salary and bo= nuses in stock that Enron and Andersen knew was wildly overvalued.=20 "By convincing Enron employees to accept payment in stock, the defendant= s knew they weren't treating their employees fairly," Berman said. "Enron w= as touting the stock as a solid investment, but we intend to prove those sa= me Enron executives and their auditor knew the stock value was built on a s= haky foundation."=20 The suit claims Andersen's chief auditor David Duncan repeatedly certifi= ed financial statements he knew were false in an attempt to cover debts and= losses, while Enron CEO Kenneth Lay knowingly used that false information = to promote the overvalued Enron stock to employees to secure their loyalty = and to have stock holdings available as a tool to fend off any hostile take= overs.=20 The suit makes several claims of wrongdoing by Andersen and its chief au= ditor, David B. Duncan, Enron CEO Kenneth Lay, Director Jeffrey Skilling, C= FO Andrew Fastow, Managing Director Michael Kopper and Executive Vice Presi= dent Richard Causey, including:=20 =20 -- Negligence: According to the suit, Andersen and Duncan failed=20 to exercise a degree of care and skill in performing audits.=20 Those audits, which the plaintiffs relied on, were seriously=20 flawed.=20 -- Negligent Misrepresentation: The suit claims that the=20 defendants made material false representations to the=20 plaintiffs including those statements in prospectuses, annual=20 reports, press releases, SEC filings, and other documents. Lay=20 and other defendants continually referred to the strength of=20 Enron's financial condition in encouraging employees to accept=20 stock as compensation and to further invest in Enron.=20 -- Violation of Texas Business and Commercial Code: The suit=20 contends that the defendants' dissemination of false and=20 misleading financial information was a deceptive practice, and=20 those statements had the capacity to -- and did -- deceive=20 plaintiffs.=20 -- Civil Conspiracy: The suit states that defendant David Duncan,=20 Andersen's chief auditor on the Enron account, conspired with=20 the others to repeatedly certify financial statements that he=20 knew to be false or misleading. The suit also contends that=20 Duncan ordered the destruction of documents regarding the=20 Enron Corporation. Concurrently, other Enron executives, fully=20 aware of the improprieties, repeatedly urged employee=20 participants to purchase Enron stock, and assured employees=20 that Enron stock was underpriced and that the company had=20 bright prospects.=20 =20 The named plaintiffs in the suit, Illinois resident Michael McCown and T= exas resident Dan Schultz, both received several phantom stock bonus awards= while employed at Enron, the suit states. This suit is in addition to the = suit filed earlier by Hagens Berman on behalf of Enron employees against An= dersen and others alleging violations of RICO.=20 On Oct. 16, 2001, Enron surprised the market when it announced that the = company was taking non-recurring charges totaling $1.01 billion after taxes= in the third quarter of 2001. Enron later revealed that a portion of the c= harge was related to the unwinding of investments with certain limited part= nerships controlled by Enron's CFO, and the company would be eliminating mo= re than $1 billion in shareholder equity as a result. As this news began to= be assimilated by the market, the price of Enron common stock dropped sign= ificantly.=20 About Hagens Berman=20 Steve Berman is managing partner of Hagens Berman in Seattle. Recently c= ited as one of the nation's top 100 influential attorneys by The National L= aw Journal, Berman is a nationally recognized expert in class action litiga= tion. Berman represented 13 states in lawsuits against the tobacco industry= that resulted in the largest settlement in the history of litigation. Berm= an also served as counsel in several other high-profile cases including the= Washington Public Power Supply litigation, which resulted in a settlement = exceeding $850 million, and the proposed $92.5 million settlement of The Bo= eing Company litigation. Other cases include litigation involving the Exxon= Valdez oil spill; Louisiana Pacific Siding; Morrison Knudsen; Piper Jaffre= y; Nordstrom; Boston Chicken; and Noah's Bagels.=20 --30--jc/se* As Enron Searches for Auditor, Some Big Names Don't Apply By JONATHAN D. GLATER, New York Times January 31, 2002 Firing its old auditor was easy. Now, with Arthur Andersen out of the way, = the Enron Corporation faces a much more difficult task: finding another acc= ounting firm willing to take its place. Two of the other four large accounting firms said they did not intend to co= mpete for the account of Enron, now embroiled in one of the largest account= ing scandals in history. The remaining two - Deloitte & Touche and KPMG - w= ould not comment. That may mean that a much smaller firm will have to wade = through the complex, re- stated and much-criticized finances at Enron, even= as lawsuits against the company - and against Andersen - pile up and credi= tors demand a speedy resolution of Enron's bankruptcy proceedings. Enron has only just begun the process of finding and hiring a new auditor, = having fired Andersen two weeks ago after the accounting firm said that its= employees shredded Enron-related documents. If that were not enough to det= er auditors, Enron's finances are - now, anyway - infamously complex; sophi= sticated and undisclosed transactions hid much of Enron's debt and contribu= ted to the company's collapse into bankruptcy last month. "We are confident that we will find a highly qualified auditor," said Karen= Denne, a spokeswoman for Houston-based Enron. She added that Enron would p= robably not take out advertisements to solicit applications from accountant= s but would contact potential auditors directly. But a company as big as Enron needs a big accounting firm, and the biggest = firms do not want to go near Enron, at least for a while. Those that have n= ot been directly implicated in the scandal caused by Enron's implosion do n= ot want to risk being tarred by it now. "It's a hot potato," said Arthur W. Bowman, editor of Bowman's Accounting R= eport. "The risk, I guess, is still high, but you would think that whatever= results would fall on Andersen's shoulders. "But you can sue anybody for anything," he added. That may be why executives at the remaining four members of the so- called = Big Five accounting firms do not sound eager to take on this particular cli= ent. "We do not intend to do the audit for Enron," David Nestor, a spokesman for= PricewaterhouseCoopers, said in an interview last week. Ernst & Young is already advising Enron in its Chapter 11 bankruptcy procee= dings, said Lawrence J. Parnell, director of public relations at the firm. = Is Ernst & Young considering applying to become Enron's auditor? "Not to my= knowledge," he said. A spokesman for Deloitte & Touche, which is advising the judge overseeing E= nron's bankruptcy proceedings, would not comment on the possibility of audi= ting Enron. KPMG appeared to leave the window open a crack to the possibility of steppi= ng into Andersen's shoes. "We would not discuss business we were bidding fo= r, one way or the other," a spokesman said. Lawyers for Enron said that a new auditor would be subject to review by cre= ditors and approval by the bankruptcy court. If Enron were to be liquidated= rather than reorganized, the need for an auditor would diminish, said Mart= in J. Bienenstock, a lawyer at Weil Gotshal & Manges, which is representing= Enron. So far, Mr. Bienenstock said no "beauty contests" had been scheduled to let= accounting firms compete for the Enron audit. At some point an auditor wil= l have to be found because federal law requires that publicly traded compan= ies put out audited financial statements and Enron is still publicly traded= , even if its stock has been kicked off the New York Stock Exchange. In ove= r-the-counter trading, the stock, which traded for $80 a year ago, now fetc= hes less than 50 cents. If none of the Big Five firms are willing to audit Enron, the company could= turn to a smaller firm. But most such firms cannot devote hundreds of acco= untants to a single client, and Enron would require significant manpower. "I'm going to guess that Enron had over a thousand Andersen people working = on jobs," Mr. Bowman said, adding that many firms could not provide such a = large work force. Smaller accounting firms can collaborate on large accounts, but such relati= onships are complicated, said Clarence D. Hein, managing partner of Hein + = Associates, which has offices in Colorado, California and - conveniently - = Texas. The firm has about 120 accountants. "We've never put together that large of an audit relationship," Mr. Hein sa= id. "That's something we'd really have to look at." Auditing a company with a history of reportedly questionable accounting wou= ld be a risky endeavor because bankruptcy proceedings and lawsuits would af= fect valuations of Enron assets, he said. B.D.O. Seidman, with $420 million in revenue and about 2,000 employees in t= he United States, could probably handle an audit of Enron, but a spokesman = declined to talk about the idea. Ms. Denne, the Enron spokeswoman, was undeterred when told of accounting fi= rms' reluctance to tackle or even comment on the prospect of tackling the c= ompany's tangled finances. "We will find an auditor," she said. Cooper says Enron can be fixed=20 By Lisa Sanders, CBS.MarketWatch.com Last Update: 7:44 PM ET Jan. 30, 2002 HOUSTON (CBS.MW) -- Enron's interim CEO said Wednesday a turnaround is achi= evable, and he also believes he can convince the bankrupt energy company's = creditors that a reorganization is more to their benefit than a liquidation= . One day after taking the helm, acting Chief Executive Stephen Cooper said i= n a news conference that he plans to "spend little to zero of my time" on w= hat happened in the past at Enron. "It's literally of no interest to me."= =20 Although his turnaround-consulting firm, Zolfo Cooper, has had to liquidate= companies, Cooper said that the firm's "track record relative to successfu= l reorganization is second-to-none in North America." Houston-based Enron named Cooper interim chief executive and chief restruct= uring officer on Tuesday, replacing founder Ken Lay, who resigned under pre= ssure last week. Cooper said the findings from Enron's internal review examining the collaps= e of the company should be released in the next 3 to 6 days. While declining to offer specifics, Cooper vowed the restructuring would mo= ve at "lightning" pace. He used the news conference to outline why he believes Enron is a good cand= idate for reorganization. Adequate liquidity "My sense is that Enron has a tremendous organization, and the people appea= r to be bright, dedicated and hard-working," Cooper said. "No. 2, this comp= any has some tremendous businesses with strong leadership positions in the = markets they serve. Revenue, EBITDA and cash flow is predictable, and we ha= ve a loyal and solid customer base. We have more than adequate liquidity to= support a reorganization." Enron didn't disclose how much cash it has on hand but it expects to genera= te more through asset sales and operations, and it can use debtor-in-posses= sion financing as a backup. The DIP financing, once estimated at $1.5 billi= on, is now expected to be substantially smaller because of the positive cas= h flow in the company, a spokesman said.=20 Cooper did not rule out having more layoffs, but said he would attempt to k= eep as many jobs as possible. "This will certainly be a smaller company, but it will be based on hard ass= ets with predictable revenue and cash flows," he said. "This business was d= riven, in all candor, by a trading activity we no longer have." Enron has about $40 billion in consolidated debt, with about $10 billion ti= ed to project financings. The majority of the rest is unsecured. Under bank= ruptcy protection, Enron will only have to repay a portion of their obligat= ions.=20 He said he had "no idea" how much creditors would recover, but he acknowled= ged some of them would be treated "differently" from others. He was not mor= e specific, but typically in bankruptcy, certain claims take precedence ove= r others. "Our creditors are astute, economic analysts, and we will have a good oppor= tunity to convince them that the best return and recovery is through a reor= ganization," Cooper said. "I believed that coming in and I believe it today= . "My view historically...is that you can effectuate a successful restructuri= ng that delivers more value to stakeholders than you do through a liquidati= on." -- Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. Calif Davis To FERC: Probe Possible Enron Mkt Manipulation 01/31/2002 Dow Jones Energy Service (Copyright © 2002, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- California Gov. Gray Davis on Thursday asked the = nation's top energy regulator to investigate possible market manipulation b= y Enron Corp. (ENE) during the state's energy crisis last year.=20 "I am extremely concerned about revelations made in the past few days conce= rning possible manipulation of energy prices in the Enron Corporation," wro= te Davis in a letter to the chairman of the Federal Energy Regulatory Commi= ssion, Patrick Wood. On Tuesday, Wood testified before the U.S. Senate Energy Committee about th= e bankrupt energy giant's impact on the nation's energy markets, and said h= e was willing to look into allegations that the company inflated power pric= es in the Northwest.=20 On Monday, U.S. Sen. Diane Feinstein, D-Calif., wrote a letter to the chair= man of the Senate Energy Committee asking that he investigate Enron's role = in the state's power crisis, which drove up wholesale electricity prices, c= aused blackouts and financially devastated two utilities.=20 -By Jessica Berthold, Dow Jones Newswires; 310-962-2843; jessica.berthold@d= owjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: US energy regulator joins increasing Enron probes. By Chris Baltimore 01/31/2002 Reuters English News Service (C) Reuters Limited 2002. NEW YORK, Jan 31 (Reuters) - Federal energy regulators said they launched a= n investigation on Thursday into allegations that bankrupt Enron Corp unfai= rly boosted wholesale power prices during California's electricity crisis l= ast year.=20 The probe was demanded by West Coast Democrats, who contend that the Housto= n-based firm manipulated wholesale prices to boost its profits at the expen= se of California residents. The California power crisis unleashed a series = of blackouts and forced the state to spend billions of dollars to buy power= when utilities could no longer afford to do so. Enron, until recently the world's biggest energy trader, has denied any wro= ngdoing.=20 Pat Wood, chairman of the Federal Energy Regulatory Commission, told Reuter= s that his staff on Thursday began examining the allegations of price manip= ulation by Enron.=20 "Staff is looking at it today," Wood said after addressing a FERC-sponsored= conference in New York on power supplies in Northeastern states.=20 The investigation is a "joint effort" between FERC's office of general coun= sel and office of market tariffs and rates, he said. He declined to elabora= te on the scope of the probe.=20 Wood, a Texas Republican, was appointed FERC chairman last summer by Presid= ent George W. Bush with the support of Enron. Democrats have raised questio= ns about Bush's close ties to Enron and its top executives, who were big co= ntributors to Bush's presidential campaign.=20 CALIFORNIA DEMANDS REFUNDS=20 Enron was among a dozen power generators which were major players in Califo= rnia's wholesale electricity market.=20 Prices for power sold on the state's spot market rose tenfold in the autumn= of 2000 and continued at high levels through spring of 2001. The sharp inc= rease was blamed on California's failed deregulation law, which failed to e= ncourage the construction of new power plants and barred utilities from pas= sing through higher wholesale costs to consumers.=20 The state of California is demanding some $9 billion in refunds for alleged= overcharges by Enron and several other power generators during the crisis.= The case is pending before a FERC administrative law judge with no decisio= n expected for several months.=20 Democratic Senators Dianne Feinstein of California and Maria Cantwell of Wa= shington prodded Wood at a Senate Energy Committee hearing earlier this wee= k to look into any wrongdoing by Enron.=20 The lawmakers pointed to a study by an independent consultant showing that = California wholesale electricity prices fell by 30 percent immediately afte= r Enron declared bankruptcy in December.=20 Feinstein said a "key factor" in higher power prices was Enron's ability to= deal in unregulated financial derivatives in the natural gas market while = controlling a large share of the market. Natural gas is widely used in Cali= fornia to fuel electricity generating plants.=20 ALL FERC MEMBERS SUPPORT PROBE=20 The FERC probe into Enron's role in California power prices joins more than= a half-dozen other investigations into various aspects of the company's sp= ectacular collapse.=20 Several House and Senate panels are looking at Enron's complex financial ac= counting practices, its relationship with accounting firm Andersen, and pot= ential securities fraud. The Securities and Exchange Commission, the Labor = Department and the Justice Department also have separate probes.=20 There was a consensus among the three other FERC commissioners, who were al= so at the New York power meeting, that an investigation of Enron was warran= ted.=20 "I am perfectly happy to do a California investigation," said Nora Brownell= , a Republican appointed to FERC last year.=20 Brownell's nomination to FERC was endorsed by Enron, which supported her op= en market approach as a Pennsyvlania utilities regulator.=20 William Massey and Linda Breathitt, Democratic commissioners appointed duri= ng the Clinton administration, told Reuters they also supported a probe of = Enron.=20 "I think that when there is evidence of increased volatility that arises in= correlation with particular events in the market, we ought to take a look,= " Massey said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Fund to assist ex-Enron employees collects $396,000 in a week By LISA FALKENBERG Associated Press Writer 01/31/2002 Associated Press Newswires Copyright 2002. The Associated Press. All Rights Reserved. HOUSTON (AP) - One of the funds to help laid-off Enron Corp. workers has ta= ken in more than $396,000 in the past week, primarily from politicians and = political groups donating campaign contributions they received from the ene= rgy giant before it filed for bankruptcy.=20 The Enron Employee Transition Fund, one of several funds helping ex-Enron e= mployees, was established a week ago by the Greater Houston Community Found= ation, which provided the initial $50,000. Major donors include Sen. Kay Bailey Hutchison, R-Texas, the National Repub= lican Congressional Committee and the Democratic Senatorial Campaign Commit= tee. More than 20 elected officials from across the nation have sent checks= ranging from $500 to Hutchison's $100,000, the transition fund said Thursd= ay.=20 The money will be sent to United Way agencies, which will provide direct se= rvices to some of the 4,500 Enron workers laid off in December.=20 At first, the fund will focus on helping employees transition to new jobs b= y offering counseling and assistance dealing with bill collectors, includin= g mortgage companies, landlords and utilities.=20 A smaller portion will be used to provide workers with direct assistance to= pay for bills and other expenses.=20 Another fund, set up by a former Enron employee, has taken in about $160,00= 0. The Enron Ex-Employee Relief Fund distributed 30 checks to help Enron em= ployees last week and hoped to distribute 50 more Thursday, said founder Re= bekah Rushing, who found work at another Houston energy firm.=20 In all, the fund has given out more than $100,000 to help the laid-off empl= oyees pay bills while they look for other jobs, Rushing said. Some
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