Enron Letter Writer Worked At Key Partnership Early On
Dow Jones Energy Service, 01/18/2002

Enron's Chief Sold Shares After Receiving Warning Letter
The New York Times, 01/18/2002

A look at Thursday's developments involving Enron
Associated Press Newswires, 01/18/2002

Enron fires Andersen 
Board takes action as new facts surface 
Houston Chronicle, 01/18/2002
In Enron Leaders, Seeing the Worst Of Ourselves
The Washington Post, 01/18/2002

Broadband-unit hype didn't match reality 
Houston Chronicle, 01/18/2002

Enron chairman selling 2 homes, lot in Colorado for $16.2 million 
Houston Chronicle, 01/18/2002

Blockbuster deal helped sow seeds of Enron fiasco CIBC World Markets agreed to invest $115.2-million in affiliated partnership
Wall Street Journal,  01/18/2002

Deals That Helped Doom Enron Began to Form in the Early 90's
The New York Times, 01/18/2002

Enron deals that led to collapse began in early 1990s - report
AFX News, 01/18/2002

Andersen HQ 'discussed Enron purge'.
Financial Times, 01/18/2002

Attorneys for Enron assure judge more documents won't be shredded
Associated Press Newswires, 01/18/2002

When Rules Keep Debt Off the Books --- Did Andersen Act Properly? Firm Is Fired
The Wall Street Journal, 01/18/2002

Slugfest Is Seen Among Creditors Fighting for Slice of Enron Assets
The Wall Street Journal, 01/18/2002

ENRON FIRES ACCOUNTANTS; DISMISSAL A MOVE OF DESPERATION, EXPERTS SAY
South Florida Sun-Sentinel, 01/18/2002

CONGRESS WANTS ANDERSEN TO PROVIDE MORE BOOKKEEPING DATA ENRON SEVERS RELATIONS WITH ITS ACCOUNTING FIRM
Pittsburgh Post-Gazette, 01/18/2002

Andersen execs aired concerns ; Enron `intelligent gambling' was topic in February
Chicago Tribune, 01/18/2002

Andersen: No Sign Of 'Any Illegal Action' At Feb 5 Mtg
Dow Jones News Service, 01/18/2002

House Panel Wants Documents On Andersen's Feb Enron Talks
Dow Jones Energy Service, 01/18/2002

Andersen falls deeper into Enron crisis.
The Guardian, 01/18/2002

Enron, auditor Andersen trying to pin responsibility for collapse
Associated Press Newswires, 01/18/2002

Enron Scandal: Bank Fallout
CIBC would like to forget nightmare: Total writeoff likely: Enron's 'project Braveheart' seemed too good to be true
National Post, 01/18/2002

Enron Reports Weren't Reviewed Fully by SEC for Several Years Before Collapse
Dow Jones Business News, 01/18/2002

Enron Scandal: Legal Battles
Andersen, Enron hire legal heavyweights: Who's who of law world
National Post, 01/18/2002

Canadian institutional investors file suit against Enron's Wall Street bankers: 'Wrongful conduct' claim
National Post, 01/18/2002

Enron probe is yet to begin.
The Times of India, 01/18/2002

THE VIEW FROM WASHINGTON
Enron's far-reaching tentacles undermine a fair probe
The Globe and Mail, 01/18/2002

Politicians Trade Shots Over Enron
AP Online, 01/18/2002

GOP: Enron won't hurt in 2002 campaigns
Associated Press Newswires, 01/18/2002

Lawmakers investigating Enron have accepted more than $700,000 in political donations from company
Associated Press Newswires, 01/18/2002

SEC's Pitt Stresses He's Not Participating In Enron Case
Dow Jones News Service, 01/18/2002

SEC's Pitt Faces Criticism on Industry --- U.S. to Form Group To Oversee Reviews Of Accounting Firms
The Wall Street Journal Europe, 01/18/2002

ENRON'S COLLAPSE: THE OVERVIEW
S.E.C. LEADER SEES OUTSIDE MONITORS FOR AUDITING FIRMS
The New York Times, 01/18/2002

SEC PROPOSES ACCOUNTING WATCHDOG IN WAKE OF ENRON
Pittsburgh Post-Gazette, 01/18/2002

COMPANIES & FINANCE ENRON COLLAPSE - Pitt attacks accountancy system and US audits.
Financial Times, 01/18/2002

FERC Chairman: Enron Meltdown Showed Power-Market Strength
Dow Jones Energy Service, 01/18/2002

Burns won't return Enron donations
Associated Press Newswires, 01/18/2002

Elizabeth Dole won't keep campaign money from Enron chairman
Associated Press Newswires, 01/18/2002

UPPING THE PRESSURE AT NORTHWEST
BusinessWeek, 01/21/2002

Citibank Asserts Right To Liquidate Enron Subsidiary
Dow Jones Corporate Filings Alert, 01/18/2002

Report: Enron power plant in China one of several ventures likely to be sold
Associated Press Newswires, 01/18/2002

ENRON MAY SELL POWER PLANT.
China Daily, 01/18/2002

Enron expressed interest in mills last summer
Associated Press Newswires, 01/18/2002

HOT POTATO: HANDLE WITH CARE Playing politics in the Enron probe could burn either party
BusinessWeek, 01/21/2002

ENRON'S COLLAPSE: THE APPOINTEES
Several Administration Officials Held Enron Shares
The New York Times, 01/18/2002

Enron's Influence Reached Deep Into Administration; Ties Touched Personnel and Policies
The Washington Post, 01/18/2002

Accounting for Enron: Investigation Raises Oliver North Problem --- Congressional Testimony Can Taint Prosecutions
The Wall Street Journal, 01/18/2002

Enron: How Governance Rules Failed The audit committee followed all the rules--but it let shareholders down
BusinessWeek, 01/21/2002

THE MORTICIANS MOVE IN Lawyers, investment bankers, and accountants could walk away with as much as $300 million
BusinessWeek, 01/21/2002

THE PERILS OF J.P. MORGAN Enron, Argentina, the bear market-a year after the merger with Chase, the bank is racking up losses
BusinessWeek, 01/21/2002

HOLD THE RATINGS AGENCIES TO A HIGHER STANDARD
BusinessWeek, 01/21/2002

Who's Accountable? ; Inside the growing Enron scandal: how evidence was shredded and top executives fished for a bailout as the company imploded
Time Magazine, 01/21/2002

THE NATION THE ENRON INQUIRY As Questions Get Louder, Cheney Stays Silent Politics: Critics want details on meetings with Enron over energy policy. He asserts executive privilege.
Los Angeles Times, 01/18/2002

The Mirror Image of Whitewater
National Journal, 01/19/2002

Gramms regulated Enron, benefited from ties
Chicago Tribune, 01/18/2002

Bush In The Glare The Enron mess may revive a tough question: Whose side is this President on?
Time Magazine, 01/21/2002

The Enron scandal.(investigation into collapse of Enron Corp.)(Brief Article)
Maclean's, 01/21/2002

Late to the Party
National Journal, 01/19/2002
McKinsey Held Close Enron Ties For Many Years
The Wall Street Journal, 01/17/2002

Enron Creditors Group Law Firm Has Ties To Co, Creditors
Dow Jones News Service, 01/18/2002

Enron Excerpt
CNN: Special Report With Aaron Brown, 01/18/2002

Diversify, Diversify, Diversify
The Wall Street Journal, 01/18/2002

Breakingviews: J.P. Morgan May Pay for Creativity --- Insurers Challenge Bank's Method for Controlling Risks in Enron Dealings
The Wall Street Journal Europe, 01/18/2002

COMPANIES & FINANCE ENRON COLLAPSE - Duke benefits from traders' flight to quality - RIVAL MERCHANT'S RESULTS.
Financial Times, 01/18/2002

Enron debacle casting 'lousy' light on accountants
The Globe and Mail, 01/18/2002

The Enron Story That Waited To Be Told
The Washington Post, 01/18/2002

The Big City
Blame Game Has Two Sets Of Standards
The New York Times,  01/18/2002

ENRON ENLIGHTENMENT LOTS OF QUESTIONS AND A NEED FOR ANSWERS
Pittsburgh Post-Gazette, 01/18/2002

AS ENRONGATE UNFOLDS, A PARTISAN'S HEART LEAPS WITH GLEE
Pittsburgh Post-Gazette, 01/18/2002

Commentary: JOHN BALZAR Enron: A Scandal So Good That It Hurts
Los Angeles Times, 01/18/2002

REVIEW & OUTLOOK (Editorial)
Enron's Sins
The Wall Street Journal, 01/18/2002

Enron Case Upsets Long-Held Illusions
Newsday, 01/18/2002

ENRON EXECUTIVES DESERVE TO BE HIT BY A TWAIN
Pittsburgh Post-Gazette, 01/18/2002

Code of conduct: A matter of trust
Chicago Tribune, 01/18/2002

Blind ambition: Good and shameful ; Sorting out the tales of 2 mind-sets
Chicago Tribune, 01/18/2002

Letters to the Editor
The Enron Debacle: Be Forewarned . . .
The New York Times, 01/18/2002

Opportunists may benefit if embattled Kmart files for Chapter 11
The Globe and Mail, 01/18/2002

City - City Diary - Enron going, going, gone.
The Daily Telegraph, 01/18/2002

________________________________________________________________________________________________


Enron Letter Writer Worked At Key Partnership Early On
By Jason Leopold

01/18/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES 

(This article was originally published Thursday.)
LOS ANGELES (Dow Jones)--The Enron Corp. (ENE) executive who warned Chief Executive Kenneth Lay in August that questionable accounting practices could bring about the company's downfall was initially hired by Enron to work on one of the partnerships now at the center of current federal investigations, the executive's lawyer and Enron said. 
Enron hired Sherron S. Watkins away from accounting firm Arthur Andersen in 1993 to oversee the accounting for Joint Energy Development Investment, an off-balance-sheet partnership Enron started with the California Public Employees Retirement System to make investments in energy projects, an Enron spokesperson and Watkins' lawyer Philip H. Hilder said. 
After four years in her post, Watkins expressed concerns about accounting practices used on the partnership and asked to be reassigned, Hilder said. Watkins did some "clean-up" work regarding JEDI in early 1997, and then was moved to a new job, he said. 
"She did raise some concerns at that time," Hilder said. Watkins told current Enron Chief Financial Officer Jeff McMahon, a long-time colleague, that she was uncomfortable with the accounting practices she was told to employ in her work for JEDI, Hilder said. 
McMahon declined to comment on the issue. 
Robert Bennett, an attorney representing Enron in federal investigations of the company, wouldn't comment on whether concerns were raised or how they were handled. 
Last November, Enron conceded it shouldn't have treated JEDI as a separate entity. Consolidating JEDI and a related partnership, Chewco Investments LP, into its financial reports reduced Enron's earnings by $400 million. 
Enron auditor Arthur Andersen has said consolidating those partnerships accounted for most of the restatement of Enron's financial reports, which all told reduced the company's earnings by about 20% over a four-year period beginning in 1997. 

Trouble With JEDI 

The trouble with JEDI came in 1997, when Enron wanted to establish a new partnership with Calpers called JEDI II. Calpers was willing to invest $500 million in the new partnership, but wanted to recover its $250 million investment in JEDI. 
According to published reports and congressional testimony by an Andersen official, Enron bought Calpers' interest in JEDI for $375 million, then sold it to Chewco, another Enron off-balance-sheet partnership. Chewco's investment allowed Enron to avoid booking JEDI-related debt to its own balance sheet. It emerged later that Enron had guaranteed part of Chewco's investment, invalidating its status as an outside party and forcing the consolidation. 
As reported, Andersen Chief Executive and Managing Partner Joseph Berardino told a House committee that the firm only learned of Enron's guarantee in November, at which time it alerted Enron to "possible illegal acts" within the company. Enron said at the time it has always been open with its auditor and notified Andersen as soon as it learned the information. 
Revelations about JEDI, Chewco and other Enron partnerships eventually ruined the one-time market leader's credibility on Wall Street and led to the biggest bankruptcy filing in U.S. history. The U.S. Justice Department, several Congressional committees, and the Securities and Exchange Commission are investigating the collapse. 
Watkins warned in her much-publicized August 2001 letter to Lay that Enron's handling of the partnerships could produce such an outcome. "I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote. 
Watkins wrote her letter to Lay one day after then Chief Executive Jeffrey Skilling abruptly resigned from the company on Aug. 14, attorney Hilder said. 

Work On Raptor, Condor 

At the time, Watkins had been working with Fastow for a month on a temporary basis on some of the partnerships. Watkins was able to go into detail in her letter about transactions with partnerships called Raptor and Condor because "she was reviewing the assets of Raptor and Condor for potential sale," he said. 
"She saw that there were some serious questions with the accounting operations and raised some questions and wanted the executives to be aware," Hilder said. 
The issues she raised - namely that the partnerships were thinly capitalized and insufficiently independent - were those that eventually forced Enron to consolidate some of the partnerships. 
Those close to Fastow now characterize Watkins as a disgruntled employee who hadn't quickly climbed the corporate ladder. 
Watkins' lawyer dismissed that conclusion. "It's completely the opposite of disgruntled," Hilder said. "She found great job satisfaction. She had an outstanding work history with Enron." 
Enron lawyer Bennett also distanced the company from those characterizations. "She certainly isn't a kook," Bennett said. 
As reported, Watkins met with Lay, who asked Enron's outside law firm to review her concerns. The firm, Vinson & Elkins, concluded in an Oct. 15 report that the accounting for the partnerships was sound, but that Enron could face public-relations problems if the details were revealed. Watkins initially hadn't signed the letter she sent to Lay, but was later convinced to reveal her identity by McMahon, at the time the chief executive of Enron Industrial Markets, Hilder said. 
Watkins brought her concerns about the partnerships to McMahon because she has a longstanding relationship with him dating back to the late 1980s, according to Hilder. Both worked at MG Natural Gas Corp. and Arthur Andersen. 
They also shared a concern about the partnerships. In early 2000, when he was Enron's treasurer, McMahon raised concerns about partnerships headed by Chief Financial Officer Andrew Fastow to Skilling, then Enron's president, according to The Wall Street Journal. Skilling wasn't concerned, and McMahon moved on to a new post. After Fastow was ousted in late October 2001, McMahon was named CFO. 
-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE AUDITOR
Enron's Chief Sold Shares After Receiving Warning Letter
By RICHARD A. OPPEL Jr. and JONATHAN D. GLATER

01/18/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

Documents disclosed yesterday indicate that Kenneth L. Lay, the chairman and chief executive of Enron, disposed of stock within days of receiving a letter warning of accounting problems at the company. 
That letter, from Sherron S. Watkins, a senior employee, ignited an investigation by Enron's outside law firm, which concluded that the accounting issues could be embarrassing. As part of that inquiry, Mr. Lay met with Ms. Watkins.
The documents released yesterday by Congressional investigators were internal memos from Arthur Andersen, Enron's auditor, which the company fired yesterday. The documents not only put Mr. Lay's stock transactions and the Watkins letter on a timeline, but also provide the best map to date of what Andersen officials considered doing about Enron's accounting. 
In Houston, investigators continued to interview Enron executives and to press for more information on Enron's collapse and Andersen's role, including the destruction of documents. 
One memo released by investigators revealed that as long ago as February, Andersen workers considered dropping Enron as a client because of concerns about the disclosure of off-balance-sheet debts. 
Enron's sudden collapse last fall and the resulting criminal and civil investigations revolve around Enron's transactions with partnerships formed by Andrew S. Fastow, Enron's former chief financial officer. Mr. Fastow was ousted in late October as investors grew concerned about the partnerships, among them LJM1 and LJM2. Enron subsequently disclosed that Mr. Fastow made more than $30 million off the deals. 
An e-mail message dated Feb. 6, 2001, released by investigators, showed that Andersen partners discussed whether to consolidate one of the partnership's financial results with Enron's, and it discussed potential conflicts of interest confronting Mr. Fastow. The message was reported yesterday by The Washington Post. 
Yesterday, Andersen issued a statement saying that the deliberations described by the memo were routine and that nothing ''indicated that any illegal actions or improper accounting was suspected.'' 
The firm also acknowledged that senior partners with Andersen in Chicago, where the accounting firm has its headquarters, were involved in the February discussions and held conference calls with the firm's Houston office, which oversaw the Enron account. An Andersen spokesman said it was not unusual for senior partners to be involved in such meetings about clients of Enron's size and complexity. 
Meanwhile, Congressional investigators have also been told that by September, officials from the Chicago office had joined a review team of Andersen auditors in Houston analyzing Enron's dealings with the partnerships in the wake of Ms. Watkins's letter. 
On ''Moneyline'' on CNN last night, Andersen's chief executive, Joseph F. Berardino, said he had been meeting with the firm's partners, other employees and clients to try to reassure them about the firm's prospects. ''We will do what great companies have done: learn from this experience,'' he said. ''Our people are very, very confident that we will move forward.'' 
Until yesterday, it had not been clear just when Ms. Watkins wrote her letter warning of accounting problems or when Mr. Lay received it. But her lawyer, Philip Hilder, said in an interview yesterday that the letter was written on Aug. 15, and one of the newly disclosed Andersen memos obtained by Congressional investigators indicates that her meeting with Mr. Lay had been scheduled for Aug. 22 and the scheduling had been done by Aug. 20. 
It was on Aug. 20 and Aug. 21 that Mr. Lay exercised options on 93,620 shares of stock for $2 million. At the time, the shares were worth $3.5 million. Mr. Lay did not report selling the stock, but a lawyer for Enron disclosed earlier this week that some shares had been used to repay a previously undisclosed loan from Enron. Enron has declined to discuss details of the repayment, but it seems likely that the shares purchased then were used to repay the loan. Had Mr. Lay not planned to use the shares for that purpose, there would have been no apparent reason to exercise the options then. 
Under rules of the Securities and Exchange Commission, corporate officials are required to disclose sales of their company's stock by the tenth day of the month after the sale. But there is an exception when the shares are surrendered to the company to repay a loan. Disclosures of such transactions can be delayed until 45 days after the company's fiscal year ends. For Enron, that will be Feb. 14. 
As Mr. Lay was apparently reducing his own stake in Enron, he was sounding optimistic in public. ''As I mentioned at the employee meeting, one of my highest priorities is to restore investor confidence in Enron,'' Mr. Lay wrote in an e-mail message to employees dated Aug. 21. ''This should result in a significantly higher stock price.'' 
An Enron spokesman said last night that Mr. Lay ''exercised the options to hold those shares,'' but that he did not know whether those ''particular'' shares had then been used to repay a company loan. 
Congressional investigators have learned this week that some Enron executives, concerned about the company's finances, sought legal counsel on their own from lawyers outside the company before the financial disclosures last fall that ultimately led to Enron's bankruptcy in December. 
Last night, Salon.com reported that an Enron corporate lawyer, Jordan Mintz, last summer hired a New York law firm, Fried Frank Harris Shriver & Jacobson, to take another look at the company's financial structure. Fried Frank, where the S.E.C. chairman, Harvey L. Pitt, worked until last fall, recommended that Enron end its deals with the partnerships. There was no response to a message left last night at Mr. Mintz's home in Houston. 
The investigation by the Houston law firm of Vinson & Elkins, a result of Ms. Watkins's letter, concluded that Enron had done nothing wrong in setting up the partnerships but also said that there was a serious risk of adverse publicity and litigation for the company. 
In Houston yesterday, investigators of the House Energy and Commerce Committee interviewed Richard Buy, Enron's chief risk officer, among other executives. On Friday they plan to interview Richard Causey, the company's chief accounting officer. Investigators then plan to conduct interviews across the country about document destruction at Andersen. Investigators have also started to receive reconstructed versions of some of the e-mail messages and electronic documents that were destroyed by the accounting firm from September to November. 
On Wednesday, investigators from the committee spent more than four hours interviewing David B. Duncan, the lead Andersen partner in charge of auditing Enron, who was fired earlier this week after the firm said he oversaw document destruction at Andersen's Houston office despite a regulatory investigation. 
Mr. Duncan maintained that he was only following a document-destruction policy re-emphasized in an Oct. 12 memo from an Andersen lawyer, according to a person close to the case. He was asked by investigators whether ''it was usual in your career for people to talk to you about the document-retention policy,'' this person said. ''He said it's not something that happens all the time.'' 
Mr. Duncan also stated that by September, Andersen executives in Chicago were having frequent phone calls with auditors in Houston re-examining Enron's transactions with the partnerships, this person said. 
The internal Andersen documents paint a complicated picture of a firm where accountants were struggling to evaluate the risks posed by Enron's aggressive approach to accounting. The Andersen executives also worried that the fees received from Enron could appear to compromise their objectivity. 
''We arbitrarily discussed that it would not be unforeseeable that fees could reach a $100 million per-year amount considering the multidisciplinary services being provided,'' wrote Michael D. Jones, in Andersen's Houston office. ''Such amount did not trouble the participants so long as the nature of the services was not an issue.'' 
In a statement yesterday, Andersen said that ''discussion about the potential that fees could rise to as much as $100 million was not in the context of the firm's desire to grow revenues.'' 
''Rather,'' it continued, ''the discussion related to concerns about the possibility that the size of the fees could be misperceived as affecting independence.'' 
But Mr. Jones's e-mail message also suggested that Andersen's accountants consider whether the LJM partnerships should be treated as a separate entity for accounting purposes. That suggestion makes clear that nearly a year ago Enron's auditors questioned whether unreported transactions between the company and entities like LJM might be improperly characterized in its financial statements.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A look at Thursday's developments involving Enron
By The Associated Press

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

Developments involving bankrupt energy company Enron Corp.: 
-Enron Corp. and accounting firm Arthur Andersen LLP are trying to pin responsibility on each other over Enron's financial practices. Enron fired Andersen, citing its destruction of thousands of documents and its accounting advice.
-More than $700,000 in campaign donations has gone from Enron to the members of seven congressional committees investigating its collapse, but none of the lawmakers has decided to drop out of the probe. Some money has been returned. Watchdog groups criticize the lawmakers still involved in the probe. 
The Security and Exchange Commission chief says Enron's collapse was just the latest in a series of horrific accounting failures at big companies. He is calling for a new private-sector agency to regulate the accounting profession. 
-Rep. Henry Waxman, the top Democrat on the House Government Reform Committee, says he documented 17 provisions in Vice President Dick Cheney's energy plan that benefited Enron. The White House refuses Waxman's demands that it list contacts with the bankrupt energy trading company.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Jan. 18, 2002, 9:26AM
Enron fires Andersen 
Board takes action as new facts surface 
By JULIE MASON 
Copyright 2002 Houston Chronicle Washington Bureau 

WASHINGTON -- As evidence surfaced Thursday that Arthur Andersen was worried about Enron Corp.'s accounting and conflicts of interest as early as February, the one-time energy giant fired Andersen as its auditor. 
The action by the Enron board of directors is the latest in a round of firings and recriminations spawned by the collapse of the Houston-based energy company. 
Embattled Enron Chairman Ken Lay, whose own conduct is under intense scrutiny, said company officials are reviewing past Enron accounting practices -- and are now looking to hire new auditors. 
"While we had been willing to give Andersen the benefit of the doubt until the completion of that investigation, we can't afford to wait any longer in light of recent events," Lay said. 
Those events include the apparent destruction of thousands of documents pertaining to Enron by Andersen executives, and firing and disciplinary action taken by Andersen against its employees in charge of Enron's books. 
Andersen officials responded to their firing by Enron with a statement illustrating the growing acrimony between the one-time high-flying allies. 
"As a matter of fact, our relationship with Enron ended when the company's business failed and it went into bankruptcy," the auditors said. 
Investigators from the House Energy and Commerce Committee were in Houston interviewing Enron's former risk assessment officer, Rick Buy, and others as part of a probe of the company's free fall. 
Ken Johnson, chief spokesman for the committee, declined to identify what information was gleaned, but said a key theme is emerging in the investigation. 
"We are now in the middle of a classic `he said, she said,' " Johnson said. 
Committee staffers are expected to remain in Houston through today to interview former Enron chief accounting officer Rick Causey. 
David Duncan, lead Andersen partner on the Enron account and blamed by the firm for ordering the document destruction, has in turn said he was following company policy outlined by the auditors' in-house lawyers. 
Andersen fired Duncan on Tuesday, and the next day Duncan began cooperating with congressional investigators. 
A Feb. 6 memo provided by the House committee shows Andersen officials were concerned nearly a year ago about Enron's accounting methods and possible conflicts of interest. 
"A significant discussion was also held about Enron's (monthly) earnings and the fact that it was `intelligent gambling,' " said the memo, authored by Houston-based Andersen accountant Michael D. Jones and addressed to Duncan. 
The memo, detailing concerns discussed at a meeting of eight Andersen auditors in Houston and six Andersen executives on a conference call, indicates for the first time how long before Enron's Dec. 2 bankruptcy those familiar with its practices were expressing uneasiness. 
Despite the range of misgivings discussed at the meeting, Andersen decided to keep serving Enron, estimating its fees could reach $100 million a year. 
Enron, a major client for the Chicago-based Big Five accounting firm, paid Andersen $52 million last year. 
"Ultimately the conclusion was reached to retain Enron as a client citing that it appeared that we had the appropriate people and processes in place to serve Enron and manage our engagement risks," Jones wrote to Duncan, who participated in the meeting. 
On Oct. 16, Enron released a devastating third-quarter earnings report containing more than $1 billion in losses on bad investments and a $1.2 billion reduction in shareholder equity. 
Enron's losses were tied in part to investment partnerships with LJM Cayman and LJM2 Co-Investment. 
Andrew Fastow, Enron's chief financial officer at the time, created and ran those partnerships with the blessing of the board of directors and Lay. 
Fastow's dual roles have led to widespread conflict-of-interest charges, discussed by Andersen in February and now the subject of federal government inquiry. 
Wall Street last year began focusing on Enron's complex accounting methods, scrutinizing financial vehicles and deals Enron used to make various investments without putting the related debt on its balance sheet. 
At the conclusion of the Andersen meeting in February, participants compiled a to-do list that included suggesting the Enron board create a special committee to review the propriety of the Fastow partnerships. 
Nine months later on Nov. 8, Enron acknowledged to the Securities and Exchange Commission that it had overstated its profits by $586 million as it shielded losses in partnerships, including those headed by Fastow. 
The company's subsequent collapse cost thousands of Enron employees their jobs and many their retirement savings. 
Investigations into Enron are under way by the Securities and Exchange Commission and the Labor Department, and Justice Department officials have opened a criminal investigation. 
The House Energy and Commerce Committee probe is one of at least nine Enron-related inquiries under way on Capitol Hill. 
Another document provided by House investigators shows that Andersen officials were alerted by an Enron executive in August about possible improprieties in Enron accounting. 
Sherron Smith Watkins, vice president for corporate development, whose Aug. 15 memo to Lay prophesied the accounting scandals that subsequently engulfed the company, called a friend at Andersen to discuss her concerns. 
James A. Hecker, who did not work on the Enron account, drafted a detailed memo Aug. 21 to several Andersen auditors handling the Enron books, detailing Watkins' allegations. 
Hecker described Watkins, also a former Andersen employee, as "agitated" because Enron financial statements did not tell the "whole story." 
According to Hecker, Watkins had been assured by Enron in-house counsel that there was no impropriety in Fastow's partnerships or accounting; however, Watkins wanted to meet with Lay to discuss her concerns. 
Chronicle reporter Dale Lezon in Houston contributed to this story. 

Metro
DONNA BRITT
In Enron Leaders, Seeing the Worst Of Ourselves
Donna Britt

01/18/2002
The Washington Post
FINAL
B01
Copyright 2002, The Washington Post Co. All Rights Reserved

To many, the Enron debacle -- the largest corporate bankruptcy in U.S. history -- is a complex soup whose ingredients boil down to some essential lessons: 
About how money can obliterate corporate executives' good sense. About the dangers of employees putting all their investment money into one seemingly sound basket. About elected officials distancing themselves from a formerly valued contributor -- President Bush's description of embattled Enron CEO Kenneth Lay went from "Kenny Boy" to "Mr. Lay" to "a supporter."
To me, the Enron fiasco boils down to a simple question for everyone who created it: 
"How could you?" 
They're three little words that reflect all the passion and frustration of "I love you" -- and that we think far more often. It's the question we silently ask the boss who passes us over, the co-worker who disrespects us, the child who lies to us with a sweet, open face. 
But considering all we know about human treachery, what's stunning isn't that some people treat us poorly. It's that such behavior surprises us. 
I've wrapped "How could you?" around everyone from commitment-phobic ex-boyfriends, to the car dealer who tried to charge me $1,300 for a repair for which I paid $63 elsewhere, to spy Robert Hanssen for selling classified information that could have threatened his nation's -- and his own family's -- security. 
What other response -- besides a stiff jail sentence -- is more appropriate for Enron officers who apparently made millions selling their own soon-to-be-worthless stock while preventing their employees from doing the same? 
The photos of blank-faced young former employees whose trust in corporate America had evaporated were bad enough. What drove me to "How could you?" was reading about folks like retired pipeline operator Charles Prestwood -- whose $1.3 million 401(k) nest egg in Enron stock is now virtually worthless. 
I mean, how could one Enron official make nearly $63 million in 14 months -- and then watch 20,000 other employees lose their retirement savings? 
How could anyone? 
"It's called sociopathy -- people who don't think about or have much empathy for the impact of their actions on others," says clinical social worker Dennis O'Brien, who often counsels employees of businesses and organizations. 
A Houston native whose neighborhood adjoined that of many Enron honchos, O'Brien sounds as baffled as anyone by certain executives' behavior. 
"These are not the type of people who show up at therapy," he says. "They don't know they have a problem." 
They aren't just in the business world. Years ago, my friend Elizabeth was pregnant with her second child when her husband went off with "friends" to a college reunion. 
"He leaves on Thursday and I don't hear from him the entire weekend," she recalls. "No phone call, nothing. He just shows up Sunday. I was like, 'How could you?' " 
Her husband, who was actually with a lover, told his pregnant wife the affair was her fault because she was "fat." 
But it took Elizabeth seven years to leave him because "I thought it must be something I was doing. . . . I allowed myself to be a victim, but finally realized that what he did was about him. . . . He just doesn't think about how what he's going to do affects other people. 
"That's what Enron did to the people who worked for them," she theorizes. "I used what happened with my ex to learn who I am. I don't know how people victimized by Enron will recoup what they've lost." 
Certainly, Enron's victims have heard enough about what they did wrong. But the rest of us should acknowledge what's tricky about "How could you?" 
Too often, it absolves us from asking another valid question: 
"How could I?" 
"It's sort of like going to a doctor and letting him operate and you don't ask questions or get a second opinion," suggests Shelley Lafall, a Silver Spring artist. "We've learned not to do that. I guess we'll learn some business lessons from Enron." 
But in fact, she continues, "we all do mean stuff all the time, in little ways -- whether it's a waitress you don't give a good tip to or somebody who's bagging your groceries and you're huffing and puffing and looking at your watch." 
Most people, thank God, aren't coldblooded enough to grab millions of dollars and then run. But we'll cut off some perfectly nice person in traffic. 
"Usually, I'll let somebody in -- and give myself Brownie points," Shelley says. "But sometimes, there's this survival instinct that kicks in to look out for number one -- especially when number two is faceless. 
"It's a hardness that fails to recognize someone else's humanity." 
Every jerk responsible for the cosmic horror that is Enron should be soundly punished. Yet Shelley has a point when she suggests that those who ask, "How could you?" are ignoring a basic fact: 
"We're just not that far from our primitive selves."

http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Jan. 18, 2002, 12:34AM
Broadband-unit hype didn't match reality 
By TOM FOWLER 
Copyright 2002 Houston Chronicle 

A year ago this month, at Enron's annual analysts' meeting at the Four Seasons Hotel in Houston, then-President Jeff Skilling was emphatic about the potential of the company's broadband Internet business. 
At a time when Enron stock was trading in the low $80s, Skilling said the broadband unit alone was worth $40 per share. Enron stock, he said, should be selling for $126. 
That brought a gasp from many of the Enron Broadband Services employees watching the presentation on a webcast. The picture he painted was a far cry from the reality they knew. 
Not only did many of the 2,000 EBS employees have copious time to kill because of a lack of customers, they knew the company was actually trying to sell the very heart of the business -- an 18,000-mile fiber-optic data network, assembled at a cost of $1.5 billion. 
The effort to peddle broadband's one hard asset, known as "Project Cannon," was not shared with analysts or investors, but it started to leak out to employees in December 2000. By March, most employees knew, but few, if any, outsiders did. 
And by April, the company -- while publicly saying it planned to expand the network -- also was trying to quietly sell millions of dollars in computers and telecommunications equipment stockpiled in a warehouse on Shepherd Drive near Interstate 10. 
"There wasn't a whole lot of connection between what the management said and what we knew," said Dixie Yeck, a former trader with EBS. 
Eventually, losses from the broadband business, combined with disclosure of myriad questionable financial transactions, eroded investor confidence in Enron. On Dec. 26, EBS followed 28 other Enron affiliates and filed for Chapter 11 bankruptcy. 
Now, a month after Enron's bankruptcy filing, it's clear that EBS had much in common with the hundreds of dot-com and telecom businesses that folded in the past two years. 
Like dot-coms, EBS always admitted profitability wasn't imminent but would take time, hard work and a lot of investment. And, also like dot-coms, it had a lot of hype, too many employees and not enough paying customers. 
Enron created the broadband business after its 1997 acquisition of Portland General Electric, a small Oregon utility that was also building its own fiber-optic network. Some Enron employees believed they could do just what colleagues had done in the natural gas business a decade earlier -- turn access to the largest Internet data pipelines into a fluid commodity that could be bought and sold on a daily basis. 
By building more than two dozen "pooling points" -- data-switching hubs that connected with other networks around the world -- Enron could sell time over the Internet to send and receive large amounts of data reliably. This included everything from broadcasts of conferences and sporting events to such mundane traffic as vast amounts of arcane business data. 
The business reported steep losses every quarter it was in existence, but it still got points from investors for being a pioneer. 
In the summer of 2000, when it signed a 20-year deal with Dallas-based Blockbuster Inc. to deliver movies over the Internet to homes, EBS became a star and the stock rose to record heights. 
Then-EBS Chief Executive Ken Rice predicted broadband trading would one day equal the company's natural gas retail and wholesale business. 
"A lot of the guys in that division will say `no way,' but there's no doubt to anyone it will be big," Rice said last spring. 
It wasn't. In March 2001, the Blockbuster deal fell apart. Long before that, company insiders said, there were clear signs of trouble. 
Though EBS had plans to increase staff significantly, in early 2000 it started to become a dumping ground for employees cut from operations being downsized or eliminated. Several hundred employees from Enron's faltering water-industry spinoff, Azurix, were transferred to EBS as a way to keep talented workers. 
The influx of new people meant roles and responsibilities changed frequently, said Matt Mitchell, a former sales engineer with the broadband group who was laid off in November. 
For a while there was plenty of work to go around, with customers to find and things to trade. But not all the trades brought in cash. Some, for instance, involved Enron selling access to a particular circuit to Dynegy, which would then sell it to El Paso Corp., which would sell it back to Enron. The transaction could be treated as a trade, but Enron didn't net any cash from it. 
And some of the contracts were so structured that companies would buy long-term broadband access without having to pay for it for years. Such deals were done with startup companies in particular, to enable them to get on their feet without having to lay out cash upfront. 
Enron, however, would book the full value of the contract in the quarter the deal was closed, insiders said, but many customers never got around to paying before going out of business. 
Playing with the numbers wasn't that unusual in EBS, as revelations made in November 2001, after Enron started to come undone, now show. 
According to Securities and Exchange Commission documents, in June 2000, EBS sold an unused portion of its network to LJM2 Co-Investment, one of the now-infamous partnerships that had been formed by then-Chief Financial Officer Andrew Fastow. 
LJM2 bought the cable for $30 million in cash and $70 million in an interest-bearing note, an IOU. Enron recorded $67 million in pre-tax revenue from the transaction. 
Six months later, LJM2 sold some of that fiber to other companies for $40 million, but because Enron helped market the fiber to those buyers, it received an "agency fee" of $20.3 million. 
That same month, LJM2 sold the remaining fiber for $113 million to a special partnership that Enron had created strictly for the purpose of making that purchase. So even though EBS technically no longer owned those assets, an Enron-controlled partnership did. 
The public record of this flip-flopping of assets wasn't nearly as revealing, however. Financial statements Enron made in early 2001 about the deals simply described it as "the sale of excess dark fiber." 
When the Blockbuster deal fell apart, outsiders started to become more skeptical of Enron's claims about the business. When about 250 employees were cut from EBS a month later, the stock started to drop. 
Analysts said they were never told of plans to sell the network, or even when the company started to sell millions of dollars in Compaq and Sun Microsystems equipment it had bragged about buying a year earlier. 
A company spokeswoman said Enron was continually re-examining whether such hard assets as pipelines or networks were necessary. 
Some analysts agree, saying that not having that information doesn't seem very important, even in hindsight. 
"They always said the important part of the business would be the trading, not the network," said Andre Meade, head of utilities research at Commerzbank Securities. "So getting rid of the assets would eventually be a good move." 
But to John Olson, an analyst with Sanders Morris Harris, the omission of the attempted network sale was significant. 
"The disconnect there was like night and day," Olson said. "How could they get out there and make presentations on their business like they did when they were trying to unload these other assets?" 


Jan. 18, 2002, 9:43AM
PREMIER PROPERTIES 
Enron chairman selling 2 homes, lot in Colorado for $16.2 million 
By ED ASHER 
Copyright 2002 Houston Chronicle 

    Joshua & Co. photos  Broker Joshua Saslove, of Aspen, Colo., said his company put Enron Chairman Ken Lay's three properties -- two houses pictured above and a vacant lot -- on the market on Nov. 12, three days after Enron had agreed to be bought by rival energy company Dynegy Inc. 	

Enron Chairman Ken Lay has put three of his four Aspen, Colo., properties up for sale for $16.2 million, or reportedly $3.6 million more than he paid for them since 1998. 
They include a 4,537-square-foot log and stone "cabin-style" home listed at $6.8 million and a 4,559-square-foot riverfront residence listed at $6.5 million. 
Both have hot tubs, security systems and lawn sprinklers. The larger house includes a "caretaker unit," according to the listing. 
The third property is a 20,266-square-foot vacant lot listed at $2.9 million. It has a building permit with plans for a home, said Aspen broker Joshua Saslove, owner of Joshua & Co. 
"They are premier Aspen properties located within walking distance of downtown," he said "We have had a substantial amount of interest in them." 
Lay and his wife, Linda, are not selling a 4,200-square-foot "cottage" they use in the summer and winter, he said. The Pitkin County assessor's office has valued it at $3 million. 
The "cabin-style" home is seven years old and was purchased by the Lays in November 1999. The two-story home has five bedrooms and five bathrooms. 
The other home, with "considerable" frontage on the Roaring Fork River, has four bedrooms and four bathrooms, Saslove said. 
Saslove said his company put the three properties on the market on Nov. 12, three days after Enron had agreed to be bought by rival energy company Dynegy Inc. for $9 billion in stock. Dynegy later backed out of the deal. 
"They seem to be in no great hurry to sell the homes," Saslove said. "But like any seller, I'm sure they would like to see some activity as soon as possible." 
Lay could not be reached for comment late Thursday. 
Saslove said he did not know how much the Lays would profit if all three properties sell at their listed prices. 
However, The Aspen Times said the couple would get a $3.6 million profit before taxes, or a 23 percent return on their investment. 

Report on Business: The Wall Street Journal
Blockbuster deal helped sow seeds of Enron fiasco CIBC World Markets agreed to invest $115.2-million in affiliated partnership
REBECCA SMITH
Wall Street Journal

01/18/2002
The Globe and Mail
Metro
B6
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

When Enron Corp. and Blockbuster Inc. joined forces in mid-2000, it looked like they were on to 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 (U.S.). 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. But within eight months of its launch, the partners had split. 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 fibre-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 manoeuvres, 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. 
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. 
In exchange for its $115.2-million investment, CIBC was supposed to receive 93 per cent 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. 
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 to comment on its investment in Braveheart or other Enron partnerships. 
Separately, three Canadian institutional investors that invested more than $175-million in Enron debt securities in October have filed a wrongful-conduct lawsuit against the company's investment bankers and auditor. The suit, filed Wednesday in federal court in Manhattan, names Citigroup Inc.'s Salomon Smith Barney unit, Goldman Sachs Group Inc., Bank of America Corp.'s Banc of America Securities LLC and accounting firm Arthur Andersen LLP. 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.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section A
ENRON'S COLLAPSE: THE STRATEGY
Deals That Helped Doom Enron Began to Form in the Early 90's
By KURT EICHENWALD with MICHAEL BRICK

01/18/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

HOUSTON, Jan. 17 -- The financial dealings that played a central role in Enron's collapse were begun a decade ago, court records show, by a newly hired financial whiz kid in part to keep debt off the company's books so it could grow unimpeded. 
Those early deals by the finance officer, Andrew S. Fastow -- the first links of the complex chain of thousands of partnerships -- were much simpler than the ones that the company developed in the late 1990's. But the records show that they contained many of the hallmarks of the transactions that later helped bring the company to its knees.
Mr. Fastow, now 40, who was ousted in October, has not spoken publicly about the events leading to Enron's downfall. But in a 1997 deposition -- from a lawsuit contending, essentially, that Enron's business model had been stolen from a New York businessman, Bernard H. Glatzer -- Mr. Fastow provided answers to some of the questions that investigators are puzzling over: For example, why were assets of Enron moved into the partnerships? What role did the accountants play? What motivated it to start down a path that ultimately led to its demise? 
In 1991, soon after he joined Enron from Continental Bank in Chicago, Mr. Fastow worked with a group of Wall Street firms to put together a deal, known as Cactus 1, in which interests in natural gas reserves would be packaged and sold to public investors. But that effort was abandoned as Enron realized it would make no money from the transaction, largely because the company could not obtain high enough credit ratings for the securities. 
''Enron would have lost money compared with the transaction we ultimately did,'' Mr. Fastow said in the deposition. 
The deal that finally worked was called Cactus III. Rather than packaging the energy assets for purchase by the public, Mr. Fastow constructed a complex partnership deal for private investors, including the General Electric Credit Corporation and a consortium of banks. 
In describing that transaction in the deposition, Mr. Fastow explained the benefits it brought to Enron -- in particular how it allowed the company to maintain the high credit rating necessary to carry out its business strategy. ''If a company like Enron has too much debt on its balance sheet, then the rating agencies will lower Enron Corp.'s rating,'' Mr. Fastow said. ''So, we endeavor to find ways to finance activities off balance sheet.'' 
Such transactions, which are legal and common in business, offer corporations alternate means of financing, while allowing them to avoid issuing new stock or being weighed down with additional debt. 
''In making things off balance sheet,'' Mr. Fastow said, ''you're actually transferring risks of the transaction to investors. So when you sell something to investors, they take some risk, they earn a return from that risk.'' 
To put together such complex deals, Mr. Fastow said, the company worked hand-in-hand with its auditing firm, Arthur Andersen. 
''We worked very closely with our accountants, making sure that we are never violating any of the rules,'' Mr. Fastow said. 
Ultimately, the decisions by Enron and Andersen to allow certain partnerships to be pushed off the company's balance sheet helped set in motion the events that crippled the energy company. The Cactus III deal involved a comparatively small sum; by last year, the company had moved billions of dollars of assets into partnerships and claimed hundreds of millions of dollars in profits in connection with the deals. 
It was when Enron, under intense pressure from securities regulators and Wall Street, reversed that accounting -- pulling the partnerships back onto its books and eliminating more than $1 billion in shareholder's equity in a single stroke -- that the company went into its death spiral. The resulting crisis in confidence among Enron's investors, its banks and traders in its stock drove the company to file for bankruptcy protection early last month. 
There is little in the deposition's description of the early days of Mr. Fastow's tenure that indicated the troubles to come. 
Mr. Fastow was brought into the company as a manager of its Enron Finance Corporation and eventually was promoted to chief financial officer. Since the debacle, some of his superiors have maintained that they had little knowledge of Mr. Fastow's activities. But the partnership transactions were reviewed by Arthur Andersen and senior officers of Enron. Moreover, the Enron board waived the company's conflict of interest policy to allow Mr. Fastow to manage some of the partnerships, dealings that brought him at least $30 million. 
The lawsuit in which Mr. Fastow testified was originally brought by Mr. Glatzer against one of Enron's bankers and some individuals. A federal judge ruled in favor of the defendants in 1998, but motions for a rehearing are pending. With the Cactus III transaction, according to Mr. Fastow's testimony, two classes of investments were created. The first, Class A, was bought by what is known as a special purpose vehicle -- a legal entity whose operations are limited to the acquisition and financing of specific assets. That structure provides lenders with greater security that they will get their money back even if a parent company goes bankrupt. 
The special purpose vehicle borrowed money from a consortium of banks, leaving it with the obligation to repay those loans. The borrowed money was then used to purchase all of the Class A securities in Cactus III. Those securities, in turn, paid interest which was used to repay the banks for their loans. 
That structure, Mr. Fastow said, ''was a conduit, in a sense, just a way for the banks to loan money instead of owning'' a direct stake in the partnership. 
The second group of securities, Class B, was far less complex. They were sold directly to General Electric Credit, which in return received interest on the investment at a rate that fluctuated. 
The structure allowed Enron to make money through a series of new transactions. Cactus III now effectively owned certain gas reserves. Enron sold a contract, committing it to sell the gas at some future point, Mr. Fastow said. Enron then bought the gas from Cactus III, and used it to meet the contract's obligations. 
''Hopefully they find a way to sell the gas for more than they purchased the gas,'' Mr. Fastow said. 
In the end, Mr. Fastow said, the deal was an all-around benefit for Enron. 
''Did I raise money in a cost-efficient manner?'' Mr. Fastow asked. ''I believe the answer is yes. I argue that because I did it. I want people to think I did a good job.''

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron deals that led to collapse began in early 1990s - report

01/18/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

NEW YORK (AFX) - The transactions that helped push Enron Corp into bankruptcy date back to the early 1990s, to the hiring of finance officer Andrew Fastow who developed methods of keeping debt off the company books to allow Enron to grow unimpeded, the New York Times reported, citing court records. 
The report said: "The first links of the complex chain of thousands of partnerships were much simpler than the ones that the company developed in the late 1990s. But the records show that they contained many of the hallmarks of the transactions that later helped bring the company to its knees."
Fastow, now 40 years old, was ousted in October and has not spoken publicly about the events leading to Enron's downfall, the newspaper said. 
However, in a 1997 court case deposition, Fastow acknowledged that Enron began creating intricate partnership relationships because "Enron would have lost money compared with the transaction we ultimately did." 
law/lj

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

FRONT PAGE - FIRST SECTION - Andersen HQ 'discussed Enron purge'.
By ADRIAN MICHAELS, PETER SPIEGEL and PETER THAL LARSEN.

01/18/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Officials at Andersen's head office in Chicago took part in regular conference calls and discussed destroying documents with the firm's Enron auditors in Houston in the weeks leading up to the purge, Congressional investigators have learnt. 
The discussions threaten to ruin attempts by Andersen to contain the Enron damage to a few people in its Houston office. Investigators are focusing on high-level, regular contacts between David Duncan, the lead Enron auditor fired by Andersen this week, members of his team and senior staff in Chicago.
Mr Duncan told investigators that from mid-September, sometimes two or three times a week, there were conference calls involving between six and eight people, half of whom were based in Chicago. The group referred to itself as the "expanded review team" and discussed matters relating to the now-discredited accounting at Enron. 
Enron filed for the largest corporate bankruptcy in the US on December 2. Its downfall has led to a criminal investigation by the Justice Department and inquiries by the Securities and Exchange Commission and Congress. 
President George W. Bush has attempted to stop the fallout spreading to the White House as the energy trader's ties to prominent Republicans are being probed. 
Andersen said when it fired Mr Duncan on Tuesday that he had organised the destruction of thousands of Enron documents. It said the destruction was "undertaken without any consultation with others in the firm". 
According to people close to the investigations, Mr Duncan has described detailed communications with head office. He believes he is being hung out to dry as Andersen attempts to keep its clients and preserve its integrity. 
Nancy Temple, an in-house lawyer in Chicago, was often on the calls, Mr Duncan said. She sent a memo to Houston on October 12, after calls had taken place. The memo directed the auditors to the company's document retention policies. According to Mr Duncan, John Stewart, director of accounting principles in Andersen's Professional Standards Group in Chicago, also took part in calls. 
Andersen staff in Chicago did not immediately return calls. Staff in the Houston office referred enquiries to Andersen head office, which also did not return calls. 
Joining Mr Duncan on the calls from Houston were some staff put on leave or stripped of their management responsibilities by Andersen this week. 
Additional reporting by Peter Thal Larsen in New York. Old boundaries, Page 15 Enron collapse, Page 22 www.ft.com/enron. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Attorneys for Enron assure judge more documents won't be shredded

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - After Enron Corp.'s accountants shredded thousands of documents during the company's collapse, attorneys for Arthur Andersen moved to reassure a judge that no more data will be shredded. 
The Houston Federation of Teachers, whose members had $30 million in pension funds invested in Enron stock, have sued for a court order to prevent more of the energy trader's documents from being destroyed.
Attorney Rusty Hardin on Thursday told State District Judge Caroline Baker he would not enter the statement as an official agreement because he believes federal courts have jurisdiction over the issue. 
George Fleming, representing the federation's members and other investors in Enron stock, filed an amended lawsuit Wednesday requesting a restraining order to stop any further document tampering and prevent further payouts to Enron executives except for the normal course of business. 
The lawsuit names company executives and the Arthur Andersen firm, which has said its employees destroyed Enron-related financial records. 
Hardin and Andy Ramzel, his co-counsel, argued against further action in Baker's court because the matter belongs before a federal bankruptcy judge where Enron's case is pending. 
But Fleming told Baker, "Arthur Andersen did not file bankruptcy. This is a separate proceeding." 
Attorney Melanie Gray, representing Enron, argued that the debtor's rights to control its own assets must be protected. 
Fleming's co-counsel, Anne Ferazzi, responded, "Arthur Andersen is a nondebtor third party and is not entitled to (Enron's) bankruptcy protection." 
Baker asked attorneys to expand a list of case citings for her to examine and will reconvene the hearing at 4 p.m. Friday. 
The teachers group does not make direct investments for its approximate 5,700 members. Teachers in Texas pay into the Teacher Retirement System, and the money goes into a pension fund and is invested.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

When Rules Keep Debt Off the Books --- Did Andersen Act Properly? Firm Is Fired
By Ken Brown and Henny Sender
Staff Reporters of The Wall Street Journal

01/18/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

The once-cozy relationship between Enron Corp. and its auditor blew up in a storm of recriminations yesterday amid questions about what Andersen should have done about questionable practices at the energy company. 
Enron's board fired its longtime auditor, Arthur Andersen LLP. While it said it wanted to give Andersen the benefit of the doubt during the investigation, "we can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel and the disciplinary actions taken against several of Andersen's partners working in its Houston office."
In a statement released later, Andersen fired back: "As a matter of fact, our relationship with Enron ended when the company's business failed and it went into bankruptcy. Andersen is committed to continuing to address the issues related to the collapse of Enron in a forthright and candid manner." 
The move by Enron, previously one of Andersen's biggest clients, comes as the spotlight of the investigation has shifted to Andersen. In addition to the firm's destruction of documents, Andersen has come under fire for signing off on accounting practices related to partnerships with which Enron did business. The partnerships allowed Enron to keep debt off its balance sheet. 
Yesterday, yet another internal Andersen memo was released by congressional investigators concerning Andersen discussions of the Enron partnerships. Enron's publicly filed financial statements included references to the partnerships going back to 1999, meaning Andersen was long aware of at least some of Enron's accounting issues. The newly released memos show that in February 2001, Andersen executives held what one executive called "significant" discussions about conflicts related to the partnerships and myriad other issues that eventually contributed to Enron's collapse. 
The question that Andersen now faces is: What should it have done differently? 
Accounting and corporate-governance specialists say it should have done more -- but that it didn't is typical. Until late in the game for Enron -- just a month before it filed for bankruptcy-court protection -- Andersen did what most accounting firms do when up against an important client with "aggressive" accounting practices: It stuck by its client. 
The earliest known Andersen memo referencing accounting issues at Enron is a Feb. 6, 2001, e-mail that summed up a meeting in which senior Andersen partners in Houston and in its Chicago headquarters discussed if they should keep Enron as a client. In that memo, an Andersen auditor laid out nearly every accounting issue that would later play a role in Enron's collapse. But the participants in the meeting decided that Andersen "had the appropriate people and processes in place to serve Enron and manage our engagement risks." The memo cites the large fees -- $100 million a year at some point in the future -- that Enron, a $52-million-in-fees client in 2000, was expected to generate. 
It is rare that big accounting firms ditch clients. "There is almost no turnover among Fortune 50 companies and their accountants; they seem merged at the hip," says Dan Goldwasser, a lawyer with Vedder Price Kaufman & Kammholz in New York. "Does it bother me? I guess it does." Andersen had audited Enron since the energy company was formed in a 1985 merger. 
In a separate statement released yesterday, Andersen said, "Nothing in the [February] meeting or the memo [summarizing it] indicated that any illegal actions or improper accounting was suspected." It said the reference to $100 million in fees "was not in the context of the firm's desire to grow revenues," but whether the large fees would be wrongly perceived as compromising it. 
Andersen's statement added it wasn't until August, when a whistle-blower surfaced at Enron, "that we became aware that individuals within Enron believed that there may have been accounting improprieties." The statement doesn't elaborate on what Andersen did over the next several months. 
Congressional investigators also released an Aug. 21 memo, which summarizes a conversation between an Andersen audit partner who wasn't on the Enron account, and Sherron Watkins, the Enron whistleblower, outlining her concerns about Enron's accounting. Ms. Watkins, one of several Andersen auditors who had gone to work for Enron, in particular expressed worries about the partnerships and then-Chief Financial Officer Andrew Fastow's involvement in them. The partner passed that information on to several Enron auditors at Andersen and to the firm's lawyers, according to the memo. 
More information about what Andersen knew could come out soon. Congressional investigators received two new boxes of documents from Andersen yesterday, including copies of destroyed documents recovered from Andersen's computer systems. The boxes contain mostly e-mail, mainly from David Duncan, Andersen's lead auditor on the Enron assignment until he was fired Tuesday. Congressional investigators plan to meet today with Richard Causey, Enron's longtime chief accounting officer and a former Andersen auditor. 
Some observers argue that given all the questions surrounding the partnerships, Andersen should have voiced concerns to the audit committee of Enron's board earlier than it apparently did -- Nov. 2. "Basically, they have an obligation to go to the board of directors, particularly the audit committee of the board, when they come up with anything suspicious or anything controversial or anything that could have been a potential problem," says John Nash, president emeritus of the National Association of Corporate Directors. 
--- Unraveling Andersen's Involvement

Some of the events that came to light recently involving Enron
auditor Arthur Andersen

Feb. 5, 2001: Arthur Andersen officials discuss Enron's "aggressive"
accounting practices and potential conflicts of interest at a meeting
to decide whether to retain the energy-trading company as a client. An 
internal memo, drafted Feb. 6, recounts the executives' discussion of
many of the alleged problems that have become the focus of
investigations into Enron's collapse. The memo was addressed to two
Andersen officials, including David Duncan, who headed the Enron
account.

August 2001: Enron Vice President Sherron Watkins, a former Andersen
employee, writes anonymously to Chairman and CEO Kenneth Lay with
concerns about potential conflicts of interest and accounting
practices.

Aug. 20, 2001: Date of, according to a second memo by another
Andersen executive, a phone conversation between Watkins and an
Andersen employee, who relays the issues to senior Andersen
management, including Duncan.

Fall 2001: Vinson & Elkins, Enron's law firm, conducts a preliminary
investigation into Watkins's charges.

Oct. 12, 2001: E-mail by in-house Andersen lawyer Nancy Temple
reminds risk-management partner Michael Odom of document-and-retention 
policy. Temple later tells Andersen that she intended to refer only to
work in progress.

Dec. 2, 2001: Enron files for bankruptcy-court protection.
Investigators focus on Andersen's role.

Jan. 10, 2002: Andersen discloses to investigators that "a
significant but undetermined number" of documents relating to the
Enron audit had been destroyed in recent months.

Jan. 15, 2002: Andersen fires Duncan, saying that he led "an
expedited effort to destroy documents" after he learned "that Enron
had received a request for information from the SEC about its
financial accounting and reporting."

Jan. 16, 2002: Duncan is questioned by the House Energy and Commerce
Committee and the Justice Department, mostly about the February 2001
memo. Duncan tells the investigators he called the February meeting
because he was aware the Enron account posed "significant risk,"
according to one person present during the questioning.

Jan. 17, 2002: Enron fires Arthur Andersen.

Source: The Wall Street Journal Online 

(See related article: "Enron Crisis Puts Spotlight On the FASB" -- WSJ Jan. 18, 2002)

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Slugfest Is Seen Among Creditors Fighting for Slice of Enron Assets
By Wall Street Journal staff reporters Mitchell Pacelle, Henny Sender and Rebecca Smith

01/18/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

There could be less money available to Enron Corp. creditors than they had originally hoped. 
As thousands of Enron creditors began jousting for a piece of the energy company's assets, those owed money -- totaling billions of dollars -- increasingly are concerned about the likely size of the recovery.
Indeed, there is a growing appreciation that the firm funded some of its growth by setting up financing vehicles and partnerships to which it pledged billions of dollars in assets in exchange for cash, upfront. That may leave fewer assets now to divide among creditors. 
When Enron and some of its units filed for bankruptcy-court protection on Dec. 2, they listed assets totaling about $50 billion and debts of $13.15 billion, not including several billion more in off-balance sheet debt -- making it the largest-ever U.S. bankruptcy. But more units since have joined the proceedings, and the company still is completing its internal analysis of "financing structures and claims," noted its chief financial officer, Jeffrey McMahon. Its debt level, creditors fear, may now be higher than the original tally. 
Whatever the final number, Enron's creditors are expected to fight for their piece of the shrinking pie. "There's going to be a huge grab for this cash," predicted George Hickox, chief executive of Wiser Oil Co., which is owed about $7 million on energy contracts with Enron's trading operation. "This case is going to dissolve into liquidation and litigation," he said. 
It is too early to predict whether Enron will be able to implement its preliminary plan to reorganize as a smaller entity under Chapter 11 of the U.S. Bankruptcy Code, or if it will have to be liquidated altogether. The company has until early April to file a formal plan of reorganization that it will present to the court. Mr. McMahon, the chief financial officer, says he still feels strongly that "liquidation of assets is the worst option for everyone" and wants to see the company recapitalized. 
Yet Enron already has faced setbacks that could make it harder to survive bankruptcy. Enron's advisers failed to persuade Swiss bank UBS AG, which recently agreed to take over Enron's trading business, to give Enron a 49% stake in the future business, settling instead for a smaller royalty stream. And Enron surrendered to Dynegy Inc. its most valuable pipeline system, Northern Natural Gas, which was supposed to become a core piece of the reorganized firm. 
"Whether or not Enron is going to reorganize or liquidate is the question of the day," said lawyer Thomas Lauria of White & Case, which represents Mirant Corp., an energy concern that is an Enron creditor. 
Creditors have good reason to question the value of assets available to the bankruptcy estate. Through a series of partnerships and "special purpose entities," beginning in the mid- to late-1990s, Enron quietly pledged assets as well as the expected revenue streams of many of its investments. For example, it formed separate partnerships around some European power assets, the expected revenue from a video-on-demand venture with Blockbuster Inc., a pulp mill, various commodities contracts, "dark" broadband fiber and the like. 
Mr. McMahon said the company still is going through its many "finance vehicles" to determine their impact on the bankruptcy estate. "It's early days in terms of a reorganization plan," he said, adding that the firm expects to work closely with creditors to see that they are paid as much as possible. He also added that "we still have lots that's not tied up in" partnerships and other arrangements. 
The company's fate rests in part on gaining cooperation from the 15-member creditors' committee appointed by the U.S. trustee to represent the interests of all creditors. But already questions have been raised about whether the makeup of the panel, which includes J.P. Morgan Chase & Co. and Citigroup Inc., fairly represents the interests of all creditor constituencies. 
"How would you feel if you were owed $16 million by Enron North America [a trading subsidiary], and the creditors' committee was controlled by money-center banks that have all these cozy relationships with Enron Corp.?" asked John Nabors, a lawyer representing Exco Resources Inc., a Dallas oil-and-gas production firm that is owed $16 million on trading positions with Enron North America. "It makes me real nervous. I find it hard to believe they're looking after my interests," he said. 
Nonsense, counters a representative of the creditors' panel. Luc Despins of Milbank, Tweed, Hadley & McCloy, lawyer for the committee, strongly disputed that the money-center banks control the group, noting that each member has a single vote, and that creditors of Enron's trading business have three seats on the panel. "All committee members," he said, "have the interests of all creditors at heart." 
--- Bankruptcy Chapters: Eleven or Seven?

One of the primary purposes of bankruptcy is discharging debts to
give a debtor a `fresh financial start' by extinguishing the debtor's
personal liability on dischargeable debts.

Chapter 11

-- Frequently referred to as `reorganization' and generally used to
reorganize a business.
-- Individuals with large federal or state tax obligations may use
Chapter 11 because an extended period of time may be obtained for the
repayment of the taxes.
-- Generally allows the debtor to continue business operations while
proceeding with a confirmed Plan of Reorganization, which must meet
certain statutory criteria. One rationale for business reorganizations 
is that the value of a business as an ongoing concern is greater than
it would be if its assets were liquidated and sold.
-- Firms can liquidate; they don't necessarily go into chapter 7 to
liquidate.

Chapter 7

-- The Bankruptcy Code's liquidation chapter, sometimes referred to
as a `straight bankruptcy.'
-- Used primarily by individuals who wish to free themselves of debt
simply and inexpensively, but also may be used by businesses that wish 
to liquidate and terminate their business.
-- To qualify for relief, the debtor must be an individual,
partnership or corporation.
-- Relief is available under Chapter 7 regardless of the amount of
the debtor's debts, or whether the debtor is solvent or insolvent.

Source: American Bankruptcy Institute
---
In Their Hands

Corporations and firms on the creditors committee in the Enron
bankruptcy case.

-- J.P. Morgan Chase & Co.
-- Citibank, division of Citigroup
-- ABN Amro Bank
-- Credit Lyonnais, New York branch
-- Westdeutsche Landesbank Girozentrale
-- National City Bank, as indenture trustee
-- Well Fargo Bank Minnesota *
-- Bank of New York *
-- Silvercreek Management
-- Oaktree Capital Management
-- St. Paul Fire and Marine Insurance
-- National Energy Group
-- Duke Energy Trading and Marketing
-- Michael P Moran, individually, and as a representative
-- Williams Cos. *

*Representative of bondholders

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

NATIONAL
ENRON FIRES ACCOUNTANTS ; DISMISSAL A MOVE OF DESPERATION, EXPERTS SAY
James T. Madore and Elaine S. Povich National Correspondents

01/18/2002
South Florida Sun-Sentinel
Broward Metro
1A
(Copyright 2002 by the Sun-Sentinel)

Enron Corp., faced with a mushrooming financial scandal, Thursday night fired accounting firm Arthur Andersen for destroying potentially incriminating documents last fall. 
The dramatic move, severing a relationship that went back more than a decade, came two days after Andersen's top brass acknowledged that partners in its Houston office ordered the destruction of documents and deletion of e-mails about Enron's financial affairs after learning of a federal investigation. Andersen on Tuesday fired its lead partner who supervised the Enron audits and disciplined seven others.
Enron Chairman Kenneth Lay cited the recent revelations of misconduct by Andersen as justification for ending what had been a close relationship between the two companies. 
"We can't afford to wait any longer in light of recent events," said Lay, who has been criticized for not warning Enron investors and employees of its imminent collapse into bankruptcy last fall. He pledged to begin a search for new auditors immediately. 
Andersen officials ridiculed their dismissal. 
"As a matter of fact, our relationship with Enron ended when the company's business failed and it went into bankruptcy," the Chicago- based accounting giant said in a statement. Bankruptcy court documents show that Andersen is owed almost $2 million by Enron. 
Experts described Enron's jettisoning of Andersen as a "desperate move" designed to protect the company from lawsuits and criminal sanctions. They also said it took chutzpah, because Andersen auditors repeatedly warned Enron management about accounting irregularities involving off-the-book partnerships. 
"This is a significant development, but it's surprising that Enron is dumping Arthur Andersen rather than the other way around," said Leo Stevenson, a law professor at Western Michigan University's Haworth College of Business. "This reminds me of when bank robbers agreed to stick together until they are caught, and then it's everybody for themselves." 
Protecting interests 
Enron, the seventh-largest U.S. corporation, filed for bankruptcy Dec. 2. Earlier, stock in the one-time Wall Street darling plummeted after Enron admitted that accounting errors would cause it to restate earnings for the past five years. Andersen reportedly had demanded the restatements, but the news wiped out the investments of shareholders and employees, because it sent Enron shares into a free fall. 
These developments attracted the attention of investigators at the Securities and Exchange Commission and later on Capitol Hill. In recent days, Andersen officials have scrambled to safeguard the firm's reputation for integrity, the most important asset for auditors of public companies. 
"There's so much bad going around that everybody is trying to protect themselves, and that's what Enron did in firing Andersen," Stevenson said. He also said Andersen employees now would be free to cooperate with federal investigators. "This lessens the relationship and increases the likelihood that both parties will look out for their own vested interests, not those of anyone else." 
In Washington Thursday, congressional investigators were looking at the relationship, questioning why Andersen had chosen to continue working for Enron. The investigators noted that in February 2001, senior Andersen managers were aware of irregularities at Enron and debated whether to drop the company as a client. Internal Andersen memos, made public on Thursday, showed Andersen executives were concerned that Enron was hiding much of its debts. 
The documents also indicated that Lay, Enron's chairman, disposed of stock within days of receiving a letter in August warning him of accounting problems. 
Memos studied 
House investigators focused on a Feb. 6 e-mail from Michael Jones, a senior accountant in Andersen's Houston office, to other senior Andersen officials, reporting on a meeting convened the day before on whether to retain Enron as a client. In the memo, Jones said there were "significant" discussions about Enron's financial activities. But in the end, the Andersen officials decided to continue to serve Enron, perhaps, in part, because of the estimated $100 million in annual fees the account was bringing in, according to the memo. 
In a letter to Andersen chief executive Joseph Berardino, House Energy and Commerce Committee Chairman Billy Tauzin, R-La., and Rep. John Dingell of Michigan, the committee's highest-ranking Democrat, asked for all records related to the Feb. 5 meeting, along with all documents relating to subsequent meetings and actions involving the Enron account. 
On Wednesday, committee investigators interviewed former Andersen partner David Duncan, who was in charge of the Enron account and who was fired the day before by Andersen, after it was revealed he directed the document destruction. 
Committee officials said Duncan's interview led to the questions about the client retention meeting and the subsequent e-mail. 
In addition, the committee released an Aug. 21 memo from Andersen partner James Hecker saying he had been contacted by Enron whistleblower Sherron Watkins. Watkins first warned Lay about improper accounting practices in a letter, also dated Aug. 21, which has been provided to congressional investigators. She then, apparently, contacted Andersen. 
Andersen's Jones, in detailing the "client retention" meeting in the e-mail, noted that questions were raised about possible conflicts of interest of Andrew Fastow, former chief financial officer of Enron, who has been described as central to the web of partnerships that kept loans and losses off Enron's public accounting statements. He was placed on leave in October. 
James T. Madore and Elaine S. Povich write for Newsday, a Tribune Co. newspaper. Information from The New York Times was used to supplement this report.

Caption: ENRON NOTEBOOK Energy plan helped Enron Rep. Henry Waxman, the top Democrat on the House Government Reform Committee, says he documented 17 provisions in Vice President Dick Cheney's energy plan that benefited Enron. The White House refuses Waxman's demands that it list contacts with the bankrupt energy trading company. Among the examples provided by Waxman: energy deregulation initiatives, support for trading in energy derivatives, proposals to facilitate natural gas projects, the granting of eminent domain so power lines could be built more quickly and spur development in India. Donations aided committee members Members of seven congressional committees investigating the Enron collapse took $700,000 in campaign donations from the company over the past dozen years. Some have returned the money, but none has stepped aside from the inquiry. For sale: Three of Lay's houses The embattled chairman of Enron Corp. has put three of his four Aspen, Colo., properties up for sale, asking a total of more than $15 million. The properties, owned by Kenneth Lay and his wife, Linda, include two single-family homes and an undeveloped lot, Aspen broker Joshua Saslove said. SEC boss says he's keeping distance Harvey Pitt, the Securities and Exchange Commission chairman who once represented collapsed Enron's auditor, said he has no involvement in the watchdog agency's inquiry beyond voting to authorize it. Task force close to offering ideas Treasury Secretary Paul O'Neill said his Cabinet task force hoped to present its initial recommendations to President Bush within the next few days. He said that Labor Department staffers had begun studying issues surrounding protection of employee's 401(k) plans "months ago," before the Dec. 2 bankruptcy filing of Enron, but was directed by Bush to see if current laws need to be strengthened in light of the substantial losses suffered by thousands of former Enron employees. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

NATIONAL
CONGRESS WANTS ANDERSEN TO PROVIDE MORE BOOKKEEPING DATA ENRON SEVERS RELATIONS WITH ITS ACCOUNTING FIRM
H. JOSEF HEBERT, THE ASSOCIATED PRESS

01/18/2002
Pittsburgh Post-Gazette
REGION
A-12
(Copyright 2002)

Enron fired accounting firm Arthur Andersen yesterday as the feuding corporations both came under growing scrutiny for their roles in the collapse of the world's largest energy trading company. 
Enron cited Andersen's destruction of thousands of documents and its accounting advice. For its part, Andersen said its relationship with Enron ended in December when the company filed for bankruptcy.
"We can't afford to wait any longer," Enron chairman Kenneth Lay said in a statement, announcing that Enron's board of directors had dismissed Andersen. 
Enron's announcement came just hours after the House Energy and Commerce Committee demanded that Andersen provide more documents detailing what the auditors knew about Enron's use of questionable partnership to keep hundreds of millions of dollars in debt off the company's books. 
Patrick Dorton, a spokesman for Anderson, said the accounting firm remained "committed to continuing to address the issues related to the collapse of Enron in a forthright and candid manner." 
As to Andersen's dismissal by Enron, Dorton said, "As a matter of fact, our relationship with Enron ended when the company's business failed and it went into bankruptcy." 
Andersen has acknowledged that it destroyed Enron-related documents, possibly as early as last September. Lay cited the document shredding and Andersen's firing of the head of its Enron account as reasons for dismissing the firm. 
Ten congressional committees are investigating the Enron collapse as well as Andersen's auditing of the energy company. The Enron bankruptcy has left thousands of workers without jobs and their retirement money -- much of it in Enron stock -- essentially gone. Enron filed for bankruptcy Dec. 2 as its stock fell from $83 a share a year ago to less than a dollar. 
Documents obtained by House investigators have shown that Andersen had concern at least a year ago about some of Enron's business practices and that its use of partnership might pose problems with federal regulators. 
During a high-level meeting in early February, Andersen executives expressed concern about Enron's off-the-books accounting of profits from its partnerships, especially one headed by Andy Fastow, at the time also Enron's chief financial officer. 
Summarizing the meeting, Andersen accountant Michael Jones wrote in an e-mail that the discussions "focused on Fastow's conflicts of interest ... and the amount of earnings Fastow receives" from the partnership while also Enron's financial officer. 
Another document obtained by House investigators disclosed that Andersen officials were told last August by Enron whistle-blower Sherron Watkins of her serious concerns about the off-the-books deals at Enron and that the company "will implode in a wave of accounting scandals." 
However, Andersen decided to continue to serve Enron, noting that the fees from the Enron account could reach $100 million a year and that the risks posed by Enron's business practices could be managed. 
The Jones memo went to David Duncan, who headed the Enron account for Andersen and earlier this week was fired by the accounting firm. 
Jones suggested that Andersen further investigate whether the Securities and Exchange Commission might have problems with Enron's use of its partnerships. Duncan has told House investigators that no such investigation was pursued. 
Enron on Nov. 8 acknowledged to the SEC that it had overstated its profits by $586 million as it shielded losses in the complex partnerships, including the one headed by Fastow. 
SEC Chairman Harvey Pitt yesterday declined any comment on the recent Enron disclosures. 
Andersen, in a statement, characterized the February 2001 meeting about Enron as not unusual and said its purpose was to provide a general review of the Enron account. 
"Nothing in the meeting or the memo indicated that any illegal actions or improper accounting was suspected," said the Andersen statement.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business
Andersen execs aired concerns ; Enron `intelligent gambling' was topic in February
Delroy Alexander and Melita Marie Garza, Tribune staff reporters

01/18/2002
Chicago Tribune
North Sports Final ; N
1
(Copyright 2002 by the Chicago Tribune)

Andersen's troubles continued to worsen Thursday as it became clear that several top executives in the Chicago headquarters knew as early as February of the controversial partnerships that ultimately led to the energy trader's collapse. 
Also Thursday, Enron said its board voted to fire the accounting giant as the company's auditor, effective immediately. In light of disclosures that Andersen executives destroyed documents sought in the government investigation of the Houston-based company, Enron Chairman Kenneth Lay said in a statement, "We can't afford to wait any longer."
But the firing was an empty gesture, according to Andersen Chief Executive Joseph Berardino, since the business relationship between the two firms ended when Enron filed the largest corporate bankruptcy ever on Dec. 12. 
Seeking to defend the embattled accounting firm, Berardino said in an interview Thursday that he was unaware until a few days ago that Sherron Watkins, a top executive of Enron, had raised questions about the accounting treatment of the company's finances. 
He also said a high-level review of the Enron account conducted nearly a year ago in which Andersen executives described the energy company's trading activity as "intelligent gambling" was performed merely in the normal course of business. 
The Big Five accounting firm has faced harsh criticism in recent weeks for its handling of Enron's books. It faces investigations by the Justice Department, the Labor Department, the Securities and Exchange Commission and several congressional panels. 
Andersen said Tuesday it would fire David B. Duncan, the partner in charge of the account, for ordering the destruction of documents. It also suspended three other partners and announced plans for a new management team in its Houston office. 
Duncan was among those participating in the Feb. 5 meeting in which key Chicago- and Houston-based partners discussed Andersen's potential conflicts and those of Enron's chief financial officer, Andrew Fastow. 
The next day, Andersen partner Michael Jones described the meeting in an e-mail to Duncan and Thomas Bauer, one of those suspended Tuesday. 
The e-mail highlighted concerns about what was described as "Fastow's conflicts of interest" in heading one of Enron's off- balance sheet partnerships, known as LJM. Andersen partners also questioned the veracity of Fastow's income from LJM. 
LJM and other similar partnerships played a key role in the collapse of the energy trader, carrying huge amounts of debt that were kept out of public view in its books. 
Among those described as "attendees" via phone were Steve Samek, Andersen's U.S. country managing partner; Gregory Jonas, the firm's audit division chief; and Robert Kutsenda, the firm's global risk management head. 
The partners discussed the level of fees Andersen would get for conducting audit, consulting and internal work for Enron--a relationship critics say was fraught with potential for conflicts. 
"We arbitrarily discussed that ... fees could reach a $100 million- per-year amount considering the multidisciplinary services being provided," Jones wrote. "Such amount did not trouble participants as long as the nature of the services was not an issue," the e-mail stated. 
Berardino said the meeting was a normal part of handling any audit. "Every year we evaluate every client," said Berardino. "We assess the risk of the client, the issues of the client, the people assigned to the client. The memo is frankly a normal part of our process. It was no secret in our firm." 
Berardino said he could not provide "an exact date" when the Chicago headquarters first became aware of the concerns raised in the e-mail about Enron. "We have accounting experts that continually consult, not just with Enron but with all our clients all over the U.S., on highly complex accounting issues. They just happen to be located in Chicago." 
Separately Thursday, Andersen sent the House Energy and Commerce Committee two new boxes of documents that contained, among other things, some e-mails written by Duncan that were deleted and then recovered, according to Ken Johnson, a spokesman for the panel. 
In Houston, a team of committee investigators interviewed Rick Buy, Enron's risk assessment officer, Johnson said. The investigators plan to interview Richard Causey, Enron's chief accounting officer, on Friday. 
"Our investigators will be fanning out around the country interviewing people who may have some knowledge of the document destruction," he said. 
The committee on Thursday also released the full text of an Aug. 21 memo written by Andersen audit partner James Hecker. 
That memo revealed the details of a conversation between Hecker, who was not involved in the Enron account, and Watkins, the Enron corporate vice president who attempted to warn Enron's Lay about the energy trader's perilous financial practices. 
Watkins had sought out Hecker, a social acquaintance, as a "sounding board." 
According to the memo, Watkins' consternation was heavily focused on the LJM partnership and Fastow's involvement with it. At the time of her conversation with Hecker, Watkins worked for Fastow.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Andersen: No Sign Of 'Any Illegal Action' At Feb 5 Mtg
By Judith Burns

01/18/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES 
(This report was first published late Thursday.) 

WASHINGTON -(Dow Jones)- Arthur Andersen LLP said a meeting last year to discuss Enron Corp. (ENRNQ) was a routine matter and wasn't driven by suspicions of illegal or improper accounting.
"This was a routine, required meeting consistent with our policies and practices," Andersen said in a statement issued late Thursday. Nothing at the February 5, 2001, meeting or follow-up memos indicated "any illegal actions or improper accounting was suspected," Andersen added. 
Andersen audited Enron's books and congressional investigators have asked it to provide details on the meeting and a memo summarizing it. Andersen said it provided the memo to investigators voluntarily, stressing it made "no effort to conceal this information." 
According to the memo, Andersen officials discussed whether fees paid to the firm by Enron might pose an "independence issue." 
The memo also flagged other items of discussion, including Enron's "aggressive" structuring of transactions and its "intelligent gambling" on mark-to-market accounting. 
"The memo was prepared to document our annual risk assessment of the Enron engagement," Andersen said. 
The Chicago-based Big Five firm said it reviews major accounts annually to determine if the firm wants to retain them as clients. 
If a client is found to be too risky, Andersen said it may resign as its auditor, something it has done hundreds of times in recent years. In other cases, it said the firm will agree to keep a riskier client, but may add more auditors, procedures or controls. 
Meeting to discuss Enron's risks wasn't unusual, Andersen said. Similarly, it said the fact that a number of audit partners took part in the meeting, in person or by phone, wasn't out of the ordinary. 
Discussion of related party transactions with off-the-books partnerships tied to Enron chief financial officer Andrew Fastow, and their materiality to Enron's own financial reports, was done "to be sure we had considered all the issues," Andersen continued. 
While auditors commented that "Enron is aggressive in its transaction structuring," Andersen said discussion centered on whether "appropriate parties within the firm were being consulted" to ensure judgments were "informed and correct." 
Fees also were discussed, but Andersen said a $100 million figure wasn't tossed out as a possible target for revenue growth, but was mentioned to highlight concerns that having such a lucrative client could be "misperceived." 
Talk of fees centered on "making sure the nature of the firm's services did not compromise independence," the audit firm said. 
Ultimately, according to its memo, Andersen decided "to retain Enron as a client," judging that "we had appropriate people and processes in place to serve Enron and manage our engagement risks." 
-By Judith Burns, Dow Jones Newswires, 202-862-6692; judith.burns@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

House Panel Wants Documents On Andersen's Feb Enron Talks

01/18/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Thursday) 

WASHINGTON -(Dow Jones)- Arthur Andersen's death by a thousand cuts continued apace Thursday, as a House investigating panel issued a new request for documents related to the Big Five auditing firm's discussions last February about whether to retain Enron Corp. (ENRNQ) as a client.
As disclosed by the House Energy and Commerce Committee late Wednesday, a Feb. 6 e-mail indicated key Andersen officials met the previous day to discuss whether to end the auditing firm's lucrative relationship with the Houston energy-trading giant. 
Michael Jones, an Andersen auditor in Houston, e-mailed David Duncan, the lead auditor for the Enron account, a summary of the previous day's "significant discussions" about questionable off-the-balance-sheet transactions at Enron. 
The talks centered on "conflicts of interest" stemming from the millions former Enron chief financial officer Andrew Fastow received by overseeing the special purpose entities involving the transactions, the e-mail showed. 
Andersen officials consider whether to forgo the more than $100 million in fees the company expected to earn from the Enron account, but ultimately decided they could manage the risks of continuing its association with the deals, which ultimately led to Enron's stunning financial collapse last year. 
The new request for Andersen documents came one day after committee investigators met with Duncan, whom Andersen recently fired for destroying documents related to Andersen's Enron account. 
"Our investigators were disappointed by the limited nature of Mr. Duncan's memory," a Democratic committee spokesperson said late Wednesday. "We expect documents and other witnesses to fill in the blanks." 
The committee's Jan. 17 letter to Joseph Berardino, Andersen's managing partner and chief executive, asked for documents related to: 
-the discussion of Fastow's conflicts of interest; 
-the amount Fastow earned from setting up the offshore partnerships involving the transactions (reportedly $30 million); 
-communications between Andersen and Enron's board of directors regarding the board's views of the transactions; 
-information regarding whether Enron's board solicited competing bids when executing the transactions; 
-discussions about "intelligent gambling" related to Enron's mark-to-market earnings; and 
-discussions about concerns that Andersen's $100 million in fees "would be a perceived independence issue," as the Jones e-mail said. 
The committee's new request also sought documents related to discussions Andersen officials had Aug. 21 after Enron Vice President Sherron Watkins contacted the auditors about her concerns regarding the pending financial implosion to occur as a result of the partnership transactions Fastow oversaw. 
The committee previously disclosed Watkins' contacts with Andersen, and released a memo Watkins sent anonymously to Enron Chairman Kenneth Lay earlier in August questioning the propriety of the Fastow-led transactions and warning that Enron would "implode in a wave of accounting scandals." 
-By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Andersen falls deeper into Enron crisis.
By David Teather in New York.

01/18/2002
The Guardian
P21
Copyright (C) 2002 The Guardian

Arthur Andersen lurched deeper into crisis yesterday after it emerged that the accountancy firm may have been aware of the problems at the collapsed energy firm Enron as much as one year ago. 
It also became apparent that the Enron employee who had warned the company's chief executive Kenneth Lay of an impending crisis in August had made her concerns known to Andersen at the same time. The accountancy firm faces billions of dollars in potential lawsuits from disgruntled investors and there is growing speculation that it may not survive the Enron debacle.
Enron's descent into the biggest bankruptcy in corporate history yesterday led to changes in the way accounting firms are regulated in the US. The securities and exchange commission announced plans for a new independent regulatory body to oversee the accounting profession. 
Chairman of the SEC, Harvey Pitt said the industry was crying out for repair after a decade of neglect. 
Congressional investigators discovered a memo dated February 6 2001 that recounted a meeting between Andersen executives where the question of whether or not to retain Enron as a client was discussed. 
The memo said that Andersen executives had talked about the off balance sheet ventures that were carrying much of Enron's debts and which eventually lead to its collapse. It also detailed a discussion about a potential conflict of interest for Enron's then chief financial officer, Andrew Fastow, who controlled one of the ventures. 
Andersen confirmed the contents of the memo but said it was simply a regular annual review and retention meeting. The company also said it had been assured by Enron that an outside firm of lawyers was examining the claims of the whistleblower in August.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron, auditor Andersen trying to pin responsibility for collapse

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

WASHINGTON (AP) - Enron Corp. and its auditor, Arthur Andersen, are trying to pin responsibility on each other for allowing questionable financial practices to continue and push Enron toward bankruptcy. Enron abruptly fired Andersen, citing its destruction of thousands of documents and its accounting advice. 
Sniping back, Andersen said Thursday its relationship with Enron ended in early December when the company slid into the biggest corporate bankruptcy in U.S. history. Thousands of employees lost their jobs and many had their retirement accounts - predominantly in Enron stock - essentially wiped out.
Andersen's chief executive, Joseph Berardino, said the accounting firm's officials dutifully informed Enron's general counsel after learning of the concerns of an Enron executive in August. Enron told the Andersen officials that it had engaged a law firm to investigate, Berardino noted. 
--- 
Lawmakers investigating Enron have accepted more than $700,000 in political donations from company 
WASHINGTON (AP) - More than $700,000 in campaign donations has gone from Enron Corp. to the members of seven congressional committees investigating its collapse, but none of the lawmakers has decided to drop out of the probe. 
That doesn't surprise government watchdogs. 
Instead, senators and representatives are getting rid of Enron's money. 
Among the 118 congressional investigators on the committees, Texas' two Republican senators, Phil Gramm and Kay Bailey Hutchison, are the two biggest beneficiaries of the Houston-based energy company's contributions. 
Hutchison, who sits on the Senate Commerce Committee, accepted $99,500 from Enron from 1989 through 2001. She said Thursday she would donate $100,000 to a charitable organization for laid-off workers at Enron, which declared bankruptcy Dec. 2. She also said she would stay involved in investigating Enron. 

Financial Post: News
Enron Scandal: Bank Fallout
CIBC would like to forget nightmare: Total writeoff likely: Enron's 'project Braveheart' seemed too good to be true
Peter Morton
Financial Post

01/18/2002
National Post
National
FP10
(c) National Post 2002. All Rights Reserved.

WASHINGTON - For CIBC World Markets, the deal in mid-2000 seemed too good to be true. 
Here was an opportunity from the world's largest energy trader and the United States' top video renter to get in on the ground floor of the hot communications broadband market to distribute films to consumers by telephone.
For an investment of just US$115.2-million, CIBC would receive almost all the earnings from Enron Corp.'s share of "Project Braveheart," named after the 1995 Mel Gibson movie. 
But Blockbuster did not know about the Braveheart side deal, and the Blockbuster-Enron deal eventually fell apart. Fewer than 1,000 people received the cutting-edge service -- and none of them paid. Yet Enron still managed to book profits of almost US$111-million from Braveheart during the final three months of 2000 and early into 2001, virtually offsetting the losses in its fledgling fibre-optics division, according to a detailed account in The Wall Street Journal. 
For its part, CIBC is reluctant to talk in detail about the Project Braveheart investment that will likely end up as a total write-off -- and a nightmare the Toronto bank wants to forget. 
"CIBC's exposure as a result of the Braveheart transaction is contained in the numbers we announced in November," said Rob McLeod, CIBC's spokesman in Toronto, referring to the bank's disclosure late last year that it had US$115-million in senior unsecured loans, letters of credit, derivatives and secured exposures of approximately US$100-million tied up in Enron. 
"We stand by our November announcement concerning our exposure to Enron," Mr. McLeod added yesterday. 
It appears that CIBC is just as much a victim as are Enron's other investors and employees in what is turning out to be a hocus-pocus world of off-the-books investments and debt parking -- all designed to prop up Enron's financial image at a time when it was spiralling into the history books as corporate America's largest failure. 
Six Congressional committees, the U.S. Justice Department and the Securities & Exchange Commission have launched probes into the collapse of the now-bankrupt Houston-based energy trader, and the roles played by its senior executives and key auditors, Arthur Andersen LLP. The Enron board voted yesterday to fire Andersen as the company's auditors, effective immediately. 
The investigations are not yet formally underway, but the unravelling of Enron has moved at breakneck speed, most dramatically this week with the revelation that the Chicago head office of Andersen was fully aware as far back as February, 2001, that there were serious problems with Enron's accounting practices. 
A memo, dated Feb.6, referred to a meeting of Andersen executives who talked about the amount of debt Enron had kept off its books and whether Enron should be dropped as a client. Ultimately, Andersen stayed on to perform both auditing and other services, which generated about US$53-million in fees in 2001. 
The memo also appears to support secret testimony by David Duncan, the Enron auditor who was fired Tuesday for ordering the shredding and destruction of thousands of Enron-related documents and e-mails after it became known the SEC had launched an investigation in late October. 
Enron filed for Chapter 11 bankruptcy protection on Dec. 2 and two of its key assets -- its energy-trading division and its natural gas pipeline -- are being sold off. 
On Wednesday, before the Congressional energy and commerce committee, Mr. Duncan insisted he was only doing his job and had received approval from the Chicago office to destroy the documents. Congressional investigators also heard that Sherron Watkins, an Enron executive, had raised concerns about accounting problems with unusual partnerships that Andersen signed off on in February. 
The SEC moved yesterday to tighten U.S. accounting rules through a new regulatory body to oversee the industry. Complaining there were "too many accounting failures," Harvey Pitt, the SEC chairman, said the new private-sector panel will be able investigate accountants. 
"There is a need for reform of the regulation of our accounting profession," Mr. Pitt said. "We cannot afford a system like the present one that facilitates failure rather than success."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Reports Weren't Reviewed Fully by SEC for Several Years Before Collapse

01/18/2002
Dow Jones Business News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- The Securities and Exchange Commission didn't do a thorough review Enron Corp.'s annual reports for at least three years prior to the energy trading company's collapse, people with knowledge of the process told The Wall Street Journal. 
Twice in the 1990s, the regulator gave Enron waivers from two regulations that would have triggered extensive financial disclosures about its operations.
The Enron (ENRNQ) scandal has raised numerous questions about the checks and balances in America's financial system. A major issue: How did such a major company get away with making indecipherable disclosures about its far-flung trading operations and complicated corporate structure, which Wall Street analysts and some Enron executives confessed they couldn't understand? 
One answer that is starting to emerge from people familiar with the regulatory system is that the SEC failed to conduct a thorough review of the company's financial statements, even though the agency is responsible for reviewing investor disclosure documents to make sure companies clearly explain their operations, financial condition and risks. Rep. John Dingell of Michigan, the ranking Democrat on the House Energy and Commerce Committee, recently asked the SEC in a letter how it failed "to require adequate disclosures over the years." 
An SEC spokesman declined Thursday to comment on the details of how the agency handled Enron over the past decade. An Enron spokesman also declined to comment. 
Enron's problems escaped earlier detection in part because the SEC wasn't looking. Staff in the SEC's division of corporation finance, which reviews annual reports and company applications to sell stock, most recently studied Enron's annual reports for 1996 and 1997. Internal records show the SEC had looked at those Enron statements because there is a record of two comment letters with questions for Enron about the reports in September 1997 and September 1998, although the specific details of the inquiries aren't clear. 
Copyright (c) 2002 Dow Jones & Company, Inc. 
All Rights Reserved.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Financial Post: News
Enron Scandal: Legal Battles
Andersen, Enron hire legal heavyweights: Who's who of law world
Patrick Oster
Bloomberg News

01/18/2002
National Post
National
FP10
(c) National Post 2002. All Rights Reserved.

WASHINGTON - Enron Corp., Arthur Andersen LLP and several of their present and former executives have hired lawyers who represented a U.S. president, headed federal prosecutors' offices and enforced the law for the Securities and Exchange Commission. 
The roster includes Robert S. Bennett, who represented Bill Clinton, the former president, in the Paula Jones sex scandal; former U.S. Attorney Carl S. Rauh; Watergate prosecutor Earl Silbert; William R. McLucas, the former chief of the SEC enforcement division; and the firm headed by David Boies, who took on Microsoft Corp. for the federal government.
The cost of such defence is high, as is the risk to the potential defendants. The lawyers work at firms whose partners earn an average of US$500,000 to US$1.7-million a year, according to a 2001 survey by American Lawyer. 
Their top priority will be heading off criminal prosecution for their clients. "The first thing you do is beat jail," said Stanley S. Arkin, a white-collar defence lawyer with New York's Chadbourne & Parke, who said he has been approached by some involved in the Enron case. Other priorities: salvaging the client's business, reputation and money, he said. 
Enron is under investigation by the Justice Department, the Securities and Exchange Commission and congressional committees. 
Andersen and its officials face an SEC investigation and allegations it failed to report irregularities by Enron and destroyed documents. 
The Enron board chose Mr. Bennett, a former counsel to the Senate Ethics Committee, to deal with any government investigations, including those by Congress. A key task for him will be telling Enron's story to the media, a role he played for Mr. Clinton during the Paula Jones brouhaha. 
Mr. Bennett, a white-collar crime specialist, is being assisted by Mr. Rauh, a former U.S. attorney in Washington, and a partner at Mr. Bennett's 1,700-lawyer firm. 
The task of handling Enron's bankruptcy went to New York's Weil, Gotshal & Manges, a 900-lawyer firm that had advised Enron on its planned merger with Dynegy Corp. After Dynegy pulled out of that deal in November, Enron's board hired the firm's restructuring team to consider all options, including bankruptcy. 
Andersen, the fifth-largest U.S. accounting firm, hired Davis Polk & Wardwell, a 600-lawyer New York firm to handle "matters pertaining to Enron," said spokesman Kevin Cavanaugh. 
Daniel F. Kolb and Michael P. Carroll are lead lawyers for Andersen. Mr. Kolb is a securities litigator. Mr. Carroll, a securities specialist, has also represented the accounting firm KPMG LLP. 
Andersen's chief Enron auditor, David Duncan, who was fired Jan. 15 for ordering destruction of thousands of e-mails and documents at a time the SEC was asking for them, hired Sullivan & Cromwell, a 650-lawyer New York firm. 
That team includes Gandolfo DiBlasi, who has represented Anderson partners in SEC matters, and Robert J. Giuffra Jr., former chief counsel of the U.S. Senate Banking Committee and of a special Senate committee that investigated the Whitewater scandal. 
Joseph Berardino, Andersen's chief executive, has not hired a lawyer to deal with any Enron issues, said spokesman Patrick Dorton. 
Kenneth Lay, Enron's chairman and chief executive, hired Earl Silbert, the first Watergate prosecutor, who represents Mr. Lay in all civil, criminal, SEC and Congressional matters. 
Andrew Fastow, Enron's former chief financial officer, hired David Boies's 119-lawyer firm, Boies Schiller & Flexner of Armonk of New York. Richard Drubel will be involved day to day. He and Mr. Boies brought a class-action against Sotheby's Holdings Inc. and rival Christie's International PLC charging price fixing of commissions. 
Mr. Fastow, who made US$30-million from partnerships that dealt with Enron, according to former Enron CEO Jeffrey Skilling, has hired Houston's David Gerger, who has represented other executives in criminal matters. 
Mr. Skilling, who made US$30-million from sales of his Enron stock last year, hired O'Melveny & Myers, a Los Angeles-based firm of about 700 lawyers. Partner Bruce Hiler is a former associate director of enforcement at the SEC.

Black & White Photo: Osamu Honda, The Associated Press / David Boies (left), whose firm took on Microsoft for the U.S. government, represents Andrew Fastow, Enron's former chief financial officer.; Black & White Photo: Shawn Thew, Agence France-Presse / Robert Giuffra Jr. (left) and Gandolfo DiBlasi of Sullivan & Cromwell are representing David Duncan, the fired Arthur Andersen auditor. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Financial Post
Canadian institutional investors file suit against Enron's Wall Street bankers: 'Wrongful conduct' claim
Colleen DeBaise
Dow Jones

01/18/2002
National Post
National
FP1 / Front
(c) National Post 2002. All Rights Reserved.

NEW YORK - Toronto-based Silvercreek Management Inc. and several other Canadian institutional investors have filed a lawsuit in Manhattan federal court blaming Enron Corp.'s Wall Street investment bankers for the losses they have incurred. 
The suit claims that "the wrongful conduct which underlies this case is founded on Wall Street and in Manhattan, where Enron's investment bankers sold the securities which propped up the pyramid."
The Canadian institutional investors say they poured more than US$175-million into Enron debt securities during October 2001. 
The investors claim Enron's bankers earned heavy underwriting fees and continued to tout Enron's debt even as the company collapsed. The banks "knew or should have known" that Enron was engaged in extensive "off-book" transactions to conceal debts, and defrauded investors by marketing the securities, according to the suit. 
Legal experts predict more litigation to follow that seeks relief from Enron bankers such as Citigroup Inc.'s Salomon Smith Barney unit, Goldman Sachs Group Inc. and Banc of America Securities. 
The banks are "perceived as deep pockets with insurance coverage," said Richard Tilton, a bankruptcy specialist in private practice in New York. In a case such as Enron's, where a bankruptcy judge has suspended investor litigation against the company itself, "it's very common to sue parties involved in the transactions," such as bankers who underwrite securities offerings, he noted. 
Salomon, Goldman and Banc of America, a unit of Bank of America Corp., declined to comment. The suit also blames auditor Arthur Andersen for contributing to the mess. Andersen didn't return a call seeking comment. 
Pat Villareal, a securities litigation partner in the Dallas office of Jones Day, said the suit against Enron's investment bankers "in all likelihood might be an attempt to bring an action that's outside the confines of the bankruptcy proceedings." 
The investment banks could argue that the suit belongs in bankruptcy court because the allegations are tied "inextricably to Enron and its officers," she said. If that happens, the suit -- like others against Enron -- would be put on indefinite hold, part of an automatic bankruptcy order that suspends litigation to allow a company's executives to focus on restructuring. 
Even if the suit is allowed to proceed in federal court, it remains to be seen whether investors could hold Enron's bankers responsible. 
If the banks argue that they were misled by Enron's financial statements as they prepared prospectuses, they might have to admit some failure in their own due diligence reviews, Mr. Tilton said. 
"It would be embarrassing for the investment banks to say they were led down the road and had no idea what was going on," he said. "Claiming ignorance is not a particular helpful defence if you're before a jury and particularly if you're in federal court on securities laws."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron probe is yet to begin.

01/18/2002
The Times of India
Copyright (C) 2002 The Times of India

MUMBAI: Six months after the announcement of a judicial inquiry into the Enron issue (July 11 2001) and three months after a retired supreme court judge, Sudhakar Karddukar, was appointed to head the Commission (October 25, 2001), the probe is still not begun. 
Mantralaya officials told TNN the government had not yet finished providing the infrastructure for the commission. Financial provisions were still being finalised and the necessary staff of 10 persons being provided. A decision has been taken to provide an office at Arun Chambers at Tardeo.
Energy secretary R. B. Buddhiraja told TNN the Commission was likely to begin work next week. Replying to a question of whether an inquiry into the project would be of any effective use after the power major Enron Corp, had collapsed in Houston and the Dabhol Power Company was up for grabs, he said it was not for the ministry to decide. The commission would have to decide its own role. 
The inquiry has been given six months to probe the two phases of the Dabhol project, the power purchase agreement and its history, and the possible political fallout. If the Commission does get under way it is likely to take much longer than six months, depending on the response to the public notice and subsequent developments.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Report on Business Column
THE VIEW FROM WASHINGTON
Enron's far-reaching tentacles undermine a fair probe
BARRIE McKENNA

01/18/2002
The Globe and Mail
Metro
B8
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

Imagine for a moment the quandary that faced Sherron Watkins, Enron Corp.'s would-be whistle blower. 
Worried that company losses were being hidden in murky partnerships, the feisty Enron vice-president of business development took her concerns straight to the top last August.
"I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote to Enron chief executive officer Kenneth Lay. 
Enron's Houston law firm, Vinson & Elkins, reviewed her complaints and dutifully determined that the accounting gymnastics were "creative and aggressive" bookkeeping, but not inappropriate. 
The matter was dropped, and Ms. Watkins's warning is now eerily prophetic. We now know that the belated disclosure of hundreds of millions of dollars in debts to those partnerships helped sink Enron. 
But what if Ms. Watkins had pursued her complaint further -- to Enron's auditors, to its board of directors, to regulators, to the police, to Congress or even the President of the United States? Where would she have found a sympathetic ear? 
Given Enron's vast web of political connections, greased by millions of dollars in political contributions, validation would have been uncommonly hard to find. 
Follow the money trail from Enron's Houston home to Chicago, New York and Washington, and the portrait emerges of an entire system awash in apparent conflicts of interest. 
For starters, the lawyers at Vinson & Elkins could hardly be expected to be unbiased. 
Enron was its biggest client. And its lawyers helped craft the suspect partnership deals of which Ms. Watkins complained. 
Enron's auditor, Chicago-based Arthur Andersen LLP was also working both sides of the fence. It collected hefty fees for auditing the energy company, providing business advice and doing the books for one of the partnerships. 
With nowhere in Houston to turn, Ms. Watkins might have looked to the U.S. Securities and Exchange Commission, which regulates Enron and the auditing profession. But SEC chairman Harvey Pitt, a securities lawyer, worked for Andersen before joining the SEC. 
In Texas, the state Attorney-General and a judge handling shareholder lawsuits have already stepped aside because of conflicts of interest because they received Enron political funds. 
Going to the feds would also have been problematic. U.S. Attorney-General John Ashcroft -- the country's top cop -- took $58,000 (U.S.) worth of Enron cash during his failed 2000 U.S. Senate run. He and his entire Houston-based staff of attorneys have since stepped down from a criminal probe of Enron. 
The maze of Enron links inside the Bush White House is mind-boggling. The Bush team took $424,000 from Enron and its executives in 1999-2000. 
So close were President George W. Bush and Vice-President Dick Cheney -- both former Texas oilmen -- to Mr. Lay that they called him "Kenny Boy." The Enron boss was also instrumental in helping to craft the Bush energy policy. Economic adviser Larry Lindsey earned $50,000 from Enron last year for serving on a special company board. Trade Representative Robert Zoellick served on Enron's advisory council. Mr. Bush's top political strategist Karl Rove owned so much Enron stock that he had to sell it after joining the White House to avoid running afoul of federal ethics rules. Marc Racicot, the chairman of the Republican National Committee and Mr. Bush's lead negotiator in the Canada-U.S. lumber fight, worked as an Enron lobbyist. The Secretary of the Army is a former Enron executive. 
And on it goes. White House Counsel Alberto Gonzales is a former partner at Vinson & Elkins, Enron's law firm. The law firm was also one of Mr. Bush's biggest political patrons, ponying up more than $200,000 for Mr. Bush's 2000 presidential run. 
On Capitol Hill, where no less than 10 committees are now picking through the Enron carcass, an objective eye is equally hard to find. 
The pockets of seven out of 10 sitting senators and nearly half of the 435 House members are lined with Enron cash. 
Like Enron, Arthur Andersen was also a big Bush donor, giving $146,000 to his 2000 presidential run. The head of Andersen's Houston office, who this week was demoted for his involvement in shredding Enron papers, raised more than $100,000 for Mr. Bush. 
No, Ms. Watkins had nowhere to turn. 
But this isn't just her problem anymore. The Enron saga cries out for an independent arbiter to dig through the slime. Its investors, employees and creditors deserve an objective accounting. 
Sadly, this administration and this Congress are in no position to deliver it. bmckenna@globeandmail.ca

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Politicians Trade Shots Over Enron
By SCOTT LINDLAW
Associated Press Writer

01/18/2002
AP Online
Copyright 2002 The Associated Press. All Rights Reserved.

WASHINGTON (AP) - A Democratic congressional leader said he documented 17 provisions in Vice President Dick Cheney's energy plan that benefited Enron, and demanded anew that the White House list contacts with the bankrupt energy trading company. 
The administration again refused on Thursday, calling the request by Rep. Henry Waxman, D-Calif., "a partisan waste of taxpayer money."
Waxman, the top Democrat on the House Government Reform Committee, has been asking Cheney since April to turn over records on whom he met with as he developed the national energy strategy. Cheney has refused, though the White House acknowledged that Enron representatives met six times with Cheney or his aides on energy issues last year. Enron has been the largest single donor to President Bush. 
Waxman said that because he was stonewalled, he did his own analysis of what Enron sought and what Enron got in the energy plan. 
"The analysis reveals that numerous policies in the White House energy plan are virtually identical to the positions Enron advocated," Waxman wrote Cheney in a letter dated Wednesday. 
Among the examples: energy deregulation initiatives, support for trading in energy derivatives, proposals to facilitate natural gas projects, the granting of eminent domain so power lines could be built more quickly and spur development in India. 
"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. 
Waxman's findings came as the administration was under intense scrutiny for its contacts with Enron in the weeks before it went bankrupt. 
White House spokesman Ari Fleischer said the energy plan contains only proposals that Bush and Cheney believed would help make the nation more energy-independent. 
"The allegation by Congressman Waxman that anything was put in that plan for political purposes is, of itself, a partisan waste of taxpayer money," Fleischer said. 
Fleischer promised that "the administration will continue to be forthcoming in answering questions and providing information." 
But he again declined to provide specific lists of contacts between the administration and Enron during energy task force meetings. 
"There is a very important principle involved here, and that is the right of the government and all future presidencies whether they are Democrat or Republican, to conduct reviews, to receive information from constituents, regardless of their party or their background, in a thoughtful and deliberative fashion," he said. 
Asked whether releasing lists of contacts would reassure the public that nothing improper took place behind closed doors, Fleischer said: "You're asking for us to prove a negative, and that's a road we're not traveling."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

GOP: Enron won't hurt in 2002 campaigns

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

AUSTIN, Texas (AP) - Republicans say the collapse of Enron Corp. and resulting federal investigations of the energy trading company that has been President Bush's largest single donor shouldn't hurt the party in the 2002 elections. 
"Enron is an issue that is not a political issue," Republican National Committee Deputy Chairman Jack Oliver said Thursday at the party's winter meetings in President Bush's home state.
"Enron is a situation where people have been badly hurt, people have lost their jobs and their life savings," Oliver said. "The president and many members of Congress are moving forward, not to make it partisan, but to try to get to the bottom of it to make sure it doesn't happen again." 
The company donated heavily to both parties, and Enron Chairman Kenneth Lay has been Bush's biggest campaign benefactor. 
Asked if fallout from Enron's collapse into bankruptcy and the company's ties to the administration will lead to a new congressional push for campaign finance reform, Oliver said, "We'll have to wait and see." 
--- 
Report: Former Enron executive resigns from PUC 
DALLAS (AP) - The state's top utility regulator, a former Enron Corp. executive whose boss donated money to Gov. Rick Perry following the appointment, has quit amid congressional investigations over the company's financial meltdown, according to The Dallas Morning News' Friday editions. 
Mario Max Yzaguirre, formerly president of Houston-based Enron's operations in Mexico, told the Republican governor Thursday he was resigning after weeks of turmoil over his selection. 
Sources familiar with the decision told the newspaper on condition of anonymity that Yzaguirre's appointment as Public Utility Commission chairman had become a political liability and would continue to be raised by opponents trying to damage Perry's election effort. 
Yzaguirre, who was appointed chairman by Perry in June, did not return a telephone call early Friday from The Associated Press. 
A spokeswoman for Perry, who is running this year for a full term as governor, declined Thursday to discuss Yzaguirre's situation. 

Lawmakers investigating Enron have accepted more than $700,000 in political donations from company
By JESSE J. HOLLAND
Associated Press Writer

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

WASHINGTON (AP) - More than $700,000 in campaign donations has gone from Enron Corp. to the members of seven congressional committees investigating its collapse, but none of the lawmakers has decided to drop out of the probe. 
That doesn't surprise government watchdogs.
"If every member of Congress had to recuse themselves from any legislation or any business affecting any one of their donors, Congress would come to a screeching halt," said Jeff Cronin, spokesman for Common Cause. 
Utah's two Republican senators were listed among the recipients, with Bob Bennett receiving $8,053 and Orrin Hatch getting $3,000. Bennett is on the Senate Governmental Affairs Committee and the Senate Banking Committee. Hatch is on the Senate Finance Committee. 
Some senators and representatives are getting rid of Enron's money. 
Among the 118 congressional investigators on the committees, Texas' two Republican senators, Phil Gramm and Kay Bailey Hutchison, are the two biggest beneficiaries of the Houston-based energy company's contributions. 
Hutchison, who sits on the Senate Commerce Committee, accepted $99,500 from Enron from 1989 through 2001. She said Thursday she would donate $100,000 to a charitable organization for laid-off workers at Enron, which declared bankruptcy Dec. 2. She also said she would stay involved in investigating Enron. 
"I am deeply concerned about the situation in which Enron employees and retirees have found themselves, especially regarding their pensions and other benefits," she said. "These are my constituents and they have borne the brunt of the problem at Enron." 
Gramm, the former chairman of the Senate Banking Committee, received $97,350. He is the senior GOP member on the panel and also sits on the Senate Finance Committee. Both committees have begun Enron investigations. 
Gramm's wife, Wendy, is on Enron's board and audit committee and has been named in a lawsuit by investors against Enron executives and directors. 
"He has not seen the scope of the proposed hearings and has yet to make a decision" on taking part, Gramm spokesman Larry Neal said. 
The Texas senator, who is retiring in January, has begun returning his 2002 campaign donations, and that probably includes Enron donations, Neal said. 
Enron donated to 71 senators and 188 representatives - nearly half of Congress - according to the Center for Responsive Politics. The 118 Senate and House members on the seven committees accepted $722,749 from the company or its officials, according to an Associated Press analysis of the center's data. Since the analysis was done, three more committees have begun investigations. 
Larry Noble, executive director of the center, said the lawmakers were in a less vulnerable position than Attorney General John Ashcroft, who removed himself from the Justice Department's investigation because he received more than $57,000 in Enron donations for his unsuccessful 2000 Senate re-election campaign. 
"The attorney general is prosecuting Enron," Noble said. "These committees are not adjudicating anything or prosecuting anything per se." 
Some lawmakers are moving to distance themselves from Enron by returning the donations or giving like amounts to charity. 
Sen. Sam Brownback, R-Kan., a member of the Commerce Committee who received $2,705, will donate an equivalent amount to Habitat for Humanity of Kansas City. "He just wants to avoid any question in any possible hearings he'll be involved in," spokesman Erik Hotmire said. 
Sen. Joseph Lieberman, D-Conn., received $2,000. "I don't feel at all compromised," said the senator, who is leading the Senate Governmental Affairs Committee's Enron investigation. 
Lieberman's former chief of staff, Michael Lewan, lobbied for Enron earlier this year, holding three meetings with the senator's staff but not with Lieberman. Lewan remains a political adviser to the senator, but Lieberman spokesman Dan Gerstein said that would have no impact on the investigation. 
Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, accepted $6,464 in contributions from Enron. The Louisiana Republican doesn't plan on giving it back because campaign contributions don't affect his decisions, a spokesman said. 
"It doesn't matter if they gave us a million dollars," Tauzin spokesman Ken Johnson said. "We're not going to cut them any slack. ... All I can tell you is both Enron and (its accounting firm) Arthur Andersen are in line for a good old-fashioned spanking." 
Rep. Joe Barton, R-Texas, the chair of the Energy and Commerce energy and air quality subcommittee, got at least $28,909 in Enron donations, but his spokeswoman, Samantha Jordan, says he won't drop out of the investigation. 
Barton has pushed for electricity deregulation, an important issue to Enron. 
"It is not unusual for a Texas congressman to take contributions from a Texas company like Enron, and he did not make any decisions based on any funding," Jordan said. "He will participate." 
Barton is considering making a contribution to a fund for Enron employees.

AP Graphic ENRON COMMITTEES 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

SEC's Pitt Stresses He's Not Participating In Enron Case
By Judith Burns

01/18/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES 
(This report was first published late Thursday.) 

WASHINGTON -(Dow Jones)- Securities and Exchange Commission Chairman Harvey Pitt expressed confidence Thursday in the White House's nominees to the SEC and said the agency won't be hobbled by its diminished ranks.
The five-member SEC has been reduced to two, Pitt and commissioner Laura Unger, a Republican who has announced plans to step down shortly. 
Bush recently announced plans to name two Republicans to fill vacancies on the SEC. Both work for Big Five accounting firms, raising questions about potential conflicts of interest as the SEC tackles hot-button issues such as its investigation of possible accounting fraud at Enron Corp. (ENRNQ). 
The Senate has yet to consider Bush's nominees: attorney Paul Atkins, a partner at PricewaterhouseCoopers LLC, and economist Cynthia Glassman, an economist and principal at Ernst & Young LLP. 
At a press conference Thursday to announce proposals to toughen oversight of U.S. accounting, Pitt said both Atkins and Glassman have "excellent background, skills and ability," and downplayed any potential conflicts their accounting firm background might pose. 
Asked about his own potential conflicts in the Enron matter, Pitt reiterated that he has not participated in any votes on it since casting one in October to commence an investigation. Some congressional Democrats have urged Pitt to recuse himself from any Enron-related matters that come before the SEC, given that he was a securities lawyer who represented Big Five accounting firms, including Arthur Andersen LLP, Enron's auditor. 
"I am not participating in the Enron investigation," Pitt stressed. He said the agency's probe is being handled by its enforcement division and said any future action he might take - or recuse himself from - is hypothetical. 
If further action is required, Pitt promised to adhere to the letter and spirit of ethical guidelines governing the SEC. 
"There is no way I would ever do anything to compromise the integrity of this agency's actions," Pitt vowed. 
Pitt declined to comment on the SEC's ongoing investigation into Enron's collapse. It was recently widened to include destruction of Enron-related documents by employees at Arthur Andersen LLP. 
-By Judith Burns, Dow Jones Newswires, 202-862-6692; judith.burns@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

SEC's Pitt Faces Criticism on Industry --- U.S. to Form Group To Oversee Reviews Of Accounting Firms
By Michael Schroeder
Staff Reporter

01/18/2002
The Wall Street Journal Europe
13
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- As part of a plan to overhaul accounting oversight, the U.S. Securities and Exchange Commission proposed a new industry organization that will oversee disciplinary reviews of accountants. 
The plan is a result of discussions over the past few months that SEC officials have had with representatives of the Big Five accounting firms and the American Institute of Certified Public Accountants. SEC Chairman Harvey Pitt plans a series of accounting-industry reforms, including new forms of oversight and new rules for expanded corporate disclosures.
"There is a need for reform of the regulation of our accounting profession," he said during a news conference, adding, "We cannot afford a system like the present one that facilitates failure rather than success." 
Among other things, the SEC's plan includes a proposal to form a private-sector panel that likely will replace the current disciplinary oversight functions provided by both the Public Oversight Board and the AICPA. The organization, which Mr. Pitt said would be subject to SEC oversight, would have full regulatory power to investigate wrongdoing by accountants and to issue penalties ranging from censures to bans from the industry. 
The panel is expected to be funded by fees from corporate audit clients. To assure objectivity, it will have a majority of public members who are independent from the accounting industry. The SEC will seek industry and public comment. 
Whether this goes far enough to address the accounting industry's problems no doubt will be a matter of intense debate. John Coffee, a professor of law at Columbia University, says lawmakers should be involved in addressing the accounting industry's problems. 
The issue, he notes, "is whether the chairman can negotiate with the industry a new self-regulatory structure and not involve Congress. . . . Any new self-regulatory structure can't be done over the weekend, in a closet or in a hotel room." 
The accounting industry has long fought changes that would put teeth into the oversight efforts of the self-regulatory bodies. The industry has been notorious for failing to discipline its members, fearing that the process would increase private liability in private class-action lawsuits. 
"Before Enron ever happened, I urged that the industry come up with something," said Mr. Pitt, adding, "I told them elements that had to be in the plan," including a new discipline approach. There will be no proposal implemented unless they meet our standards and conditions before they are fully implemented." 
The proposal is part of an effort to restore waning confidence in accounting work following Enron Corp.'s collapse as well as several accounting scandals and earnings restatements at other big corporations. Indeed, in an unprecedented statement early last month, the Big Five accounting firms -- Arthur Andersen LLP, KPMG LLP, Deloitte & Touche LLP, PricewaterhouseCoopers LLP and Ernst & Young LLP -- promised to abide by higher standards in the future. 
"The potential loss of confidence in our accounting firms is a burden our capital markets cannot and should not bear," warned Mr. Pitt. 
The industry is divided in its support for the new panel, said people in the industry. In addition, accounting officials question whether the proposal will be enough to satisfy criticism of the profession in Congress and among consumer groups. 
Pointing to the "peer review" system in the accounting industry, critics say self-regulation has been ineffective. This system, in which one accounting firm monitors how another firm conducts audits, has never resulted in a negative review of a large accounting firm since it was adopted in 1977 -- even though there have been accounting scandals in that period. 
Before joining the SEC, Mr. Pitt was a top securities lawyer who had represented each of the Big Five and the AICPA. Statements he has made about a "kinder, gentler" SEC have raised concerns that he wouldn't be a tough regulator. 
In response, the SEC chairman has recently pressed an agenda to improve disclosure and create better industry oversight aimed at avoiding future Enrons. 
He has pushed hard to get the accounting firms and the AICPA to support his ideas. 
Mr. Pitt's ideas mirror recommendations the Big Five requested that the SEC adopt in a recent letter. The firms urged the SEC to issue an interpretative release "as soon as possible" to improve 2001 annual reports by beefing up disclosure in the management discussion and analysis section of filings. 
As a short-term fix, the Big Five firms asked the SEC to provide "immediate guidance" to public companies on disclosing off-balance-sheet transactions, over-the-counter derivatives contracts, and related-party transactions -- three hot-button areas in Enron's debacle. 
The SEC could approve such guidance in a matter of weeks -- which carries the weight of new SEC policy with public companies. Mr. Pitt has intentions of larger-scale changes for requiring material events to be disclosed as they unfold, rather than in quarterly statements that investors read long after events occur. Those changes would require new rules, a process that normally takes at least several months. 
--- 
Victoria Marcinkowski of Dow Jones Newswires in New York contributed to this article. 
(See related article: "Some Say Chairman Should Recuse Self In Andersen Probe" -- WSJE Jan. 18, 2002)

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section A
ENRON'S COLLAPSE: THE OVERVIEW
S.E.C. LEADER SEES OUTSIDE MONITORS FOR AUDITING FIRMS
By STEPHEN LABATON

01/18/2002
The New York Times
Page 1, Column 6
c. 2002 New York Times Company

WASHINGTON, Jan. 17 -- Responding to growing criticism of accounting practices stemming from the collapse of the Enron Corporation, the head of the Securities and Exchange Commission proposed today that the accounting industry should be policed by a group dominated by outside experts instead of policing itself. 
In Connecticut, the state attorney general asked the state's accountancy board today to consider whether to revoke the licenses that let Arthur Andersen, Enron's auditor, work for corporations in that state.
Enron itself formally announced that it was firing Andersen as its auditor, a step that Andersen executives said they had expected. Enron is also preparing to sue Andersen, a person close to Enron said. 
Internal Andersen documents made public today showed that as long ago as February, Andersen executives considered dropping Enron as a client because of concerns that it was keeping debts off its main balance sheets. 
The documents also indicated that Kenneth L. Lay, Enron's chairman and chief executive, disposed of stock within days of receiving a letter in August warning him of accounting problems. [Page C1.] 
Most of the pressure today focused on Andersen. Disclosures that the firm stood by its audits long after learning of Enron's possible misdeeds, and that it had destroyed Enron documents, have provoked devastated investors to demand that the authorities rein accountants in. 
In outlining his proposal today, Harvey L. Pitt, the S.E.C. chairman, said that antiquated rules on corporate disclosure and accounting ethics had allowed investors to suffer from a number of auditing lapses over the last decade. These rules, he said, must be revised. 
''We simply cannot afford a system like the present one that facilitates failure rather than success,'' he said at a news conference this afternoon in Washington. ''This commission cannot, and in any event, it will not, tolerate this pattern of growing restatements, audit failures, corporate failures and then massive investor losses. Somehow, we have got to put a stop to a vicious cycle that has now been in evidence for far too many years.'' 
But his plan, still preliminary and months from adoption, was sharply criticized by some experts. They urged him to consider proposals by a predecessor to assure that auditors remain independent from their clients. Mr. Pitt, they said, missed the point that accounting firms that earn more from consulting than auditing, as Andersen did for Enron, face inevitable conflicts of interest. 
''He's chasing a gopher down a wrong hole,'' said James D. Cox, a professor of securities and corporate law at Duke University and author of an accounting textbook. ''This is not a situation which involved somebody at Arthur Andersen who had previously engaged in misconduct. This is a question of ongoing problems in an accounting profession which has close ties to clients, ties which seriously compromise their independence.'' 
At his news conference, Mr. Pitt said that changes in the oversight rules and disclosure requirements were essential, but he dismissed suggestions that he take steps to keep auditors from performing other work for the same clients. 
''Auditor independence is not the cause of the problems that we are witnessing,'' Mr. Pitt said. ''This system has enough flaws and enough difficulties in it that cry out for repair. And it would be easy for some people to convince you that the entire problem is a question of auditor indepedence and ignore the much bigger issues of the quality of our disclosures, the penetrability or impenetrability of financial reports, and how audits are structured and performed.'' 
He also deflected suggestions that the federal government play a greater role in overseeing the industry and that the S.E.C. be given more lawyers and officials to prosecute white-collar corruption. He does not, he said, ''believe that the solution to every problem, even major problems, is throwing the taxpayers' money and more bodies from the government at the issue.'' 
Though Mr. Pitt said that no new law was needed to enact his own proposal, to shift the responsibilities for discipline from an industry group, the American Institute of Certified Public Accountants, to a new organization, Professor Cox said that the commission might not otherwise have the necessary authority. 
Professional accountants now face several levels of oversight. The institute disciplines them for ethics and rules violations. The Securities and Exchange Commission traditionally files complaints for more egregious violations, federal violations in particular. State boards can discipline them or strip them of their licenses for violations of state rules and laws. 
Mr. Pitt said today that his plan would take the accounting institute out of the business of conducting disciplinary and quality review proceedings. 
The plan would probably also remove the Public Oversight Board, a group of outside experts, from performing such roles as overseeing peer reviews of accountants' work. 
His proposal was generally supported by the institute, which was a client of Mr. Pitt's before he became chairman. Barry Melancon, president and chief executive of the institute, called it unprecedented but constructive and important to restoring confidence in auditors. 
But Charles A. Bowsher, the former comptroller general of the United States, who now heads the Public Oversight Board, criticized the plan as a quick fix that glossed over the bigger issues. 
''I don't think it will be an effective self-regulatory process,'' Mr. Bowsher said. ''I'm a great believer of the self-regulatory process. But in our case what this will probably do is replace a board of true outsiders with one consisting of industry insiders and outsiders. This is an effort by the A.I.C.P.A. to gain control of the self-regulatory process.'' 
Mr. Pitt's proposal still faces many months of review. After specific rules have been written, they will be subject to the normal process of comment and revision. In addition, the S.E.C., with five seats, is hobbled by three vacancies. 
The move by the Connecticut attorney general, Richard Blumenthal, presents another setback for Arthur Andersen. 
Mr. Blumenthal's request for the state's accounting board to consider revoking the firm's licenses in Connecticut could prompt other states to follow. Companies that have become the subjects of such investigations by several states, like the E. F. Hutton and Drexel Burnham Lambert securities firms, were ultimately forced into liquidation. 
Andersen said today that it was committed to uncovering problems at the firm regardless of how many investigations were being conducted. 
''There's a lot of people looking at these issues,'' said Patrick Dorton, an Andersen spokesman. ''We'll leave it to the judgment of the attorney general as to whether there should be one more investigation. We're committed to making the changes necessary to restore public confidence.'' 
In Houston today, a federal judge ordered a hearing next Tuesday on a request to speed the fact-finding behind Andersen's destruction of documents. The request came from Amalgamated Bank, which is owned by labor unions and manages retirement funds with significant holdings of Enron stock. Lawyers for Amalgamated have accused Enron and Andersen of violating federal securities laws, leading to retirement fund losses of more than $10 million.

Photo: Harvey L. Pitt, left, the chairman of the S.E.C., at a news conference yesterday with the agency's chief accountant, Robert Herdman, after announcing preliminary proposals to help prevent collapses like Enron's. (Stephen Crowley/The New York Times)(pg. C7) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

NATIONAL
SEC PROPOSES ACCOUNTING WATCHDOG IN WAKE OF ENRON
FRANK JAMES AND MELITA MARIE GARZA, CHICAGO TRIBUNE

01/18/2002
Pittsburgh Post-Gazette
REGION
A-12
(Copyright 2002)

With Enron Corp.'s meltdown as the backdrop and his own willingness to crack down on the accounting industry questioned, the chairman of the Securities and Exchange Commission yesterday proposed creation of a private-sector watchdog group to discipline auditors who fail to produce accurate financial reports. 
Harvey L. Pitt, chairman of the agency that oversees the nation's financial markets and corporate reporting, said regulators, the accounting industry and Congress need to address auditing weaknesses revealed by the Enron debacle and other financial disasters before investor confidence could be restored.
He said he envisioned an independent "tough, no-nonsense" panel with real enforcement powers and the weight of the SEC behind it as a major step in that direction. 
"We simply cannot afford a system like the current one that facilitates failure rather than success," Pitt said. "Accounting firms have important and critical public responsibilities. We've had far too many financial and accounting failures." 
The accounting industry in the past has successfully fought outside efforts to get it to put real teeth into its self-regulatory practices. It also thwarted attempts to increase governmental oversight of the industry. 
But the world has changed in the wake of the scandal engulfing Enron and its auditor, the Chicago-based Andersen accounting firm. 
Questionable off-balance-sheet transactions with a series of outside partnerships hid hundreds of millions of dollars in Enron debt, forcing the company to revise its past earnings reports drastically lower and leading to the company's bankruptcy filing last month. 
Andersen has been bruised by a series of revelations about its handling of Enron's auditing, including the explosive disclosure that the company destroyed thousands of records related to Enron. Andersen said it would fire its senior partner responsible for its Enron audits and has suspended other employees. Late yesterday, the bankrupt Enron fired the entire Andersen firm. 
Pitt himself has come in for criticism as well. His past work as a lawyer for Andersen and other big accounting firms and his pre- scandal public remarks suggesting a gentler SEC approach to accounting issues raised eyebrows among advocates of tough SEC regulation. 
Yesterday, however, Pitt appeared to be warning his former accounting-firm clients that their days of defeating efforts to beef up oversight of their industry were over, thanks to the outrage and loss of faith among investors in the current scandal. 
"This commission cannot, and in any event, it will not tolerate this pattern of growing [financial] restatements, audit failures, corporate failures and then massive investor losses," Pitt said. "Somehow, we have got to put a stop to a vicious cycle that has now been in evidence for far too many years." 
While his proposal lacked many details, Pitt sketched an outline for an independent panel whose members would mainly be unconnected to the accounting industry, though there would be some accounting expertise on the panel. Unlike the Public Oversight Board, another attempt at self-regulation created in 1977 after problems in the accounting industry, Pitt's panel would have the power to conduct investigations, launch disciplinary actions and bar individuals from practicing accounting -- either temporarily or for good -- for incompetence or unethical conduct.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

COMPANIES & FINANCE ENRON COLLAPSE - Pitt attacks accountancy system and US audits.
By JOHN LABATE, ADRIAN MICHAELS and MICHAEL PEEL.

01/18/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

COMPANIES & FINANCE ENRON COLLAPSE - Pitt attacks accountancy system and US audits - ENRON AFTERMATH REGULATOR SEEKS GREATER POWERS - * CONFLICTS OF INTEREST IN SPOTLIGHT - * DUKE BENEFITS FROM RIVAL'S DEMISE - * EUROPEAN GROUPS UNDER THREAT. 
Harvey Pitt, new chairman of the Securities and Exchange Commission, yesterday castigated the accountancy profession and the US system of financial reporting, calling for a more powerful regulator with the power to ban individuals and firms from auditing public companies.
The scathing speech, delivered in Washington, followed intense criticism of financial disclosure in the Enron debacle and the role of Andersen, the energy trader's auditor. 
Mr Pitt said the "potential loss of confidence in our accounting firms and the audit process is a burden our capital markets cannot and should not bear". 
He acknowledged that leading audit firms had shown a willingness to work with the SEC, the US's chief financial regulator, to produce a better regulatory system. But in a reversal of his previously conciliatory stance, Mr Pitt was highly critical of leading auditors. 
"There is a need for reform of the regulation of our accounting profession. We cannot afford a system, like the present one, that facilitates failure rather than success," he said. 
Mr Pitt signalled a tougher stance even than his predecessor Arthur Levitt, who battled with the profession during his tenure. "We have had far too many financial and accounting failures. The commission cannot, and in any event will not, tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses." 
In light of what he said was a "vicious cycle that has been in evidence for far too many years", Mr Pitt proposed wholesale reforms of accountancy regulations. 
The system of "peer reviews" - where the leading auditors check the quality of each others' audit systems every three years - should end. 
Mr Pitt said peer reviews would be replaced with a more frequent monitoring of audit quality and competence "designed to produce better audits in the future". This would be carried out by a permanent quality control staff, composed of people unaffiliated with any accounting firm. 
These staff would be overseen by a brand new accountancy regulator whose members would be overwhelmingly from outside the profession. 
Mr Pitt said that the SEC would continue to decide whether certain forms of conduct should be pursued as violations of law or treated as violations of ethical and competence standards. 
The new body would oversee the ethical and competence issues and would have the power to perform investigations, bring disciplinary proceedings, publicise its results and restrict individuals and firms from auditing public companies. 
The AICPA, the US accountants' main professional body, responded to the speech by saying the Mr Pitt's proposals were "unprecedented in the more than 100-year history of the accounting profession". 
The AICPA said it would "do all it can to work with the SEC and all interested parties to maintain the integrity of the capital market system". 
A small panel of non-SEC, non-accounting members will look at Mr Pitt's plans during a comment period of between 45 and 60 days. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

FERC Chairman: Enron Meltdown Showed Power-Market Strength

01/18/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Thursday.) 

CHICAGO -(Dow Jones)- Enron Corp.'s (ENRNQ, ENE) problems appear self-inflicted and aren't linked to larger problems in energy trading markets, Pat Wood, chairman of the Federal Energy Regulatory Commission, said Thursday.
The lack of serious disruption from Enron's rapid collapse actually highlighted the strengths of the wholesale power markets, suggesting FERC is heading in the right direction with its efforts to create more competitive and open markets, Wood said, addressing an energy conference at the Federal Reserve Bank of Chicago. 
"Moving to competitive energy markets is a good thing and it's the right thing to do," Wood said. "The bad situation at Enron I think largely appears to be a self-inflicted one." 
Wood said he was pleased to see how efficiently the power markets adjusted to operating without Enron. Even before Enron's credit rating slipped below investment grade last year, trading counterparties were unwinding deals with the trading giant. 
Energy markets eliminated Enron in a show of "hateful Darwinism," Wood said. The process "reaffirmed my personal faith that energy markets really worked as we want them to do, which is to reward good guys and punish bad guys," he said. 
That's the message Wood will take before the Senate Energy Committee Jan. 29, when the committee will hold a hearing looking into the market impact of Enron's fiscal collapse. 
Answering questions after his address, Wood said Enron didn't contact him to discuss its problems before they became commonly known. When Enron's troubles became more apparent, FERC worked to make sure the company could continue making physical deliveries of natural gas to help ensure market stability, Wood said. 
-By Jon Kamp, Dow Jones Newswires; 312-750-4129; jon.kamp@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Burns won't return Enron donations

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

BOZEMAN (AP) - Sen. Conrad Burns, R-Mont., the Senate's third-largest recipient of campaign donations from Enron Corp., said Thursday he has already spent the money and has no plans to return it to the bankrupt energy trading company. 
"We've already used it, it's already gone," Burns said. "I've got nothing to give back."
Burns, who serves on the Senate's energy, commerce and appropriations committees, received $23,200 in donations from Houston-based Enron, according to the Center for Responsive Politics. 
Burns was third behind two Texas Republicans - Sen. Kay Bailey Hutchison ($99,500) and Sen. Phil Gramm ($97,350). 
Sen. Max Baucus, D-Mont., received $3,250. His office said this week that Baucus plans to donate the money to a nonprofit organization set up to help the workers laid off by Enron. 
Enron was the nation's seventh-largest corporation last fall before going bankrupt as its stock value plummeted from more than $80 a share to less than $1. Top executives sold their stock for hundreds of millions of dollars before investors were informed the company was in trouble, and hundreds of employees saw their retirement savings wiped out. 
Burns said Enron representatives "never asked me for anything personally," made a minimum number of visits to his office and put forward no legislation in Congress. 
If Enron executives defrauded employees or investors, Burns said, that's a felony and should not be tolerated. "If that's the case, they should go to jail." 
Burns said he didn't see a need to pass new laws in the wake of the business failure. 
"How can you pass a law on morality?" he asked. However, he said he might consider some changes in retirement account law.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Elizabeth Dole won't keep campaign money from Enron chairman

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

RALEIGH, N.C. (AP) - U.S. Senate candidate Elizabeth Dole won't keep $5,000 given to her campaign by Enron Corp. chairman Kenneth Lay and his family as the energy giant neared financial collapse. 
A Dole spokesman said the Republican seeking to succeed U.S. Sen. Jesse Helms raised $20,000 at a fund-raising luncheon hosted by Lay on Sept. 20 in Houston.
Aides said Dole would donate $5,000 to a fund set up to support Enron employees who have lost jobs and retirement savings in the wake of the company's sudden demise. 
At the time of the luncheon, "no one was aware of (Enron's) situation," said Dole spokesman Jay Warshaw. "But under the circumstances, she's not comfortable keeping the direct contributions. It's inappropriate to keep the money at this point." 
The decision comes as political donations from Enron are being scrutinized as investigators piece together what efforts were made to shore up the company through political connections. 
There is no suggestion of Dole of trying to helping executives at Enron. 
Lay hosted the luncheon for about 25 supporters for Dole after she spoke to a women's group in Houston, Warshaw said. The event did not include any other Enron employees, he said. 
Warshaw had told a reporter the day of the fund-raiser, which was not reported in the media at the time, that "campaign activities are still on hold" in the wake of the attacks. 
A North Carolina Democratic Party official questioned Dole's decision not to return the entire $20,000. 
"It's heartless and unseemly to be raking in money at a time when the rest of the country is mourning," said Scott Falmlen, executive director of the state Democratic Party. 
Warshaw said the fund-raiser wasn't a campaign activity. 
"Mrs. Dole was doing no public politicking or stumping," he said. 
Spokesmen for the major Democratic U.S. Senate candidates in North Carolina all said their campaigns had not knowingly accepted any contributions from Enron and would either return or donate any contributions that surfaced.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

BusinessWeek Investor: Inside Wall Street
UPPING THE PRESSURE AT NORTHWEST
By Gene G. Marcial

01/21/2002
BusinessWeek
87
(Copyright 2002 McGraw-Hill, Inc.)

You might expect the stock of Northwest Natural Gas (NWN) not to be rising just now. It is seeking to purchase beleaguered Enron's Portland General Electric, valued at $2.8 billion. True, Northwest, a fast-growing company serving Oregon and parts of Washington, expects to save $30 million a year in efficiencies from the deal. But usually the stock of a buyer comes under pressure. Instead, the stock has risen, from 22 in October to 26.15 on Jan. 9. 
One reason: Northwest is seen by smart-money pros as buyout bait itself. Some industry people think that a potential suitor is Scottish Power, a Glasgow energy group engaged in natural-gas distribution in Britain. These sources say that Scottish has been eyeing both Portland General Electric and Northwest. It may get its hands on Portland, these pros say, by acquiring Northwest--after it has bought Portland.
Illustration: Chart: SCOTS MAY BE BUYING CHARTS BY ERIC HOFFMANN/BW 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Citibank Asserts Right To Liquidate Enron Subsidiary

01/18/2002
Dow Jones Corporate Filings Alert
(Copyright (c) 2002, Dow Jones & Company, Inc.)

DJ CFA SOURCE:SEC 13D/A2 

ISSUER: NORTHERN BORDER PARTNERS L.P. 
SYMBOL: NBP 

FILER: Enron Corp. 
CONTACT: Rex R. Rogers 
713-853-6161 

CLASS: COMMON UNITS 
SHARES OWNED: 3,214,954 
PERCENT OF CLASS: 7.7% 

(This item was originally published Thursday evening.) 

WASHINGTON -(Dow Jones)- Citibank N.A. has asserted its authority as 
the portfolio manager for an Enron Corp. (ENRNQ) indirect subsidiary to act 
as the liquidator of that subsidiary, according to an amended Schedule 13D 
filed Thursday with the Securities and Exchange Commission. 

According to the filing, Citicorp North America Inc. appointed 
Citibank N.A. as portfolio manager for the subsidiary, Sundance Assets L.P. 

Citibank may be deemed to possess dispositive power over Sundance's 
6.5% stake in Northern Border Partners L.P. (NBP), the filing by Enron said. 

Enron holds a 7.7% stake in Northern Border, with beneficial 
ownership of 3,214,954 common units. 

-Ben Siegel; Dow Jones Corporate Filings Alert; 202-628-7689 

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Report: Enron power plant in China one of several ventures likely to be sold

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HONG KONG (AP) - Failed energy giant Enron Corp. may sell its stake in a power plant in southwestern China's Sichuan province, a state-run Chinese newspaper reported Friday. 
If Enron sells out, its Chinese partners hope to find a new foreign partner, the China Daily reported, citing an unidentified Enron representative in Beijing.
Phone calls to Enron's China office and its Asia/Pacific chief in Houston went unanswered Friday. 
Enron has a 51 percent stake in the operator of the power plant, Sichuan Jialing Electric Power Co., a joint venture with state-owned Sichuan Electric Power Corp. 
Enron's bankruptcy has not disrupted the functioning of the power plant, which is profitable, the report said. 
The status of several other Enron projects in China is unclear.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

ENRON MAY SELL POWER PLANT.
By ZHANG XIE, China Daily staff.

01/18/2002
China Daily
(Copyright 2002 by China Daily)

Floundering US energy giant Enron Corporation is looking for buyers for its last business on the Chinese mainland in an effort to raise cash to pay its creditors at home. An Enron representative in China said yesterday it was considering selling its stake in a profitable power plant in Southwest China's Sichuan Province, its last operation on the Chinese mainland. A senior Enron executive involved in the power-plant joint venture said: "The pressure to repay debts is fairly heavy and possibly we'll have to sell our stake. "But there is no detailed plan yet. It's just a matter of intention so far." The executive said the business was going well, despite the turmoil at Enron's headquarters. If the decision is made to sell, Enron would likely sell all of its 51 per cent stake in the plant's operator, the Sichuan Jialing Electric Power Company, which has a registered capital of 920 million yuan (US$110 million). The executive said potential buyers will be largely limited to foreign companies as the other investor in the power plant - the State-owned Sichuan Electric Power Corporation - still prefers foreign capital. "Our project is profitable and quite a few foreign companies have expressed their interest," he said, refusing to give further details. An official with the Chinese partner said: "They're preparing to transfer their stake. And the project is going on fairly well." Enron's probable bankruptcy seems not to have disrupted the functioning of the power plant but an official with PetroChina still felt China's largest oil company had had a lucky escape. Earlier, PetroChina had considered a strategic partnership with Enron to build a US$300 million gas pipeline in Northwest China. The PetroChina official said: "Luckily, we didn't complete the deal." Months before it filed the largest bankruptcy in US history on December 2, souring financial conditions had pushed Enron to start retreating from the Chinese market, where it had made substantial progress over the past seven years. Enron Petroleum and Natural Gas (China) Ltd, its major upstream business arm in China, ended all its operations in December. In June, Enron sold an oil and gas exploration business in Sichuan to another US energy firm. While its registrations in China are still valid, Enron closed down its office in Beijing as early as May last year. The return of the oil-trading giant seems a remote possibility, even if it manages to stay afloat. The Enron official in Sichuan said: "Even if the restructuring plan is approved, (the size of) it will surely shrink. And possibly it will never come to China again." Enron, once ranked seventh in the Fortune 500 list of large corporations, slid from Wall Street stardom to bankruptcy court in a matter of weeks, throwing thousands out of work and stirring controversy from Washington to Wall Street. (Copyright 2001 by China Daily).


Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron expressed interest in mills last summer

01/18/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

BERLIN, N.H. (AP) - Collapsed energy giant Enron is reported to have contacted city officials about the future of the mills that have been closed in the bankruptcy of American Tissue Corp. 
The Berlin Daily Sun also reported Friday that Arthur Andersen, Enron's accounting firm that destroyed many Enron documents and was fired Thursday, also worked for American Tissue.
American Tissue dismissed Andersen in October, a month after the company admitted that its financial reports for fiscal 2000 and 2002 contained "material inaccuracies." 
In an Oct. 18 Securities and Exchange Commission filing, American Tissue said Andersen had audited its financial reports for the past two years. 
Edward Stein, American Tissue's executive vice president and chief financial officer, resigned after the inaccuracies were disclosed. 
Berlin officials confirmed discussing with Enron in late summer running the Pulp and Paper of America complex if Berlin and Gorham took the mills by eminent domain for unpaid taxes. 
Enron was one of the world's leading electricity, natural gas, and communications companies. It also provided financing for the pulp, paper and wood products industry and owned Garden State Paper Co. in Garfield, N.J., which produced recycled newsprint. 
The discussions were dropped when American Tissue declared bankruptcy and the fate of the mills fell under the jurisdiction of the U.S. Bankruptcy Court. 
Enron's bankruptcy and Andersen's involvement has generated scrutiny because of questions about Enron executives making large amounts of money in the sale of more than 17 million shares in the months before it collapsed while employees and investors lost billions. 
The Texas-based company, with close ties to President Bush and other top administration officials, has denied insider trading was involved.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

News: Analysis & Commentary: Enron Watch: Investigations
HOT POTATO: HANDLE WITH CARE Playing politics in the Enron probe could burn either party
By Lorraine Woellert and Mike McNamee, with Laura Cohn and Alexandra Starr, in Washington

01/21/2002
BusinessWeek
30
(Copyright 2002 McGraw-Hill, Inc.)

When Enron Corp. tumbled into bankruptcy, it put thousands out of work and drained billions from investors' portfolios. But the collapse of George W. Bush's top corporate backer may have a silver lining for one group: the Democrats. ``Politically, this is a gift from heaven,'' says Larry Makinson, a senior fellow at the nonpartisan Center for Responsive Politics. 
Of course, Senator Joseph I. Lieberman (D-Conn.) took care not to gloat when he announced that his Governmental Affairs Committee would investigate Enron. ``This is a search for the truth, not a witch hunt,'' Lieberman said on Jan. 2. ``The questions that need to be asked and answered about what happened to Enron are of great public--not partisan--interest.''
Carefully chosen words, especially coming from the man who could be Bush's top challenger for the White House in 2004. And for good reason: The Enron debacle is a minefield. Dems will attempt to make Enron a case study in cozy GOP relations with Big Business and insensitivity to working people, while putting a dent in the President's armor. They'll charge that Enron's generosity to Republicans, who pocketed 73% of Enron's $5.77 million in campaign donations in the past decade, bought looser regulation of energy deals and a blind eye toward accounting conflicts. 
Lieberman will be under pressure from the party leadership to rake the Republicans over the coals. That strategy would score points with the liberal Democratic base he must cultivate if he wants to challenge Bush in 2004. But the longtime pro-business Democrat risks looking like an opportunistic partisan if he moves too aggressively. ``This wasn't Whitewater. This was bad business,'' warns one Democratic lobbyist. ``If they try too hard to connect the dots to the Administration, they might jeopardize the credibility of the whole hearings.'' 
It'll be a hard balance to strike, even for a pol like Lieberman, who has cultivated a persona of high-mindedness. Lieberman criticized President Clinton for his dalliance with Monica Lewinsky and split with his party during investigations into the 1996 fund-raising practices of Clinton and Vice-President Al Gore. That virtuous image helped him land a spot on Gore's 2000 ticket. Says Charles E. Cook Jr., editor of the nonpartisan Cook Political Report: Lieberman is ``good at appearing as though he's earnestly seeking the truth rather than seriously exploiting a situation--even if he is seriously exploiting a situation.'' 
But many Democrats smell GOP blood. Representative Henry A. Waxman (D-Calif.), the top Democrat on the House Government Reform Committee, released details on Jan. 8 of Enron's role in shaping the energy policy drafted last year by Vice-President Dick Cheney. With the Justice Dept. opening a criminal investigation, the Labor Dept. and Securities & Exchange Commission conducting civil probes, and five congressional committees holding hearings, ``the name Enron and its relationship to the Bush family are going to remain in the headlines--and that's not something that displeases your average Democratic strategist,'' says Kim Wallace, chief political analyst for Lehman Brothers Inc. 
Republican leaders aren't counting on Democratic restraint. The GOP-controlled House is launching its own probes, in part to try to insulate Republicans from charges of favoring the company. And Enron will try to capitalize on both parties' fear of a political backlash. ``The public policy issues that this tragedy raises should not be lost in a partisan food fight,'' says Enron's outside counsel, Robert Bennett. 
Business lobbyists are particularly concerned that losses in Enron's 401(k) plans--which have decimated the pensions of many workers--may lead to stiff new regulations. ``When you're dealing with trillions of dollars and the retirement prospects of an aging nation, political lines get drawn quickly,'' says James A. Klein, president of the American Benefits Council, which represents big employers and pension managers. 
Congress' full-throated pursuit of Enron should provide fascinating political theater. But as elections draw near, all sides must avoid overplaying their parts, lest they get booed off the stage.

Enron: Lining Up on Capitol Hill
DEMOCRATS
Senator Joseph I. Lieberman (Conn.)
His Governmental Affairs panel will look for regulatory weaknesses that
abetted Enron's rise and fall.
Senator Carl Levin (Mich.)
He will lead the attack. His permanent subcommittee on investigations will be
aggressive and partisan.
Representative John D. Dingell (Mich.)
Longtime chair of Energy & Commerce panel, now in minority, is likely to be
vigorous in attacking Enron and the SEC.
REPUBLICANS
Senator Phil Gramm (Tex.)
His close ties to Enron have kept the Banking Committee, which Gramm once
chaired, on the sidelines.
Representative W. J. ``Billy'' Tauzin (La.)
An in-depth probe by his Energy & Commerce panel is giving the GOP cover--and
time to regroup.
Representative Michael G. Oxley (Ohio)
His Financial Services panel was first to hold hearings, where both parties
vented outrage.
Photograph: LIEBERMAN : ``Not a witch hunt'' PHOTOGRAPH BY CHUCK KENNEDY/KRT 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE APPOINTEES
Several Administration Officials Held Enron Shares
By DON VAN NATTA Jr. and LESLIE WAYNE

01/18/2002
The New York Times
Page 6, Column 1
c. 2002 New York Times Company

WASHINGTON, Jan. 17 -- While much has been made of the huge sums the Enron Corporation invested in the political campaigns of President Bush, some senior members of the Bush administration were also heavily invested in the company's stock. 
Neither President Bush nor Vice President Dick Cheney owned Enron stock when they took office. But at least 30 senior administration officials and ambassadors entered government service last year with personal holdings in Enron stock ranging from several thousand dollars to as much as $50 million, according to a comprehensive review of financial disclosure forms.
Many of those officials sold their shares before Enron collapsed, in most cases because they were required to do so under federal conflict of interest rules. 
The mandated sales were made in the first months of 2001 while the stock was still trading at $60 to $70 a share; the timing helped at least 20 administration officials, including Karl Rove, Mr. Bush's political strategist, avoid losing tens of thousands of dollars. 
But a handful of administration officials who were not required to sell chose to hold their Enron shares through most of last year and presumably sold at a substantial loss after the stock price collapsed. 
A few officials still hold Enron shares, which last traded at 67 cents before the company's stock was dropped from the New York Stock Exchange on Tuesday. 
John S. Wolf, assistant secretary of state for nonproliferation, lost approximately $50,000 on his Enron investment last year. Thomas E. White, who was vice chairman of Enron's energy services division, became secretary of the Army last summer owning $25 million to $50 million of Enron shares and another $25 million to $50 million of Enron stock options. 
When he left Enron, Mr. White was paid $1 million and a $13 million ''phantom stock award,'' which is a promise to pay a future bonus in appreciated stock or its cash equivalent. A Pentagon spokesman said he believed that Mr. White abided by his agreement with the Senate Armed Services Committee to sell all his Enron holdings within 90 days of joining the government. 
The investment in Enron by top administration officials ''shows just how close Enron and the Bush administration were,'' said Charles Lewis, executive director of the Center for Public Integrity, a Washington research group. 
Mr. Lewis said that among the questions raised by these holdings were whether any administration officials had special knowledge that affected their Enron trading decisions or whether their Enron holdings posed any conflict of interest. 
''I am not suggesting there is evidence of insider trading,'' he said. ''But a healthy number of them owned Enron, and it is not an unreasonable question to ask how much they owned, when they sold it and why.'' 
Paul C. Light, director of government studies at the Brookings Institution, a Washington research group, said, ''The first question is whether any of these individuals who had a personal interest in Enron's success were involved in any policy making.'' 
Mr. Rove sold 1,350 shares of Enron stock on June 7, after waiting several months for an opinion from the White House counsel's office on the ethics of his wide array of investments. The delay cost Mr. Rove money; had he sold his holdings when he joined the administration, he would have received a far higher price. 
On Jan. 20, Enron stock traded at about $80 a share. On June 7, the share price closed at $55. 
Mr. Rove declined to comment. But Anne Womack, a White House aide, said: ''He had an account with a broker. He purchased stock through the account, just like anyone else who would buy stock. It was purchased over a number of years.'' She declined to say when Mr. Rove had bought his Enron shares or what he paid. 
New appointees to any administration are required by federal law to file a financial disclosure statement, which is reviewed by executive branch lawyers, or Congress in the case of positions requiring confirmation. The date when the statement must be filed varies according to when the person is nominated. 
Based on these statements, questions of potential conflicts of interest can be reviewed by the White House, the executive branch's Office of Government Ethics, specific agencies as well as by Congress, depending on the post. 
''Concern about any stock or financial interests would be based on the work the nominee would be doing,'' said Thomas F. Zorn, chief of financial disclosure at the ethics office. ''Whether this is a conflict would vary from agency to agency. Enron shares might be a problem at one agency, but not at another.'' 
Some administration officials who were not required to sell held their Enron shares through most of 2001 and did not sell until the price dropped to less than $10 a share late last fall. 
''I'm a victim,'' said Mr. Wolf, the State Department official who lost roughly $50,000. He bought Enron shares three times between April and June 2001, when the stock traded between $55 and $65 a share. By the time he sold in late October, the price had fallen to about $10 a share. 
Also selling Enron at a loss was Thomas Dorr, under secretary of agriculture for rural development. Mr. Dorr, owner of Dorr's Pine Grove Farm in Iowa, came into the administration with stocks in 115 companies valued at as much as $4 million. Among them were Enron shares valued at as much as $30,000. 
Alisa Harrison, a spokeswoman at the Agriculture Department, said Mr. Dorr divested all his Enron shares in November. ''They were all sold at a loss,'' she said, adding that the shares had been in Mr. Dorr's individual retirement account. 
One of the wealthier Bush administration officials, Charlotte Beers, the under secretary of state for public diplomacy, owned as much as $250,000 in Enron shares in a portfolio of 150 stocks and investments valued at $38 million. Ms. Beers, a former advertising executive now in charge of the administration's campaign of public diplomacy in the war on terrorism, sold her Enron stake after the company collapsed. 
''Her shares were sold in December 2001 as part of normal portfolio management,'' said Nicholas Griffith, a State Department spokesman. ''Enron was sold with a number of other shares and it all took place in December 2001.'' 
At the Commerce Department, Grant Aldonis, the under secretary for international trade, sold his Enron shares last spring as part of his ethics agreement. Mr. Aldonis, a lawyer and former trade counsel for the Senate Foreign Relations Committee, took office with a portfolio valued at as much as $3.3 million, with stock in more than 100 corporations. 
His Enron holdings, then valued between $15,000 and $50,000, were sold before his confirmation last spring. At that time, Enron was trading at around $60 a share. 
The other main holder of Enron shares at the Commerce Department was Kathleen B. Cooper, under secretary for economic affairs. Ms. Cooper, former chief economist at the Exxon Mobil Corporation, had most of her portfolio, which was valued at as much as $6.5 million, invested in Exxon shares. 
Her Enron holdings were sold in June 2001, when the stock traded at around $50 a share, said James Dyke, a spokesman for the Commerce Department. Mr. Dyke added that the sale was not required under her ethics agreement. 
As Enron scrambled last fall to prevent a collapse, Enron executives repeatedly called Peter R. Fisher, the under secretary of treasury for domestic finance, for help -- to no avail. Mr. Fisher spoke six to eight times in October and November with Greg Whalley, Enron's president. 
Mr. Fisher, a former vice president at the Federal Reserve Bank of New York, had a portfolio of 66 stocks and mutual funds. Through a trust that will come to him upon the death of his parents, he indirectly held Enron shares that had been valued at $1,000 to $15,000 but are now virtually worthless. 
Other big holders of Enron shares in the Bush administration are ambassadors, most of whom were businessmen before Mr. Bush appointed them to their foreign postings. 
Heading the ambassadors' list of Enron shareholders is Richard J. Egan, the United States ambassador to Ireland and the founder and chairman emeritus of the EMC Corporation, a data storage company. Mr. Egan sold all his shares by June on the advice of his money manager. He had reported to regulators that when he joined the administration he owned Enron stock valued at $250,000 to $500,000, and that he had capital gains of more than $100,000 on the sale of those shares. 
Two other White House officials held Enron shares ranging in value from $1,000 to $15,000: I. Lewis Libby, Mr. Cheney's chief of staff, and Nicholas Calio, the assistant to the president for legislative affairs. Mr. Libby sold his Enron shares on Feb. 25 last year, and he made a profit of $14, a White House spokeswoman said. Mr. Calio sold his 15 shares of Enron stock last August, she said.

Photos: Thomas E. White, left, the secretary of the Army, owned as much as $50 million in Enron shares; Robert B. Zoellick, the trade representative, and Karl Rove, the White House adviser, held stakes worth thousands. (Susana Raab for The New York Times); (Associated Press); (Associated Press) Chart: ''Portfolios in Common'' At least 15 high-ranking Bush administration officials disclosed ownership of Enron stock when they were appointed. Some officials sold the stock upon taking office. SHARES VALUED AT $50,000,000 - $100,000,000 Thomas E. White* Secretary of the Army DATE OF DISCLOSURE: May 4, 2001 SHARES VALUED AT $100,000 - $250,000 Charlotte Beers Under secretary of state for public diplomacy and public affairs DATE OF DISCLOSURE: March 21, 2001 Karl Rove Senior adviser to the president DATE OF DISCLOSURE: Dec. 30, 2000 SHARES VALUED AT $15,001 - $50,000 Grant Aldonas Under secretary of commerce for international trade administration DATE OF DISCLOSURE: March 30, 2001 Linnet F. Deily+ Deputy United States trade representative DATE OF DISCLOSURE: April 30, 2001 Linda J. Fisher+ Deputy Environmental Protection Agency administrator DATE OF DISCLOSURE: May 1, 2001 Margaret Tutwiler Adviser to the president for communications DATE OF DISCLOSURE: April 3, 2001 SHARES VALUED AT $1,001 - $15,000 Nicholas E. Calio White House director of legislative affairs DATE OF DISCLOSURE: April 3, 2001 Kathleen B. Cooper Under secretary of commerce for economic affairs DATE OF DISCLOSURE: April 26, 2001 Thomas Dorr+ Under secretary of agriculture for rural development DATE OF DISCLOSURE: April 30, 2001 Linda J. Fisher+ Deputy E.P.A. administrator DATE OF DISCLOSURE: May 1, 2001 Peter R. Fisher Under secretary of treasury for domestic finance DATE OF DISCLOSURE: May 1, 2001 I. Lewis Libby Vice president's chief of staff DATE OF DISCLOSURE: March 22, 2001 John Marburger Director of the White House office of science and technology policy DATE OF DISCLOSURE: Sept. 24, 2001 Donald H. Rumsfeld Secretary of defense DATE OF DISCLOSURE: Jan. 18, 2001 Robert B. Zoellick United States trade representative DATE OF DISCLOSURE: Jan. 29, 2001 SHARES VALUED AT $0 - $1,000 Linnet F. Deily+ Deputy United States trade rep. DATE OF DISCLOSURE: April 30, 2001 *Mr. White disclosed ownership of stock valued at $25 - $50 million and additional stock options also valued at $25 - $50 million. +An individual with multiple holdings. (Sources: The Center for Public Integrity; Office of Government Ethics) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
Enron's Influence Reached Deep Into Administration; Ties Touched Personnel and Policies
Dana Milbank and Glenn Kessler
Washington Post Staff Writers

01/18/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

As presidential candidate George W. Bush's top economic adviser in 2000, Lawrence B. Lindsey was also a paid consultant to Enron Corp. At one point, those two roles merged. 
For $50,000 a year, Lindsey attended meetings in 1999 and 2000 of the energy company's economic "advisory board." In those sessions, Enron Chairman Kenneth L. Lay convinced Lindsey of the wisdom behind one of Enron's businesses, a consulting operation that advised companies on energy efficiency.
"It stuck with me," Lindsey said in an interview yesterday. 
In fact, Lindsey incorporated Lay's ideas into the Bush campaign's energy policy. During the campaign, Lindsey described Lay's contribution as key. 
The cozy relationship -- in which a Bush campaign adviser, being paid by Enron, placed an Enron idea on the candidate's agenda -- served as one more reminder of the political influence and reach of the once-giant energy company. Its ties extend deep into President Bush's staff, appointments, Cabinet members, friends, family -- and his own past. 
According to financial records, 35 administration officials have held Enron stock. A few, such as top Bush political adviser Karl Rove, had six-figure holdings. Several others -- Lindsey, U.S. Trade Representative Robert B. Zoellick, Commerce Department general counsel Theodore W. Kassinger, Maritime Administrator William G. Schubert -- served as paid Enron consultants. 
Bush's secretary of the Army, Thomas E. White, was vice chairman of the Enron business that Lay had described to Lindsey during the campaign. White had held between $25 million and $50 million in Enron stock in addition to options and other forms of remuneration. Newly appointed Republican National Committee Chairman Marc F. Racicot was an Enron lobbyist. Bush campaign adviser Ed Gillespie, sent in when Bush took office to get the Commerce Department up and running, was an Enron lobbyist. 
Still others, such as Attorney General John D. Ashcroft and Energy Secretary Spencer Abraham, received campaign contributions from Enron, while many more -- including Securities and Exchange Commission Chairman Harvey L. Pitt, Federal Energy Regulatory Commission Chairman Patrick H. Wood III and Deputy Attorney General Larry D. Thompson -- have indirect ties to Enron or auditor Arthur Andersen. And Enron consulted on policy with top administration officials such as Commerce Secretary Donald L. Evans, Treasury Secretary Paul H. O'Neill and Vice President Cheney. 
There has been no indication that the administration's ties to Enron are illegal, and the giant company had similar connections to several Democrats and Republicans in Congress. But the sheer volume of Enron connections to the executive branch offers a study in the long reach of a powerful campaign contributor and aggressive corporation. Though the administration says it made no effort to keep Enron afloat, the extensive ties between the two may present Bush with a political difficulty if Democrats can create a perception of guilt by association. 
Enron began in 1985 as a traditional gas pipeline company, but transformed itself into an innovative trader of gas, electricity and other commodities. Its stock became a Wall Street favorite as it tried to enter markets for fiber-optics, movie rentals, paper, even advertising. Many of its businesses were regulated or otherwise affected by federal decisions. 
Enron and its executives poured millions of dollars into the political process -- $1.7 million in the 2000 election alone, according to the Center for Responsive Politics. 
Over the years, a series of actions by Congress and the FERC, which broke down the old monopoly of utility companies over power plants and transmission lines, benefited Enron. The company successfully lobbied for a regulatory exemption for futures trading in energy "derivatives," complex financial instruments that became its most lucrative business and contributed to its downfall. The Bush administration sometimes rebuffed Enron, however, such as when it refused to embrace an Enron-backed position on combating global warming. 
Bush last week played down his ties to Lay. He said he "first got to know Ken" in 1994, when "he was a supporter of Ann Richards," the Democratic Texas governor whom Bush ousted. In fact, Bush knew Lay from their work on the 1992 Republican National Convention and the Bush presidential library. The current president received $47,500 from Lay and his wife in 1994 -- many times what Richards received. Lay has said he supported Bush, not Richards, in 1994. 
Over the years, Lay and Enron interests have contributed more than a half million dollars to Bush campaign funds, according to the Center for Public Integrity, making him Bush's greatest patron. The Bush presidential campaign reimbursed Enron for use of its corporate jets. Lay, who got the nickname "Kenny Boy" from Bush, served on Bush's presidential transition advisory team for the Energy Department. Enron employee Cynthia Sandherr served on the transition team for the Commerce Department. 
In the White House, four senior officials were listed as Enron shareholders. Three of them -- Cheney chief of staff I. Lewis "Scooter" Libby, congressional liaison Nicholas E. Calio and former communications adviser Margaret Tutwiler -- likely sold their interests or were not required to under ethics rules; full details will not be made public until May. 
The fourth, Rove, whose Enron holdings were valued between $100,000 and $250,000, sold his shares last year after the value had fallen to $68,000; the Enron shares, which the White House said Rove purchased on his own, were part of a portfolio worth more than $2.3 million. 
White House counsel Alberto R. Gonzales acknowledged last June that Rove took part in meetings that helped shape the administration's energy policy while he still owned stock in Enron and other energy companies. Gonzales, however, said the meetings were general in nature and not specific enough to be barred by conflict-of-interest regulations. 
Also tied to Enron is Lindsey. His consulting firm, Economic Strategies Inc., counted an Enron unit among its many clients. Counting speaking fees and his multi-client business, Lindsey earned more than $1.1 million in 2000. 
White House press secretary Ari Fleischer said that Lindsey, before Enron's Dec. 2 bankruptcy filing, led a White House "review" that monitored the impact of Enron's woes on energy markets. Lindsey said it was merely part of an ongoing monitoring of the energy markets by one or two aides. Democrats in Congress yesterday said Lindsey's actions may have violated federal conflict-of-interest regulations. Lindsey said his work was not "Enron-specific." 
Cheney, himself a former Texas energy executive, was on a first-name basis with Lay, who met with the vice president to discuss development of the administration's national energy policy. In all, the vice president's office disclosed, the energy task force met six times with Enron representatives. Rep. Henry A. Waxman (D-Calif.), a critic of the task force, said "it seems clear that there is no company in the country that stood to gain as much from the White House plan as Enron." 
A number of senior Bush aides have had routine or incidental contact with Enron. White House Chief of Staff Andrew H. Card Jr. was alerted by Commerce's Evans about a call from Lay expressing a desire for government help in the weeks before its bankruptcy. Bush budget director Mitchell E. Daniels Jr. received a call from Lay in October about prospects for the economic stimulus package. That package, as passed by the House, included a tax provision that would have provided Enron with a $254 million rebate, according to the Congressional Research Service. 
Even Bush's homeland security director, Tom Ridge, had Enron ties. At Lay's urging, Bush called Ridge in 1997 when he was Pennsylvania governor to help with Enron's bid -- eventually successful -- to enter the Pennsylvania market. 
At the Justice Department, Ashcroft and staff chief David Ayres -- Ashcroft's former campaign manager -- recused themselves from the Enron probe because of Enron contributions to Ashcroft's campaign funds. 
The Justice Department decided that deputy staff chief David Israelite and communications director Barbara Comstock need not recuse themselves; both had worked for the Republican National Committee, which received hundreds of thousands of dollars from Enron. Thompson, Ashcroft's deputy, was a partner in a law firm, King & Spalding, that represented Enron, but he disagreed with a Democratic lawmaker who said Thompson should disqualify himself. 
After Commerce's Evans received a call from Lay in which the Enron chief said he would value government calls to a private credit rating agency, Evans called into his office his counsel, Kassinger. Kassinger had earlier said he had provided "legal services" to Enron while a trade lawyer at the firm Vinson & Elkins LLP in Houston, Enron's hometown. Ultimately, Evans said, he decided not to intervene. 
Treasury's O'Neill, who also got a call from Lay concerning Enron's dire finances, handed the matter over to Peter R. Fisher, the undersecretary for domestic finance. Fisher had holdings in Enron valued between $1,000 and $15,000 when he joined the administration, as did Mark A. Weinberger, the assistant treasury secretary for tax policy. Treasury's spokeswoman said Fisher's modest holdings were part of a trust that he does not control. O'Neill said the department provided no help to Enron, although it consulted with lenders. 
Elsewhere in the administration, Trade Representative Zoellick received $50,000 in advisory fees from Enron and listed stock holdings between $15,000 and $50,000 -- relatively small percentages of his overall earnings and holdings (Zoellick sold his shares after joining the administration). 
A score of other administration officials had Enron holdings, ranging from relatively small stakes held by Defense Secretary Donald H. Rumsfeld and Export Import Bank Chairman John E. Robson to holdings exceeding $100,000 by Charlotte L. Beers, the undersecretary of state for public diplomacy. 
At the SEC, Pitt faced requests this week from congressional Democrats and the watchdog group Common Cause that he remove himself from his agency's Enron investigation because he had been a securities lawyer who represented Andersen, Enron's auditor. FERC Chairman Wood, a friend of Lay's, replaced Curtis Hebert Jr. Hebert told the New York Times last year that Lay had said he wouldn't back his reappointment unless Hebert changed his views on electricity deregulation. 
Even since its bankruptcy filing, the vestiges of Enron continue to touch those around the president. Bush's brother, Florida Gov. Jeb Bush, flew to Houston yesterday for a $500-per-person fundraiser at the home of a former Enron president. 
Staff writers George Lardner and Paul Blustein contributed to this report.

http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Accounting for Enron: Investigation Raises Oliver North Problem --- Congressional Testimony Can Taint Prosecutions
By Kathryn Kranhold and Tom Hamburger
Staff Reporters of The Wall Street Journal

01/18/2002
The Wall Street Journal
C15
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Will the Justice Department investigation of Enron Corp. face an Oliver North problem? 
In May 1989, the retired Marine lieutenant colonel was found guilty in the Iran-Contra scandal. But his conviction was later reversed, as was the conviction of former National Security Adviser John Poindexter, after two of three judges in Washington's Circuit Court of Appeals found that witnesses for the prosecution were tainted by the two men's public testimony before Congress.
Now, the Justice Department is ramping up to investigate Enron as Congress is also mounting major investigations. Just as prosecutors start interviewing people, Congress is negotiating with top executives at Enron and its auditor, Arthur Andersen LLP, to testify at public hearings. 
People who testify before Congress in such situations are occasionally granted limited immunity, called "use immunity," that protects them from having their statements used against them in a criminal investigation. But such a grant of immunity presents problems for prosecutors in a subsequent criminal case. 
Dan Webb, who as deputy independent counsel prosecuted Mr. Poindexter, says prosecutors in any Enron case would have a "huge burden" of proof to show that their investigation and witnesses weren't influenced by any congressional testimony presented under a grant of immunity. 
"That becomes very difficult and sometimes almost impossible to do," said Mr. Webb, of Winston & Strawn. 
It isn't clear whether any of the major players in the Enron affair will be granted immunity in exchange for their congressional testimony. David Duncan, the Arthur Andersen auditor fired this week for shredding Enron documents, has agreed to cooperate but it is still not determined under what terms he might testify before Congress. 
Before this week's explosion of revelations, Enron's chairman and chief executive, Kenneth Lay, was expected to testify Feb. 4. Enron's former chief executive, Jeffrey Skilling, has said he would testify. It isn't clear whether Enron's former chief financial officer, Andrew Fastow, who ran the questionable partnerships that contributed to Enron's downfall, will also testify. 
Both Messrs. North and Poindexter were granted limited immunity before Congress. That meant that prosecutors couldn't use the men's public testimony to aid their investigation, including leading them to evidence or witnesses they hadn't discovered on their own. Additionally, witnesses called by the prosecution couldn't use Mr. North's congressional testimony to help them remember the details of a significant event or meeting. 
To ensure Mr. North's statements didn't taint the case, Independent Counsel Lawrence E. Walsh and his team of prosecutors didn't read the newspapers. One prosecutor took his glasses off in the subway so that he couldn't read the headlines on other passengers' newspapers. While watching television, they carried remote controls so they could easily hit the mute buttons. Mr. Walsh recalls: "We got pretty sharp at that."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

News: Analysis & Commentary: Enron Watch: COMMENTARY
Enron: How Governance Rules Failed The audit committee followed all the rules--but it let shareholders down
By Louis Lavelle

01/21/2002
BusinessWeek
28
(Copyright 2002 McGraw-Hill, Inc.)

One of the mysteries of Enron Corp.'s fall from grace is how an audit committee chock full of talent could have been blind to the company's financial sleight of hand. So far, speculation has centered around the apparent failure of Enron's auditors, Arthur Andersen LLP, to alert the audit committee to the problem until very late in the game. But the truth is, the audit committee deserves much of the blame for Enron's collapse--and the corporate governance movement deserves much of the blame for the Enron audit committee. 
Whatever its flaws, the committee followed all the rules laid down by federal regulators, stock exchanges, and governance experts regarding director pay, independence, disclosure, and financial expertise. Enron collapsed in large part because the rules didn't accomplish what the experts hoped they would. For example: -- Paying directors with stock may have aligned their interests with shareholders', but it's just as likely to have created a motive for not asking the tough questions. -- Disclosure rules may have alerted investors to the fact that one audit committee member had a potential conflict of interest, but not that two others did as well. -- The Enron audit committee may have been exactly what the stock exchanges had in mind in December, 1999, when they required that members demonstrate financial know-how--but the expertise may have been out of date following the changes Enron went through in the 1990s. In any case, it didn't help the committee make sense of Enron's tangled finances.
Bottom line: It may be time to rethink the rules. 
Certainly there was nothing unusual about the Enron directors' heavy stock ownership. Boards in general have bought into the argument by governance experts that directors should get paid largely with stock to make sure they act in the best interest of shareholders. Of the top 200 companies, 99% pay directors with stock, up from 81% in 1995. And 62% of director pay comes in equity, up from 24% in 1995, according to pay consultant Pearl Meyer & Partners. 
Clearly, stock is king. But should it be? Auditors are prohibited by the Securities & Exchange Commission from owning stock in client companies precisely because of its potential to corrupt. Yet audit committee members, like all directors, are essentially required to own stock, presumably because it keeps them honest. Three of the six audit committee members owned nearly 100,000 Enron shares worth a total of more than $7.5 million as of Feb. 15--shares that surely would have plummeted in value had directors forced management to come clean about the risks of some of the company's off-balance-sheet partnerships. 
The committee's failure to force an earlier and more public explanation of Enron's finances suggests to some that the shares, instead of making shareholder interests the directors' top priority, did the opposite--in effect buying their silence. ``Did greed blind them? I think it's very possible,'' says John M. Nash, co-founder of the National Association of Corporate Directors. In fact, one lawsuit alleges just that, claiming that Enron insiders--including three current audit committee members--sold 17.3 million shares for $1.1 billion to an unsuspecting public while issuing financial statements later revealed to be pure fiction. The audit committee members either declined to comment or did not return calls. But Enron says the board since 1999 approved the most controversial partnerships, established controls, and acted ``quickly'' in November to restate earnings when the problems became apparent, albeit weeks after Enron's shares plunged amid questions about the partnerships. 
It's hard to argue that directors shouldn't own shares at all. But banning sales by directors for the duration of their terms would motivate directors to preserve a company's long-term value instead of taking a see-no-evil approach to oversight. 
If the stock didn't blind the Enron audit committee members, their financial ties to the company may have. It's a problem that governance critics anticipated. But what's troublesome is that SEC disclosure rules required Enron to make known only one of those ties: director John Wakeham's $6,000-a-month consulting contract. One would need to venture far afield from Enron's securities filings to learn from the University of Texas that Enron, Chairman Kenneth Lay, and their foundations had given $332,150 to the school's M.D. Anderson Cancer Center since 1999. That's when center President John Mendelsohn became an Enron director. Also undisclosed by Enron: $50,000 that the company and the Lay family foundation gave to George Mason University's Mercatus Center, where Wendy Lee Gramm has been head of regulatory studies since she joined the center in 1997. Enron and its employees also made political contributions of more than $80,000 to her husband, Senator Phil Gramm (R-Tex.), since she became an Enron director in 1993. 
Governance experts say the audit committee's lack of independence made it less inclined to question management. ``These are humans,'' says Richard H. Koppes, former general counsel for the California Public Employees' Retirement System. ``You're not going to want to rock the boat.'' At the very least, investors were entitled to know that half the committee had financial ties to the company. The SEC should move quickly to propose a rule, long sought by institutional investors, requiring the disclosure of all financial ties with directors--personal, family, business, political and philanthropic. Using that standard, about 30% of the nearly 1,200 companies tracked by the Investor Responsibility Research Center have audit committees that are less than 100% independent. 
One of the few areas where Enron disclosed a wealth of information was in the qualifications of board members. On paper, the audit committee was as qualified as any, more than fulfilling the 1999 requirement by stock exchanges that members demonstrate financial literacy. Committee Chairman Robert K. Jaedicke was a Stanford University accounting professor for 30 years. Ronnie C. Chan and Paulo V. Ferraz Pereira are executives. Mendelsohn runs a university cancer center. Gramm is an economist. And Wakeham belongs to the House of Lords. 
Yet, as a group, they were apparently unable to decipher the tangled web of off-balance-sheet deals that effectively hid Enron's debt and inflated its earnings. Jaedicke, 72, has been retired for more than a decade. Some have suggested privately that he may not have been up to speed on the complex financing strategies that were so integral to Enron's rapid transformation from an energy pipeline company into a trading outfit. Some governance experts now conclude that meeting the textbook definition of financial literacy is not a guarantee that directors understand sophisticated financial instruments. 
The truth is that the ideal audit committee envisioned by the rules governing independence and financial literacy is to some extent a mythical beast. Big global companies are now so complex that insiders are often the only people who truly understand them. But only outsiders have the independence to rein them in. And many boards don't exercise the diligent oversight companies need. A new survey of audit committees at 50 U.S. companies by Joseph V. Carcello, an associate accounting professor at the University of Tennessee at Knoxville, found they typically meet just three times a year, only two-thirds bother to review their companies' internal audits, and fewer than one in five have unrestricted access to company records. Enron's committee met five times in 2000; the company's proxy is unclear on whether it reviewed the internal audit or had unfettered access to records. 
If nothing else, the Enron debacle should occasion some soul-searching on the part of federal regulators and stock exchanges that make the governance rules. It would help if audit committees were required to convene meetings more frequently, conduct an annual review of the internal audit, and educate members in more than just the balance-sheet basics. ``Ultimately,'' says Alan Cleveland, counsel to the New Hampshire Retirement System, an Enron shareholder, ``what it comes down to is what goes on not only in the boardroom but in the minds of these outside directors.'' For governance to work, directors need to understand that their job is to keep tabs on management--not simply show up.

Costly Lessons
Here's where the Enron board's audit committee came up short and some possible
fixes.
DISCLOSURE
Companies are required to disclose some, but not all, financial ties with
directors. Critics have cited conflicts at Enron, which correctly disclosed
its consulting contract with one audit-committee member, but not the
charitable contributions made to affiliated organizations of two others.
SOLUTION: Disclose all financial ties.
KNOW-HOW
Audit-committee members must demonstrate basic financial literacy, and one
must have financial expertise. Enron's committee included an accounting
professor, an economist, and two businessmen. But they apparently didn't
understand the risks in some of the company's complex limited partnerships.
SOLUTION: Committees should have to meet more often, review internal audits,
and get industry-specific finance training.
COMPENSATION
Most companies pay directors largely in stock to align their interests with
those of shareholders. But at Enron, where some directors sold shares near the
August, 2000, high, large holdings may have made directors less willing to ask
tough questions.
SOLUTION: Pay in stock, but ban stock sales as long as directors are on the
board.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

News: Analysis & Commentary: Enron Watch
THE MORTICIANS MOVE IN Lawyers, investment bankers, and accountants could walk away with as much as $300 million
By Dan Carney in Washington, with Emily Thornton in New York and bureau reports

01/21/2002
BusinessWeek
26
(Copyright 2002 McGraw-Hill, Inc.)

When Houston-based energy company Dynegy Inc. pulled out of a deal to buy troubled Enron Corp. last Nov. 28, attorneys at the firm Weil, Gotshal & Manges knew they had to act fast. Enron's stock was plunging below a dollar, its credit rating had collapsed, and creditors suddenly had the right to call in loans and seize buildings, pipelines, and other assets the company had put up as collateral. ``We were hearing rumors about unilateral actions by creditors,'' says Weil Gotshal partner Martin J. Bienenstock. ``And we wanted to stop that.'' 
So the law firm, which Enron retained in October, threw everything it had into the case. Dozens of lawyers worked around the clock preparing a petition for Chapter 11 protection. When they finished four days later, they immediately filed electronically with bankruptcy court--even though it was 5 a.m. on a Sunday morning. By acting so quickly, the lawyers claim they kept Enron's creditors from tearing the company apart.
They've been busy ever since. Indeed, Enron's misfortune is proving to be Weil Gotshal's blessing. By the time the bankruptcy is over, the firm could rake in as much as $30 million in fees. More than a dozen other law firms are also on the case. And the attorneys are joined by a small army of investment bankers, such as Blackstone Group, which is charging $350,000 a month, plus a $35 million bonus if the company reemerges from Chapter 11. All in all, the various hired guns managing history's largest bankruptcy will earn fees of as much as $300 million or more. 
They are under a tight deadline and operating in a highly charged environment. On Jan. 9, the situation became even more electric as the Justice Dept. confirmed that it has opened a criminal investigation into the fall of Enron. That is likely to be a serious distraction for the lawyers, bankers, and accountants, but for now, they are focused almost exclusively on auctioning a majority stake in Enron's highly successful trading unit, set to be completed on Jan. 10. A quick sale is seen as critical because the unit is rapidly losing out to more stable rivals. ``The idea is that this is like ripe fruit,'' says one attorney close to the case. ``If it doesn't move quickly, it will rot.'' 
These are boom times for the morticians of the business world. It is a diverse group that also includes accountants and turnaround specialists--management consultants, such as Jay Alix & Associates, that specialize in rescuing insolvent companies. Last year, 255 publicly traded companies filed for bankruptcy, breaking the prior record of 176 in 2000, according to BankruptcyData.com. ``It's not as if I get up in the morning and say, `I want to get rich off this,''' says Luc A. Despins, a partner at Milbank, Tweed, Hadley & McCloy and lead counsel to Enron's creditors. ``But all of us have tons of work right now.'' 
Unlike prior downturns, where bankruptcies have been concentrated in troubled industries such as airlines and retail, the current wave of failures is unusually broad. It runs across a wide swath of businesses, including Pacific Gas & Electric, LTV, Excite@Home, and Fruit of the Loom. Even though the debtors are more diverse than ever, the bankruptcy business is dominated by a small club. There are perhaps a dozen law firms--and even fewer investment banks--with the armies of experts a big company in trouble needs on short notice. 
So far, the Enron case has attracted many of the big guns. Among law firms, Weil Gotshal has the most prominent bankruptcy practice. Milbank Tweed is the leading specialist in the representation of creditors. Other top bankruptcy shops include Wachtell, Lipton, Rosen & Katz; Skadden, Arps, Slate, Meagher & Flom; and Wilmer, Cutler & Pickering. Top partners at these firms bill $700 an hour and earn more than $2 million annually. 
What do they do to earn the big bucks? They work day and night to come up with a restructuring plan that will enable a viable company to emerge from bankruptcy. Corporate boards are more than willing to pay the fees of lawyers who can stave off an all-out fire sale of assets. 
Bienenstock's goal is to bring Enron out of bankruptcy as soon as a year from now. Once the trading unit auction is complete, his next major task will be selling overseas assets, including a $2.9 billion power plant in India and a power plant, electricity grid, and gas-pipeline company in Brazil. Many of the projects are losing money and are joint ventures with those governments. It is uncertain who would be interested in these assets. 
Given the company's complexity and potential legal problems, most observers are betting it will take Bienenstock twice as long as he'd like to bring Enron around. That could be bad news for the company, since creditors tend to push harder for liquidation the longer bankruptcy proceedings drag on. ``I'd put his chances [of a successful reorganization] at about 30%,'' says University of Houston Law School Dean and bankruptcy professor Nancy Rapaport. ``At some point, creditors might say, `You've liquidated some, we think you should keep going.''' 
While Weil Gotshal has had some notable successes--including the 1990 restructuring of Federated Department Stores--it also has plenty of critics. The firm's bruising tactics have earned it the nickname ``We'll Getcha and Mangle Ya'' among rivals. It has also occasionally run into trouble with bankruptcy trustees. In 1992, an employee of the U.S. Trustee in Connecticut accused the firm of padding its bills in a case involving gunmaker Colt's Manufacturing Co. Weil denies it, and no penalty was imposed. In 1994, though, the firm was penalized $1 million for not reporting conflicts in the bankruptcy of Leslie Fay Cos. The trustee in that case was none other than U.S. District Judge Arthur J. Gonzalez--the man hearing the Enron bankruptcy. But the two sides have met on cases with no sign of ill will since. 
Standing side by side with the attorneys in the Enron bankruptcy are the investment bankers. While not nearly so numerous as the lawyers, they tend to make more money. Indeed, restructuring work is fetching larger fees than ever because of the difficulty of valuing and selling bankrupt assets. Since many bigger investment banks dropped out of the bankruptcy business when the economy picked up in the early 1990s, it is now dominated by boutiques such as Blackstone, Lazard, and CIBC World Markets. 
The auction of Enron's trading unit has been largely handled by Blackstone. Boutique shop Batchelder & Partners Inc., meanwhile, has poured over the books in search of overlooked assets. Because of the pressure to move quickly, it has been grueling. ``We've been heavily involved on a full-time basis, which includes weekends,'' says Steven M. Zelin, a senior managing director at Blackstone. For Enron's undertakers, that's likely to continue for some time.

Where the Money Is Going
The biggest bankruptcy in history is making a small industry of advisers rich
ENRON'S LAWYERS
The oil giant has turned to Corporate America's leading bankruptcy counsel,
Weil, Gotshal & Manges. The firm charges $700 per hour for top guns and could
ultimately earn up to $30 million.
CREDITORS' LAWYERS
Milbank, Tweed, Hadley & McCloy dominates the business of representing
creditors and is expected to earn $15 million to $30 million on the Enron
case.
INVESTMENT BANKERS
Blackstone Group, Enron's lead banker, will get $350,000 a month, plus a $35
million ``success fee'' if it accomplishes a successful reorganization.  It's
backed by Batchelder & Partners, which is making a $15 million success fee, or
$375,000 a month if the reorganization attempt fails.
ACCOUNTANTS
While Enron is in bankruptcy, Cap Gemini Ernst & Young, as well as other
firms, will advise the parties to the bankruptcy. Fees are yet to be
determined, but accountants often earn up to $200,000 a month.
Data: Southern District of NY Bankruptcy Court, BusinessWeek
Photograph: GOTSHAL'S BIENENSTOCK 
Photograph: MILBANK'S DESPINS 
Photograph: BLACKSTONE'S ZELIN 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Finance: Banking
THE PERILS OF J.P. MORGAN Enron, Argentina, the bear market-a year after the merger with Chase, the bank is racking up losses
By Heather Timmons in New York, with Christopher Palmeri in Los Angeles

01/21/2002
BusinessWeek
62
(Copyright 2002 McGraw-Hill, Inc.)

When Chase Manhattan swooped in to bid $33 billion for white-shoe investment bank J.P. Morgan in September, 2000, Chief Executive William B. Harrison Jr. claimed that the new behemoth would provide ``huge'' growth. The idea was simple: Thousands of Chase's corporate customers would be pushed into J.P. Morgan's arms and pay fat fees for takeover deals, securities issues, and the like. Nor was the strategy far-fetched. After all, Citibank and Travelers Group had successfully combined in 1998 to produce a bull-market juggernaut that was leaving rivals, including Chase, in the dust. 
The reality has turned out to be a lot different. Instead of striking the new gusher of profits promised by Harrison, the merged J.P. Morgan Chase & Co. has tapped into a seemingly endless well of red ink. As a result, the new bank is ending its first full year by taking huge write-downs and making expensive additions to loan loss reserves. Analysts figure anything from $800 million to over $2 billion will be sliced off the fourth-quarter operating earnings to be announced on Jan. 16. Piled on top of second-quarter charges of about $1 billion, net income for 2001 could drop as low as $3.5 billion, down from the $5.7 billion that J.P. Morgan and Chase Manhattan together earned in 2000.
Admittedly, 2001 was the worst year for investment banking in nearly a decade. Mergers and acquisitions dried up, as did stock offerings and syndicated lending. Moreover, as the global economy worsened and the bear market dragged on, corporate lending and private equity took major hits as well. 
More than bad luck with the timing of its merger could be dogging J.P. Morgan, however. Some analysts argue that the bank regularly runs much bigger risks than its rivals and is now paying the price. The bank's exposure to bankrupt energy trader Enron Corp.'s loans, and energy and derivatives contracts, has grown to $2.6 billion. It has $900 million in exposure to Argentina and its $117 billion commercial loan portfolio is facing a series of high-profile losses--thanks to bankruptcies among its telecom customers, as well as Enron. The value of its private equity portfolio, the largest of any U.S. bank, has been a major drag on earnings since the Nasdaq crash in March, 2000. And analysts have started to worry that the bank's off-balance-sheet assets could be a future source of losses. ``I think their risk profile is greatly understated,'' says Charles Peabody, an analyst with independent researcher Ventana Capital. 
J.P. Morgan executives balk at any suggestion they deliberately court more risks than their peers. They argue that investors and analysts are punishing the bank because it has been more scrupulous about reporting potential losses. The company's stock has sunk 22% since the merger was announced in 2000. ``We're a lightning rod for credit issues because we've been more up-front than other participants in the market,'' says Chief Financial Officer Dina Dublon. Indeed, J.P. Morgan has been more open than others in some matters. It posts its private equity portfolio online. And it told analysts about its Argentina exposure when the country careened toward default. Citigroup, by contrast, doesn't detail its private equity holdings. Nor has it given details on its exposure to Argentina, which analysts estimate at $4 billion, beyond saying that country contributes less than 2% of earnings. 
Still, it's unnerving how the bad news keeps piling up at J.P. Morgan. Because the bank was one of the largest lenders to Enron, as well as an adviser in the aborted Dynegy Inc. takeover bid, analysts weren't surprised when it announced on Nov. 28 that it had $900 million in exposure to the energy company. The real shocker was the disclosure on Dec. 19 that the bank's unsecured exposure to Enron had tripled, to $1.6 billion, after insurers failed to make good on nearly $1 billion in guarantees on Enron gas contracts. Called surety bonds, the guarantees were issued to Mahonia Natural Gas, a J.P. Morgan ``special purpose vehicle'' created to handle commodity contracts with Enron. The bank is suing the nine insurers to force them to pay up, but they are fighting back. Meantime, analysts say the belated disclosure has hurt the bank's reputation. 
Corporate lending problems don't end there. J.P. Morgan and Citi assembled a group of banks that lent telecom company Global Crossing Ltd.--now deeply troubled--more than $2.2 billion in its palmier days. Normally, banks take precedence over other lenders in a bankruptcy, but that may not be so with Global Crossing, says Aryeh B. Bourkoff, a distressed-debt analyst at UBS Warburg. Because of the way the loan is structured, he says, other creditors could be paid first if Global Crossing goes under. The point isn't academic: Global Crossing lost $1.9 billion on revenues of $2.4 billion in the first nine months of last year, and its bank debt sells for 20 cents on the dollar, far below that of other distressed telecom companies. J.P. Morgan and the other banks have been negotiating to stretch out the loan and cut the interest rates charged on it in exchange for new collateral. In late December, the bankers gave the company until Feb. 13 to reach an agreement. J.P. Morgan insists that its loan is, in fact, secured. CFO Dublon says analysts should look beyond these black marks. ``We're still going to be profitable,'' she says. 
Indeed the market may be exaggerating some of J.P. Morgan's risks. For example, its Argentina exposure is smaller than the likes of Citi or FleetBoston Financial. And Brian O'Neill, J.P. Morgan's chairman of Latin America, says the loans are predominantly to large commercial and industrial enterprises, many of them subsidiaries of foreign companies and therefore less likely to be affected by the peso devaluation. 
Still, there's more bad news ahead. J.P. Morgan Partners, the bank's private equity unit, will need to write down $100 million on its investment in telecom outfit Triton PCS Inc. And losses could be even more severe in its $8 billion portfolio of privately held companies. Fox-Pitt Kelton analyst E. Reilly Tierney expects the unit will have to take $600 million in write-downs for the last quarter of 2001. Further losses are likely from the bank's off-balance-sheet dealings. It founded, and is by far the largest market maker in, the $1 trillion market for credit derivatives, a form of loan insurance. Issuers of these derivatives lose money if insured borrowers don't repay their loans. In the third quarter, banks lost $99 million in derivatives, says the Office of the Comptroller of the Currency. Nearly all of that--$95 million--was borne by J.P. Morgan alone, says Ventana's Peabody, who expects more losses to come. J.P. Morgan's head of credit derivatives, Andy Brindle, says the bank made substantial profits on its overall derivatives portfolio in the first nine months of 2001, while losses are on credit derivatives were ``insignificant.'' 
The litany of woes at J.P. Morgan seems endless. Bank executives remain philosophical that times are bound to be tough when the economy tanks. ``Extending credit is the business we're in, and we're at the point that credit losses are going higher,'' says Dublon. There's no arguing with that. But sooner or later, the brass are going to have to make good on their boss's promises of future growth to placate critics.

Risky Exposure
TROUBLED COMPANIES
ENRON                  $2.6 BILLION
NTL CABLE               900 MILLION
GLOBAL CROSSING          95 MILLION
ARGENTINA
$900 MILLION
VENTURE CAPITAL WRITE-DOWNS
$250 MILLION-$700 MILLION*
* Fourth quarter
Data: BW, company reports, Fox-Pitt Kelton, U.S. Bancorp
Photograph: BUENOS AIRES UNREST: LOTS OF LOANS, MAINLY TO BIG COMPANIES PHOTOGRAPH BY ASIA KEPKA; RICKEY ROGERS/REUTERS 
Photograph: BAD TIMING CEO Harrison foresaw a merger as successful as the Citibank-Traveler's deal. So far, though, it hasn't worked out that way PHOTOGRAPH BY CHARLIE SAMUELS 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business Week International Editions: Readers Report
HOLD THE RATINGS AGENCIES TO A HIGHER STANDARD

01/21/2002
BusinessWeek
6
(Copyright 2002 McGraw-Hill, Inc.)

``The fall of Enron'' (Cover Story, Dec. 17) stated that Enron's maze of partnerships made it very difficult for rating firms such as Standard & Poor's to verify many of its debts. You even went further and stated that, even now, nobody really knows what other off-balance sheet liabilities exist. If that is the case, then what about other companies that have similar assets and potential liabilities off their books? What ratings should such firms be given? 
It is high time that rating firms such as S&P informed their clients of such off-balance sheet items--so that nasty accounting malpractices such as those that overtook Enron do not take bankers, investors, employees, and creditors by surprise.
Clayton Othieno 
Nairobi, Kenya

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Nation
Who's Accountable? ; Inside the growing Enron scandal: how evidence was shredded and top executives fished for a bailout as the company imploded
Daniel Kadlec; With reporting by Michael Weisskopf, Adam Zagorin and James; Carney/Washington; Cathy Booth Thomas/Dallas; and Bernard; Baumohl, Unmesh Kher, Desa Philadelphia and Julie Rawe/New ; York

01/21/2002
Time Magazine
Time Inc.
28
(Copyright 2002)

Just four days before Enron disclosed a stunning $618 million loss for the third quarter--its first public disclosure of its financial woes--workers who audited the company's books for Arthur Andersen, the big accounting firm, received an extraordinary instruction from one of the company's lawyers. Congressional investigators tell TIME that the Oct. 12 memo directed workers to destroy all audit material, except for the most basic "work papers." And that's what they did, over a period of several weeks. As a result, FBI investigators, congressional probers and workers suing the company for lost retirement savings will be denied thousands of e-mails and other electronic and paper files that could have helped illuminate the actions and motivations of Enron executives involved in what now is the biggest bankruptcy in U.S. history. 
Supervisors at Arthur Andersen repeatedly reminded their employees of the document-destruction memo in the weeks leading up to the first Security and Exchange Commission subpoenas that were issued on Nov. 8. And the firm declines to rule out the possibility that some destruction continued even after that date. Its workers had destroyed "a significant but undetermined number" of documents related to Enron, the accounting firm acknowledged in a terse public statement last Thursday. But it did not reveal that the destruction orders came in the Oct. 12 memo. Sources close to Arthur Andersen confirm the basic contents of the memo, but spokesman David Tabolt said it would be "inappropriate" to discuss it until the company completes its own review of the explosive issue.
Though there are no firm rules on how long accounting firms must retain documents, most hold on to a wide range of them for several years. Any deliberate destruction of documents subject to subpoena is illegal. In Arthur Andersen's dealings with the documents related to Enron, "the mind-set seemed to be, If not required to keep it, then get rid of it," says Ken Johnson, spokesman for the House Energy and Commerce Committee, whose investigators first got wind of the Oct. 12 memo and which is pursuing one of half a dozen investigations of Enron. "Anyone who destroyed records out of stupidity should be fired," said committee chairman Billy Tauzin, a Louisiana Republican. "Anyone who destroyed records to try to circumvent our investigation should be prosecuted." 
The accounting for a global trading company like Enron is mind- numbingly complex. But it's crucial to learning how the company fell so far so fast, taking with it the jobs and pension savings of thousands of workers and inflicting losses on millions of individual investors. At the heart of Enron's demise was the creation of partnerships with shell companies, many with names like Chewco and JEDI, inspired by Star Wars characters. These shell companies, run by Enron executives who profited richly from them, allowed Enron to keep hundreds of millions of dollars in debt off its books. But once stock analysts and financial journalists heard about these arrangements, investors began to lose confidence in the company's finances. The results: a run on the stock, lowered credit ratings and insolvency. 
Shredded evidence is only one of the issues that will get close scrutiny in the Enron case. The U.S. Justice Department announced last week that it was creating a task force, staffed with experts on complex financial crimes, to pursue a full criminal investigation. But the country was quickly reminded of the pervasive reach of Enron and its executives--the biggest contributors to the Presidential campaign of George W. Bush--when U.S. Attorney General John Ashcroft had to recuse himself from the probe because he had received $57,499 in campaign cash from Enron for his failed 2000 Senate re-election bid in Missouri. Then the entire office of the U.S. Attorney in Houston recused itself because too many of its prosecutors had personal ties to Enron executives--or to angry workers who have been fired or have seen their life savings disappear. 
Texas attorney general John Cornyn, who launched an investigation in December into 401(k) losses at Enron and possible tax liabilities owed to Texas, recused himself because since 1997 he has accepted $158,000 in campaign contributions from the company. "I know some of the Enron execs, and there has been contact, but there was no warning," he says of the collapse. 
Bush told reporters that he had not talked with Enron CEO Kenneth L. Lay about the company's woes. But the White House later acknowledged that Lay, a longtime friend of Bush's, had lobbied Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill. Lay called O'Neill to inform him of Enron's shaky finances and to warn that because of the company's key role in energy markets, its collapse could send tremors through the whole economy. Lay compared Enron to Long-Term Capital Management, a big hedge fund whose near collapse in 1998 required a bailout organized by the Federal Reserve Board. He asked Evans whether the Administration might do something to help Enron maintain its credit rating. Both men declined to help. 
An O'Neill deputy, Peter Fisher, got similar calls from Enron's president and from Robert Rubin, the former Treasury Secretary who now serves as a top executive at Citigroup, which had at least $800 million in exposure to Enron through loans and insurance policies. Fisher--who had helped organize the LTCM bailout--judged that Enron's slide didn't pose the same dangers to the financial system and advised O'Neill against any bailout or intervention with lenders or credit-rating agencies. 
On the evidence to date, the Bush Administration would seem to have admirably rebuffed pleas for favors from its most generous business supporter. But it didn't tell that story very effectively-- encouraging speculation that it has something to hide. Democrats in Congress, frustrated by Bush's soaring popularity and their own inability to move pet legislation through Congress, smelled a chance to link Bush and his party to the richest tale of greed, self- dealing and political access since junk-bond king Michael Milken was jailed in 1991. That's just what the President, hoping to convert momentum from his war on terrorism to the war on recession, desperately wants to avoid. The fallout will swing on the following key questions: 
WAS A CRIME COMMITTED? 
The justice investigation will be overseen in Washington by a seasoned hand, Josh Hochberg, head of the fraud section and the first to listen to the FBI tape of Linda Tripp and Monica Lewinsky in the days leading to the case against President Clinton. The probe will address a wide range of questions: Were Enron's partnerships with shell corporations designed to hide its liabilities and mislead investors? Was evidence intentionally or negligently destroyed? Did Enron executives' political contributions and the access that the contributions won them result in any special favors? Did Enron executives know the company was sinking as they sold $1.1 billion in stock while encouraging employees and other investors to keep buying? 
"It's not hard to come up with a scenario for indictment here," says John Coffee, professor of corporate law at Columbia University. "Enough of the facts are already known to know that there is a high prospect of securities-fraud charges against both Enron and some of its officers." He adds that "once you've set up a task force this large, involving attorneys from Washington, New York and probably California, history shows the likelihood is they will find something indictable." 
Enron has already acknowledged that it overstated its income for more than four years. The question is whether this was the result of negligence or an intent to defraud. Securities fraud requires a willful intent to deceive. It doesn't look good, Coffee says, that key Enron executives were selling stock shortly before the company announced a restatement of earnings. 
As for Arthur Andersen, criminal charges could result if it can be shown that its executives ordered the destruction of documents while being aware of the existence of a subpoena for them. A likely ploy will be for prosecutors to target the auditors, hoping to turn them into witnesses against Enron. Says Coffee: "If the auditors can offer testimony, that would be the most damaging testimony imaginable." 
WHAT ABOUT OTHER PROBES? 
Enron is in the cross hairs of at least six congressional panels. In the Senate, the Permanent Investigative Subcommittee got a jump on Jan. 11 by subpoenaing documents of 49 Enron executives and, separately, the corporate records of Enron and Arthur Andersen. The subpoenas, covering the period from 1999 through 2001, are aimed at learning "what the officers knew and what they did about it," said a committee official. The first hearing this year is scheduled for Jan. 24, headed by Connecticut Democrat Joe Lieberman. The first appearance of Enron chairman Lay is scheduled for Feb. 4 before the Senate Commerce Committee. 
There are now 47 class actions against Enron and its executives and directors, filed either by shareholders or employees and carrying mainly the possible penalty of heavy fines. Most allege that Enron failed to disclose its many risky partnerships, which proved to be a large part of its undoing. Though Enron is bankrupt, Arthur Andersen could be liable as well, and Enron's officers and directors have deep pockets. Plaintiffs are seeking to freeze the proceeds of Enron stock sales by those insiders. "Going after directors personally is rare. But this case calls for the unusual," says Jim Newman, executive director of Securities Class Action Services, which monitors such cases. 
WERE FAVORS RECEIVED? 
At the White House last week junior aides were asking Washington veterans whether they will have to hire lawyers because they attended meetings in which Enron issues were discussed. Answer: probably not-- but the question shows the level of concern. Though there has been no evidence of anything illegal, Enron enjoyed considerable influence from the start of the Bush Administration. Curtis Hebert Jr., the former chairman of the Federal Energy Regulatory Commission, told the New York Times that Lay offered to support Hebert's continuing in that role if Hebert would take a friendlier view toward energy deregulation. Hebert declined, and the Bush Administration replaced him. Lay and other Enron officials met six times with officials led by Vice President Dick Cheney (a former oilman) to craft a new energy policy. That policy, not surprisingly, was friendly to Enron and other energy companies. 
Bush says he first learned last Thursday that Lay had approached his Cabinet secretaries for help. Press secretary Ari Fleischer told Bush he should expect to be asked about any contacts that he had with Lay. Fleischer had researched the matter, and he "refreshed" the President's memory about the last time he met with Lay: in spring 2001, in Houston, at an event hosted by Bush's mother. O'Neill was present at the Thursday discussion and said, "Oh, by the way, you need to know that I had a conversation with Ken Lay. He called me." O'Neill described the call as a "heads up" about Enron's financial woes and the potential effects they might have on the larger economy. Bush nodded. Then Evans, also present, chimed in. "I got a call from Ken too," said the Commerce Secretary, who is Bush's closest friend. "He was asking me to help, but I didn't." 
While Bush and the Republicans have gained the lion's share of attention from Enron and Lay, they get at least a little cover from the company's campaign contributions to prominent Democrats, such as Senate Energy Committee Chairman Jeff Bingaman and Louisiana Senator John Breaux. Enron and its top officials have hired the well-known Democratic lawyers Robert Bennett and David Boies. And Bob Rubin, the Democrats' high priest of economics and finance, was caught fishing-- albeit tentatively by all accounts--for Treasury intervention on Enron's behalf. 
WHO WILL AUDIT THE AUDITORS? 
Mark Cheffers, CEO of Accounting Malpractice.com, says of Arthur Andersen: "Even if they're innocent, it looks like a massive cover- up." Andersen reported its destruction of Enron documents to the SEC and Justice Department early last week--just before four congressional investigators arrived at the company's Houston office on Wednesday. Committee officials immediately demanded the personal records of the partner and five top executives working on the Enron account. 
The incident further tars the name of venerable Arthur Andersen, which in June settled allegations of fraud stemming from its audit of Houston-based Waste Management and paid a $7 million fine without admitting any wrongdoing. Last year, again without admitting wrongdoing, Andersen agreed to pay $110 million to settle a class action brought on behalf of shareholders of another client, Sunbeam, which had misstated its financial results during the 1990s. These days, an Andersen competitor observes sardonically, settling a fraud case appears to be good for attracting business from other firms that want a soft touch for an auditor. 
With the SEC, the Justice Department and various congressional committees now scrutinizing Andersen's audit work on Enron, there is little doubt efforts will be made to rein in the industry. "The profession has always done just enough to get out of a hole," says industry analyst Arthur Bowman. The SEC and Congress are looking into Andersen's interpretation of accounting rules that allowed Enron to exclude losses at several partnerships from its balance sheets. But the larger issue will be the objectivity of the entire industry. Enron paid Andersen $25 million for its audit last year and $27 million for "consulting" and other services. "How can any auditor be independent when his client is paying this kind of money?" Bowman asks. 
Two of Enron's senior financial executives had previously worked for Andersen in Houston: Richard Causey, Enron's chief accounting officer, and Jeffrey McMahon, chief financial officer. Although it's not unusual for auditors to be subsequently hired by their clients, Andersen has an unusual history--in Waste Management's case, supplying every CFO from 1971 to 1997. 
CAN 401(K)S BE PROTECTED? 
There has been some movement in Congress for reform, spurred by the plight of Enron workers who had, on average, 62% of their 401(k) savings tied up in Enron stock. Those savings were largely wiped out because the plan offered little opportunity to diversify. Like many corporate plans, Enron's didn't allow participants to transfer stock that had been given to them as part of a matching contribution until age 50. And Enron officials actively encouraged workers to buy Enron stock. In a memo in August, Lay told employees he'd "never felt better about the prospects of the company. Our growth has never been more certain." Enron workers were further hamstrung by Enron's switching of plan administrators and freezing of all asset shifting within 401(k) accounts for at least 10 days, just as Enron stock was taking its dive. The result was ruin, as Enron sank from $90 to under $1. 
Democratic Senators Barbara Boxer of California and Jon Corzine of New Jersey have proposed that plan assets be limited to no more than 20% of any one stock. Their bill would also reduce tax breaks for companies that make matching contributions with stock and would free employees to sell matching stock after 90 days. Senator Bingaman wants to allow companies to offer financial advice without being liable for investment losses, as they currently are. 
Says David Certner, chief lobbyist for the American Association for Retired Persons: "In 401(k) plans, we are asking people to take the risk and responsibility for investing, yet we set up this system where we are violating the first basic rule of investing: diversification." Where company stock is a savings option, employees invest almost a third of their assets in it. 
Behind all the front-page headlines last week, Enron was struggling to manage its bankruptcy reorganization. One key all along has been to keep the vaunted energy-trading unit operating. That group accounted for 90% of Enron's revenue, and Friday it was sold at auction to UBS Warburg for a price to be disclosed this week. The courts must approve the sale, however, which promises to spark legal fireworks from creditors, who will want to make sure the company got a fair price. Not that it will matter much to Enron. The company has little chance of emerging from Chapter 11 intact. Says Peter Chapman, president of Bankruptcy Creditors' Service: "Assets are being liquidated for the benefit of creditors." But even if the company disappears, the name Enron will be with us for a while. 
--With reporting by Michael Weisskopf, Adam Zagorin and James Carney/Washington; Cathy Booth Thomas/Dallas; and Bernard Baumohl, Unmesh Kher, Desa Philadelphia and Julie Rawe/New York 
CHRONOLOGY OF A COLLAPSE How Enron hid debts and played politics-- until it ran out of money and friends 
NOV. 1997 --Enron buys out a partner's stake in a company called JEDI and sells the stake to a firm it creates, called Chewco, to be run by an Enron officer. Thus begins a complex series of transactions that enable Enron to hide debts. 
FEB. 20, 2001 --A FORTUNE story calls Enron a "largely impenetrable" company that is piling on debt while keeping Wall Street in the dark. 
STOCK CLOSE: $75.09 
APR. 17 --Enron chairman Ken Lay meets with Vice President Dick Cheney and other energy-policy officials; it's one of six such visits. 
AUG. 14 --CEO Jeffrey Skilling resigns, becoming the sixth senior executive to leave in a year. Lay says in a conference call with stock analysts, "I never felt better about the company." He deflects analysts' pleas for more disclosure. They lower their ratings on Enron stock, which drops in after-hours trading to a 52-week low. 
STOCK CLOSE: $39.55 
OCT. 12 --Arthur Andersen legal counsel instructs workers who audit Enron's books to destroy all but the most basic documents. 
OCT. 16 --Enron reports a third-quarter loss of $618 million. Moody's Investors Service indicates that it is considering lowering its credit rating on Enron debt securities. 
STOCK CLOSE: $33.84 
OCT. 22 --Enron discloses that the Securities Exchange Commission has opened an inquiry. 
OCT. 24 --Chief financial officer Andrew Fastow, who ran some of Enron's stealth partnerships, is replaced. 
OCT 26 --The Wall Street Journal reports the existence of the Chewco partnership run by an Enron manager. Ken Lay calls Fed Chairman Alan Greenspan to alert him of the company's problems. 
STOCK CLOSE: $15.40 
OCT. 28 --Lay calls Treasury Secretary Paul O'Neill. In October and November, Enron's president phones an O'Neill deputy at least six times, seeking help. 
OCT. 29 --Lay calls Commerce Secretary Donald Evans, suggesting he help Enron. 
NOV. 8 --Enron admits accounting errors, inflating income by $586 million since 1997. 
NOV. 9 --Lay again talks to Treasury's O'Neill. 
NOV. 29 --The SEC expands its investigation to include auditor Arthur Andersen. 
DEC. 2 --Enron files for bankruptcy. 
STOCK CLOSE: 26[cents] 
DEC. 12 --Andersen CEO Joseph Berardino testifies his firm discovered "possible illegal acts" committed by Enron. 
JAN. 9, 2002 --The Justice Department launches a criminal investigation. 
JAN. 10 --Attorney General John Ashcroft recuses himself from the investigation because of contributions he received from Enron. Andersen acknowledges destroying Enron files. 
THE WORLD OF KEN LAY Enron's chief wielded broad influence in business and politics, thanks in part to his pipeline of campaign funding. But his relationships couldn't save his company 
POLITICIANS 
George H.W. Bush Former President A longtime friend of Lay's, he tapped the Texas fund raiser to head two host committees and in 2000 went to a baseball game with Lay and George W. 
Dick Cheney Vice President The former energy exec met with Enron officials six times in crafting a new national energy policy and has refused to show the minutes to Congress 
John Ashcroft Attorney General Recused himself from the Justice Department's criminal probe into Enron because the company and its employees gave him $57,499 when he ran for Senate in 2000 
Paul O'Neill Treasury Secretary Received a phone call from Lay in October exploring the possibility of a government bailout the day before Enron's credit rating was downgraded 
George W. Bush President Enron and its employees gave $312,500 to his gubernatorial campaigns and $413,800 to his presidential war chest and Inaugural fund 
Marc Racicot Republican National Committee Chairman Nominee Handpicked by Bush, the lawyer will retain his salary at a firm that lobbies for Enron 
Don Evans Commerce Secretary Bush's chief fund raiser accepted Lay's campaign donations and returned his call in October but declined to intervene 
Pat Wood Chair of Federal Energy Regulatory Commission A friend of Bush's and Lay's, he was appointed after the Enron chief allegedly soured on his predecessor, Curtis Hebert Jr. 
Lawrence Lindsey White House Economic Adviser Made $50,000 as a consultant for Enron in 2000 before moving to the White House 
Karl Rove White House Senior Adviser Waited five months after taking office to sell more than $100,000 of Enron stock 
LAWYERS, LOBBYISTS & LENDERS 
Robert Bennett Counsel for Enron Represented Bill Clinton in the Paula Jones sexual-harassment suit that led to the Lewinsky scandal and impeachment 
David Boies Lawyer for Enron's Fastow Represented Al Gore before the Supreme Court during the 2000 election dispute 
Ed Gillespie Enron Lobbyist Served as one of Bush's top campaign advisers in 2000 before he started working as a lobbyist for Enron 
Robert Rubin Former Treasury Secretary A top executive at Citigroup, which has more than $800 million in exposure to Enron, he called a Treasury official in November to ask about bolstering Enron's credit rating 
AUDITOR 
Joseph Berardino Arthur Andersen CEO Enron paid about $1 million a week last year to his firm, which signed off on audit statements and admitted to destroying thousands of Enron-related documents in recent months 
COMPANY OFFICIALS 
Richard Causey Chief Accounting Officer Led Andersen's audit team at Enron until he was hired by the energy company to write its financial statements. His office had to review and approve special partnership deals 
Jeff Skilling Former Chief Executive Resigned in August after spurring the company to borrow $1 billion to fund new ventures-- which led to the creation of special partnerships to keep some debt off Enron's balance sheets 
Andrew Fastow Former Chief Financial Officer Reaped more than $30 million for running complicated financial partnerships that hid many of Enron's debts. He was fired in October 
Wendy Gramm Member of Board of Directors The former securities regulator joined the board in 1993, after kick starting new rules exempting some energy trades from government oversight, an Enron- backed move 
John Mendelsohn Member of Board of Directors The president of a cancer center that has received almost $600,000 from Enron, he worked with Lay to push through a $633 million biotechnology park in Houston 
Partnerships Two companies took their names from Star Wars: JEDI and Chewco 
BANKER 
Marc Shapiro Vice Chairman, JPMorgan Chase A Texas buddy of Lay's, he helps run a firm that has $2.6 billion in exposure to Enron--and that urged brokerage clients to buy Enron stock as it fell from $84 to less than $1

COLOR PHOTO: ENRON: JAMES NIELSEN--AFP COLOR PHOTO: WIN MCNAMEE--REUTERS JOHN ASHCROFT COLOR PHOTO: BROOKS KRAFT--GAMMA FOR TIME PRESIDENT GEORGE W. BUSH COLOR PHOTO: DAVID SCULL--BLOOMBERG NEWS/MATRIX JOSEPH BERARDINO, CEO OF ARTHUR ANDERSEN COLOR PHOTO: F. CARTER SMITH--CORBIS SYGMA KENNETH LAY, CEO OF ENRON AND BACKER OF BUSH FASTOW: MIKE SEGAR--REUTERS ANDREW FASTOW, FORMER ENRON CFO COLOR PHOTO: CHUCK KENNEDY--KRT ENERGY POLICY: Cheney consulted with Lay COLOR PHOTO: TOM WILLIAMS--ROLL CALL SEEING SENATORS: Treasury Secretary O'Neill B/W PHOTO: BROOKS KRAFT--GAMMA CAN'T HELP: Commerce Secretary Evans and Lay COLOR PHOTO: DAVID J. PHILLIP--AP A FRIENDLY CALL? Fed chief Greenspan with Lay COLOR PHOTO: DOUGLAS GRAHAM--ROLL CALL TESTIFYING: Auditor Berardino COLOR PHOTO: FERENC ISZA--RED DOT-ZUMA COLOR PHOTO: BROOKS KRAFT--GAMMA FOR TIME COLOR PHOTO: CHRIS USHER--CORBIS SYGMA COLOR PHOTO: DAVID BURNETT--CONTACT FOR TIME COLOR PHOTO: BROOKS KRAFT--GAMMA FOR TIME COLOR PHOTO: CHRISTOPHER MORRIS--VII FOR TIME COLOR PHOTO: DANNY JOHNSTON--AP COLOR PHOTO: DEBORAH CANNON--AP COLOR PHOTO: JEFF MITCHELL--REUTERS COLOR PHOTO: RON EDMONDS--AP COLOR PHOTO: PAUL HOWELL--DALLAS MORNING NEWS-CORBIS SYGMA KENNETH L. LAY, Enron CEO COLOR PHOTO: MARTIN SIMON--CORBIS SABA COLOR PHOTO: MIKE SEGAR--REUTERS COLOR PHOTO: TOM WILLIAMS--ROLL CALL COLOR PHOTO: RICHARD ELLIS--GETTY COLOR PHOTO: DOUGLAS GRAHAM--ROLL CALL-CORBIS SYGMA B/W PHOTO: PAM FRANCIS PHOTOGRAPHY COLOR PHOTO: ROBERT VISSER--CORBIS SYGMA COLOR PHOTO: PHOTOFEST COLOR PHOTO: ELIZABETH LIPPMAN--CORBIS SYGMA COLOR PHOTO: FOTO FANTASIES COLOR PHOTO: ROGER L. WOLLENBERG--UPI COLOR PHOTO: REMI PHOTO--ZUMA COLOR PHOTO: JUSTIN LANE--THE NEW YORK TIMES COLOR PHOTO: TIM JOHNSON--BLOOMBERG NEWS HUNTING FOR WORK: Former Enron employees attend a job fair at Enron Field 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

National Desk
THE NATION THE ENRON INQUIRY As Questions Get Louder, Cheney Stays Silent Politics: Critics want details on meetings with Enron over energy policy. He asserts executive privilege.
EDWIN CHEN
TIMES STAFF WRITER

01/18/2002
Los Angeles Times
Home Edition
A-26
Copyright 2002 / The Times Mirror Company

WASHINGTON -- The growing Enron debacle is turning up the political heat on Vice President Dick Cheney, who has refused to detail his contacts with company officials while developing a national energy policy last year. 
Amid Democratic charges that he granted Enron undue access--and produced in secret an industry-friendly plan--Cheney's unyielding stance has hampered the Bush administration's efforts to distance itself from the scandal.
The flap dominated Thursday's White House briefing, as it had on Wednesday. Press Secretary Ari Fleischer reiterated Cheney's position: that he is defending executive privilege in rebuffing the congressional push, led by Reps. Henry A. Waxman (D-Los Angeles) and John D. Dingell (D-Mich.), for the information on his meetings with Enron officials. 
Cheney and his aides say neither he nor his energy task force did anything wrong. Yet the impression lingers, even some Republicans conceded, that the vice president has something to hide. 
"Cheney and his staff have violated the most fundamental of all scandal rules: full and fast disclosure," said Larry J. Sabato, a University of Virginia political scientist. "A flat refusal to disclose information automatically makes the public and the press more suspicious, and it guarantees that the headlines about the controversy will be plentiful and unending." 
Many analysts predict that Cheney ultimately will have little alternative but to provide the information. 
Mary Matalin, a senior Cheney advisor, rejected that scenario. She said in an interview that Cheney will not abandon his conviction that he is acting to protect executive privilege. 
"There is a principle here that we want to preserve--for not just this administration but future administrations," Matalin said. "The powers and prerogatives of the executive branch have been eroded, and we're going to stop that." 
In resisting disclosure, however, Cheney and his aides are providing Democrats and other critics the opportunity to depict the White House as a shill for Enron, the nation's seventh-largest company until it filed for bankruptcy. 
"It may be a matter of principle, but they are going to get killed for it," said Charles E. Cook, a Washington-based political analyst. "They are going to lose a lot of blood and, in the end, they will release" the requested information. 
Cook added: "The question is, how much political pain they are going to sustain before releasing it." 
"The danger for Cheney in this Enron fiasco is perception," added one top Republican strategist, who requested anonymity. "And perception in politics needs to be nipped in the bud--immediately. Right now, they are behind the perception eight-ball." 
Many Republicans and White House allies reject that view--reflecting a vigorous debate that sources say is raging in the West Wing on whether Cheney should turn over the information sought by Congress. 
"My advice to him would be to hang in there. Hang tough. I don't think he's hurting himself," said Washington lobbyist Tom Korologos, who has advised GOP presidents going back to Richard Nixon. 
Another factor that has helped thrust Cheney into the glare of the Enron controversy is the trust and confidence he enjoys from President Bush. 
"The problem with being as visibly influential as Cheney has been is that when things go wrong, he gets some of the blame," said Joel K. Goldstein, a St. Louis University law professor and author of "The Modern American Vice Presidency." 
In the eyes of their political detractors, including environmental activists, Bush and Cheney were suspect on energy issues from their first day in office, given their background in the oil industry. 
Cheney quickly fueled such concerns when, amid sharply rising energy prices, he seemed to discount the importance of conservation in dealing with the problem. Then his energy task force released a plan in May that angered environmentalists and conservationists by proposing, among other things, opening a small portion of Alaska's Arctic National Wildlife Refuge to energy exploration. 
Critics also immediately questioned the role of Enron executives in the plan's formulation; Waxman and Dingell have been asking Cheney for months to disclose his contacts with the company. With Enron's collapse late last year, those requests have escalated. 
On Wednesday, Democrats on the House Government Reform Committee charged that there are at least 17 policies in the White House energy plan that are "virtually identical to positions Enron advocated." 
Administration officials took strong issue with that assertion. Matalin called it "transparent election-year politicking." 
Such unabated exchanges, however, point up the controversy's corrosive effect on the White House and on Bush's agenda. 
"The big loser last week was the president's education bill," said a senior GOP strategist, noting that news coverage of the measure's signing was overshadowed by the media's focus on the Enron story. 
"Mary Matalin can be flippant all she wants, but this isn't going to go away," said the Republican, who requested anonymity. 
Sabato agreed. 
"Even at this late stage, Cheney's best route out of the controversy is the same as the original one early on--full disclosure," he said. 
"There is something about the White House that leads each new administration to believe they are exempt from the usual rules of scandal," Sabato added. "Perhaps the headiness of power and popularity produces a kind of scandal amnesia. Cheney exhibits the symptoms."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

POLITICS
The Mirror Image of Whitewater
William Schneider

01/19/2002
National Journal
Copyright 2002 by National Journal Group Inc. All rights reserved.

Missing documents. Financial wrongdoing. Is Enron another Whitewater? Actually, Enron Corp. looks like the mirror image of Whitewater: a scandal less likely to implicate a President, but more likely to affect public policy. 
Whitewater was about finding a smoking gun that would incriminate President Clinton or his wife. Everyone knew what then-Sen. Alfonse D'Amato, R-N.Y., was getting at when he asked, at the outset of the 1994 Whitewater investigation, "What did the President know, and when did he know it?" In the Enron case, no one is making criminal allegations about President Bush. This time, a Senator from the opposition party is again chairing the Senate investigation. But Sen. Joe Lieberman, D-Conn., set a different tone when he said, "There are some interconnections here with the Bush Administration, but that's not the focus of this inquiry."
Whitewater was a shady land deal of no great public consequence. The collapse of Enron, the seventh-largest Fortune 500 corporation, matters a great deal. It wiped out $60 billion in shareholder value. Tens of thousands of people got hurt. 
"The grave consequences of Enron's collapse are economic and personal, not political," Lieberman said. Unlike Whitewater, which was intensely political, it's hard to dispute that the Enron investigation concerns a matter of legitimate public interest. As Sen. Carl Levin, D-Mich., observed, "Either laws and regulations were followed, in which case those laws and regulations are pitifully inadequate.... [or] laws and regulations were violated." 
Enron's well-connected executives and directors may have defrauded investors by concealing information about the company's finances. And these officials may have engaged in insider trading by selling more than $1 billion worth of stock before its price collapsed. 
Enron virtually financed Bush's political career. The company had ties to high-level officials in the Bush White House. And Enron was a major contributor to both political parties. None of that is illegal. But it does raise serious issues. For instance, Enron clearly tried to influence the Bush Administration's energy policy in its favor. Enron representatives met with Vice President Cheney's energy task force six times. Enron Chairman Kenneth Lay pushed, successfully, to replace the head of the Federal Energy Regulatory Commission. Clearly, Enron had special access. Were special favors granted? 
The White House has acknowledged that Lay sought help from top Cabinet and Treasury Department officials as the company struggled to avert bankruptcy. Administration officials say they refused to intervene. Bush's supporters say that Enron's collapse is proof that the company got no special protection. "It's a tribute to our capitalism," Sen. Don Nickles, R-Okla., said. "Capitalism is the freedom to succeed and the freedom to fail and not have a government guarantee of success." 
But the issue is not merely whether the government attempted to protect the company. It's also whether the government protected the public. Rep. Henry A. Waxman, D-Calif., has said: "It is now clear that the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings." 
What is not clear is how much and how early the Bush Administration knew about Enron's problems. "I have never discussed with Mr. Lay the financial problems of the company," Bush said last week. Moreover, the calls from Enron seeking help came in late October, after the company's financial problems had become public. 
It is also unclear what the Administration could have done. Companies fail all the time. Professional auditors and Wall Street analysts didn't raise any alarms about Enron's finances. 
What's driving the political story is the fact that the Administration is behaving so defensively. Why was the White House so reluctant to divulge the records of its energy task force? Why was the Administration so slow to acknowledge contacts between Enron executives and Cabinet officials? In the Enron case, the revelations themselves have not been particularly damaging to the Administration. But the fact the Administration has been so secretive about them raises suspicions of a cover-up. 
So far, the main damage has been to Bush's image. The President may have behaved properly, but the company that has been the chief backer of his political career is now under criminal investigation. There is no way that can look good. 
Enron reinforces a damaging stereotype about Bush, just as Whitewater did about Clinton. Americans had doubts about Bill Clinton's character from the outset. Whitewater brought those problems into focus: Is the President a liar? Americans also started out with a stereotype about George W. Bush: He was a man of limited intellectual ability who raised a lot of money from his rich friends. Enron brings those problems into focus: Is this President a front man for the Big Money boys? 
That image is especially damaging when you have a Republican President born to wealth and privilege in office during an economic downturn. Bush's war leadership can counteract that stereotype-for a time. But which will last longest-the war, the recession, or the Enron controversy? If it turns out to be the recession and the Enron controversy, that combination could be politically lethal.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

News
Gramms regulated Enron, benefited from ties
Robert Manor, Tribune staff reporter
Tribune staff reporter Stephen J Hedges contributed to this report from Washington

01/18/2002
Chicago Tribune
North Sports Final ; N
17
(Copyright 2002 by the Chicago Tribune)

The collapse of Enron Corp. has drawn new scrutiny of a powerful Washington couple who between them played prominent roles in deregulating energy trading to the benefit of the company. 
The couple, U.S. Sen. Phil Gramm (R-Texas) and his wife, Wendy Gramm, who serves on Enron's board of directors, both know Enron's top executive, Kenneth Lay--and have benefited financially from their relationship with him.
Phil Gramm has collected more than $97,000 in campaign contributions from Enron, according to the advocacy group Public Citizen. Wendy Gramm was paid between $915,000 and $1.8 million in salary, attendance fees, stock options and dividends over the past eight years, the group concluded. 
"What has all of this bought" Enron, asked Sheila Krumholz, research director for the Center for Responsive Politics. "Has this bought them cover?" 
In the early 1990s, Wendy Gramm, then chairwoman of the Commodity Futures Trading Commission, moved to lift governmental oversight of energy contracts that Enron and other companies traded. A short time later, she was appointed to Enron's board of directors. 
And in December 2000, Phil Gramm helped clear the way for a bill turning his wife's deregulation decision into law, something Enron had long wanted. 
The Commodity Futures Modernization Act, of which Phil Gramm was a sponsor, contained a clause making the exemption law. Though it is now called the "Enron exemption" on Capitol Hill, a Gramm aide said the senator had not prepared that section of the bill. 
"We were not involved with that part of it," said Larry Neal. Neither Wendy Gramm nor Phil Gramm could be reached for comment Thursday. 
Wendy Gramm's role at Enron has drawn congressional attention in the wake of the Enron collapse. She was among those subpoenaed last week by the Senate Permanent Subcommittee on Investigations, headed by Sen. Carl Levin (D-Mich.). 
Move to Enron's board 
Although her husband is far better known, Wendy Gramm earned a place of power for herself in Washington. In 1988 she was appointed chairwoman of the trading commission by President Ronald Reagan. The commission at the time regulated futures trading in electricity, a business Enron hoped to dominate. 
Shortly after President Bill Clinton took office in 1993, and Gramm was set to lose her chairmanship, she pushed through a rule deregulating the trading of energy contracts. Enron had been lobbying for exemption from regulation for months. 
Six days later she resigned. Five weeks later she was on the board at Enron. 
Wendy Gramm served on the audit committee of the board, meaning she was one of the directors responsible for Enron's financial reporting to investors. 
Beginning in the late 1990s, Enron executives hid hundreds of millions of dollars in debt in supposedly unrelated partnerships. The result was to make Enron appear much stronger financially than it actually was. 
When word of the partnerships surfaced and Enron acknowledged its debt last year, the company's stock price collapsed and it filed for bankruptcy. 
The members of the audit committee were to oversee the partnerships, according to a report by Enron's law firm, Vinson & Elkins. 
That means the partnerships were not merely a misstep by a lower- level executive but rather were supposed to be known to Wendy Graham and the top leaders of Enron. 
"The audit committee knew of and approved of those partnerships," said Tyson Slocum, research director of Public Citizen's energy program. 
Wendy Gramm has known Lay for years. 
Both were considered possible candidates for Cabinet posts in the Reagan administration. 
"Dr. Gramm's experience in financial and commodities markets will prove extremely valuable to Enron," Lay said in announcing her appointment to the board of directors. Wendy Gramm has a doctorate in economics. 
Role in senator's campaign 
At the time, Lay and Wendy Gramm said her decision favoring Enron played no role in the company's decision to hire her. Lay said it was "convoluted" to question the propriety of naming her to the board. 
While federal regulations prohibited Wendy Gramm from lobbying the trade commission for a time after she left it, no law prohibited her from working for a company she once regulated. 
Lay, for his part, involved himself in Phil Gramm's career. 
Besides contributing money to the senator, Lay served as the regional chairman of Gramm's unsuccessful campaign for the Republican presidential nomination in 1996. 
Wendy Gramm notified Enron in December 1998 that congressional ethics rules might prevent her family from holding stock in Enron, according to Public Citizen. Phil Gramm was preparing legislation that would affect the company, triggering the rules. 
Enron then devised a way to compensate Wendy Gramm, while getting around the problems associated with her ownership of stock in the company, according to Public Citizen. 
"Enron canceled all of her outstanding shares and provided her with an additional service fee for a total of $117,000" over the next four years, the group said.

PHOTO; Caption: PHOTO: Sen. Phil Gramm and his wife, Wendy, who at times acted as regulators of Enron Corp., had close financial ties to the company. AP file photo. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business; Viewpoint
Bush In The Glare The Enron mess may revive a tough question: Whose side is this President on?
Karen Tumulty; With Reporting by James Carney and Adam Zagorin

01/21/2002
Time Magazine
Time Inc.
36
(Copyright 2002)

It was supposed to be a week in which George Bush made common cause with the common man, a week of speeches and photo ops to show that the President who whipped the Taliban could also save our jobs and fix our schools. But when a gust of news blew the Enron mess from the business section to the front page, the country saw a tense, cautious President trying his best to distance himself from one of his biggest campaign contributors, the friend he used to call "Kenny Boy." In the Oval Office on Thursday, Bush told reporters he hadn't seen "Mr. Lay" since last spring. 
So far, there is no evidence that anyone in the Administration did anything wrong or that the half a million dollars that Lay and his fellow Enron executives invested in Bush's political career over the years bought them any special favors. But Bush knows he stands in the line of fire. Democrats have been unable to hang the recession on him, but many hope that Enron's hapless employees--whose retirement nest eggs vaporized even as their bosses were selling off more than $1 billion of their own stock--become the image that sticks. The Enron debacle goes to one of the most basic questions Americans ask about their President: Whose side is he on? Pre-September surveys showed a hardening perception that Bush doesn't care about the concerns of the average person. In a New York Times poll last June, 57% of those surveyed said the Administration's policies favored the rich, and 63% said Bush was a "typical Republican." Though his public approval soared after Sept. 11, White House officials fear Bush has not entirely shaken the idea that he cares more about corporations than about the people who work for them. Kenny Boy reminds folks of that.
The Enron mess has reawakened Washington's instant scandal culture, with the entirely predictable twist that Democrats and Republicans have exchanged their well-practiced roles. But there's one obvious comparison that Bush's advisers are at great pains to deny. "There is no war room, no task force, no team of lawyers working day and night to battle the Democrats," says an aide. "This is not the Clinton White House." The Administration finally disclosed last week how many meetings Enron representatives had last year with Vice President Dick Cheney or his staff--six, including one as late as October, when Enron was going down the tubes, although those officials say they never discussed its fortunes. But the Administration continues to fight General Accounting Office efforts to find out who else Cheney talked to when he was developing his energy plan. A GAO lawyer told TIME the agency is hiring attorneys "with Supreme Court experience" in the event that it proceeds with a federal lawsuit to force Cheney to divulge the material. 
Bush was not above a little Clintonesque shading of the truth last Thursday as he described his relationship with Lay. "He was a supporter of [Democratic incumbent Governor] Ann Richards in my run in 1994," said the President, adding that he got to know Lay after that. This came as a surprise to a great many people in Texas, as Lay and his wife contributed $47,500 to Bush's campaign that year (and a mere $12,500 to Richards') and Enron's political-action committee and executives donated nearly $100,000 more to Bush, according to the watchdog group Texans for Public Justice. Lay had even contributed to Bush's unsuccessful race for Congress in 1978. 
Amid all their self-congratulatory talk about being forthcoming-- getting "in front of the story," as it's known in Washington--Bush officials insist they see nothing odd about the idea that it took nearly three months for Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill to inform the White House that Lay had come to them seeking help as the company was going under. If the White House's story is so clean--Enron asked; we said no--why wait three months to tell it? 
Last week news of the calls to Evans and O'Neill kicked the Democrats into high gear, targeting Bush as an enemy of the little guy. The White House, said Democratic Congressman Henry Waxman, "had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders, who ultimately lost their life savings." And it's not just the Waxmans of the world that Bush has to worry about. Louisiana Republican Billy Tauzin, chairman of the House Energy and Commerce Committee, the first to announce a formal congressional probe, has already sent investigators to the Houston offices of both Enron and its accounting firm, Arthur Andersen. 
No wonder Bush tried to change the subject last week. He spoke of fixing the 401(k) pension laws and regulations that let Enron's bankruptcy become a personal tragedy for its workers. Bush's first challenge is to convince Americans that he didn't use his influence to protect one of his biggest campaign contributors. His larger one is to convince them he will use that influence from now on to protect them from future corporate shell games. --With reporting by James Carney and Adam Zagorin

COLOR PHOTO: LARRY DOWNING--REUTERS SCANDAL CULTURE Bush gets targeted as the little guy's enemy 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

The Enron scandal.(investigation into collapse of Enron Corp.)(Brief Article)

01/21/2002
Maclean's
10
Copyright 2002 Gale Group Inc. All rights reserved. COPYRIGHT 2002 Maclean Hunter Canadian Publishing Ltd.

The administration of George W. Bush came under sudden siege in the wake of the December collapse of Enron Corp., a secretive energy- trading firm and America's seventh-largest company. As the justice department started a criminal probe and five congressional committees announced hearings, ex-oilman Bush tried to distance his administration from revelations that Vice-President Dick Cheney and other officials had numerous meetings with Enron on energy policy and the possibility of a credit extension. Enron was Bush's biggest campaign contributor. Enron's auditor, Arthur Andersen LLP, also admitted that its people had destroyed significant numbers of Enron documents. The company went bankrupt when a potential merger partner walked away after taking a close look at Enron's notoriously obscure financial numbers. A handful of top executives sold about $1 billion (U.S.) of company stock before the price collapsed. At the same time, thousands of employees were barred from selling their shares and lost savings and retirement accounts.


Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

MEDIA
Late to the Party
William Powers

01/19/2002
National Journal
Copyright 2002 by National Journal Group Inc. All rights reserved.

Enron World, the media amusement park, has been packed lately, as everyone tries out all the fantastic rides and games. The lines have been especially long at Who's to Blame?-a funhouse where laughing journalists race around pointing fingers in all directions and throwing pies at the Enron players of their choice. 
The New York Times won a plush teddy bear for hitting 15 different Enron clown-figures-including Dick Cheney, Larry Lindsey, Marc Racicot, Karl Rove, and Texas Gov. Rick Perry-with one 785-word shot, all names in bold. And Time magazine hasn't missed out on the thrills: "Huge questions loom as to how widespread the damage will be, who is to blame, and what is going to be done about it.... John Dingell, ranking member of the House Energy [and Commerce] Committee, said it best: `Where was the SEC? Where was the Financial Accounting Standards Board? Where was Enron's audit committee? Where were the accountants? Where were the lawyers? Where were the investment bankers? Where were the analysts? Where was common sense?' "
Dingell's list of culprits had one notable omission. But he probably didn't want to spoil the fun by asking the question that floats over the Enron story like a big, silent blimp: Where were the journalists? 
We are talking, after all, about a huge public corporation, one that was required by law to release reams of data about itself on a regular basis. While top Enron executives appear to have worked hard to conceal the company's true financial condition, the public record has long contained hints of trouble. They were exactly the kinds of hints that journalists are supposed to be good at noticing: numbers that didn't quite add up, vague references to odd-sounding business arrangements. But in order to see them, you had to be looking hard. To get at their meaning, you had to be willing to dig. 
In early November, with Enron's slide well under way, The Wall Street Journal published a story about a New York money manager named James Chanos. It appeared in a Heard on the Street column by Cassell Bryan-Low and Suzanne McGee, and though it has since been recycled here and there in other outlets, the story is not broadly known. As the scandal grows larger by the day, and journalists glory in its delights, it's worth taking a quick look back at Chanos. His story should be a stunning rebuke to the media, for it suggests we could have had the Enron story long ago, if only we had wanted it. 
When Enron's annual report came out in the fall of 2000, Chanos went through it carefully, The Journal reported, "underlining complicated passages and scribbling exclamation points and question marks." One curious section caught his eye. It said a top Enron executive was the "managing member" of a "private investment company" called LJM Cayman. This company had "entered into a series of transactions" with Enron, transactions that the report briefly and murkily described. 
Chanos didn't understand what this meant, but he thought it was interesting. So he did more homework in the public record. "Over time, he would build up an 18-inch stack of regulatory filings and other material about Enron," the paper reported. He also hit the phones, quizzing expert Enron-watchers about the company's operations and health. In the end, Chanos concluded that Enron was a "hedge fund in disguise"-a very risky enterprise in which he didn't believe it was wise to own stock. 
Now Chanos was not doing all this legwork out of high- minded intellectual curiosity or in the interest of the public good. He is well-known in investment circles as a "short-seller," one who makes money by identifying weak companies and betting that their stocks will decline. But when he was poring over all those documents, calling people and begging for information, trying to drag the truth out of a stonewalling organization, Chanos was behaving an awful lot like a reporter. (Indeed, when another short-seller made a stink about Enron's refusal to release a balance sheet, the CEO cussed him out, using the same word that George W. Bush once applied to a pesky New York Times reporter.) 
In one sense, it's kind of stunning that some ambitious business journalist didn't do exactly what Chanos did, then write up a big splash about Enron's coming demise. The word "Cayman" alone should have rung bells for anyone who has covered financial shenanigans. 
But in another sense, the media's Enron failure isn't surprising at all. The democratization of Wall Street has given most Americans a huge stake in the stock market. Millions of middle-class families have their college and retirement savings- their futures-riding on the health of public companies such as Enron. Yet most American media companies haven't recognized that they have a gigantic opportunity, and arguably a duty, to cover these companies with the same sort of hard-core accountability journalism they apply to government. 
The fault doesn't really lie with individual reporters. Just digging up the information for routine business stories is hard work, mainly because business people have little incentive to help the media. Daily beat reporters can't be expected to be crusading investigators, too: All their sources would dry up. But if every American news outlet would send its investigative aces- the types who love political dirt-out into corporate America for a few years, I bet they'd find a lot more Enrons. And prevent a lot more ruin. 
"There's much to learn when a stock loses $67 billion in value," observes Money magazine in the headline over an Enron story. There sure is.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

McKinsey Held Close Enron Ties For Many Years
By Suein Hwang and Rachel Emma Silverman
Staff Reporters of The Wall Street Journal

01/17/2002
The Wall Street Journal
B1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

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.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Creditors Group Law Firm Has Ties To Co, Creditors
By Kathy Chu

01/18/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES 
(This report was first published late Thursday.) 

NEW YORK -(Dow Jones)- It seems difficult to find a company that doesn't have ties to bankrupt Enron Corp. (ENRNQ) these days.
Take, for instance, Milbank Tweed Hadley & McCloy LLP, the New York law firm representing the official creditors committee in Enron's Chapter 11 proceedings. 
Milbank Tweed served as counsel to the bankrupt company in unrelated legal matters for at least the past five years - receiving $5.67 million from Enron, or about 1.5% of its more than $350 million in revenue last year - and has ties to hundreds of Enron's creditors and interested parties. The firm, which still must get the bankruptcy court's official approval, also represents Citigroup Inc. (C) and J.P. Morgan Chase & Co. (JPM), Enron's largest lenders, in matters "unrelated" to Enron's bankruptcy proceedings, according to court documents. 
The disclosure - made in 137 pages of documents filed late Wednesday with the U.S. Bankruptcy Court of the Southern District of New York - is another sign of the pervasive reach of the once-mighty energy-trading company. 
It also reveals the need for deftness by interested parties attempting to sidestep conflicts in the largest bankruptcy case in U.S. history. 
Mary Elizabeth Tom, the assistant U.S. trustee for the Southern District of New York, said that while Milbank Tweed's relationships to Enron and some creditors may be unusual, few things in these complex proceedings are "common." 
"Any law firm would have ties (to Enron)," she said, adding that her office supports Milbank Tweed as counsel to the creditors committee. 
Enron also has no objection to the arrangement, attorney Martin Bienenstock of Weil Gotshal & Manges has said. 
Creditors will get a chance to weigh in at the end of this month, at a bankruptcy hearing before Judge Arthur J. Gonzalez. 
For now, the official creditors committee is considering appointing a special counsel to handle matters from which Milbank Tweed must recuse itself, according to people familiar with the matter. 
Issues that creditors may take a look at include Milbank Tweed's dealings with Enron North America and Enron Broadband Services on investment matters as recently as last November - a few weeks before the company and its units began filing for bankruptcy. 
Also, in addition to J.P. Morgan Chase and Citigroup, which serve on the creditors committee, UBS AG, which plans to take over Enron's core energy-trading operations, is on Milbank Tweed's client roster. 
Milbank Tweed, in the court filing, said it will continue representing these banks, but plans to stay away from any claims in Enron's bankruptcy case by relying on an "information firewall" between its attorneys. 
The law firm - which has no current ties to Enron - also plans to regularly identify all of its connections with debtors and creditors in the bankruptcy case. 
This transparency, according to legal experts, will be key to maintaining the confidence of all involved. 
"The failure to disclose could result in the later disqualification of the firm as counsel," said Jack Williams, the outgoing scholar at the American Bankruptcy Institute, a nonprofit think tank in Alexandria, Va. "There's a major risk that a firm undertakes when they represent a creditors committee." 

Creditors Committee Wants To Move Quickly 

The appointment of Milbank Tweed - a firm versed in complex bankruptcy proceedings and the energy and capital markets - signals the committee's need to move quickly in Enron's bankruptcy case. Attorney Luc Despins, co-chairman of the firm's financial restructuring group, is the lead lawyer for the unsecured creditors group. He couldn't be immediately reached for comment. 
The committee's actions will be pivotal in determining whether Enron is able to reorganize in 12 months, as it hopes. 
One point of favor: Bankruptcy experts say that Milbank Tweed's knowledge of bankruptcy and insolvency law, as well as regulatory and securities issues, will expedite legal proceedings. 
"I don't think boutique firms would have had this expertise," said Williams, of the American Bankruptcy Institute. 
The New York offices of the international law firm beat out more than a dozen rivals for the job - including Thompson & Knight and Coudert Brothers LLP - last month. 
But in order to keep itself in favor with the company and its creditors, the law firm will have to avoid some of its previous missteps. 
Milbank Tweed hit rough waters last year while representing the official creditors group in PG&E Corp.'s (PCG) Pacific Gas & Electric bankruptcy. 
A U.S. trustee in California raised questions about whether Milbank Tweed - as well as other law and accounting firms in the case - had improperly billed for more than $1 million in combined fees during the first four months of the case. 
Late last year, a federal bankruptcy judge rejected some of these fees but upheld others. The judge also firmed up billing guidelines, and advised the companies to stick to them. 
-By Kathy Chu, Dow Jones Newswires; 201-938-5392; kathy.chu@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

News; International
Red Cross Reviews Prisoner Conditions at Guantanamo Bay

01/18/2002
CNN: Special Report With Aaron Brown
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved.

excerpts only...
AARON BROWN, NEWSNIGHT CORRESPONDENT: Good evening again from Los Angeles. I'm Aaron Brown. We spent much of today trapped in another time, in the '60s, which in truth were also the first half of the '70s, and the arrests yesterday in the 1975 robbery/murder that was very much front page news out here and around the country today. 
*****
On to Enron we go. Are you seated? This one may shock you. The company fired its accounting firm today, Arthur Andersen, questions about document shredding it seeMs. Enron's lead lawyer, Bob Bennett, adding that "we're very concerned about what the accounting advice was." Those are his words and it is in the running for the understatement of the century, at least so far. It's early. 
Also today, we got word that Enron managed to avoid paying Federal income taxes in four of the last five years. That is not uncommon for big companies with smart accountants. 
There is also a political story to this developing, and for that we turn, once again, to CNN's Tim O'Brien who joins us from Washington. Tim, good evening. 
O'BRIEN: Good evening, Aaron. The ranking Democrat on the House Government Reform Committee, Henry Waxman has just issued a report alleging that 17 policies in President Bush's new energy plan either benefit Enron or were even proposed by Enron, a report the White House angrily dismissed as a waste of the taxpayer's money. 
(BEGIN VIDEOTAPE) 
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The allegation by Congressman Waxman that anything was put in that plan for political purposes is, of itself, a partisan waste of taxpayer money. 
REPRESENTATIVE HENRY WAXMAN (D) CALIFORNIA: I have made no accusations of any wrongdoing by anybody in the Bush Administration, and I think it would be unfair to do so until we have a thorough investigation and we get all the facts. 
O'BRIEN: The administration, citing separation of powers, has made it clear however Congress won't be given any facts about meetings with Enron officials at the White House. That clash could end up in court, as could the developing clash between Enron and its former accounting firm Arthur Andersen. Congressional investigators have uncovered an e-mail, indicating Andersen decided to retain Enron as a client only after a significant discussion of Enron's earning, which it characterized as "intelligent gambling." 
Enron struck back, firing Arthur Andersen. In an exclusive interview with Lou Dobbs MONEYLINE, the CEO of Arthur Andersen said that was to be expected. 
JOSEPH BERARDINO, CEO, ANDERSEN: Well, Lou, techni
cally and I hate to be technical but I think it is an important point, when a company goes in bankruptcy, all its relationships are severed. 
O'BRIEN: No, that's not it at all, said Enron CEO Kenneth Lay. The Andersen firm was fired because it improperly destroyed documents. And then there's Harvey Pitt, the Chairman of the Securities Exchange Commission, who earlier in the day proposed that accounting firms, like Arthur Andersen, be held more accountable. 
But what's he doing in all this? As a lawyer in private practice, Pitt used to represent Arthur Andersen. Democrats charge conflict of interest. 
HARVEY PITT, CHAIRMAN, SECURITIES EXCHANGE COMMISSION: I will not only adhere to the letter of my ethics obligations. I will adhere to the spirit. 
O'BRIEN: Translation, Pitt will not recuse himself from the case, but he will keep his distance from the investigation. 
(END VIDEOTAPE) 
O'BRIEN (on camera): To many, perhaps most the scandal is and may always be more about business than about politics, unless of course you live in Washington where business and just about everything else is politics. Aaron. 
BROWN: Tim, thank you. Tim O'Brien in Washington on Enron tonight. In a moment, the Symbionese Liberation Army, the ghosts of 1975, and the events that haunt a lot of people today. We'll revisit the SLA's violent demise and talk to a son who remembers the SLA as people who murdered his mother. This is NEWSNIGHT from Los Angeles on a Thursday. 
(COMMERCIAL BREAK)
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


Diversify, Diversify, Diversify
By James K. Glassman

01/18/2002
The Wall Street Journal
A10
(Copyright (c) 2002, Dow Jones & Company, Inc.)

When shares of Enron plunged from $84 earlier this year to practically zero, thousands of the company's employees lost not just their jobs but also most of the value of their 401(k) retirement accounts. For the average employee, Enron stock represented three-fifths of 401(k) assets, and the energy company's meltdown -- after revelations of misleading, probably fraudulent, accounting practices -- was a personal calamity. 
Now politicians, including Democratic Sens. Barbara Boxer of California and Jon Corzine of New Jersey, are rushing in to protect other Americans from similar disasters. And President Bush has ordered "a policy review to protect people's pensions." But government intervention would only introduce a dangerous idea: that investors shouldn't bear the burden of their own decisions.
Let's be clear: Enron executives and outside auditors who lied to investors -- including their own 21,000 employees -- bear an enormous responsibility, moral and legal. But the employees also bear some responsibility. Most of them had far too large a proportion of their retirement assets tied up in their own company. They took a risk. 
Enron offered a typical 401(k): Employees could invest up to 6% of their base pay in a wide range of options, including stock mutual funds like Fidelity Magellan, bonds, money-market funds and a self-directed Schwab account that could buy practically anything. They could also choose Enron stock, purchased at the regular market price. Whatever employees contributed with their own money, the company matched, up to 50% (that is, 3% of base pay), with Enron stock. 
In other words, free Enron stock -- $1,800 worth a year for an employee making $60,000 in base pay -- was part of the compensation package. Workers knew it, and they presumably liked it. Workers also knew that their 401(k) had a rule, also common to such plans, that they had to keep the company stock given to them by Enron until they were at least 50 years old. Any Enron stock they bought themselves, of course, they could transfer at will. 
Enron stock soared in value -- but turned out to be a blessing and a curse. Imagine the case of an employee who joined the company in 1997, when the stock was worth (after adjusting for splits) about $20 a share. If the employee bought other assets which grew at 10% a year, by the end of 2000 those assets had grown by about one-third while the Enron stock had more than quadrupled. His 401(k) account became lopsided, with far more Enron stock than anything else. 
That was a predicament common to many Enron employees when their company stock crashed. The wise move, as Enron climbed, would have been to buy other assets for a separate, taxable plan to balance the company stock. How many employees did that? Probably not many -- presumably for some because they didn't have the money. If Social Security had been reformed, they could have directed part of their payroll taxes into broad indexes of stocks and bonds, offsetting their Enron holdings. But that's a subject for another day. 
Warren Buffett, the best investor of the last century, is fond of quoting Mae West as saying, "Too much of a good thing can be wonderful." But for most investors, picking the good thing isn't easy. The most important rule, by far, for successful investors is, "Diversify, diversify, diversify." 
As late as October, even the independent Value Line Investment Survey was giving Enron an "A" rating for financial strength and saying the stock had "above-average appreciation potential." If Enron had represented 5% of your portfolio -- the maximum for any stock, as far as I'm concerned -- then its bankruptcy would have put only a small dent in your retirement account. Instead, a study released in November by the Employee Benefit Research Institute and the Investment Company Institute found that company stock represents nearly one-third of the total assets in the 401(k) plans of employees of firms that offer their own stock as an investment option. 
That's far, far too much. Right this second, the 37 million Americans with 401(k) plans should be reviewing them to be sure they're diversified. 
Instead, they're being told by politicians, don't worry, the government will fix everything so you can play the stock market with no downside risk. Ms. Boxer and Mr. Corzine want a law that would prohibit any one stock from representing more than 20% of a 401(k) plan's assets. But all this does is reduce investor choice and responsibility while stepping ever closer toward some kind of federally mandated retirement system. 
The big problem is that too few Americans understand what prudent portfolios are. Current laws don't help. Under the Employee Retirement Income Security Act of 1974, the guiding federal pension statute, overseen by the Labor Department, companies are held liable for investment advice offered to their employees, even if it is given by independent professionals they hire. So most 401(k) participants get no advice at all. They're forced to choose among assets they don't understand. A recent study by John Hancock Financial Services, for example, found that many investors believe that a diversified stock fund is more risky than their company's stock, and that a bond fund is risk-free. 
Last month, the Labor Department issued an opinion at the request of SunAmerica that lightened some of the legal burden and let the investment advisor help employees allocate their assets. More important is the Retirement Security Advice Act, introduced by Rep. John Boehner (R., Ohio), which removes unreasonable employer liability. It's backed by the administration and has passed the House. A similar bill is sponsored in the Senate by Jeff Bingaman (D., N.M.). 
That pension rules are complicated is no excuse for the inaccuracies of the reporting on Enron's retirement plan -- especially the claim that rich managers could sell their stock while lowly workers were "locked in." All plan members, including top executives, were prevented from moving any of their 401(k) assets between Oct. 29 and Nov. 13 -- a temporary shutdown, announced on Oct. 4, supposedly to allow for a transition to a new outside plan administrator. By then Enron's stock had already fallen to $13.81 (it declined another $3.83 during the 10 trading days of the freeze). 
The timing of the changeover does sound a little fishy, and investigators should examine it carefully. But such shutdowns are common, and there's no need to ban them. One small change in the law that might be worthwhile is for companies to be prevented from issuing restricted stock to plan members. Other investors aren't barred from selling stock before they're 50; employees shouldn't be either. 
But let's not lose sight of the main lesson of the Enron disaster: Bad things happen to good investors, and diversification is the only protection. Companies should design plans that make diversification easier, but, ultimately, the responsibility for wise investing must lie with the investor. Politicians who say it doesn't are only encouraging risky behavior. 
--- 
Mr. Glassman is a fellow at the American Enterprise Institute, host of TechCentralStation.com, financial columnist for the Washington Post and author of "The Secret Code of the Superior Investor," published this month by Crown.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Global Finance
Breakingviews: J.P. Morgan May Pay for Creativity --- Insurers Challenge Bank's Method for Controlling Risks in Enron Dealings
Edited by Hugo Dixon

01/18/2002
The Wall Street Journal Europe
24
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Why is J.P. Morgan Chase butting heads with a group of insurers in a U.S. court? It may be because of the way the investment bank structured its lending to Enron. J.P. Morgan used highly esoteric structures to neutralize the credit risks it was running. One of these has backfired, possibly leaving the bank with far more credit exposure than it thought. 
The transactions at issue were forward purchases of gas and oil from Enron by a company related to (and financed by) J.P. Morgan. These trades were guaranteed with third-party credit insurers, thus seemingly neutralizing J.P. Morgan's credit exposure. But for this purpose, J.P. Morgan chose not to buy credit derivatives -- instruments that explicitly transfer unsecured credit risk from one party to another -- but surety bonds. These instruments are more commonly used to insure the physical risks involved in corporate transactions. In the case of Enron, such risks might have included pipeline explosions. J.P. Morgan seems to believe that such transactions were in the ordinary course of its energy trading operations. The insurers contend they were disguised loans, and that they hadn't agreed to take unsecured credit risk on Enron. It is hard to tell who is right. But the structure adopted by J.P. Morgan allowed Enron to increase the size of its balance sheet without appearing to take on more debt. 
Indeed, such techniques seem to have allowed it to expand its revenue, giving the bogus appearance of success. These matters are now the subject of a legal dispute. The insurers may yet be obliged to cough up. But J.P. Morgan seems to have tied itself in too many knots trying to service its client. The bank's creativity has already dented its reputation for managing risk by forcing it to increase by $1.7 billion (1.93 billion euros) to $2.6 billion the estimate of its total exposure to Enron. It may also cost its investors dearly.
--- 
For more commentary, go to www.breakingviews.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

COMPANIES & FINANCE ENRON COLLAPSE - Duke benefits from traders' flight to quality - RIVAL MERCHANT'S RESULTS.
By SHEILA MCNULTY.

01/18/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Shares in Duke Energy slid more than 6 per cent in New York trading yesterday after the US power group said fourth-quarter earnings dropped 21 per cent because of mild weather and lower power prices. 
Fourth-quarter net income was $225m, down from $284m in the year-ago period. Excluding items, earnings per share were 35 cents, down from 47 cents. Wall Street had been expecting 45 cents, according to Thomson Financial/First Call.
Despite yesterday's share price fall, analysts predicted the fourth-quarter results would be among the best of those to come, as reporting got under way for the energy merchants. 
"Duke is the blue chip: it's the most stable, the financially strongest (and) has the strongest system," said Robin West, chairman of the Petroleum Finance Company, a Washington consultancy. "I think their results will lead the industry." 
Duke was forced to take a $43m provision for non-collateralised exposure to Enron in the quarter. 
Nevertheless, the North Carolina-based company reported a record $2.64 in earnings per share in 2001. Full-year revenue grew 21 per cent to $60bn in 2001 and earnings before interest and taxes increased to $4.3bn. 
Part of the gain was attributed to the "flight to quality" in energy trading following the Enron collapse, as counterparties sought safety in Duke's diversified portfolio and investment-grade credit rating. 
In general, Raymond Niles of Salomon Smith Barney expects year-on-year earnings per share gains for the industry, but sees a greater potential for "downside risk". He pointed to the possibility of lower trading volumes resulting from Enron's fallout and subsequent credit concerns about the industry. He also cited weak power prices, mild weather and the slow economy. 
Several energy companies were forced to take steps in the fourth quarter of 2001 to reassure investors, creditors and rating agencies that they were not vulnerable to the financial problems that pushed Enron, the biggest US energy trader, into bankruptcy on December 2. 
El Paso, Dynegy, Williams and Mirant all outlined restructuring programmes. These included asset sales, reductions in capital spending, restoring off-balance sheet structures to the balance sheet and issuing equity. 
The restructurings, in addition to several factors specific to some individual companies, led Mr Niles to lower his average long-term growth outlook for the energy merchant industry to 10-20 per cent, from 15-25 per cent. 
For power producers such as Calpine - which has also outlined measures to strengthen its balance sheet - Mr Niles belives 2002 may be atransition year, as growth targets are slashed and rationalisation takes hold, reflecting the cyclical nature of the business. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Report on Business: Managing
Enron debacle casting 'lousy' light on accountants
Reuter News Agency

01/18/2002
The Globe and Mail
Metro
C2
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

NEW YORK -- Why did the accountant cross the road? The answer used to be to bore people on the other side. In light of the Enron Corp.-Arthur Andersen LLP scandal, it may now be to avoid prosecution. 
Long the butt of jokes as the epitome of boring and unsung professions -- the greyest of the men in the grey flannel suits -- accountants suddenly find themselves at the fore of national news with the heat accounting firm Andersen is taking.
Andersen's role in the Enron debacle has thrust an accountant to the front pages. David Duncan, Andersen's lead partner in charge of reviewing Enron's books, is now enduring the kind of unwanted celebrity usually reserved for the Monica Lewinskys and Gary Condits of the world, after it was revealed he ordered the destruction of Enron documents. 
"None of us want to see our profession cast in this light," said Steven Lilien, chairman of the accounting department at New York's Baruch College. "There's some lousy light being cast on the accountants now." 
Mr. Duncan has said he was following company instructions. 
Also altering the traditional milquetoast image of the accountant is Andersen managing partner and chief executive officer Joseph Berardino, who has been trying to restore the tarnished image of the firm and taken his case to the public. 
Mr. Berardino on Wednesday took out full-page ads in major U.S. newspapers with an open letter to "respond to recent Enron-related events." 
There was a time when the world's most famous accountants were the representatives from Price Waterhouse, annually trotted out during the Academy Awards to acknowledge their part in tallying the Oscar votes. And no one ever knew their names. 
Sensational scandals, shredded documents, the glare of congressional hearings and the possibility of high-profile criminal trials could soon have accountants longing for the anonymity of yore.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Style
The Enron Story That Waited To Be Told
Howard Kurtz
Washington Post Staff Writer

01/18/2002
The Washington Post
FINAL
C01
Copyright 2002, The Washington Post Co. All Rights Reserved

Bethany McLean, a 31-year-old Fortune magazine reporter with an impossibly soft voice, decided to take a hard look at Enron last January. 
The Houston energy company didn't like her questions. The CEO, Jeffrey Skilling, called her unethical and hung up on her. The chairman, Kenneth Lay, called Fortune's managing editor to complain. The chief financial officer, Andrew Fastow, flew to New York to tell McLean and her editors that Enron was in great shape.
McLean refused to be intimidated. "The company remains largely impenetrable to outsiders," she wrote in Fortune's March 5, 2001, issue. "How exactly does Enron make its money? Details are hard to come by because Enron keeps many of the specifics confidential. . . . Analysts don't seem to have a clue." All this amounted to a "red flag" that "may increase the chance of a nasty surprise." 
The story sank without a trace. "At that point the coverage of Enron was pretty glowing," McLean says. After all, the stock had soared 90 percent the previous year and was selling for $76 a share. 
Now that the company has collapsed amid charges of financial chicanery, devastating its employees' retirement funds, Enron is the hottest story in the country. Political reporters joined the fray after learning that Enron had sought help from the Bush White House. Teams of business journalists are digging into the largest corporate meltdown in American history. 
But as in the savings and loan debacle a dozen years ago, it took news organizations too long to piece together the clues. 
"It's fair to say the press did not do a great job in covering Enron," says Steve Shepard, editor-in-chief of Business Week magazine, which ran only briefs on the company's financial problems until a cover story in November. "Enron was really a systemic failure of all the checks and balances we have on corporate governance: integrity of management, board of directors, audit committee of the board, outside accounting firm, Wall Street analysts and ultimately the press. And all of us failed." 
There were some notable early efforts. Last May, the Wall Street Journal ran a front-page story on Lay getting a half-hour meeting to lobby Vice President Cheney on the administration's energy program. The story noted that over the years Enron had donated nearly $2 million to President Bush, Lay's longtime friend, and that some top administration officials had worked for Enron. 
"I feel pretty good about what we've done on Enron," says Alan Murray, the Journal's Washington bureau chief. "What we clearly did not understand was that it was heading for a disaster." 
The problem, he says, is that such stories often turn on "arcane and technical" practices. "The press doesn't pay as much attention to some of these regulatory issues that have more impact on the world than the political issues we do pay attention to," Murray says. 
If company auditors -- in this case, Arthur Andersen -- don't raise questions, "it's very hard to know where to look," says Larry Kramer, chief executive of CBS MarketWatch.com. "We didn't get a lot of rumblings. Our coverage was robust, but was still based on events after the fact." 
A dramatic decline in stock is not necessarily a warning of foul play, says Kramer, noting that his own company went public at $97 a share and the stock is now worth $4. "People just got dazzled by the size of the business," he says of Enron. 
David Morrow, editor of TheStreet.com, says the press is "too reactionary. It's too easy for the business press to look at what the analysts are saying." Most Wall Street analysts had a buy rating on Enron stock. 
Indeed, only one group wanted Enron's stock to tank: the short-sellers, professional traders who bet on a stock's decline. One short-seller, Jim Chanos of Kynikos Associates, suggested to Fortune's McLean that she look at Enron's Form 10-K, a required annual filing with the Securities and Exchange Commission. 
McLean says she understood Chanos's motive but was struck by the document. There were "strange transactions," "erratic cash flow" and huge debt. "It made you wonder, if their business was so phenomenally profitable, why they had to be adding debt at such a rapid rate," she says. 
But the story was hard to write: "You can't just spout off about derivatives and mark-to-market accounts and expect people to get it." 
Ironically, Fortune's own surveys had named Enron America's most innovative firm for six straight years, and much of the coverage was similarly upbeat. Last January, a Houston Chronicle story was headlined: "Houston has $100 billion company; Enron Corp. sets records for sales, earnings in 2000." 
There were a few critical pieces, but they mainly focused on politics. 
In February, the Los Angeles Times reported on the close ties between Lay and the president, noting that Bush had flown on Enron jets during the campaign. In March, The Washington Post ran a piece on Lay's growing influence. In May, the New York Times quoted the federal government's top electricity regulator, Curtis Hebert Jr., as saying Lay had offered to support his continued tenure if he changed his views on energy deregulation. Hebert says he declined. Bush replaced him months later. 
In August, at a Fortune conference in Aspen, Lay told Rik Kirkland, Fortune's managing editor, that Enron really disliked McLean's story. A week later, Skilling quit as CEO after just six months on the job, calling it a "personal decision." 
"The main point of failure was when Skilling resigned, because unless he had cancer or something it was inexplicable," Business Week's Shepard says. "The failure of the press was not saying, 'What's going on here?' " Business Week talked to Skilling off the record but could shed no further light on the situation. 
To be sure, journalists were skeptical. "The abruptness of the departure left many analysts questioning whether a series of setbacks the company has suffered played a part in the decision," the New York Times said. Enron's stock, which had fallen by 50 percent since January, dropped another 14 percent in two days. 
Some commentators unloaded on the company. "Until they clear this one up, Enron's a goner," former money manager Jim Cramer wrote on RealMoney.com. 
But hard information was scarce. "It's almost as if you have to use forensic accountants when you're doing a company story because many companies are using very aggressive accounting techniques that are perfectly legal," Shepard says. 
Enron fired Fastow in October for overseeing questionable off-the-books partnerships, and in November the company admitted overstating its profits by $600 million. But most papers played these stories on their business pages. 
Even Enron's Dec. 2 declaration of bankruptcy failed to make the front pages of USA Today, The Washington Post, the Boston Globe and the Philadelphia Inquirer. The CBS, NBC and ABC evening newscasts each gave the announcement two sentences. The media were still heavily focused on the war in Afghanistan. 
Now that Enron's stock has been booted off the New York Stock Exchange, Fortune staffers can't say enough about the way McLean defied both Enron executives and conventional wisdom. 
"It was a gutsy thing to do," Kirkland says. "We trusted her. When you look back it's obvious: Why weren't we all asking these questions?"


http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Metropolitan Desk; Section B
The Big City
Blame Game Has Two Sets Of Standards
By JOHN TIERNEY

01/18/2002
The New York Times
Page 1, Column 1
c. 2002 New York Times Company

WHEN bad things happen to bad companies, Washington likes to believe that it's hearing a cry for help from Wall Street. Now that Enron has collapsed, politicians are frantically investigating and vowing to protect us against greedy corporate executives. 
Prosecuting fraud and other crimes is certainly a government job, but as politicians rush to make larger reforms of the private sector, it is instructive to compare the responses to Enron and to a bigger disaster: the failure of Washington to protect Lower Manhattan on Sept. 11.
It's still not clear what, if any, criminal behavior occurred at Enron and its auditor, Arthur Andersen, but already the companies involved have suffered serious consequences. Enron is bankrupt, and there is concern that Andersen will not survive because of the blow to its reputation. 
Executives at the companies have been fired and suspended. Whether or not criminal charges are filed, both companies are already facing lawsuits from shareholders, creditors and other plaintiffs. They also face investigations by four government agencies and six Congressional committees -- all over a company that declared bankruptcy only last month. 
Meanwhile, more than four months since Sept. 11, politicians still haven't taken a hard look at mistakes by the C.I.A. or the F.B.I. 
Congressional leaders and the White House agreed in late November that it would be premature to start formal investigations last year. The agencies, far from facing the threat of bankruptcy, could wind up with budget increases to step up the war on terrorism. 
As government employees, C.I.A. and F.B.I. officials enjoy immunity against lawsuits for their mistakes, and so far they don't even seem particularly embarrassed. The leaders of the agencies haven't resigned, announced dramatic purges or explained what went wrong. 
Granted, their mistakes were probably not criminal, but then neither were some of the mistakes being investigated and litigated in the Enron scandal. The errors in judgment at the C.I.A. and the F.B.I had far more grave consequences than Enron's collapse, and some of the errors could have been avoided. 
Consider a couple of warnings before Sept. 11 that went unheeded: 
*Reuel Marc Gerecht, a C.I.A. veteran in the Middle East who quit out of frustration, criticized agency officials for perpetrating the myth that America had an effective counterterrorism program against Osama bin Laden. In an article published last summer in The Atlantic Monthly, he argued that not a single C.I.A. officer had the skills and willingness to infiltrate bin Laden's operations in the mountains of Afghanistan. ''Operations that include diarrhea as a way of life don't happen,'' a young C.I.A. case officer told him. Mr. Gerecht predicted that unless one of Osama bin Laden's ''foot soldiers walks through the door of a U.S. consulate or embassy, the odds that a C.I.A. counterterrorist officer will ever see one are extremely poor.'' He criticized George J. Tenet, the director of central intelligence, for assuring the public that the C.I.A.'s efforts were keeping bin Laden's terrorists ''off-balance.'' 
*The F.B.I. was warned in August by a flight school in Minnesota that a student could be planning to use a commercial plane as a weapon, according to United States Representative James L. Oberstar, Democrat of Minnesota. The student, Zacarias Moussaoui, later charged with complicity in the Sept. 11 attacks, was arrested in August on immigration charges. But officials at F.B.I. headquarters in Washington resisted a broader investigation despite being urged by the school and by federal agents in Minnesota, and despite a warning from French officials that Mr. Moussaoui was linked to Muslim extremists. 
HOW much blame does the F.B.I. deserve? Suppose this private-public interaction had been reversed. Suppose that public officials had warned a private airline that a passenger might be a terrorist, and suppose that higher-ups at the airline ignored the warnings from the officials as well as suspicions from their own employees. 
If the warnings proved correct and a plane was blown up, the executives at that airline would probably be in about the same position as the ones at Enron and Andersen today: contemplating bankruptcy, looking for new jobs, preparing to face a slew of lawsuits and Congressional investigations. They would not be anticipating an increase in their budget. 
If you're going to make that kind of mistake, do it on government time.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

EDITORIAL
ENRON ENLIGHTENMENT LOTS OF QUESTIONS AND A NEED FOR ANSWERS

01/18/2002
Pittsburgh Post-Gazette
REGION
A-18
(Copyright 2002)

The dramatic failure of the Enron Corp., America's seventh- largest company, will soon be examined in depth in an investigation coordinated by the Department of Justice and in various congressional hearings. 
The goal of this necessary inquest should be twofold: to determine whether violations of law or regulations took place and to discern whether new legislation or regulation is necessary to avoid -- or mitigate the impact of -- future disasters.
As is the American way, there also will be attempts to point fingers. Because politicians are involved and 2002 is an important election year, there will be efforts by partisans to pin the blame for Enron-produced damage on rivals. 
At the very least, there probably are serious lessons to be learned from what happened. Some of it certainly should not be allowed to be repeated, if possible, although companies do fail. The fate of Enron and those responsible for its fall, if dissected properly, should also serve as a shot across the bow of other American companies. That goes for firms with something to hide, or accounting firms willing to fudge on the clean bills of health they are giving their clients. 
The Justice Department and Congress need to address some of the following questions: 
* Was it legal when Enron's 29 top executives sold off $1.1 billion of company stock even as they blocked, during the last two months of the company's pre-bankruptcy life, the sale of Enron stock by employees from their 401(k) accounts? If such behavior was legal, should it be legal in the future, or do employees need more protection in such circumstances? Ethical questions also must be addressed. Putting all of one's retirement fund in the stock of one's employer violates two cardinal rules of investing: 1) Diversify and 2) Let the Buyer Beware. 
* Why did accounting firm Arthur Andersen miss or choose not to see Enron's true financial situation, including Enron's now-admitted overstatement of company profits by $600 million over five years? And was Andersen's acceptance of an annual $52 million in consulting fees from Enron consistent with Securities and Exchange Commission regulations requiring an auditing firm's independence from its clients? Does Andersen's dismissal of the auditor responsible for Enron answer all of the questions about the destruction of documents sought by federal regulators? 
* Did Houston-based Enron's leaders' contributions to, and relations with, a former Texas governor, now president of the United States, play any role as the company operated and then maneuvered as it began to fall? 
We tend to see the telephone calls that Enron executives made to Cabinet members and other Bush administration officials -- and their "no-bailout" response -- as correct. Would anyone have wanted Enron not to have alerted senior U.S. government officials to the imminent collapse of America's seventh-largest company? If there is more to those contacts -- inappropriate, illegal or defensible -- it must come out, in the hearings and in the criminal investigation.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

EDITORIAL
AS ENRONGATE UNFOLDS, A PARTISAN'S HEART LEAPS WITH GLEE

01/18/2002
Pittsburgh Post-Gazette
REGION
A-18
(Copyright 2002)

MATTHEW MILLER 
LOS ANGELES
I knew something was up when I felt that first frisson of glee shudder through me the day Enron consumed the world like a great tide. 
It peaked when Paul O'Neill looked at Lou Dobbs on TV that first night and, apropos of the implications for pension and accounting laws, deadpanned, "This is not about Enron." Lou and I shook our heads and smiled knowingly. 
Like any postmodern man in the age of self-help and self- absorption, I try to keep abreast of any unusual fluctuations in my emotional state. What I was feeling, I realized, went beyond mere schadenfraude, that perverse delight in another's misery so common among writers and other petty professions. 
No, this was a fuller-blown excitement, reflecting a deep well of despair discernable only because it was now suddenly producing such a gusher of hope: Yes! I thought. Maybe this will at last take a bite out of those Bushies and stop their evil domestic agenda in its tracks! 
Let me step back. As far as I'm concerned, President Bush has been doing a fine job on the terror front to date, and I'm praying he and his team continue to fare well there. And I swear, people who know me will tell you I'm usually a substantive guy immune to blind partisanship. Why, I'm as likely to blast Democrats for demagoguing needed Social Security reforms or fighting the potential of vouchers for urban schoolkids as to slam Republicans for shafting the poor. Really! 
But Bush's overriding domestic thrust -- cutting taxes for the well-off and shorting everything else save defense -- plainly has me undone. Especially because Bush and Karl Rove have been shrewd enough to pretend, successfully, that this is not what Bush is doing. And Democrats are too clueless or gutless or shameless to stop it. 
Sometimes you need a little divine intervention. Enron, rightly understood, is obviously the gift of a vengeful Almighty. 
It's true there may turn out to be no malfeasance by the White House, and I'll sidestep that in a second. But there's no denying the potential here. Enron is a peerless symbol of truths that conservatives have long purged from acceptable discourse. There's rot at the top. The system is rigged. Free markets don't work by themselves. The little guy needs a break. 
And yes -- drum roll, please -- government can help. 
These are lessons citizens need to relearn. And now -- with a little coaxing, of course -- they'll play out day after day on the news. 
Yes, in exploiting this situation I realize I may be yielding to dark impulses that have bloodied humanity since the dawn of time. And rationalizing it as justifiable tit-for-tat after all the bogus garbage Republicans shoveled at Bill Clinton for eight years -- a line of thought that, now that you mention it, does have something to recommend it -- only takes you down the road that's left the Middle East a vale of tears. What's more, like most people who feel the way I do, I could've just carped on about some aspect of the Enron scam itself and not revealed my deepest feelings. 
But I'm human. I know it's weak, but I can't stop myself. I cheer Henry Waxman's subpoenas. I'm stocking up on popcorn for those Lieberman hearings. And when former Clinton press secretary Joe Lockhart says, "The facts can almost take on a secondary role in these things -- for better or worse, this will not ultimately rest on whether someone can prove that someone did something wrong," my first thought is: "Well, let's certainly hope not!" 
I'm not proud. But I know I'm not alone. I'm working it through. I just wanted to share. 
Matthew Miller is a columnist for Tribune Media Services. His e- mail address is mattino@worldnet.att.net.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

California; Editorial Pages Desk
Commentary JOHN BALZAR Enron: A Scandal So Good That It Hurts
JOHN BALZAR

01/18/2002
Los Angeles Times
Home Edition
B-17
Copyright 2002 / The Times Mirror Company

"This just keeps getting better and better," Liisa sputters. By that, my wife means worse and worse. Which is what we're all thinking, isn't it? 
Before dawn, we are up and tearing into the newspapers at my household. This is terrific, heart-racing stuff.
"Look, Enron paid no income taxes four out of five years!" 
"Forget Enron, Andersen is being paid by the Justice Department to reorganize the FBI!" 
"Get this: Enron had 881 offshore subsidiaries!" 
"Wow, a professor who became a New York Times editorial columnist was paid $50,000 as an Enron advisor!" 
We're trying not to talk over each other. I'm scribbling notes all over the paper and Liisa is warning me not to make the story illegible. We subscribe to four newspapers. Suddenly it's not enough. 
This is the juiciest scandal of our lifetime. 
Why? Because this is not about personal indiscretion, not about sleazy partisan politics, not about runaway foreign policy, not about "gotcha." 
This rotten barrel of apples is all encompassing. Down at the bottom, in the really contaminated slime, Enron/Andersen/et al. is about what we have allowed our nation to become. 
It's about us. It's about winning at any price--not just winning but trouncing--about seeing what you can get away with. It's about greed and the glorification of greed. It's also the football player who deliberately tries to injure his opponent. It's about parents who beat each other up at their kids' sports matches. It's about the hand-to-hand combat of getting your children into the best colleges so they will be the dog that eats instead of the dog that gets eaten. It's about the ugly edge that has crept into our language, so that words such as "intimidation" become virtuous and "honor" a quaint laughingstock. It's about the blue-ribbon professor-cum-economics columnist who acknowledges taking $50,000 from Enron for serving on "a panel that had no function that I was aware of." 
Awhile back, we lost sight of the principle that hard work, diligence and some luck made the man. 
Inexplicably, we veered from the root ideal of civil in civilization. We took what we could and called it ours. We created the lottery for the instant chance at more. We demanded that every business "grow" rather than serve--which sounds a lot less benign than it became, as we watched ourselves transformed into jackals feeding from our own wounds. We watched as our political system was co-opted for pennies by wheeler-dealers who hollowed out the laws with fancy regulations and hidden legislative favors until our vaunted democracy became the instrument of our own oppression. 
We saw simple and honest things devalued. Like the passbook savings account. And employee loyalty--or loyalty of any kind, for that matter. 
You could wish you were high-minded in this age, but weren't you looking for 25% gains on your retirement holdings too? It didn't matter if a company made something, only if it made something happen. It mattered less whether a deed was right than whether you were "in" or "out." 
Where is the smoking gun? 
It's in our hands. 
Yes, George W. Bush is culpable: This freight train crashed on his watch. These were his back-slapping buddies. These are the people he entrusted with government. This is the way-of-life philosophy he championed. 
Let's not forget that just a few weeks ago he denounced Democrats for stalling on a multimillion-dollar, retroactive tax break for Enron and other giant companies. 
Let's remember that his top economics advisor, a former Enron retainer, views the collapse of the company as "a triumph for capitalism." Let's not overlook that his Treasury secretary sees Enron as evidence of the "genius of capitalism." Let's not overlook that his choice to run the GOP has decided to stay on the payroll of a law firm retained by Enron and reserves the right to moonlight as a strategic advisor for the company. 
But Bush didn't create the scandal. It's been in the works for years. He's no more guilty than the people who voted for him, or for those many millions who were suckered into this vision of a cutthroat America where values--that shopworn word--mean nothing at all when measured against the bottom line. 
Perhaps all boats float on a rising tide. But reach down. Tastes like sewer water now, doesn't it? 
I can hardly wait for tomorrow's papers. This is a terrific time. Maybe, finally, at long bloody last, things will get bad enough to make them right.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

REVIEW & OUTLOOK (Editorial)
Enron's Sins

01/18/2002
The Wall Street Journal
A10
(Copyright (c) 2002, Dow Jones & Company, Inc.)

A reformed German Communist named Willi Schlamm once said that the "problem with capitalism is capitalists; the problem with socialism is socialism." We've been thinking about that distinction as we try to make sense of Enron's self-immolation. 
The story may be fading away as a political scandal. But merely as a business scandal it's a problem for anyone who believes in free markets. The price for Enron's financial shenanigans won't be paid only by its shareholders, auditors and creditors. Politicians will seize on its sins as another excuse to meddle in financial markets, which is all the more reason for market believers to be ruthless in cleaning out our own closets.
We do know this isn't a scandal of the usual Washington variety. Though the press corps seized on White House reports of calls from Enron officials, the story fizzled when it turned out nothing happened. As our Washington bureau wrote this Tuesday, the cold reality is that corporate political donations guarantee little more than a hearing. For all of Enron's political largesse, it couldn't order up a bailout or even the regulatory nod requested by former Treasury Secretary-turned-Enron-lender Robert Rubin. We knew the political scandal had gone poof when the Beltway started using Enron as one more prop for "campaign finance reform." Yawn. 
Washington is fascinated nonetheless because of Enron's size and symbolism; Enron's long self-promotion as the vanguard of the New Economy increases the Schadenfreude at its collapse. Above all, this looks like a case of corporate deceit. Whether or not Enron's actions violated any laws, they certainly violated the public trust essential for free markets to work. For that alone its managers deserve the public stocks. 
The details of Enron's now famous off-balance-sheet partnerships remain murky. But it's clear they were an attempt to disguise losses from bad investments. The partnerships, backed by Enron shares, moved risky businesses off its own balance sheet. If these businesses worked, Enron booked the profits, which helped pump up its share price. But when the businesses flopped, Enron covered the losses by issuing more of its shares; this worked for as long as Enron's stock price stayed high but it became a kind of Ponzi scheme once its shares began to fall. 
This was at the very least deceptive accounting. Adding to their sleazy appearance the partnerships paid fees to Enron officials who were also principals in the partnerships. Former CFO Andrew Fastow earned more than $30 million from this sweet arrangement. Enron can say all of this was reported in its 10-Qs, but the company made its filings as obscure as possible. Financial pros couldn't figure them out, much less employees with their life savings in Enron stock. The point of accounting is transparency, which means writing in something other than hieroglyphics. 
Yes, we know, Arthur Andersen was supposed to blow the whistle on all of this as Enron's outside auditor. But as any junior market reporter knows, auditors almost never discover these schemes. Shredding documents is a more serious matter, but auditors can't sit at every CFO's shoulder like a guilty conscience. Even internal auditors rarely discover scams and audit committees of the boards of directors even less often. 
We're all for a big debate over corporate governance. But somehow we doubt the early proposals for a new layer of auditors to watch over the old ones is an improvement. As our Holman Jenkins wrote Wednesday, a better idea might be to drop the federal mandate for an annual audit, which has become a phony good housekeeping seal of approval. Let CEOs take responsibility for their own numbers and make a credible audit something of competitive value. 
We'd say it's also impossible to understand Enron outside of the moral climate in which it flourished. Those were the roaring '90s, when all of America reveled in the economic boom. They were also the Clinton years, when we learned that "everybody does it." The culture wanted to believe in Enron's promises, which helps explain why 16 of 17 Wall Street analysts rated Enron a "buy" as recently as last October. 
Enron's failure reveals the underside of that boom. Human nature being what it is -- and capitalists being human -- some will lose their moral bearings, others will make mistakes and try to cover them up. Had Enron merely admitted its bad investments and taken a $20 billion write-off the way most companies do, it might still be around. Its managers would no longer be feted as geniuses of the new economy, but that's a better fate than they face now. 
The burden on the political and financial system now is to clean up Enron, and learn from its failures, without doing further damage. In the Washington tradition, this may mean burning some people or companies at the stake, but maybe in this case they deserve it. We are sure going to find out. 
In all of this, we should add, the Bush Administration has so far shown the right instincts. President Bush called early for investigations that are now taking place, both civil and criminal. His advisers seem to be following the ancient political wisdom, ignored during the Clinton years, that telling all early is the best defense. 
A Republican Administration, with its alleged sympathies for markets, has a special burden to police capitalists who abuse their freedom. If the Bushies do this the right way, they can restore trust in markets and ensure that Enron's sins will do less permanent damage to capitalism.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

VIEWPOINTS
Enron Case Upsets Long-Held Illusions
E.J. Dionne Jr. E.J. Dionne Jr. is a syndicated columnist based at The Washington Post.

01/18/2002
Newsday
ALL EDITIONS
A40
(Copyright Newsday Inc., 2002)

'IF MEN were angels," James Madison wrote in No. 51 of the Federalist Papers, "no government would be necessary." It is one of the most celebrated quotations in American history. Yet it takes some large event every generation or so to remind us how right Madison was. 
The Enron Moment is a great catastrophe, especially for the thousands of workers bilked out of their life savings. But it is also an opportunity to sweep aside the sanctimonious cant upon which a generation's worth of political arguments were built.
Are markets always self-regulating? No. Is deregulation always the answer? No. Are capitalists always well-behaved and public-spirited? No. Can we ignore the impact of our campaign money system on politicians? No. Can we be indifferent to the undue influence that certain big companies have on our government? No. Can rank-and-file employees do without the protections of law against the abuses of more powerful actors in the marketplace? No. 
In the boom years, many chose to forget the simple genius of the American proposition. It is rooted in what economist John Kenneth Galbraith saw as a system of "countervailing power." We put limits on government because we don't want it to dominate our lives. But, in turn, we rely on government to check concentrations of private power. 
Americans have always been suspicious of excessive power anywhere - in government or the marketplace. 
It's true, of course, that Enron went down, and this will be seen by some as the marketplace doing its excellent work of "self- policing." But don't try to sell this view to Enron employees or investors who relied on the "self-policing" of private accounting firms and thought Enron's numbers were on the level. 
Smart capitalists have always understood that the system works only if there are strong rules to guarantee honest information and to check corporate misbehavior. As Madison might have put it, if capitalists were angels, we could deregulate everything. But capitalists are no more angelic than anyone else. 
Some members of Congress will thus have to answer for their success in blocking the efforts of Arthur Levitt, the former chairman of the Securities and Exchange Commission, to impose rational restrictions on accounting firms. Levitt - boy, does he look good now - thought it a mistake for firms to do both auditing and consulting work for the same client. Levitt also has argued recently that publicly traded companies need to include genuinely independent members on their corporate boards of directors. Otherwise, no one on the inside is keeping the big boys honest. 
And, speaking of transparency, the public needs to know more than it does about how corporations such as Enron influence government policy. 
That's why Vice President Dick Cheney should disclose all the details about his consultations in formulating the administration's energy plan. 
Full disclosure by the energy task force was once a Democratic cause championed by Rep. Henry Waxman of California. Now, many Republicans know the administration will only deepen public suspicions if it keeps holding back. "It is just basic information that should be provided and isn't all that big a deal," says Rep. Christopher Shays, a Connecticut Republican, "except for the fact that the administration doesn't want to share it, which makes it a big deal." 
And those who oppose trying to limit the influence of money on politics should consider Attorney General John Ashcroft's decision to recuse himself from the Enron case because he had received campaign contributions connected to Enron. The Justice Department explained the recusal in a nicely inclusive phrase, referring to "the totality of the circumstances of the relationship between Enron and the attorney general." 
If we're worried about how contributions might affect - or be seen to affect - Ashcroft's behavior as attorney general, shouldn't we also be worried about how contributions might affect the behavior of members of Congress? Should there really be such a huge difference between the standards we'd impose on John Ashcroft, attorney general, as opposed to John Aschroft, United States senator? 
What, finally, will President George W. Bush do about the Enron Moment? The question here goes beyond the usual scandal investigations: Has this financial catastrophe changed any of the president's views on the energy industry and how it should be regulated, or on corporate abuses and how they can be prevented? The real scandal would be to allow the Enron Moment to pass without its teaching us that Madison was right all along.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

MISCELLANEOUS
ENRON EXECUTIVES DESERVE TO BE HIT BY A TWAIN

01/18/2002
Pittsburgh Post-Gazette
REGION
B-1
(Copyright 2002)

Occasionally, I wake up in the morning depressed that Mark Twain will never stare back at me from the bathroom mirror. 
This is something most columnists learn to accept with practice. After all, it takes a particular set of experiences to be somebody else. And Twain would've considered any envy of his life -- stuffed as it was with an abundance of family tragedies and bad investments - - a peculiar malady indeed.
Still, I think about Twain from time to time and wonder how he might have reacted to the controversies of our day. Were he still with us, he would undoubtedly be about the business of skewering the pretensions of our corporate masters, their paid vassals in Congress and their unpaid vassals in the media. 
But Twain has been dead for 97 years -- and we're not feeling too good ourselves. Those of us who toil fitfully in his shadow carry on as best we can, cursed with a sense of moral outrage that's far less developed. Though our obtuseness keeps us out of trouble, it also greases the wheels of our continued irrelevance. 
Some of us flatter ourselves with the most obvious excuse in the world: Because we'll never possess Twain's gift for devastating put- downs, we have no choice but to put up with the authoritarian nonsense that's taken root in American life since Sept. 11. 
So, it may be time to go to the source. 
Every night on a creepy television program called "Crossing Over With John Edward," a media-savvy professional guesser bamboozles the gullible into believing the dead have nothing better to do than to stand around limbo waiting for a dull studio audience to call. 
And no wonder. The spirits Edward chats with nightly appear intent on maintaining even more banality in death than they ever mustered in life. So much for ascending to a "higher plane." 
Still, I'd pay Edward good money if he could corral Twain's ghost for an interview. I'd love to know how the self-styled "Missouri Yankee" thinks America has changed since he left us a century ago. 
Despite our era's superficial resemblance to the Gilded Age, an era Twain wrote about in a best-selling book, I suspect even he would be scandalized by the level of greed and criminal collusion manifested at the highest levels of industry and government these days. 
He'd be appalled, but not surprised, by Enron's collapse. Fresh revelations about how the bankrupt corporation paid no income taxes for four of the last five years draw a bored "it figures" from most ordinary citizens. 
But Twain's hilariously scathing essay, written in the throes of outrage, would be circulating by the end of the day. With comic understatement, he'd illustrate how campaign contributions to nearly every member of America's political ruling class shielded Enron's deceptive business practices long enough for its managers to loot the company's most precious asset -- the retirement portfolios of its workers. 
Wall Street analysts and editorial writers might consider it a less than nuanced treatment of a complex failure, but I suspect only Twain's take on this shameful episode would be enough to generate the universal moral outrage it deserves. 
This isn't to say that terrific pieces about the Enron scandal haven't been published already. They appear every day, thank goodness. But none have generated the level of indignation about political corruption and capitalist excess that Twain's pieces about the Gilded Age did more than a century ago. 
There's still time. This scandal is young and congressional hearings might turn on a few dramatic moments, but I'm not holding my breath that a single scoundrel will go to jail -- a fate the top layer of Enron executives richly deserves. 
In the end, my Twain fixation may be evidence that I'm just a sentimental guy who wants a hero from another age to do my dirty work. Guilty as charged! It may be silly, but I can think of worse things than to be haunted by the ghost of Samuel Clemens.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Commentary
Code of conduct: A matter of trust
Steve Priest Steve Priest is president of the Wilmette
based Ethical Leadership Group

01/18/2002
Chicago Tribune
North Sports Final ; N
19
(Copyright 2002 by the Chicago Tribune)

A widow invests her money in one of the most admired companies in America. 
A new father purchases the vehicle of his dreams.
A young high school graduate gets a job that is the envy of her peers. 
Unfortunately, the company the widow invested in was Enron Corp. 
The vehicle was a Ford Explorer on Firestone tires. 
The great new job was at Mitsubishi Motors Corp. 
All three people trusted. And they should have. They were dealing with highly respected companies. 
Mitsubishi is one of the largest employers in central Illinois. Its state of the art factory brought badly needed jobs and manufacturing savvy to America's heartland. Yet in 1998 its management also paid $34 million to settle sexual harassment claims against it, from many women like our high school graduate. 
Ford and Firestone are two of the most illustrious names in corporate history. Each was founded just over 100 years ago, by individuals so confident in their personal reputations that they put their names on their companies. They are two companies that millions of drivers place their trust in every time they slide behind the wheel. 
We don't yet know all the reasons for the series of accidents involving Ford Explorers and Firestone tires. But we do know that many, many people could have acted earlier to address the crashes, and did not. And as a result, the reputations of two great companies may be irreparably damaged. 
Of course the true toll from the Firestone/Ford disaster is measured in lives--not dollars--lost. Hundreds of lives snuffed out prematurely because ordinary workers, managers, executives and lawyers failed to do the right thing. 
Companies that deal with the lives and money of consumers understand that they are in the trust business. Car companies and airlines and restaurants and food companies understand that if people don't trust their safety, they will not buy their products or services. Banks, brokerages, insurance companies and accounting firms know that if they aren't trusted, their businesses will dry up. They also know that trust is grounded in integrity. Unfortunately, most businesses haven't viewed trust as their single most important attribute. 
Enron changed that. 
Enron was on top of the world. We all had good reason to invest in Enron. In 2000, it was the seventh largest company in America. In its February 2001 annual reputation survey results, Fortune magazine listed Enron as the most innovative company in the United States. It also was the second-most-admired company for "quality of management." But it failed by not making integrity--the integrity that is the basis of all trust--the company's highest value. Failure of trust is ultimately what caused Enron's market value to crash from $70 billion to less than $1 billion in less than one year. 
And what Enron's executives failed to understand was that their business--like every other business--is based on trust. Enron was an intermediary in thousands of transactions worth hundreds of billions of dollars. All parties to the transactions needed to trust Enron. After a while, they did not. 
Enron was the recipient of billions of dollars in loans from banks. Getting such loans required the banks to trust Enron. After a while, they did not. 
Enron's currency was its stock price, which needed the trust of the investment community to sustain it. Enron lost that, too. 
Once trust is damaged, it takes enormous effort to regain it. It is not simply an exercise in damage control. It is a test of integrity and transparency. It is a test now faced by Enron's auditor, Arthur Andersen, whose very future depends on being able to reclaim the trust of Congress, clients and the investing public. Enron and Andersen have become the latest in an unfortunate series of corporate poster children that make the case for the importance of trust. 
Underestimating the importance of trust is not just a corporate failing. Poor George O'Leary was just two resume falsifications away from college football's dream job--coach of Notre Dame--and a multimillion-dollar pay package. Consider Henry Blodget, the once high-flying Internet analyst at Merrill Lynch & Co. who was forced out of his job because nobody trusted him anymore. 
These days it seems like there are far too many examples that remind us that trust is the key to winning for individuals and institutions. The integrity that underlies that trust is the basis for saving our businesses, our careers, and maybe even ourselves.

PHOTO; Caption: PHOTO: A gusty wind blows an Enron Corp. flag backward outside the company's headquarters in Houston. Tribune photo by Heather Stone. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Commentary
Blind ambition: Good and shameful ; Sorting out the tales of 2 mind-sets
Georgie Anne Geyer, Universal Press Syndicate

01/18/2002
Chicago Tribune
North Sports Final ; N
19
(Copyright 2002 by the Chicago Tribune)

As the Enron Corp. scandal unraveled further this week, two dominating American characters for our times began to come into focus. 
One was the Enron-type boss, who, according to much of the data so far, looked upon America primarily as a game. The other was the New York policeman/firefighter/public servant who saw America as a community to be served.
The news indicated that for three years the Enron higher-ups held back crucial information that the company was actually failing instead of making all the money it claimed. And all the while, they secured their own fortunes by selling stock, even as uninformed underlings were losing their entire pension plans and thus their very futures. 
This same week, New York City announced that ground zero had largely been cleared and that the site was now below ground for the first time since Sept. 11. That fact only serves, of course, as a further benediction for those public servants who so courageously assaulted the collapsing World Trade Center, attempting to save their fellow citizens' lives. 
But perhaps the real benediction for Enron was expressed most vividly by USA Today in an article this week: "Analysts for more than a year were complaining they couldn't figure out how Enron made money." One of the problems, the national newspaper said, was that the entire system (of which Enron was in many ways the Cinderella) was "unchecked," and that it had come to the point at which the people involved should be liable for their actions. 
Two Americas, and two types of Americans. Two very different worlds, and both within us. 
Surely the differences between these worlds would not be so grating were it not for Sept. 11 and its aftermath. The terrorist attacks on New York and Washington brought forth, along with so much else, the confident assurance that now patriotism would once again reign--unity of nation and of purpose would return to us after a long period of ambivalence among our elites about the American dream. 
But polls and other indicators show that while putting out flags is popular, large numbers of younger Americans embrace an emotional feeling of unity without understanding that the underpinnings of strengthening civic education and teaching U.S. history are crucial to true national unity. 
At this point, almost as a specter of our divisions, came the Enron scandal, which threatens to tell us more than we may have wanted to know about certain predominant aspects of America's most fashionable--and deceiving--corporate mind and how it differs from the old community mind. 
The Enron mind, at least as we are seeing it revealed, had executives playing a game for fame, for money, for power. Its practitioners looked to their corporate form of business not to create products or real wealth, or to upgrade the status of other Americans, but to make themselves into dominating personalities in America. They looked upon their employees simply as functionaries in their machine, although there was also a cultish feeling about the corporation. 
Finally, they had no sense of traditional American community, and in fact derided such an outmoded concept, while they never risked anything real. 
Gen. Wesley K. Clark, former NATO commander during the air war against Kosovo three years ago, spoke indirectly of the way in which this elitist American mind-set assumes that others will go overseas to fight for America while they go about their business. 
"Everybody says he's patriotic," he remarked to a meeting of the Center for Strategic and International Studies recently, "but I was at a football game in Arkansas the other day, and I asked several guys whether they were going to join up. One said, well, no, he had his business . . . another said, no, he was getting married . . . " 
The public servant mind-set is very different indeed. This mind- set is rooted in American values and principles, and high in that pantheon is a profound sense of family and community. That is why firefighters and police risked--and why so many gave--their lives. Life is real, and its consequences are real. They look upon others as equals in their quests, and they actually often believe in a human soul. 
They accept responsibility for their actions as part of the reality of a moral universe, and they will stand up, even against fashion's inexorable tides, for what they believe is right. They were "we," while the Enron-type person is "me,"--and despite Sept. 11, there is no assurance yet which group will dominate America in the future. 
---------- 
E-mail: gigi-geyer@juno.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Editorial Desk; Section A
Letters to the Editor
The Enron Debacle: Be Forewarned . . .

01/18/2002
The New York Times
Page 22, Column 6
c. 2002 New York Times Company

To the Editor: 
''Enron and the Gramms,'' by Bob Herbert (column, Jan. 17), highlights one of many instances where big business has infiltrated the political and regulatory process. Surely there are countless others besides Senator Phil Gramm and his wife, Wendy Gramm, a former government official, who have danced to the tune of large corporations. The only way to keep this from happening again, and innocent working families from losing everything, is to keep money out of politics. 
Enron and other large companies have been writing checks to politicians to promote their businesses and discourage oversight for years.
If and when campaign finance reform ever happens, and it clearly will not happen under a Republican administration, politicians can make decisions based on moral grounds instead of on personal and party financial gain. 
EMILY ROSENBERG 
Oakland, Calif., Jan. 17, 2002

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Report on Business Column
TAKING STOCK
Opportunists may benefit if embattled Kmart files for Chapter 11
BRIAN MILNER

01/18/2002
The Globe and Mail
Metro
B10
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

For several days now, investors have been scrambling over each other to bail out of Kmart before the U.S. retail giant stumbles over the precipice. 
The race for the exits may well turn out to have been justified, but it shows just how skittish the investment community has become in the wake of the bursting tech bubble and the shocking collapse of Enron, a once-prized name in most debt and equity portfolios.
Unlike Enron, which as we now know faked its numbers, Kmart has been exhibiting the classic symptoms of a company in deep trouble for years. It has been hammered by Wal-Mart and its other major competitors in a brutal retail environment. And despite its best efforts, things have gone from bad to worse in recent months. 
The company was one of the few big retail names that missed its own modest Christmas sales targets, and won't come close to meeting forecasts for the fiscal year. The president walked the plank yesterday. The board turned itself over to yet another turnaround specialist. It desperately needs more cash and its bonds are now rated at the bottom end of the junk pile. 
The result has been a predictable exit by bondholders, a stunning flight by equity investors, and opportunistic buying by the vultures. 
In a matter of weeks, Kmart has turned from a potential turnaround story being touted as a cheap way to play the discount retail segment into one of those investments that must not be held at any price. 
In heavy trading of 75.6 million shares yesterday, Kmart actually rose 3 cents (U.S.) to $1.63, briefly halting a slide that has lopped off more than 60 per cent of its value in a week. On Wednesday alone, 177 million shares -- close to a third of all the stock outstanding -- changed ownership, as the price plunged 36 per cent. No other stock traded so heavily. 
In many cases, fund managers simply had no choice. The stock was dropped from the S&P 500 this week, as the company's market capitalization fell well below $1-billion. It stood at more than $5-billion last August. 
On the bond side, only distressed debt funds will touch credits like Kmart at single-B or triple-C levels. That's where rating agencies place debt they think is in serious danger of default. 
Now, it could be argued that the debt monitors are being somewhat hasty here. The company doesn't have much borrowing room left, but the banks indicated in November that they would be willing to negotiate. And so far, at least on the anecdotal evidence of some major suppliers, Kmart is still paying its bills. 
But the big rating agencies have looked sloppy and slow-footed in failing to take swift action on numerous previous occasions, and it's plain they didn't want it to happen again. 
The latest and most embarrassing case was Enron, which retained its crucial investment-grade rating into November, well after it became clear that it was having critical liquidity problems. Earlier, they failed to downgrade two California utilities until they defaulted. 
Just a year ago, Kmart was looking like a smart bet. Its savvy and tough chief executive officer, Chuck Conaway, who had turned the CVS pharmacy chain into a stock market winner, was about six months into a massive restructuring. The company closed smaller stores and earmarked huge sums to revamp its inventory, distribution and sales systems. This included $2-billion for computer technology in an effort to boost efficiency dramatically and better compete with mighty Wal-Mart and the Target chain, its biggest competitors, along with the rising warehouse clubs. 
Analysts liked Mr. Conaway's strategy and his track record. From January to an August high of $13.55, the stock more than doubled. 
But as the economic slump worsened and Wal-Mart and Target continued to gain market share at Kmart's expense, it was plain that the company's turnaround strategy wasn't working. Its prices were simply not low enough to lure customers back from Wal-Mart, which outsells Kmart by a margin of nearly two to one per square foot of store space, and it lacked Target's reputation for brand names at good prices. As losses mounted, it actually cut advertising expenses, never a sound business strategy during a downturn. 
In a research note Jan. 2, Prudential Securities retail analyst Wayne Hood suggested a Chapter 11 bankruptcy filing would help get Kmart out of its self-inflicted pickle. Under the umbrella of court protection, Kmart could shed costly leases, close hundreds of stores and restructure debt. 
Noted Wall Street value fund manager Marty Whitman has been buying up Kmart debt, although he won't go near the stock. 
"Now I don't know if Kmart's going to file or not. Probably not. But I would be convinced that if they do file, the creditors are going to receive par plus accrued in the reorganization," he said in a television interview. 
Why the bullishness? Plenty of value in the company's 2,100 stores and its $37-billion in annual sales in fiscal 2001. 
With the debt changing hands at 50 cents or so on the dollar, investors would be looking at eventual yields above 75 per cent, although there could be a long wait for a payoff. But if Kmart opts for Chapter 11, shareholders are likely to get nothing. bmilner@globeandmail.ca

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

City - City Diary - Enron going, going, gone.

01/18/2002
The Daily Telegraph
P34
(c) Telegraph Group Limited, London, 2002

IT IS easy to laugh at the growing market for Enron memorabilia on the eBay internet auction site - and almost impossible not to. 
Items include an Enron "Visions and Values" paperweight listing the company's core values as "communication, excellence, respect and integrity". There is also a corporate stress ball bearing the company motto "Ask Why?". For #313 you can have the Enron Risk Management Manual, an extract from which reads: "By using certain structures, companies can re-categorize expenses in such a manner as to improve the perceived financial performance."
I think my favourite, however, is the Enron Code of Ethics, yours for just #200, and I'm a fool to myself, guv'nor.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	





Sarah Palmer
Internal Communications Manager
Enron Public Relations
(713) 853-9843


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