Staff Saw Document Shredding at Enron --- Three Former Employees Say Destruction Took Place After Investigation Began
The Wall Street Journal, 01/22/2002

Ex-Enron staffer details shredding
Firm ordered all data be kept 
Houston Chronicle, 01/22/2002

Second Executive Tells of Andersen E-mail --- Version of Events Bolsters Fired Auditor's Account Of Shredded Documents
The Wall Street Journal, 01/21/2002

ENRON'S COLLAPSE: THE OVERVIEW
EX-OFFICIAL SAYS ENRON EMPLOYEES SHREDDED PAPERS
The New York Times, 01/22/2002

THE ENRON INQUIRY Former Exec Says Enron Destroyed Documents
Los Angeles Times, 01/22/2002

The Nation Enron's Lay Met With Executive on 'Improprieties,' Lawyer Says Accounting: Sherron Watkins was said to be assured the board was studying the matter. No findings were issued.
Los Angeles Times, 01/20/2002

ENRON'S COLLAPSE: THE ANGER
Enron Fired Workers for Complaining Online
The New York Times, 01/21/2002

Murky Waters: A Primer on Enron Partnerships --- As Details Surface, They Appear Central In Firm's Collapse
The Wall Street Journal, 01/21/2002

ENRON'S COLLAPSE: MARKET PLACE
For Chief, $200 Million Wasn't Quite Enough Cash
The New York Times, 01/22/2002

ENRON'S COLLAPSE: TRANSACTIONS AT ISSUE
ENRON CHIEF SAYS HIS SALE OF STOCK WAS TO PAY LOANS
The New York Times, 01/21/2002

Lay sold off Enron stock to pay loans
Spokesman: Enron chairman wasn't bailing out on company 
Houston Chronicle, 01/22/2002

ENRON'S COLLAPSE: TEXAS JUDGE
Enron Ruling By Nominee To U.S. Court Is Being Noticed
The New York Times, 01/22/2002

ENRON'S COLLAPSE: THE PROSECUTOR
A Specialist in Tough Cases Steps Into the Legal Tangle
The New York Times, 01/21/2002

Accounting for Enron: SEC Feels Heat Over Exemptions to Enron --- In 1993, Agency Ruled Two of Firm's Units Needen't Register
The Wall Street Journal, 01/21/2002

Former employees seek voice in Chapter 11 case 
Houston Chronicle, 01/21/2002

Jilted by Enron, Workers Turn to Web to Find Community, Job Leads
The Wall Street Journal, 01/21/2002

Enron Was No Friend to Free Markets
The Wall Street Journal, 01/21/2002

THE ENRON INQUIRY Enron Refuels Energy Debate Politics: The power industry moves to fight growing skepticism of deregulation after the collapse of its most vocal proponent and the crisis in California last year.
Los Angeles Times, 01/22/2002

Enron Properties Outside the U.S. Hit Auction Block
The Wall Street Journal, 01/22/2002

Accounting for Enron: U.S. Fought for Company's Project in India
The Wall Street Journal, 01/21/2002

ENRON'S COLLAPSE: LENDERS
2 Early Enron Lenders Didn't See the End Coming
The New York Times, 01/22/2002

Accounting for Enron: Bankruptcy Court Filing Causing Ethical Quandary for Law Firms
The Wall Street Journal, 01/21/2002

Were Auditor and Client Too Close-Knit?
The Wall Street Journal, 01/21/2002

Routine 401(k) decision became costly flashpoint 
Houston Chronicle, 01/21/2002

Fight Looms Over Pension-Plan Changes --- Enron's Consequences Lead Legislators to Pursue Tightening Regulations
The Wall Street Journal, 01/22/2002

Enron Isn't the Only Retirement Tale That Leads to Hard Lesson: `Diversify'
The Wall Street Journal, 01/21/2002

Accounting for Enron: All Tied Up: Retirement-Plan Lockdowns At Lucent and Elsewhere Draw Questions
The Wall Street Journal, 01/21/2002

Accounting for Enron: Andersen Also Audited Qwest, Accounting Questions Surfaced
The Wall Street Journal, 01/22/2002

Moody's Trains Eye on Data Off the Sheet
The Wall Street Journal, 01/21/2002

Moody's and S&P, Singed by Enron, May Speed Up Credit Downgrades
The Wall Street Journal, 01/22/2002

The Nation COLUMN ONE Enron Case Raises the Bar in Texas A matter that's big even by the state's usual standards has the legal community in a frenzy, with lawyers hiring their own lawyers and others dodging conflicts.
Los Angeles Times, 01/21/2002

Accounting for Enron: Company's Swift Collapse Reverberates Throughout Political Circles in Texas
The Wall Street Journal, 01/21/2002

ENRON'S COLLAPSE: THE POLITICIANS
Enron Spread Contributions on Both Sides of the Aisle
The New York Times, 01/21/2002

ENRON'S COLLAPSE: FIVE UNCERTAIN YEARS
A Bankruptcy Freezes The Settlement of Claims In a Puerto Rico Explosion
The New York Times, 01/21/2002
Enron's Woes Revive Debate On Campaigns
The New York Times, 01/22/2002

ENRON'S COLLAPSE: THE ANALYST
Man Who Doubted Enron Enjoys New Recognition
The New York Times, 01/21/2002

Enron Fallout May Cut Stock Prices in General
The Wall Street Journal, 01/21/2002

Steel's Shakedown Attempt Will Test Bush's Resolve
The Wall Street Journal, 01/22/2002

The Urge to Punish Cheats: It Isn't Merely Vengeance
The New York Times, 01/22/2002

Commentary: Enron Got Its Money's Worth Look no further than the national energy plan.
Los Angeles Times, 01/22/2002

Down and Out, Enron Can't Count on Friends
Los Angeles Times, 01/22/2002

Thinking Things Over: I'm OK, You're OK! Enron's OK?
The Wall Street Journal, 01/21/2002

_______________________________________________________________________________

Staff Saw Document Shredding at Enron --- Three Former Employees Say Destruction Took Place After Investigation Began
By Wall Street Journal staff reporters Tom Hamburger, John R. Emshwiller, Rebecca Smith and Jonathan Weil

01/22/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Three former Enron Corp. employees say documents were shredded in the accounting department of the company's Houston headquarters after federal investigators had begun a probe into possible illegalities at the energy giant. 
In interviews with ABC World News Tonight and later with The Wall Street Journal, Maureen Castaneda, a former Enron executive whose office was right across from the accounting department on the 19th floor, said shredding of documents apparently continued through the middle of January, when she left the company. Separately, two other former Enron employees told the Journal they saw several trash bags full of shredded documents in the same area in November.
According to Ms. Castaneda and one of the other employees, the shredded documents appeared to relate to controversial partnerships used by Enron to hide debt and inflate its profits. Ms. Castaneda is in possession of shreds of Enron accounting documents marked "confidential" and dated December 2001. 
One of the shreds contained the word "Jedi," likely a reference to the Enron-controlled Joint Energy Development Investment partnership. Another shredded document seen by one of the two other employees contained the phrase "LJM $150 million." LJM is the name of two partnerships set up and run by former Enron Chief Financial Officer Andrew Fastow. Ms. Castaneda -- who said she planned to use the shredded paper for packing material -- is a plaintiff in one of the dozens of employee and shareholder suits seeking class-action status against Enron. 
Last night, Enron counsel Robert S. Bennett issued a statement saying Enron is "investigating the circumstances of the reported destruction of documents. In October 2001 the company issued several directives to all Enron employees world-wide that all relevant documents should be preserved in light of pending litigation." 
"If anyone violated those directives," Mr. Bennett added, "they will be dealt with appropriately." 
Enron filed for bankruptcy-court protection on Dec. 2 following a loss of investor confidence after the company issued several restatements of earnings dating back to 1997 and disclosures about several questionable partnerships run by its top executives. 
The Securities and Exchange Commission began looking into possible violations of securities laws at Enron in late October. Around the same time, the company's legal department sent out a series of circulars demanding that employees safeguard all correspondence, written or electronic, related to the partnerships and other transactions. 
On Nov. 1, at least one of the memos was copied directly to David Duncan, the head of the Houston office of Enron's auditor, Arthur Andersen LLP. Mr. Duncan was dismissed by Andersen last week for having overseen the destruction of documents. Mr. Duncan, in turn, has told congressional investigators that he was trying to follow the advice of an attorney in Andersen's Chicago headquarters, Nancy Temple, who sent an Oct. 12 e-mail reminding Houston personnel of the firm's document-retention and -disposal policy. 
Mr. Duncan has told investigators that he didn't think there was anything wrong with destroying Andersen-owned documents because the SEC inquiry begun in late October concerned Enron, not Andersen. Andersen has said the shredding stopped on Nov. 9, Ms. Temple sent an e-mail message for Mr. Duncan telling him the SEC had issued a subpoena to Andersen, and that all Enron-related documents must be preserved. However, that doesn't explain why the shredding wasn't halted until eight days after Mr. Duncan apparently received the Enron memo saying documents should be safeguarded. 
But a person close to him said Mr. Duncan expected that Andersen's in-house counsel would tell him when and if documents in the accounting firm's possession needed to be preserved. "The first time he received such an instruction was Nov. 9," this person said, "and he immediately did so." 
Meanwhile, congressional investigators examining Enron's collapse met for four hours yesterday with Ms. Temple, the Andersen in-house counsel who left the voice-mail message for Mr. Duncan about preserving documents. She was asked about the reason for her reminders to Andersen employees about her firm's policy on retaining and destroying documents. According to people familiar with the questioning, Ms. Temple said yesterday that her reminders were simply routine restatements of Arthur Andersen policy and weren't intended as anything more. 
Ms. Temple is considered likely to be asked to appear at a House Energy and Commerce subcommittee hearing Thursday examining document destruction. Her attorney didn't return calls seeking comment. 
As for Mr. Duncan, his lawyer, Vince DiBlasi, said, "It is premature to require him to testify." But the chairman of the subcommittee, Republican Rep. Jim Greenwood of Pennsylvania, has said he would subpoena Mr. Duncan if necessary. 
Ms. Temple sent an Oct. 12 e-mail to Michael Odom, head of risk management for Arthur Andersen's Houston office, according to people with knowledge of Mr. Odom's interview with congressional investigators. He told them he forwarded it to Mr. Duncan, who oversaw the shredding of documents until Nov. 9 when Ms. Temple sent him a voice-mail message. 
In addition to those two communications, Ms. Temple sent out a terse reminder of the policy on Oct. 19 to John Stewart, Andersen's director of U.S. accounting standards, who holds a powerful regulatory position within the profession as a member of the Financial Accounting Standards Board's Emerging Issues Task Force. The memo also went to Amy Ripepi, an Andersen executive who heads the SEC regulations committee for the American Institute of Certified Public Accountants. 
This is the first indication that Andersen executives with leading regulatory positions in the accounting profession were issued reminders about the firm's document-retention and -destruction policies. 
An Andersen spokesman, Charlie Leonard, said he didn't know why Ms. Temple sent out the Oct. 19 memo. He said Mr. Duncan exercised "extremely bad judgment" by destroying documents related to Enron "with full knowledge of an SEC investigation."

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

Jan. 22, 2002, 12:51AM
Ex-Enron staffer details shredding
Firm ordered all data be kept 
By ROSANNA RUIZ and PATTY REINERT 
Copyright 2002 Houston Chronicle 

A former Enron Corp. executive said Monday she witnessed the mass shredding of financial documents at the energy company's accounting office, a practice that began around Thanksgiving and continued through at least last week. 
Maureen Castaneda, Enron's former director of foreign exchange, has turned over to a lawyer several boxes containing mounds of shredded documents dated from November and December. The shreds reveal words that refer to Enron's off-the-books business ventures, the partnerships that led to the company's collapse. 
In an ABC-TV interview that aired Monday night, Castaneda said that around Thanksgiving she saw several boxes of papers being pulled from storage areas and then shredded, despite a Securities and Exchange Commission investigation that had begun the month before. 
Castaneda said the shredding continued through her final day on the job last week and that she used paper-filled boxes she found in the hallway to pack her belongings. She could not be reached for comment by the Chronicle after the ABC broadcast. 
Enron spokesman Mark Palmer, however, said that company officials had directed employees when the SEC investigation began to retain all documents, to destroy nothing. 
"We don't know the significance nor the pertinence of the documents that the plaintiffs' lawyers are parading in front of the media," Palmer said Monday. 
"But we do know what we have been telling employees sinceOct. 25. We have told them repeatedly that they are to retain all documents or materials related to Enron transactions, statements to the public and investors, handwritten notes -- in short, any method of information recording." 
The company issued four directives via e-mail about the document retention, Palmer said. An Oct. 25 e-mail warned employees: "You should know that this document preservation requirement is a requirement of federal law and you could be individually liable for civil and criminal penalties if you fail to follow these instructions." 
Bill Lerach, an attorney representing New York-based Amalgamated Bank in a lawsuit against Enron executives, said Monday he will seek a restraining order in federal court today to prevent the destruction of any other evidence. 
Amalgamated Bank, which manages pension funds that hold Enron stock, sued in November, alleging that Enron executives and board members sold $1.1 billion in Enron stock during the past three years while not disclosing that the stock price was overvalued. 
Lerach said that while he knows of several former Enron employees who saw the shredding, Castaneda was the only one who has come forward. 
"From what we have learned, destruction of evidence at Enron was open and notorious and widespread," Lerach said. "They even shredded on Christmas Day." 
He said he will have the shredded files in court today. 
"We believe the Enron employees were destroying documents at the same time Andersen people did," said Lerach, referring to Enron's former auditor. "The question of whether there was a coordinated effort is something to look into." 
In Washington, investigators pushed for public testimony from former Arthur Andersen auditor David Duncan, fired last week after the company said he ordered the destruction of Enron documents last fall. 
Duncan since has cooperated with investigators, telling them that Andersen executives had plenty of information to evaluate Enron's controversial use of offshore partnerships. 
The partnerships allowed Enron to hide millions of dollars of debt for years and mislead investors and its employees about Enron's financial health. 
Duncan "did not sit there and say, `Enron hid all this information from us and therefore we couldn't count right,' " Rep. Jim Greenwood, R-Pa., who heads the House Oversight and Investigations Subcommittee, told The Associated Press. "It was more of ... `we made mistakes.'" 
Greenwood, speaking about comments Duncan made to lawmakers last week, said that rather than a mea culpa, Duncan gave "a wea culpa; he did not point the finger at Enron." 
Duncan is scheduled to testify before Greenwood's panel Thursday, one day after lawmakers return to Capitol Hill from their winter break. Duncan's lawyers had tried to delay his testimony, saying he needs more time to prepare, but Greenwood rejected the request, threatening to subpoena Duncan if necessary. 
Duncan "doesn't really need to recall every detail of what he did for Enron," Greenwood told the AP. "We're focused on the destruction of documents." 
Enron and Arthur Andersen have come under fire in the wake of the Houston company's implosion last year. Once the world's largest energy trading company, Enron filed for bankruptcy Dec. 2, costing thousands of employees their jobs and their retirement nest eggs, much of which were tied up in now virtually worthless company stock. 
At least nine congressional investigations are under way, as are probes by the Labor Department, the Securities and Exchange Commission and the Justice Department, which is looking into possible criminal violations. 
In addition to the congressional investigations, lawmakers also will turn their attention to legislation aimed at preventing a another debacle like Enron. 
On Monday, Sen. Barbara Boxer, D-Calif., said she will introduce a bill this week ensuring that auditors remain independent from the companies they audit. 
The bill comes in the wake of revelations that Andersen received $52 million in annual business from Enron, about half of it from its auditing account and half in consulting fees. 
Joseph Berardino, chief executive officer of Andersen, has dismissed concerns that his company overlooked Enron's accounting practices to preserve other business with the company. 
However, appearing on NBC-TV's Meet the Press over the weekend, Berardino said Andersen is considering whether to end its consulting services and focus on its auditing business. 
Also on the congressional agenda in the coming months will be legislation that Boxer sponsored with Sen. Jon Corzine, D-N.J., to protect employee retirement accounts. 
The Boxer-Corzine Pension Protection and Diversification Act, introduced last month, encourages workers to diversify retirement investment plans by limiting to 20 percent the investment an employee can have in any one stock in his 401(k). 
The bill also would allow employees who receive their own company's stock as part of their employer's matching contribution to their retirement savings plan to sell the stock 90 days after it arrives in their accounts. 
In Enron's case, employees were not allowed to sell matching stock until age 50. 
Chronicle reporter Laura Goldberg contributed to this story. 

Second Executive Tells of Andersen E-mail --- Version of Events Bolsters Fired Auditor's Account Of Shredded Documents
By Tom Hamburger and Jonathan Weil
Staff Reporters of The Wall Street Journal

01/21/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Bolstering the account of a fired Arthur Andersen LLP auditor, an executive in the accounting firm's Houston office told congressional investigators that an e-mail from headquarters reminding employees of Andersen's document-disposal policy was unprecedented, people familiar with his interview say. The Oct. 12 e-mail arrived shortly before Houston personnel began destroying papers relating to Enron Corp. 
The account by Michael Odom, the head of risk management for the Houston office, is consistent with that given to lawmakers by Enron's lead auditor, David Duncan, who Andersen fired last week for overseeing the document destruction. It also helps lawmakers to focus their probe on the role top Andersen officials played in the downfall of Enron, one of the nation's biggest companies until it filed for bankruptcy-court protection last month amid questions about its accounting practices.
The document destruction, which continued after the Securities and Exchange Commission began inquiries into Enron's financial statements in late October, will be the subject of a hearing by the House Energy and Commerce Committee hearing Thursday. Messrs. Duncan and Odom and the Andersen lawyer who sent the Oct. 12 e-mail likely will be invited to testify. 
Mr. Odom's lawyer, Peter Fleming, said his client is cooperating fully with investigators. "Mike Odom has done nothing wrong, and is unaware of any wrongdoing," Mr. Fleming said. Andersen has portrayed the shredding of documents as an isolated case of poor judgment and has disciplined several people in the Houston office, including Mr. Odom, who was stripped of his management responsibilities. 
Andersen Chief Executive Joseph Berardino said on NBC's "Meet the Press" yesterday that Mr. Duncan was fired after "he displayed extremely poor judgment in the destruction of documents issue." Mr. Berardino blamed Enron's demise on a failed business model, not accounting errors. "A company has failed and it has failed because the economics didn't work," he said. 
Mr. Duncan last week told congressional investigators that he ordered subordinates to begin destroying documents related to the Enron account after he received an e-mail from Nancy Temple, a senior lawyer in Andersen's Chicago office. The Oct. 12 e-mail -- sent to Mr. Odom, who passed it on to Mr. Duncan -- was a reminder of Andersen's longstanding document-retention and destruction policy, which called for the disposal of nonessential papers. 
Both Messrs. Odom and Duncan told congressional investigators that they had never before been sent such a reminder, according to people familiar with their interviews. Ms. Temple was a member of an "extended review team" of Houston and Chicago officials created to take a closer look at Enron as questions arose about its condition. Members of the team talked with each other several times a week, Mr. Odom told congressional investigators. 
Mr. Duncan told investigators he didn't think there was anything wrong with destroying Andersen-owned documents because the SEC inquiry begun in late October concerned Enron, not Andersen. The shredding stopped on Nov. 9 when Ms. Temple left a voice-mail message for Mr. Duncan telling him that the SEC had issued subpoenas and that all documents must be preserved. 
A person close to Mr. Duncan says he forwarded that voice mail to the entire Enron audit team and instructed his secretary to send an e-mail repeating the instruction. The next day, Ms. Temple reiterated the message in a follow-up e-mail to Mr. Duncan and others involved with the Enron account. 
The implication of the account offered by Mr. Duncan and bolstered by Mr. Odom is that the document destruction began only when the office was reminded of Andersen's document-destruction policy by Ms. Temple and stopped only when the office heard from her again about the subpoenas. 
But Andersen spokesman Charlie Leonard said Ms. Temple never instructed the Houston office to begin shredding Enron documents, nor did she intend to order them to stop the shredding, because she didn't know it was going on in the first place. The November messages from Ms. Temple constituted "an innocent and appropriate reminder from the legal department to the staff in Houston of what the procedures are when somebody receives a subpoena," he said. 
The finger-pointing over document destruction is part of a larger battle over responsibility for Enron's collapse. Evidence uncovered by lawmakers suggests the Enron account was watched closely by officials at Andersen's headquarters. 
For example, top Andersen officials have portrayed as routine a meeting convened on Feb. 5 to discuss whether to retain Enron as a client. Andersen's Mr. Berardino said yesterday it was "part of a normal process we go through every year" for all clients. But Mr. Duncan told investigators that he made a point of including top Andersen executives, including several via phone from Chicago, because he was concerned that the Enron account posed "significant risk," a person present when he was questioned said. 
An Andersen spokesman said he didn't know why particular executives were invited to the meeting and declined to say whether routine retention meetings normally include several top executives. Other evidence points to active involvement in the Enron account by top Andersen executives. Enron CEO Kenneth Lay told employees in an online exchange on Sept. 26 that financial transactions being questioned at the time had all been approved by Andersen -- "in many cases, not only" by Houston-based auditors but also by "Andersen's headquarters office from some of the world's leading experts in these types of financing," according to a transcript released by lawyers for Enron employees suing the company over stock losses in their retirement accounts. 
--- 
WASHINGTON -- Bolstering the account of a fired Arthur Andersen LLP auditor, an executive in the accounting firm's Houston office told congressional investigators that an e-mail from headquarters reminding employees of Andersen's document-disposal policy was unprecedented, people familiar with his interview say. The Oct. 12 e-mail arrived shortly before Houston personnel began destroying papers relating to Enron Corp. 
The account by Michael Odom, the head of risk management for the Houston office, is consistent with that given to lawmakers by Enron's lead auditor, David Duncan, who Andersen fired last week for overseeing the document destruction. It also helps lawmakers to focus their probe on the role top Andersen officials played in the downfall of Enron, one of the nation's biggest companies until it filed for bankruptcy-court protection last month amid questions about its accounting practices. 
The document destruction, which continued after the Securities and Exchange Commission began inquiries into Enron's financial statements in late October, will be the subject of a hearing by the House Energy and Commerce Committee hearing Thursday. Messrs. Duncan and Odom and the Andersen lawyer who sent the Oct. 12 e-mail likely will be invited to testify. 
Mr. Odom's lawyer, Peter Fleming, said his client is cooperating fully with investigators. "Mike Odom has done nothing wrong, and is unaware of any wrongdoing," Mr. Fleming said. Andersen has portrayed the shredding of documents as an isolated case of poor judgment and has disciplined several people in the Houston office, including Mr. Odom, who was stripped of his management responsibilities. 
Andersen Chief Executive Joseph Berardino said on NBC's "Meet the Press" yesterday that Mr. Duncan was fired after "he displayed extremely poor judgment in the destruction of documents issue." Mr. Berardino blamed Enron's demise on a failed business model, not accounting errors. "A company has failed and it has failed because the economics didn't work," he said. 
Mr. Duncan last week told congressional investigators that he ordered subordinates to begin destroying documents related to the Enron account after he received an e-mail from Nancy Temple, a senior lawyer in Andersen's Chicago office. The Oct. 12 e-mail -- sent to Mr. Odom, who passed it on to Mr. Duncan -- was a reminder of Andersen's longstanding document-retention and destruction policy, which called for the disposal of nonessential papers. 
Both Messrs. Odom and Duncan told congressional investigators that they had never before been sent such a reminder, according to people familiar with their interviews. Ms. Temple was a member of an "extended review team" of Houston and Chicago officials created to take a closer look at Enron as questions arose about its condition. Members of the team talked with each other several times a week, Mr. Odom told congressional investigators. 
Mr. Duncan told investigators he didn't think there was anything wrong with destroying Andersen-owned documents because the SEC inquiry begun in late October concerned Enron, not Andersen. The shredding stopped on Nov. 9 when Ms. Temple left a voice-mail message for Mr. Duncan telling him that the SEC had issued subpoenas and that all documents must be preserved. 
A person close to Mr. Duncan says he forwarded that voice mail to the entire Enron audit team and instructed his secretary to send an e-mail repeating the instruction. The next day, Ms. Temple reiterated the message in a follow-up e-mail to Mr. Duncan and others involved with the Enron account. 
The implication of the account offered by Mr. Duncan and bolstered by Mr. Odom is that the document destruction began only when the office was reminded of Andersen's document-destruction policy by Ms. Temple and stopped only when the office heard from her again about the subpoenas. 
But Andersen spokesman Charlie Leonard said Ms. Temple never instructed the Houston office to begin shredding Enron documents, nor did she intend to order them to stop the shredding, because she didn't know it was going on in the first place. The November messages from Ms. Temple constituted "an innocent and appropriate reminder from the legal department to the staff in Houston of what the procedures are when somebody receives a subpoena," he said. 
The finger-pointing over document destruction is part of a larger battle over responsibility for Enron's collapse. Evidence uncovered by lawmakers suggests the Enron account was watched closely by officials at Andersen's headquarters. 
For example, top Andersen officials have portrayed as routine a meeting convened on Feb. 5 to discuss whether to retain Enron as a client. Andersen's Mr. Berardino said yesterday it was "part of a normal process we go through every year" for all clients. But Mr. Duncan told investigators that he made a point of including top Andersen executives, including several via phone from Chicago, because he was concerned that the Enron account posed "significant risk," a person present when he was questioned said. 
An Andersen spokesman said he didn't know why particular executives were invited to the meeting and declined to say whether routine retention meetings normally include several top executives. Other evidence points to active involvement in the Enron account by top Andersen executives. Enron CEO Kenneth Lay told employees in an online exchange on Sept. 26 that financial transactions being questioned at the time had all been approved by Andersen -- "in many cases, not only" by Houston-based auditors but also by "Andersen's headquarters office from some of the world's leading experts in these types of financing," according to a transcript released by lawyers for Enron employees suing the company over stock losses in their retirement accounts. 
--- 
Ken Brown in New York contributed to this article.

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

Business/Financial Desk; Section A
ENRON'S COLLAPSE: THE OVERVIEW
EX-OFFICIAL SAYS ENRON EMPLOYEES SHREDDED PAPERS
By JONATHAN D. GLATER and MICHAEL BRICK

01/22/2002
The New York Times
Page 1, Column 1
c. 2002 New York Times Company

Enron employees were shredding documents at the company's Houston offices as recently as last week, a former executive said yesterday. Her statement was the first indication that documents were destroyed at Enron amid investigations of the company's collapse by Congress and the Justice Department and followed reports of document shredding by accountants at Enron's auditor, Arthur Andersen. 
The company said last night that it was looking into the claims by the executive, Maureen Castaneda, who was Enron's director of foreign exchange and sovereign risk management. Enron said that it had repeatedly directed workers to preserve all documents once it learned in October that the Securities and Exchange Commission had begun an investigation of its accounting practices.
Lawmakers investigating Enron's collapse and former prosecutors said that evidence of document destruction would play a central role in Congressional and criminal inquiries into the company's fall. 
''If anyone in Enron, or for that matter Arthur Andersen, is shredding documents that have anything to do with this entire matter, they are going to be in a whole lot of trouble,'' said Representative James C. Greenwood, Republican of Pennsylvania, who is chairman of a House subcommittee that will hold a hearing Thursday into shredding by Andersen. Ms. Castaneda described the shredding by Enron employees on ABC News last night. 
As for Arthur Andersen, an internal document shows that as early as November 2000, the accounting firm had concluded that Enron's Internet services unit, which the company considered crucial to its growth, had such poor controls that there was a ''high risk'' that its financial results would be misrepresented. 
Andersen continued to sign off on the results, and the performance of the unit, Enron Broadband Services, rapidly deteriorated with the bursting of the Internet bubble. After losing $60 million in all of 2000, the unit reported losses of $494 million in the nine months that ended last Sept. 30. 
The stock market's decline as the air went out of the new-economy boom apparently also took a harsh toll on the finances of Kenneth L. Lay, Enron's chairman. Though he received more than $200 million in compensation and profits from exercising Enron stock options over three years, Mr. Lay was forced to borrow millions more from the company last year to meet his obligations. 
In a telephone interview yesterday afternoon, Ms. Castaneda said that document shredding at Enron began before Christmas and continued through last week. 
Ms. Castaneda said that employees in Enron's accounting department, which had offices across the hall from her own on the 19th floor of an Enron office tower, collected about 15 boxes of documents after Thanksgiving. She watched as the department employees searched through the boxes, Ms. Castaneda said, and later noticed that shredded paper was accumulating in trash bins. 
''I can't tell you what they were searching for, but they were definitely interested in picking out certain documents,'' Ms. Castaneda said. 
Robert S. Bennett, a lawyer representing Enron, said that the company was investigating the reports of shredded documents. 
''In October 2001 the company issued several directives to all Enron employees worldwide that all relevant documents should be preserved in light of pending litigation,'' Mr. Bennett said. ''If anyone violated those directives, they will be dealt with appropriately.'' 
The company said that it had sent employees four e-mail messages on document retention since Oct. 25, most recently last Monday. 
Legal experts said it would be a crime deliberately to destroy documents that might be sought by the S.E.C. or other government agencies. 
''It is really dumb,'' said Michael J. Shepard, former chief of the special prosecutions division in the United States attorney's office in Chicago and now a partner at Heller Ehrman White & McAuliffe in San Francisco. Destroying documents makes it very difficult to argue that their content was not incriminating, he said. 
''Maybe,'' he said, ''the document says, 'Man, did we cheat, and the roof is about to fall in.' Maybe the document is really, really bad. But in a lot of cases, it can be better to have the documents because you can explain them.'' 
Another former Enron employee, who asked not to be identified, said yesterday that she witnessed two to five people shredding documents in a room in late November or early December. 
The former employee was unable to identify the people and said she had observed them only casually. She added that she was not aware of any orders not to shred documents but said that several Enron employees later indicated that they had also seen the shredding taking place. 
Ms. Castaneda said that she collected a box of shredded documents at the suggestion of G. Paul Howes, an investigator for the law firm of Milberg Weiss Hynes Bershad & Lerach, which has filed a suit against Enron and its officers and directors on behalf of investors. 
The shredded pages include accounting records, expense reimbursement requests, wire fund transfer requests and what appear to be insurance records. Some of them are dated after Enron said it sent out notices about preservation of documents, and some include the words ''post-petition,'' which Mr. Howes said suggested they were related to the company's bankruptcy filing. 
Some of the shredded strips have the names of secretive partnerships --JEDI II and Raptor -- that have been linked to transactions allowing Enron to keep some of its debt hidden from investors. 
Bill Lerach, a partner at Milberg Weiss, said last night that he planned to take the box of shredded documents before a judge in Houston today and ask that other Enron documents be taken into the custody of the court immediately. 
Congressional hearings begin on Thursday before both the Senate Governmental Affairs Committee and Mr. Greenwood's House Energy and Commerce subcommittee. The House hearing will focus on the admission last week by Andersen that employees in its Houston office destroyed thousands of Enron documents shortly after learning that the S.E.C. was investigating Enron. 
Last week, Andersen fired the lead partner on the Enron audits, David B. Duncan, saying that he orchestrated the shredding. Mr. Duncan has told investigators that he was following a directive from a lawyer in Andersen's home office in Chicago, Nancy Temple, who in an Oct. 12 e-mail message re-emphasized the firm's document-destruction policy. Mr. Duncan has told investigators that it was ''unusual'' for the firm to re-emphasize that policy, according to people close to the investigation. Officials with the House subcommittee said Ms. Temple was likely to testify Thursday. 
In his interview with investigators, Mr. Duncan also attributed some blame for accounting errors to himself, Mr. Greenwood said. Mr. Greenwood said his staff members had told him that ''the bottom line'' from Mr. Duncan's testimony was that ''he did not point the finger at Enron, and he did not claim that Enron hid information from him.'' 
''Our hearing will be focused on the destruction of documents,'' Mr. Greenwood said. ''Did Arthur Andersen destroy documents strictly pursuant to its normal protocol, or was there an aggressive attempt to destroy documents to cover up? These are the questions we need to get to in our hearing.'' 
The analysis by Andersen of Enron Broadband Services examined the company's efforts to limit the financial risk in 10 of the unit's business areas. The report found that half of the areas reviewed had inadequate financial control; the other half were rated ''satisfactory.'' None of the areas received the next highest rating, which was ''good.'' 
The Andersen report, in many passages, is critical of the Enron management's ability to keep track of the unit's financial commitments, saying that the company lacked many of the formal procedures that would allow its top officers to spot problems early. 
An Andersen spokesman declined to comment, saying he did not have a copy of the report. Mark Palmer, an Enron spokesman, said that since Andersen served as the company's internal auditor, it was the accounting firm's responsibility to detect trouble spots in Enron's financial controls. 
''As part of that job, they would offer suggestions on how to fix any problems that they found,'' Mr. Palmer said. 
Even as the market for broadband capacity and services collapsed in 2000, Enron Broadband reported significant gains from equity investments in other companies, sales of fiber optic cable among a group of partnerships affiliated with Enron, and other transactions. 
But in November, when Enron restated its earnings going back to 1997, that performance proved illusory. The division's year-end loss of $60 million climbed to $357 million by the third quarter of 2001, according to S.E.C. filings. 
The Andersen analysis found that for its investments in projects involving large cash commitments in fixed assets, like a fiber optic network, Enron Broadband's ''current conditions indicate informal processes, lack of overall communication and coordination and monitoring controls.'' 
Andersen, which rated the controls for capital projects as ''inadequate,'' wrote that there was no formal policy at the company for approving such investments, and that there was no management process in place to track the status of projects after they began. 
The Andersen report also found controls in numerous other areas inadequate. It cited deficiencies that prevented the company from identifying and disposing of obsolete inventory. It also found that the company historically bought services without proper authorizations or documentation. All told, the report says, the division had no formal procurement policy. 
Even in the areas where the financial controls were rated as ''satisfactory,'' shortcomings were found, according to the Andersen report. 
In the division's merchant investing business, the report said that Enron executives responsible for placing a value on possible investments were not always consulted before a decision was made to commit the company's money. 
Moreover, the report said, policies to prevent employees from profiting on their knowledge of the division's decisions were inadequate. 
The report contains a long list of ''management action plans'' to address the problems. But the plans, all of which are labeled ''tentative and preliminary,'' failed to impose the controls that the division needed, former executives said.

Photos: An Enron executive, Maureen Castaneda, said in an ABC interview that employees shredded documents as recently as last week. Enron said that it had repeatedly directed workers to preserve all documents once it learned in October of a Securities and Exchange Commission inquiry. (Vincent Laforet/The New York Times); (James Estrin/The New York Times)(pg. C6) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Financial Desk
THE ENRON INQUIRY Former Exec Says Enron Destroyed Documents
MEGAN GARVEY; LEE ROMNEY
TIMES STAFF WRITERS

01/22/2002
Los Angeles Times
Home Edition
A-1
Copyright 2002 / The Times Mirror Company

HOUSTON -- Enron Corp. shredded documents after the company came under federal investigation, attorneys for shareholders said Monday, and the energy company said it would review the allegations. 
The claim that shredding took place in Enron's accounting offices was made Monday by a former Enron executive who was laid off from the company this month.
The executive, Maureen Castaneda, collected a box of shreddings and will be a witness for plaintiffs suing over stock losses in the Enron collapse, said attorney William Lerach, who represents a group of shareholders. 
"Not just one document was destroyed, but it looks like hundreds of thousands were destroyed." 
Lerach said he intended to raise the issue at a federal court hearing here today. 
Castaneda, a director in Enron's foreign investments section, said in an interview with ABC News that she witnessed the shredding of documents that began around Thanksgiving and continued at least until she left the company in the second week of this month. 
Enron's accounting firm, Andersen, previously acknowledged that thousands of documents related to Enron were shredded by its Houston office. But Castaneda is the first to say publicly that Enron destroyed relevant papers. 
Paul Howes, an attorney working with Lerach, said text was legible in some of the shredded documents and included references to controversial partnerships such as Jedi II and Chewco. Losses by such off-the-book partnerships played a key role in triggering Enron's collapse. 
Based on statements from witnesses, Lerach estimated that possibly hundreds of thousands of documents were destroyed. 
"We are investigating the circumstances of the reported destruction of documents," Robert Bennett, a Washington attorney who is representing Enron, said in a statement issued late Monday. 
Bennett said Enron had issued "several directives" in October to all employees saying that "all relevant documents should be preserved in light of pending litigation." 
"If anyone violated those directives," Bennett said, "they will be dealt with appropriately." 
Ken Johnson, a spokesman for the House Energy and Commerce Committee, said congressional investigators will look into the allegations. 
"This whole sorry affair keeps getting uglier by the minute," he said. "It's one thing to make bad business decisions. It's something else entirely to try to cover up bad business decisions." 
Howes said fired Enron employees were told to gather their work papers in boxes and turn them over to company officials, who went through them and shredded numerous documents. 
He said the shredding began with the layoffs triggered by Enron's Dec. 2 declaration of bankruptcy, and accelerated during the Christmas and New Year's holidays. He said the shredded documents were dated from at least 1994 through Dec. 20, 2001. 
Enron spokesman Mark Palmer said the company does not "have any knowledge of the material that the plaintiffs' attorneys are parading in front of the media." But he said that if the allegations prove true, the people responsible will be fired. 
The company sent e-mails to employees on Oct. 25, Oct. 26, Oct. 31 and Jan. 14 instructing them to retain all documents dealing with "related-party transactions, SEC requests, or any Enron transactions or accounting for those transactions," he said. 
The January e-mail was sent as a reminder after it was revealed that Andersen had shredded Enron-related documents. 
"These e-mails were very specific that employees who did not follow these procedures were liable for civil or criminal penalties," Palmer said. 
Palmer confirmed that Castaneda was an employee at Enron who left the company in a recent round of layoffs. 
She was director of "foreign exchange and sovereign risk," analyzing currency exchange rates and the possibility that companies outside the U.S. would nationalize assets. 
Phil Schiliro, chief of staff to Rep. Henry A. Waxman (D-Los Angeles), a senior Democrat on the House Energy and Commerce Committee, said that if documents were destroyed, it "raises the real possibility of obstruction of justice. We need to know if Enron is destroying documents, and if they are, learn what Enron is trying to hide." 
Though many companies routinely shred old or sensitive documents, business experts expressed surprise Monday that Enron might have destroyed key records, particularly after the company became the target of numerous lawsuits and government investigations. 
On Oct. 22, the company disclosed that the Securities and Exchange Commission had launched a preliminary inquiry into some of the company's partnerships. 
"Under the circumstances, this could be a very serious issue," said Nicholas Economides, business professor at New York University's Leonard N. Stern School of Business. 
"'When someone destroys documents, people start wondering what was in those documents," Economides said. "Even if they didn't say something horrible, a bad impression remains. And at Enron, there's no justification. Certainly no one could say they destroyed documents because they thought they were unimportant." 
Former employees reacted with concern and anger to the new charges. 
"It does take it to a new level," said Maritta Mullet, 58, a 10-year employee who lost nearly half a million dollars in would-be retirement benefit when the company crashed. "It's criminal. You just don't destroy evidence." 
The accusations of document shredding at Enron came as congressional investigators continued preparations for a hearing scheduled Thursday into the destruction of thousands of documents by Chicago-based Andersen. 
Congressional investigators said they will issue subpoenas today for key witnesses who fail to commit to testifying at Thursday's hearing. 
The House Energy and Commerce investigations subcommittee turned down an appeal Monday from David B. Duncan for more time to prepare. Duncan was Andersen's lead partner on the Enron account until he was fired last week for allegedly destroying documents. Duncan maintains he was following company orders. 
"Apparently [Duncan] would like to have more time to refresh his memory about events," said Johnson, who works for committee Chairman Rep. W.J. "Billy" Tauzin (R-La.). 
"The bottom line is he will agree to testify by [today] or he will be subpoenaed," Johnson said. "All the witnesses have been put on notice that they are expected to appear and will face contempt-of-Congress charges and criminal penalties if they do not." 
In a letter to the committee Monday, Duncan's attorney, Robert Giuffra, said it is premature to require his client's testimony. Giuffra said Duncan wants to review boxes of documents that Andersen gave the committee but has not yet shared with him. 
At issue is Andersen's destruction of documents relating to Enron, shredding that took place even after the accounting firm was aware that the SEC was looking into the company's collapse. 
In firing Duncan, Joseph F. Berardino, Andersen's managing partner and chief executive, asserted that the 42-year-old executive had organized the destruction of records. The firm, he said, would not tolerate "unethical behavior, gross errors in judgment or willful violation of our policies." 
In private interviews with congressional staffers last week, Duncan and another Andersen official, Michael C. Odom, indicated that others at the accounting firm were "at the table" when the memo regarding the destruction of material was discussed, one congressional investigator said Monday. 
Andersen attorney Nancy Temple sent a memo Oct. 12 reminding employees of the company's long-standing policy to get rid of nonessential documents. 
"Duncan and Odom said there were other partners and managers at the table when the retention policy was handed out," said an investigator, who spoke on the condition of anonymity. "Employees were told to do no less or no more than the policy called for." 
A month later, and nearly three weeks after Enron disclosed it was the subject of an SEC probe, Temple wrote another memo instructing company employees to preserve Enron documents. As of late Monday, she was the only one of four Andersen executives summoned who has told investigators she will appear on Capitol Hill for the Thursday hearing. 
The inquiry has been called to investigate who was involved in the destruction of evidence, which documents were destroyed and why. 
Odom, who was in charge of risk management at Andersen's Houston office, was told Monday that he would be called to testify. The subcommittee also has summoned Berardino, who has been given the option of sending a proxy and who is familiar with his company's internal investigation into the document destruction. 
In an appearance over the weekend on NBC's "Meet the Press," Berardino did not indicate his plans for the hearing. 
Enron's bankruptcy is widely considered to have the potential to become a political scandal because of the donations--almost $6 million over the last decade--to both parties from the company's officers, directors, employees and political action committee. Kenneth L. Lay, Enron's chairman and chief executive, was one of President Bush's top donors. 
A number of legislative efforts have been proposed to prevent a reoccurrence of Enron's unraveling. 
Sen. Barbara Boxer (D-Calif.) said Monday that she plans to introduce a bill this week that would prohibit accounting firms from also serving as consultants for the companies they are auditing. 
The practice, which in the case of Enron allowed Andersen to earn more in consulting fees than from actual audit charges, has been widely derided in the wake of the bankruptcy as a clear-cut conflict of interest. 
* 
Garvey reported from Washington and Romney from Houston. Times staff writers David Streitfeld, Jeff Leeds, Edmund Sanders and Richard Simon contributed to this report.

PHOTO: Former Enron executive Maureen Castaneda says she saw the shredding of documents beginning around Thanksgiving.; ; PHOTOGRAPHER: ABC News 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

National Desk
The Nation Enron's Lay Met With Executive on 'Improprieties,' Lawyer Says Accounting: Sherron Watkins was said to be assured the board was studying the matter. No findings were issued.
DAVID STREITFELD
TIMES STAFF WRITER

01/20/2002
Los Angeles Times
Home Edition
A-32
Copyright 2002 / The Times Mirror Company

HOUSTON -- Enron Corp. Chairman Kenneth L. Lay held several meetings in late October with a vice president who had urged him to clean up a series of "improprieties," her lawyer said in an interview Saturday. 
Lay first met with Sherron S. Watkins, Enron's vice president for corporate development, for half an hour Aug. 22, shortly after she wrote him an anonymous letter detailing her fears that the energy company would "implode in a wave of accounting scandals." But Philip Hilder, Watkins' lawyer, said "there were also subsequent meetings in October."
At one of the meetings, Lay told Watkins that the Enron board had formed a committee to look into the accounting issues, Hilder said. But he declined to provide further details of the meetings, which have not been previously reported. 
By October, the energy company was indeed beginning to implode. On Oct. 16, Enron announced an unexpected charge against earnings of more than $1 billion. On Oct. 22, the Securities and Exchange Commission began an inquiry. On Oct. 24, Chief Financial Officer Andrew Fastow took a leave of absence. On Oct. 31, the board announced the formation of the special committee, which has not yet issued any findings. 
An Enron spokeswoman said Saturday that she had no details about the Lay-Watkins meetings in October. 
Hilder also provided a better timeline for how the 42-year-old Watkins discovered and acted on the accounting irregularities, which involved so-called special purpose entities, some of which were based in the Cayman Islands, a haven for tax shelters. 
An eight-year veteran of Enron, Watkins had spent less than two months working for Fastow when, in the course of reviewing which assets could be sold, she "stumbled across" details on the entities, Hilder said. 
"The numbers just didn't add up," Hilder said. 
He said Watkins didn't confront Fastow. "She felt he knew what was going on and, if she confronted him with it, that would have been the end of her at Enron," the lawyer said. 
When Enron Chief Executive Jeffrey Skilling resigned Aug. 14 after only six months on the job, Watkins had her opening. Skilling's abrupt departure for "personal reasons" stunned the company, and Lay scheduled an Aug. 16 meeting at the Hyatt Regency here for all concerned employees. He invited them to submit questions in advance--anonymously, if they wished. 
Watkins wrote a one-page letter, saying, "Skilling's abrupt departure will raise suspicions of accounting improprieties and valuation issues . . . . I am incredibly nervous." 
The meeting with employees didn't produce the resolution Watkins wanted, Hilder said, so her next step was to call a friend at Andersen, Enron's accounting firm. "She went to him as a sounding board," Hilder said. "Here she feels she is hanging out all alone. These deals must have been looked at by the accountants, maybe the lawyers, the top company brass. She had some doubt that maybe she had gotten it wrong." 
Watkins ultimately sought and was granted an Aug. 22 meeting with Lay, at which she gave him a six-page memo that detailed her questions and talked generally about the high level of employee worry. "I wish we would get caught," she quoted one Enron manager as saying in the memo. "We're such a crooked company." 
Lay later asked Vinson & Elkins, Enron's principal outside law firm, to conduct the review. Watkins had urged him not to hire that firm, saying Vinson & Elkins had a conflict because they had provided opinions on some of the deals. 
By the beginning of September, Watkins had transferred out of Fastow's office. On Oct. 15, Vinson & Elkins issued its report, which basically gave the special partnerships a clean bill of health. 
Watkins' reaction to the report, the lawyer said, "is probably pretty obvious, given her feelings about them looking into the matter . . . ."

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE ANGER
Enron Fired Workers for Complaining Online
By ALEX BERENSON

01/21/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

The Enron Corporation fired at least two employees in the last two months for posting information or negative opinions about it on Internet message boards. 
One of the fired employees, Clayton Vernon, had asked Kenneth L. Lay, Enron's chairman, during an earlier internal online discussion whether Enron had used aggressive accounting to overstate its profits. It is unclear whether Mr. Vernon's question to Mr. Lay, which came in September, two months before he was dismissed, played any role in his firing. But a coarsely worded message critical of Mr. Lay that Mr. Vernon posted in November under a screen alias was traced back to him in less than a day.
The second fired employee, according to Enron, was the person who revealed in early December on the Internet that Enron had paid $55 million in retention bonuses to top managers and executives just before it filed for bankruptcy protection and laid off 4,000 workers on Dec. 2. The bonuses were sharply criticized by Enron employees, many of whom had their retirement savings wiped out by Enron's collapse. Enron declined to identify the second fired employee. 
Enron also declined to comment on any other details of the two firings, and it would not say whether it had dismissed any other employees because of Internet postings. Mr. Vernon confirmed that he had been fired for postings that the company viewed as offensive. 
''We're not going to discuss internal security actions,'' said Mark Palmer, a spokesman for Enron. ''But we will say that we will protect very vigorously the corporation's property.'' 
Both firings involved material posted in an online forum about Enron on Yahoo, whose message boards are among the most heavily used on the Internet. 
It was not clear how Enron identified the employees behind the postings. People who post messages on Yahoo often believe that they cannot be traced if they do not use their real names. But many companies have the technical means to track the online activities of employees who use company computers and servers. 
In addition, Yahoo's privacy policy allows it to disclose personal information about people who post messages that it deems abusive or ''invasive of another's privacy, hateful, or racially, ethnically or otherwise objectionable,'' or that reveals confidential corporate data. 
Even so, a Yahoo spokeswoman said Yahoo had not given Enron any information about anyone who posted a message. Despite the disclaimer in its privacy policy, she said, Yahoo generally divulges personal information about users only in response to a court order. 
In any case, Enron apparently had little difficulty finding Mr. Vernon, who posted most of his messages from the company's Houston headquarters, where he worked designing computer-based models to estimate the value of Enron's energy trades. 
A native of Midland, Tex., who describes himself as a political progressive, Mr. Vernon said that when he joined Enron in December 1999, he hoped that the company would be diverse and a meritocracy. 
But in the course of two years working at Enron, he said, he ''realized it was just another Houston, Texas, corrupt thing -- that we grow in this town -- where the rich white Republicans think they can write any law they want to at any time.'' 
His frustration grew, he said, when Mr. Lay took part in an online chat within the company on Sept. 26 and brushed off Mr. Vernon's question about the way Enron had accounted for deals it had made with supposedly independent partnerships. Enron began to collapse after it became known in November that it had used the partnerships to overstate earnings by at least $600 million. 
By mid-November, with Enron's stock plunging, Mr. Vernon had begun to post dozens of messages a day on the Yahoo discussion board under the screen name ''utlonghornsrule,'' referring to the University of Texas, where he received a master's degree in economics. 
His messages warned investors away from Enron's stock, and many sharply criticized Enron and Mr. Lay. ''We were just sitting there with nothing to do,'' Mr. Vernon said of the period when he posted the messages. ''We were just sitting there watching our stocks go down.'' 
The final straw for him came Nov. 19, he said, when Enron canceled its Christmas party. At 5:16 p.m. that day, in a (not always grammatical) message sprinkled with vulgarities, Mr. Vernon wrote that Mr. Lay had ''just cancelled the Enron christmas party so he wouldn't have to show up for his own party with armed bodyguards.'' 
He went on, ''Lied and said employees were ambivalent. Trust me, nobody believes a word'' that Mr. Lay says, the posting said, using a vulgar epithet. ''People have enjoyed the company spending a few dollars on them and giving them a chance to laugh and dance a bit. Esp since most of us adore our coworkers. 
''Ken Lay is the sorriest sack of garbage I have ever been associated with, a truly evil and satanic figure.'' 
Other people quickly posted responses defending Mr. Lay, including one who wrote, ''1) You are an embarrassment to UT -- so shut up. 2) You don't know what you are talking about -- You don't run with the big dogs.'' Mr. Vernon said the style of that note led him to think that it was the work of a senior Enron employee. 
It did not take long for Enron to find out the identity of ''utlonghornsrule.'' The day after his vituperative posting, Mr. Vernon said, he was called into a meeting with his manager and a top human resources officer. ''My boss said, 'What were you doing?' and I said, 'I was frustrated,' '' Mr. Vernon said. ''They escorted me out immediately.'' He said he had been paid his salary, but no severance pay. 
Mr. Vernon said he understood why he was fired. ''I was using their equipment,'' he said, ''I was in their building, and it was a flagrant violation of company policy to do what I did. I'm not going to litigate it. I don't think it was unfair.'' 
He does not see himself as a whistle-blower, he said, and he is embarrassed by the language his anger led him to use -- but he is still angry.

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

Murky Waters: A Primer on Enron Partnerships --- As Details Surface, They Appear Central In Firm's Collapse
By John R. Emshwiller and Rebecca Smith
Staff Reporters of The Wall Street Journal

01/21/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

With names such as Marlin and Rawhide, Braveheart and Raptor, they sound like fancy bar drinks or maybe top-secret military missions. 
They are, in fact, a few of the myriad entities that Enron Corp. helped set up over the past decade and that now find themselves at the heart of one of the biggest corporate scandals in history. Government investigators are still sifting through the complex financial structures of these partnerships, limited-liability companies and other affiliates -- domestic and foreign -- trying to determine what, if any, accounting rules and laws may have been violated.
At this stage, many details remain murky. But one thing is certain: The partnerships -- which Enron often told investors little or nothing about -- hid hundreds of millions of dollars of losses and debt from public view. As information about the partnerships began surfacing, they were a major factor in the company's filing for bankruptcy-court protection in December. 
Here is a primer on what is known so far: 

Q: Why did Enron create the limited partnerships and related entities? 
A: Several reasons. By setting up partnerships, partly owned by the company, Enron could draw in capital from outside investors, such as banks, insurance companies, pension funds and even wealthy individuals. If structured properly, including at least 3% of their equity obtained from outside investors, the partnerships could also be kept separate from Enron. As a result, any debt incurred by the partnership could be kept off the company's balance sheet. This was an important consideration for a fast-growing energy-trading company that feared too much debt would damage its credit rating. Another, more personal incentive arose over time as Enron executives headed and partly owned some of the partnerships, which provided a lucrative source of outside income for those involved. For instance, Enron has said that its former chief financial officer, Andrew Fastow, made more than $30 million from two partnerships that he ran. 

Q: How many partnerships were there? 
A: Many hundreds, and perhaps even thousands, though the exact number isn't known. In all, Enron had about 3,500 subsidiaries and affiliates, many of them limited partnerships and limited-liability companies, which are a sort of hybrid between corporations and partnerships. Many of the limited partnerships were of the plain-vanilla variety and very much like those set up by other energy companies as a way to spread their risk. In the partnerships' simplest form, Enron and outside partners would each put up money to invest in specific projects, such as a pipeline or power plant, and then split any profits when the partnership ended. It isn't clear how many of these partnerships made money and how many didn't. 

Q: Were there partnerships that were more complicated? 
A: Yes, and increasingly so as time went on. In some of these partnerships, Enron parked assets that were troubled and falling in value, such as certain overseas energy facilities or stock in companies that had been spun off to the public by Enron. Putting the assets in the partnerships hid losses that Enron otherwise would have had to report. But there was a price to pay for this. Enron in some cases promised to compensate partnership investors down the road, often by issuing them Enron stock. As the value of the assets in the partnerships fell, the burden of meeting these down-the-road obligations became ever larger. Compounding the problem, Enron's stock price was falling as part of the broad stock-market retreat over much of last year. 
Conversely, some of the partnerships were used to produce large bursts of earnings for Enron through the use of complex financial transactions. In one case, involving the partnership Braveheart, Enron booked more than $100 million of income over a six-month period from a venture that never really got off the ground; Braveheart was part of a plan to deliver movies to homes over Enron's high-speed fiber-optic network, but the venture was in its infancy and never made it beyond the test phase. Enron later had to remove those earnings from income. Recently, Enron has had to take hundreds of millions of dollars in charges to earnings from other partnerships that it had previously been adding to the company's reported income. 

Q: So were these the partnership problems that helped sink Enron? 
A: Eventually. But the crisis was triggered by disclosures concerning three outside partnerships that were run and partly owned by Enron executives. The three were Chewco Investments LP, LJM Cayman LP and LJM2 Co-Investment LP. The last two were started in 1999 and run by Mr. Fastow, who was Enron's CFO until last October. 

Q: What are the concerns over partnerships run by executives? 
A: Conflict of interest is the biggest worry. The partnerships did hundreds of millions of dollars of transactions with Enron itself, in some cases buying assets from the company or selling assets to it. The problem is this: Where do the executives' loyalties lie? Are they trying to negotiate the best deal for the company that employs them and the shareholders who own the company, or the best deal for the partnership where they have an ownership stake? 

Q: Why would Enron's board of directors allow such a situation to occur? 
A: The reason the company and its board gave for approving these executive-run partnerships was speed. By having people intimately familiar with Enron's complex operations run the partnerships, the entities supposedly could make much quicker decisions about whether to take part in a particular transaction. This nimbleness, it was argued, could benefit both the company and the partnerships. To protect itself in dealings with these partnerships, the company says that it set up safeguards that required top company officers and the board to review and approve deals between Enron and the partnerships. 

Q: Did the safeguards work? 
A: In the end, certainly not for Enron shareholders. There are also some questions as to whether the executive-run partnerships received favored treatment. For example, internal documents from the LJM2 partnership indicate that on at least one occasion, the partnership renegotiated a deal that saved it millions of dollars, seemingly at Enron's expense. Like others, these executive-run partnerships were used to keep debt and losing ventures off Enron's books. Yet an even bigger problem these particular partnerships posed for Enron was one of perception. Critics say they seem to be evidence of a company that tolerated self-dealing by its own executives. When public attention started focusing on these partnerships in October, it opened the doors to concerns about a raft of problems facing Enron that were buried in its complex web of partnerships. With all this attention, investor confidence in Enron collapsed like a sandcastle at floodtide, and by December the company found itself forced to file for bankruptcy-court protection. 

Q: Had Enron been keeping these partnerships secret? 
A: There is scant, if any, public information on many of the hundreds, or even thousands, of Enron-related financial entities. And even in cases where there was disclosure, the details were often limited and some of the disclosure came belatedly. Chewco, for instance, was created in 1997 but didn't show up in any Enron Securities and Exchange Commission filings until last November. At that time, the company revealed that it had improperly accounted for dealings with the partnership and, as a result, was lopping off nearly $400 million, or more than 10%, from its reported earnings for the prior four years. Enron said Chewco and a related partnership shouldn't have been treated as separate entities and therefore couldn't have been engaged in third-party deals with the company. Because the LJM partnerships were run by a senior-enough Enron executive, the CFO, the company dutifully noted their existence in SEC filings over the past two-plus years. But the company's descriptions of the partnership dealings were so complicated as to be practically indecipherable. 

Q: So, should people in a position to know have called attention to the potential problems posed by the partnerships? 
A: Yes, any number could have and should have, critics say. Arthur Andersen, as Enron's accounting firm from 1985 forward, was intimately involved in the company's financial strategy. As auditor, it was entrusted to make sure Enron's reports were free of material misstatements, according to accounting standards, and fairly represented the company's financial condition. But Andersen itself was potentially conflicted since it operated as inside accountant, outside auditor and consultant to Enron, reaping tens of millions of dollars a year in fees. 
Enron's outside lawyers, led by the Houston firm Vinson & Elkins, reviewed many deals that now look suspect. The SEC was supposed to review Enron's financial statements. But the SEC's former chief accountant Lynn Turner said last week that the agency was so busy reviewing the flood of initial public offerings from new companies in the 1990s that it didn't have the resources to fully scrutinize more-established companies. And in a 1994 decision, the Federal Energy Regulatory Commission said it didn't have the obligation or authority to review wholesale energy-trading operations like the one run by Enron. 
As FERC Commissioner Nora Brownell said recently, "Everyone who has touched Enron should be looking in the mirror." 
--- The Art of the Enron Deal

Enron used outside partnerships to monetize assets and move debt off
its balance sheet. But the company at times was deeply involved in
funding the partnerships. Here is how such transactions in recent
years were typically structured:

1. Enron transfers asset to special-purpose entity, or partnership,
to move the asset and debt off its balance sheet and to recognize a
gain from the transfer.

2. Outside investor injects at least 3% of partnership's capital.
Under Financial Accounting Standards Board rules, a 3% outside
investment allows Enron not to classify the partnership as a
subsidiary.

3. In some cases it appears Enron helped provide some or all of the
3% of capital injected by the outside investor.

4. Banks typically loan up to 97% of capital needed by the
partnership. The partnership is expected to repay the loan from cash
generated by the Enron assets it acquires or through the sale of
assets upon liquidation of the partnership.

5. Enron guarantees bank loan, in some cases with Enron shares or a
pledge to make up any shortfall. As the company's fortunes declined
last year, these guarantees were sometimes in the form of cash.

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: MARKET PLACE
For Chief, $200 Million Wasn't Quite Enough Cash
By FLOYD NORRIS

01/22/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

Over three years starting in 1999, Kenneth L. Lay has reported receiving more than $200 million either from Enron directly or through exercising stock options. Yet, his lawyer now says, he was forced to borrow millions more from the company last year to meet his obligations. 
The disclosure of Mr. Lay's financial problems, made by Earl Silbert, his personal lawyer, was aimed at countering the impression that Mr. Lay, Enron's chairman and chief executive, might have disposed of Enron stock in late August because he feared a collapse of the company.
Instead, the new information could leave an impression that his personal investments produced very large losses that he was unable to support despite his large income from Enron. 
Assuming that Mr. Silbert is correct, Mr. Lay joins a short list of chief executives whose pay in the 1990's was astronomical, and who ended up with severe financial problems because they borrowed too heavily against assets whose high value proved to be temporary. The others known to have such problems are Bernard J. Ebbers, the chief executive of WorldCom, whose margin loans were guaranteed by the company and whose shares are now worth less than he owes, and Steven Hilbert, the former chief executive of Conseco, who bought Conseco shares with money borrowed from the company before the stock price collapsed and he was fired. 
Mr. Lay appears to have parlayed his paper gains in Enron to buy other securities that also declined in value. His known investments, which are no doubt only a fraction of the actual investments, were concentrated in areas that did well when the stock market was soaring and have since suffered. They include stakes in Compaq Computer, i2 Technologies and NewPower Holdings. 
In fact, Mr. Silbert indicated that Mr. Lay first repaid a company loan with stock last February. Enron was then selling for more than $68 a share, so it appears that the sale was forced by the declining value of Mr. Lay's other investments. 
Just how much Mr. Lay is now worth is unclear. Nor is it clear how much, if any, money he still owes, or just what expenditures would have caused him to go through so much money so quickly. But his stake in Enron, which consists mostly of stock options, is now worthless after the collapse of the company. 
Mr. Lay had a $4 million revolving line of credit from Enron, which Mr. Silbert said was raised to $7.5 million at some point in 2001. He said that Mr. Lay took out money from that loan, and then repaid it, on 15 separate occasions from February through October. 
In each case, he repaid it by turning over stock to Enron. He appears to have obtained some of those shares by exercising options, while in other cases he returned shares he already owned. Mr. Silbert said Mr. Lay took out the loans from the company when he expected that he was likely to face margin calls from other lenders. 
If those 15 repayments averaged $4 million, then they totaled $60 million, which would represent the value of stock he returned to the company. Mr. Silbert declined to give exact figures, and formal disclosure of the transactions is not required by Securities and Exchange Commission rules until Feb. 14. 
From 1999 through 2001, Mr. Lay received salary and cash bonuses from Enron totaling more than $17.1 million. That figure does not include a salary for 2001, although he was supposed to earn $1.3 million. Presumably, it was paid until the company filed for bankruptcy on Dec. 3. 
But he brought in far more from cashing in his stock and options in the company. In 1999, Enron filings show, he realized $43.8 million from cashing in stock options. The next year, he realized $123.4 million from that source. And his filings show that he earned a profit of $20.7 million from cashing in options and selling stock in the first seven months of 2001. 
All told, that amounts to about $205 million over those three years. But that was not enough. According to Mr. Silbert, the loan proceeds from the company were needed when other loans needed to be paid. 
Mr. Lay has also sought to raise cash from other sources. Late last year Mr. Lay put up for sale several houses and properties he owns in Aspen, Colo. 
Functionally, disposing of stock by using it to pay off loans is the same as selling the stock. But legally it differs in two ways, although it is not clear which, if either, was important to Mr. Lay. 
The first is that while normal sales of stock by a top corporate official must be disclosed quickly, within 10 days of the month in which the sale was made, the return of stock to a company to repay a loan need not be disclosed until the next year. 
The second concerns the sanctions against insider trading. In general, an executive is barred from buying or selling his company's stock when he has material nonpublic information. But transactions are not barred if the entity on the other side of the trade has the same information. 
''If he is selling it back to the company, the company may have the same information he had,'' said Jack Coffee, a securities law professor at Columbia. He said that while a prosecutor could argue that the board did not have the information, and therefore the company did not have it, it would be a difficult case to prove. 
There is one other exception to insider trading rules, stemming from a rule issued by the S.E.C. in 2000. An executive may adopt a plan to sell stock regularly and then sell stock pursuant to it even after learning of material nonpublic information. But no such plan can be filed by an executive after he or she obtains such information, unless the information is made public. 
Mr. Lay took advantage of that rule repeatedly in 2001, filing plans to sell stock for three-month periods. His last plan expired at the end of July, by which time he had taken in $29.9 million from selling shares and earned a profit of $20.7 million. The share price had fallen to $45.35 by the end of the month. 
After that, Mr. Lay did not file a new plan and has not reported selling any additional shares in public markets. ''The reason he stopped selling was that he thought the stock was going to go up,'' a lawyer for Enron, Robert S. Bennett, said last week. 
After July 31, there was no shortage of news affecting Enron. On Aug. 14, Jeffrey Skilling resigned as Enron's president and chief executive, leading to Mr. Lay's reassuming the chief executive title he had surrendered earlier in the year. The next day, Sherron S. Watkins, an Enron employee, wrote to Mr. Lay of her concerns about the company's accounting, expressing the prescient fear that ''we will implode in a wave of accounting scandals.'' 
In October, the last month that Mr. Silbert said Mr. Lay repaid a company loan by turning in stock, Enron's report on third-quarter results set off an avalanche of bad publicity that led to the company's unraveling over the next month. The S.E.C. inquiry also began in October. 
By repeatedly borrowing from Enron, and then turning in stock to repay the loan, Mr. Lay was taking out cash directly from the company when the company's need for cash was growing. 
Had he exercised options and sold the stock to the public as he sought to pay his debts, Enron would have gained cash that now could be used to pay creditors. As it is, there is less cash available for that.

Photo: Kenneth L. Lay has tried to raise money by selling several houses and properties in Aspen, Colo., including this one, listed at $6.8 million. (Michael Brands)(pg. C6) Graph: ''Well Compensated'' Over the last 13 years, Enron's chairman and chief executive, Kenneth L. Lay, received more than $270 million in salary, bonus and profits from exercising stock options -- $205 million of it from 1999 to 2001. Yet his lawyer says he needed to sell millions of dollars of Enron stock back to the company last year to pay other loans. Graph tracks stock options expected, cash bonuses and salary since 1989. (Source: S.E.C. filings) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section A
ENRON'S COLLAPSE: TRANSACTIONS AT ISSUE
ENRON CHIEF SAYS HIS SALE OF STOCK WAS TO PAY LOANS
By RICHARD A. OPPEL Jr.

01/21/2002
The New York Times
Page 1, Column 1
c. 2002 New York Times Company

WASHINGTON, Jan. 20 -- Kenneth L. Lay, the chairman and chief executive of the Enron Corporation, repeatedly used millions of dollars in Enron stock to repay loans made to him by the company last year as Enron shares declined in value, his lawyer said today. 
The lawyer, Earl J. Silbert, said in a telephone interview that Mr. Lay had put up shares of his Enron stock as collateral for other investments, which he said he could not identify. As the value of Enron stock plummeted last year, he said, Mr. Lay anticipated that lenders would demand additional collateral.
So Mr. Lay's decision to dispose of Enron shares late in the year reflected a need to raise cash, not a concern about the health of Enron, and was not tied to a warning about the company's finances made by an Enron vice president, Mr. Silbert said today. He added that the majority of the transactions related to the credit had occurred before August. Three months later, Enron restated earnings and began its spiral into bankruptcy. 
On at least 15 occasions between February and October of last year, Mr. Silbert said, Mr. Lay returned shares in Enron to the company to repay $4 million he had received through a credit line. 
Each time the loan was repaid, Mr. Silbert said, Mr. Lay subsequently borrowed the amount available and used a substantial portion of it to repay some of the money owed on his other investments. Sometime last year, the credit line was increased to $7.5 million, Mr. Silbert said, adding that he did not know if Mr. Lay still owed any money to Enron. 
If Mr. Lay is facing financial difficulties, he went through an extraordinary amount of money during the years when Enron was riding high. From 1989 through 2001, the total of his salary, bonuses and profits from stock options topped $300 million, with most of that coming from 1998 through 2000. 
Some of the nation's wealthiest men found themselves in trouble last year, after they either invested at the height of the market mania or failed to take profits and reduce their debt in good times, a mistake that became apparent when technology stocks in particular plunged in value. 
For example, some members of the Bass family of Texas sold shares in Disney to raise some cash last year, and Craig McCaw, the telecommunications entrepreneur who foresaw the cellular phone market, has put up for sale houses, yachts, a wine collection and even an island as his holdings have declined in value. 
Much of Mr. Lay's fortune was in Enron stock and options, now worthless, but his overall investment portfolio is unknown. 
Late last year, he still owned about $8 million in stock in Compaq and Eli Lilly, and he has several properties. But around the time of Enron's demise, he put some property on the market and began selling some of those Compaq and Lilly shares as well. 
Late last year, Mr. Lay put up for sale several houses and properties he owns in Aspen, Colo., the exclusive ski resort. 
Lawmakers and Enron employees have harshly criticized Mr. Lay for promoting Enron's stock as the company's finances grew increasingly shaky last fall. In one case, Mr. Lay used an online chat on Sept. 26 to urge employees to buy Enron shares, telling them that the stock was ''an incredible bargain'' and predicting that the value of the company would increase 800 percent or more in the next decade. 
The recent disclosure that Mr. Lay returned some stock to the company to repay a loan has fueled concern that he was exiting his position as he was encouraging others to buy. 
Another lawyer, Robert S. Bennett, who represents Enron, previously disclosed that Mr. Lay used some stock to repay a loan late last year. 
Mr. Lay exercised options on Aug. 20 and 21, which was shortly after a company vice president, Sherron S. Watkins, warned him that the company might ''implode in a wave of accounting scandals.'' 
She said it was in danger of being found out as an ''elaborate accounting hoax.'' 
Today, Mr. Silbert acknowledged that around Aug. 21, Mr. Lay disposed of some stock by using it to repay a loan. He emphasized that the disposal of those shares had nothing to do with the warning from Ms. Watkins. He also said that Mr. Lay exercised options to acquire 68,000 shares on Aug. 21, and he still owns those shares. 
When Mr. Lay faced a financial strain, Mr. Silbert said, he took the course that showed the most confidence in the company. ''When the stock of Enron went down and the value of the collateral went down,'' Mr. Silbert said, ''you had two choices: sell the Enron stock, or pay down the loan. And he chose to pay down the loan rather than sell off his stock.'' 
Mr. Silbert said that Mr. Lay's faith in Enron was also evident in how he had diversified his portfolio. To make other investments, Mr. Lay put up shares of Enron and borrowed against them -- instead of selling the shares and paying in cash. That reflected Mr. Lay's belief that the Enron stock would appreciate, Mr. Silbert said. 
The transactions between Mr. Lay and Enron will be included in regular filings with the Securities and Exchange Commission next month. 
Proxies filed early last year showed that Mr. Lay had significant holdings in four companies in addition to Enron. That five-stock portfolio was a poor performer last year as the overall stock market sagged. The best stock in the group fell nearly 16 percent in 2001, while the worst two lost nearly all their value. 
Mr. Lay, who recently resigned from the boards of Compaq and Eli Lilly, sold stock in those two companies, the best performers, in the final days of October. 
He acquired 10,000 shares in Lilly in February at $74.13 a share and sold 10,000 shares at a small profit, for $77.75 apiece, in October. He sold nearly 125,000 shares of Compaq for $1.15 million at the end of October. Combined, those sales generated nearly $2 million. 
Along with his dwindling stake in Enron, whose stock plunged from $83 at the beginning of the year to under a dollar after its filing for bankruptcy, Mr. Lay's stakes dwindled in NewPower, which Enron helped finance, and i2 Technologies, which provides business-to-business Internet solutions. Shares of NewPower have lost nearly all of their value, and i2's shares fell 85 percent last year. 
In early 2001, Mr. Lay sold Enron shares on every business day, shares he had acquired by exercising options. Cumulatively, he made a profit of $21 million on those sales. Enron's stock had fallen from a high of $90.75 to half that amount, $45.35, at the end of July, when Mr. Lay stopped selling shares. 
''The reason he stopped selling was that he thought the stock was going to go up,'' Mr. Bennett said earlier this month. 
After turning down previous requests, Mr. Lay has agreed to testify on Feb. 4 before a Senate Commerce subcommittee, which is investigating Enron's collapse, Mr. Silbert said yesterday. 
In all, at least 10 Congressional committees are investigating Enron. The first hearings begin Thursday before the Senate Governmental Affairs Committee and a subcommittee of the House Energy and Commerce Committee. The House hearing will focus on Arthur Andersen, Enron's auditor, which admitted last week that employees shredded Enron-related documents beginning in late October, after the disclosure of a government investigation into Enron. 
Today, Senator Carl Levin, Democrat of Michigan and chairman of one subcommittee investigating the company, said on the CBS program ''Face the Nation'' that in the wake of Enron's collapse, Congress would have to ''significantly tighten'' the nation's securities laws, giving the S.E.C. broad new powers. 
Citing the disclosure last week that Enron paid no income taxes in four of the last five years, Mr. Levin also said, ''We've got to change our tax laws.'' 
On NBC's ''Meet the Press,'' Andersen's chief executive, Joseph F. Berardino, said that Enron had collapsed because ''its business model failed.'' 
In an interview today, the lawyer for Ms. Watkins, Philip Hilder, said his client had been contacted by federal officials about testifying. Mr. Hilder said no date had been set, and he declined to elaborate on which government authorities had contacted her. In addition to Congress, the Justice Department and the S.E.C. are also investigating Enron's collapse. 
Mr. Hilder said his client had initially complained to Mr. Lay by anonymously dropping a one-page note into a suggestion box. Mr. Lay had invited employees to leave their concerns in the box after Jeffrey Skilling, the chief executive, had unexpectedly resigned on Aug. 14. Those concerns were discussed at an employees' meeting led by Mr. Lay on Aug. 16 at a downtown Houston hotel. 
But Mr. Hilder said his client had not been satisfied that her complaint had been fully addressed so had taken up Mr. Lay's offer to meet personally with any employee. According to documents released by Congressional investigators, her meeting with Mr. Lay was scheduled by Aug. 20, and they met on Aug. 22. 
''His response was that he would have the matter investigated,'' Mr. Hilder said. ''He treated her with courtesy and was very professional.'' 
By the end of October, Mr. Hilder said, Ms. Watkins had two meetings with Mr. Lay in his 50th-floor office of the Enron skyscraper in Houston. During one meeting, Mr. Lay told her the company had created a special committee to investigate its financial problems. Mr. Hilder, while declining to offer details, suggested that the primary topic of conversation had been Ms. Watkins's memorandum. 
''They were following up with concerns that she had previously raised,'' he said.

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

Jan. 21, 2002, 11:42PM
Lay sold off Enron stock to pay loans
Spokesman: Enron chairman wasn't bailing out on company 
By DAVID IVANOVICH 
Copyright 2002 Houston Chronicle Washington Bureau 

WASHINGTON -- Chairman Ken Lay repeatedly sold his Enron stock to pay off lines of credit advanced to him by the corporation, not because he had lost faith in the company, an Enron spokesman said Monday. 
Critics have pointed to Lay's frequent stock sales in questioning whether the company's senior executives knew the energy and trading giant was in financial peril. 
But company officials contend Lay was merely liquidating some stock he was awarded as part of his compensation. 
"Throughout the year, Ken was using a company-provided line of credit," Enron spokesman Mark Palmer said Monday. 
"The line of credit was for Ken to use as he saw fit. It's a form of compensation and quite common in large corporations for a CEO to have a line of credit available to him. 
"Of course, Ken had to pay it back, under a certain term and at a certain interest rate," Palmer said. 
Lay repaid those lines of credit using some of his Enron stock holdings. 
Since the price of Enron's stock fell through much of the year, he had to cough up more and more shares to repay the same loan amount. 
Lay's attorney, Earl J. Silbert, told the New York Times that on 15 occasions between February and October, Lay returned Enron shares to repay $4 million he had received through a line of credit. 
That credit line was later expanded to $7.5 million, the Times reported. Silbert could not be reached for comment Monday. 
Silbert said Lay also had put up shares of his stock as collateral on other investments, which he would not identify. As the Enron stock price continued to fall, Lay anticipated his lenders would require additional shares. 
In November, Lay and his wife, Linda, put three of their four Aspen, Colo., properties up for sale, seeking a total of $16.2 million, a Colorado real estate broker said. 
Lay's stock sales, however, were not all related to repaying lines of credit or other debts. 
Like many CEOs, Lay would sell a portion of the stock he got as part of his compensation, Palmer said. But he stopped at the end of July because he thought Enron's stock at that time was undervalued, Palmer said. 
"I know that he bought and held Enron stock in July and August -- stock that he still holds today," Palmer said. 
Lay exercised options to acquire 25,000 shares of Enron stock on Aug. 20 for $20.78 a share or a total of $519,500, company records show. The next day, he acquired another 68,620 shares at $21.56 a share, for a total value of nearly $1.48 million. 
By the time Enron filed for Chapter 11 bankruptcy court protection on Dec. 2, Lay still held about 75 percent to 80 percent of his previous Enron stock holdings, Palmer said. 
Jon Crystal, a senior partner in the executive search firm SpencerStuart's Houston office, agreed that granting a top executive a line of credit is a fairly common corporate practice. 
Often, these lines of credit are parceled out to help executives buy company shares. The idea is that an executive who owns a sizable stake in the company will share his stockholders' financial interests. 
Sometimes, a company might forgo requiring the executive to pay interest on the loan or even forgive the loan outright as a form of additional compensation, Crystal said. 
Lay's habit of taking out a line of credit, paying off the debt and then taking out another loan is more unusual, said John Challenger, chief executive officer of Challenger, Gray and Christmas, a Chicago-based outplacement firm. 
"The question is what kind of oversight was there," Challenger said. Such an amount of activity "might stir up some warning signals." 

Business/Financial Desk; Section C
ENRON'S COLLAPSE: TEXAS JUDGE
Enron Ruling By Nominee To U.S. Court Is Being Noticed
By JIM YARDLEY

01/22/2002
The New York Times
Page 1, Column 4
c. 2002 New York Times Company

HOUSTON, Jan. 21 -- A Texas Supreme Court justice who has been nominated by President Bush to fill a vacant federal judgeship could face a fierce Senate confirmation fight because her critics say she once wrote an opinion that saved the Enron Corporation about $15 million after accepting campaign contributions from the company. 
Liberal groups, who had already opposed the nomination of the justice, Priscilla Owen, because of her conservative voting record, now plan to use her connections to Enron to try to derail her nomination.
''I think the combination of campaign contributions from Enron and the fact that she ruled clearly in Enron's favor in that case could be a subject of significant concern by the committee,'' said Elliot M. Mincberg, legal director of People for the American Way, a liberal group that monitors judicial nominations. 
Justice Owen, 47, could not be reached for comment. She is considered by legal analysts in Texas to be among the most conservative members of the Texas Supreme Court, which, in turn, is considered one of the nation's most conservative supreme courts. Last year, Mr. Bush nominated her for a seat on the United States Court of Appeals for the Fifth Circuit. The Senate Judiciary Committee has not scheduled a hearing for Justice Owen. 
Unlike many other states, Texas elects its judges, and candidates in competitive state Supreme Court races can spend more than $1 million on a race. Justice Owen was elected in 1994, and Enron's political action committee and executives gave her $8,600. In 1996, Justice Owen's critics note that she wrote the majority opinion in a unanimous decision that reversed a lower court order and reduced by about $15 million the amount of school taxes paid by Enron. 
A study released last month by Texans for Public Justice, a nonprofit group that tracks campaign contributions in Texas, found that since 1993, Enron has contributed $134,058 to members of the state Supreme Court, including the donation to Justice Owen. That total was the most donated by any corporation. 
The study found that Enron had a high success rate on cases before the court. In three cases brought by Enron, the court ruled in its favor twice. In three cases brought against Enron, the court ruled in the company's favor each time. 
''Texas's high court judges are all tainted by campaign-related conflicts of interest,'' said Craig McDonald, director of Texans for Public Justice. ''Two months ago, Bush might have been able to put an Enron judge on the appeals court. But he's not likely to get away with it now.'' 
Justice Owen, who attended Baylor College of Law, has often been considered a member of the Texas court's conservative bloc, led by Justice Nathan Hecht. As governor, Mr. Bush appointed four justices to vacant seats on the Supreme Court, all of whom were considered by legal analysts to be more moderate than Justice Owen. 
Dick Trabulsi, chairman of the political action committee for Texans Against Lawsuit Reform, a conservative judicial reform group, said any criticism of Justice Owen because she sided with Enron was misguided. ''We think it's very unfair in a state that elects judges to be making connections between the way a judge rules and a donation that is made,'' he said. 
''We have always found she exercises exceptional judgment,'' he added, calling her a person of integrity.

Photo: Justice Priscilla Owen already faced opposition for her conservative record. (Associated Press) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE PROSECUTOR
A Specialist in Tough Cases Steps Into the Legal Tangle
By JO THOMAS

01/21/2002
The New York Times
Page 8, Column 1
c. 2002 New York Times Company

HOUSTON, Jan. 20 -- Leslie R. Caldwell, the Federal prosecutor who will oversee the day-to-day investigation of the collapse of Enron, has an eye for corporate books that have been cooked and defendants who will talk, her former colleagues say. 
At 44, she has been involved in more than 50 jury trials and big, complicated investigations, first in Brooklyn. Later in San Francisco, she became involved when stockholders of McKesson HBOC lost $9 billion as share prices fell nearly 50 percent in one day.
In September 2000, when Ms. Caldwell announced the indictments of the former co-presidents of HBO and Company, a Georgia medical software company, on charges that they had used undisclosed agreements and sham sales to inflate the company's sales and profits before selling it to McKesson, a distributor of prescription drugs, she minced no words. 
''I'm hoping cases like this will send a message to corporate boardrooms and suites that they actually could go to jail for this,'' she said. ''This isn't just managing your numbers or tweaking accounts here and there. This is putting your whole company at risk, and if you do that, there are going to be serious consequences.'' 
Ms. Caldwell, who is chief of the securities fraud division of the United States attorney's office in San Francisco, will eventually set up offices in Washington and Houston. Almost all of the members of the legal staff of the United States attorney in Houston have been disqualified because they are acquainted with Enron employees, so Ms. Caldwell and the task force of lawyers she is still recruiting will find office space somewhere else in the city. 
In the meantime, she is working from what Matthew J. Jacobs, an assistant United States attorney in San Francisco, described as a virtual office, ''wherever the action is.'' 
This week she will be in Washington, where Larry D. Thompson, the deputy attorney general, is in charge of the inquiry. Attorney General John Ashcroft has recused himself. The department is expected to assemble as many as 10 prosecutors to work under Ms. Caldwell on the Enron investigation, which is likely to last many months. 
In building a white-collar criminal case, government investigators try to find the easiest initial steps that can provide witnesses. Legal experts said the government would almost certainly first break off a manageable piece of the case involving potential witnesses to broader aspects of the collapse. 
For that reason, these experts said, prosecutors will probably spend much of their initial effort looking into the document destruction at Arthur Andersen, Enron's accounting firm. If a criminal case can be brought, these experts said, the government would have its first strong negotiating lever. 
It is likely that Ms. Caldwell and the Justice Department will have to negotiate with Congressional panels that are calling witnesses and demanding to see company documents. Kenneth L. Lay, the Enron chairman, is scheduled to testify before a Senate Commerce subcommittee in February. 
Speaking of such Congressional witnesses, Joseph E. DiGenova, a former United States attorney and former independent prosecutor, said: ''It would be unwise for them to testify without immunity, and the Department of Justice would object to that. It's too early to tell who knew what and when.'' 
A grant of Congressional immunity makes a subsequent criminal prosecution almost impossible, as the government learned after the convictions of John M. Poindexter and Oliver L. North were overturned in the Iran-contra case. 
Ms. Caldwell is no stranger to either complexity or difficulty. She was a relatively new Federal prosecutor in 1989 when she was given a major role in prosecuting two dozen defendants in a southeast Queens drug trafficking case that included Lorenzo Nichols and Howard Mason. They were also suspected of ordering the killings of a police officer and a parole officer. 
She was faced with thousands of wiretapped conversations and a flood of pretrial motions from defense lawyers, but she won the drug convictions. She pressured Mr. Nichols into pleading guilty to conspiring in the murder of his parole officer. Mr. Mason was convicted on charges of ordering the killing of Officer Edward Byrne. Mr. Nichols got a 40-year sentence; Mr. Mason is serving a life sentence. 
Ms. Caldwell, a native of Pittsburgh who received her law degree from George Washington University Law School in Washington, went on to win a string of highly publicized cases involving neighborhood-level organized crime. She got life sentences for Gerald Miller, leader of a drug ring in Queens, and for Clifford Wong, a Chinatown business leader who was convicted in January 1995 of murder, extortion and racketeering. Another Chinatown civic leader, Paul Lai, pleaded guilty to murder-conspiracy and racketeering in 1996. 
That year Ms. Caldwell oversaw the prosecution of the Raysor Organization, a violent gang that prosecutors said dominated the Bedford-Stuyvesant crack trade. 
Jerry Roth, a criminal defense lawyer in San Francisco who worked with Ms. Caldwell as a federal prosecutor in the Eastern District of New York in Brooklyn, said she had ''terrific rapport.'' 
''In dealing with the crack cases,'' he said, ''she found that some of the co-operators had a language they were speaking among themselves -- they called it bebop -- so she learned it. She would speak it to them, and it both created rapport and eliminated their ability to talk behind her back.'' 
As chief of the United States attorney's violent criminal enterprises section in the Eastern District of New York, Ms. Caldwell led a team of 10 prosecutors. She later became a senior trial counsel and prosecuted securities fraud in small-cap stock markets. In December 1998, Robert S. Mueller III, now head of the F.B.I. but then the United States attorney in San Francisco, announced that she would become chief of his securities fraud unit. 
Valerie Caproni, who worked as a Federal prosecutor in Brooklyn before becoming the regional director of the Securities and Exchange Commission's office in Los Angeles, praised the appointment. ''She was a star from the beginning,'' said Ms. Caproni, who is now in New York as a defense lawyer with Simpson Thatcher & Bartlett. ''Not everyone can relate to an illiterate, ignorant violent drug dealer and to the chief financial officer of a corporation. She can do both.'' 
''What she is really good at,'' Ms. Caproni added, ''is getting people to cooperate with the government and using their talents to figure out the shortest distance through a forest of information. She has good judgment about what is appropriately viewed as a criminal case, and she is not afraid to stand up and say, 'This just isn't a crime -- as terrible as the results may have been.' ''

Photo: Leslie R. Caldwell is recruiting a legal team for the Enron inquiry. (Peter DaSilva for The New York Times) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Accounting for Enron: SEC Feels Heat Over Exemptions to Enron --- In 1993, Agency Ruled Two of Firm's Units Needen't Register
By Michael Schroeder
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- The Securities and Exchange Commission is coming under heat in Congress for a 1993 decision that freed units of Enron Corp. from complying with a utility holding company law that would have given regulators stronger oversight of the company's operations. 
The SEC is reviewing a 1993 staff ruling to absolve the Enron units from registering under the Public Utility Holding Company Act, a 1935 law that gives the agency extensive supervision of corporate structure and business operations of registered utility holding companies, according to people with knowledge of the matter. If the decision is found to have been erroneous, it could change the way other utility holding companies are regulated.
Two Enron entities received waivers from the public utility holding company rules. In one case, Enron's Portland General Electric Co. unit in Oregon clearly qualified for an exemption that applies to holding companies that own and operate a utility in a single state. But in late 1993, Enron Power Marketing Inc., Enron's wholesale power-selling unit, successfully argued that it too shouldn't be regulated by the SEC. 
In what isn't a clear-cut case, utility lawyers say that the SEC could have been within its authority to require Enron Power Marketing to register. Instead, an SEC staff attorney issued the Enron unit a "no-action letter," or waiver, without addressing the legal issues in the Enron unit's application. 
On Capitol Hill, the Enron scandal has spurred a debate over sweeping power utility deregulation legislation, which among other provisions would repeal the utility holding company law. With debate on the legislation scheduled for next month in both the House and Senate, some Democrats vow to block the repeal unless the bills contain stronger consumer protections. They also say they will scrutinize the SEC's performance overseeing utility holding companies. 
"In light of Enron, I think the Congress needs to thoroughly investigate the SEC's rather poor record of administering Puhca," said Rep. Ed Markey (D., Mass.). 
Spokesmen for the SEC and Enron declined to comment. 
The Depression-era law was passed to avoid the abuses committed by utility holding companies in the 1920s. Back then, holding companies had complicated "pyramiding" structures with subsidiaries owning other holding companies engaged in risky businesses unrelated to power generation. The activities led to utility bankruptcies and massive losses for shareholders who believed they were buying conservative investments. 
The law directs the SEC to regulate the activities of large, multistate electric or gas utility holding companies and to limit their diversification into nonutility businesses. Under the law, the SEC enforces special accounting requirements, limits on utility mergers and expansion, and tough restrictions on affiliate relationships. Thirty-five companies are covered by the law. 
"If Enron had been regulated under Puhca, I seriously doubt that the types of transactions that brought this company down would have occurred," Mr. Markey said. 
While the SEC action on Enron's units predated many of the financial activities that led to Enron's downfall, Tyson Slocum, a utility expert at Public Citizen, a consumer advocate organization, argues that Enron developed into precisely the kind of utility holding company structure the law was designed to block. The Houston energy company, originally a utility that produced and transported natural gas and electricity, increased in complexity as it shifted its focus to energy trading. In its financial statements filed with the SEC, Enron lists more than 5,800 subsidiaries and affiliates. 
Supporters of repealing Pucha say it has created anticompetitive regulatory barriers to new investment in electricity generation and transmission facilities. Repeal is expected to greatly accelerate mergers to consolidate the $315 billion electricity and natural-gas sectors. 
Indeed, the SEC has favored repeal for more than a decade, arguing its provisions duplicate existing disclosure rules or are better administered by the Federal Energy Regulatory Commission. But in the aftermath of the Enron debacle, critics of repeal may have gained the upper hand in the debate. 
To address critics' issues, Rep. Joe Barton, the Texas Republican who chairs the House Energy and Commerce subcommittee on energy and air quality, has said if the utility law is repealed, there must be a strong "mechanism" for accounting, reporting and bookkeeping. 
--- 
Bryan Lee contributed to this article.

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

Jan. 21, 2002, 9:50PM
Former employees seek voice in Chapter 11 case 
Copyright 2002 Houston Chronicle 

A group of former Enron employees has asked a U.S. bankruptcy judge to appoint a committee to represent their interests in the company's Chapter 11 proceedings. 
"We need representation for the common employees," said Rod Gardner, chairman of the Severed Enron Employees Coalition, which represents more than 250 former workers. 
The bankruptcy case already has a creditors committee made up mostly of large banks such as J.P. Morgan Chase and Citigroup. One former Enron employee, Michael P. Moran, a lawyer who lives in Montgomery, was appointed to the creditors committee. 
When it filed for bankruptcy on Dec. 2, Enron suggested that employees who wanted more severance pay should file claims with the bankruptcy court. 
Gardner said the coalition has hired Miami lawyer Scott Baena, a senior partner with Bilzin Sumberg Dunn Baena Price & Axelrod, to represent its interests in seeking more compensation. 
Adding extra committees in a bankruptcy case is rare, but Enron's proceedings, the largest ever, is itself unprecedented. 
A hearing on the motion before Judge Arthur Gonzalez has not been set. 


E-WORLD
Jilted by Enron, Workers Turn to Web to Find Community, Job Leads
By Thomas E. Weber

01/21/2002
The Wall Street Journal
B1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

THE ENRON IMPLOSION was well under way when Katie Walthall lost her job on Nov. 12. Ms. Walthall, an outside contractor at the ill-fated energy company, was given a box, told to pack up and shown the door. 
Now she's back at work, with help from an online community of former Enron employees. By keeping tabs on message-board discussions and tracking down former colleagues by e-mail, Ms. Walthall, 26 years old, found a new job at MRE Consulting. "These sites have been awesome," she says.
Cut off suddenly from colleagues and friends, thousands of former Enron employees have come together online in surrogate communities. These electronic gathering places serve as a combination alumni club, career-services department and water cooler for those who no longer have an office. 
The speed with which Enron's jilted workers have regrouped on the Net says a lot about their drive and skills. It's also a fresh reminder of the reach of online communications. What just a few years ago would have required phone calls, photocopies and faxes can be accomplished online in minutes. These days, it's easy to take that power for granted. 

MONDAY, DEC. 3, was the last day in the office for some 4,000 Enron employees laid off in Houston. Jose Lazo, a 21-year-old database analyst, was one of them. He had an idea for a Web site to help ex-Enron employees, and he approached Techxans, a Houston group that holds networking events for technology professionals, for help. 
The next day, EnronX.org was up and running, thanks to an all-nighter by Anthony Huang, a Houston entrepreneur who works with Techxans. "Everyone was amazed," Mr. Huang says. "It used to take dot-coms months of work to put up a site." 
The EnronX.org home page parodies the look of Enron's corporate site, replacing a photo of a buff cyclist with a picture of a football player with his gut hanging out. Below that is a calendar of events (a "Surviving a Layoff" lecture, job fairs) and links to the latest Enron news stories. 
Other sections point to job-training resources and sources of health insurance. There are links to debt counselors and relief funds. Law firms post announcements seeking people willing to join in class-action suits, and reporters list their e-mail addresses in hopes of snagging tips on the scandal. Mr. Huang says the site is being run on a volunteer basis, though it has accepted advertising from insurers and law firms to defray costs. 
Most relevant for the typical EnronX.org visitor, however, are the job listings, which cover everything from energy-trading jobs at giant utility Exelon to a sales-associate post at a local Circuit City. A determined job hunter could spend hours e-mailing resumes to all of the employers listed on the site. 
But actually finding a job is a lot tougher than just firing off e-mails, as any ex-Enron employee will tell you. "You've got 1,000 positions being followed up on by 3,000 people," says Rudy Sutherland, 35, who was a manager on a power-trading risk-analysis desk and is still job hunting. 
Sacked workers say old-fashioned networking remains the key to landing a job, but their networking has been supercharged by the alumni sites. At 1400smith.com, named after the street address of Enron's Houston headquarters, there's a directory of more than 5,700 people. Former Enron employees can visit the site, add contact information to the directory and look up former co-workers. 

CONSIDERING HOW MANY Enron workers had communicated mainly by office e-mail or phone and didn't have home addresses or phone numbers for colleagues, the directory has become a lifeline. Preston Ochsner, 27, spent his job-hunting days looking up former co-workers and then keeping in touch with them by phone, e-mail and AOL Instant Messenger. His networking paid off when he learned from a laid-off colleague about an Enron alum at AES NewEnergy who had information about positions there. "People need to meet face to face and by phone," says Mr. Ochsner, who just joined AES as a supply analyst. "Responding to postings is easy, but personal contacts worked for me." 
The 1400smith.com site was launched by former Enron Webmaster Brandon Rigney and Charles Turcich, who worked for Enron as a contractor. Besides the directory, it has an active message board. Though some of the discussions are given over to general griping, with one disgruntled visitor bashing Enron CEO Kenneth Lay as "Osama Ken Layden," most of the postings are related to job hunting, benefits and other severance issues. 
Enron alumni abroad have their own outposts. EnronX.net (not affiliated with EnronX.org) and Kenron.net both serve workers in the U.K. and throughout Europe. Meanwhile, some enterprising alums appear to have found a new way to tap the Web: selling Enron mugs, golf balls and other memorabilia on eBay. Last week, bidding on an Enron fanny pack was already up to nearly $50. 

SECURITY CHECK: Two weeks ago I called on computer users to break their Microsoft habit because of recurring security problems with the company's software. Now Bill Gates says he's getting serious about safer software, too. In a companywide e-mail Tuesday, he told employees that better security will henceforth take priority over new features in Microsoft's products. Let's hope Mr. Gates's minions can deliver. 
--- 
E-mail me at tweber@wsj.com.

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

Enron Was No Friend to Free Markets
By Jerry Taylor

01/21/2002
The Wall Street Journal
A12
(Copyright (c) 2002, Dow Jones & Company, Inc.)

While it's still unclear exactly what caused the implosion at Enron, ideological playwrights are already busily casting the company in the starring role for their pet political morality plays. The most common scripts being written have cast Enron CEO Ken Lay as Adam Smith on steroids and the corporation itself as the avatar of irresponsible, run-amuck capitalism. 
Those of us who've been involved in the energy debates of the 1990s know different. Enron was less the 21st-century incarnation of Robber Baronry than it was the latter-day inheritors of the mantle worn by Archer-Daniels Midland, the corporation that would hardly exist were it not for government favor and regulatory help.
Enron is most famously known for pioneering wholesale electricity and natural gas trading. Since ending the legally protected franchises that utilities had on those services was a prerequisite for Enron's strategy, the company lobbied aggressively for competition and "consumer choice" for gas and electricity services. 
But while donning the garb of Ronald Reagan on the one hand, the company was donning the mantle of Ralph Nader when it came to the transmission and distribution side of the energy business. Enron, you see, was worried that the incumbent utilities would either under-price the non-utility competitors that Enron wanted on their trading floors or, alternatively, would charge such high prices for access to their transmission systems that non-utility gas and electricity providers would be unable to effectively compete for business. 
So Enron insisted that electric utilities be forced by law to get out of the generation business, that strict price controls be set for the rates charged for access to the various transmission grids, and that the day-to-day operation of the electricity distribution systems be handed over to state officials who were directed to govern those systems at the behest of the system's "stakeholders" (read: Enron and friends). So Reaganite competition, according to Enron, required new micromanagerial rules about industrial organization and the de-facto nationalization of the transmission systems by officials who'd have to answer to Enron. 
Many times over the past decade I found myself in meetings or on conference panels with Enron officials. On each and every occasion, the "jungle capitalists" from Houston were apoplectic over arguments that the grid should be deregulated like the wholesale power markets. They also ranted against the idea that companies should be able to charge whatever they wished for access to their property, that the grids should be left in private hands, or that government cannot know a priori how best to organize private enterprises and should thus refrain from imposing arrangements on the market. 
While most legislators got a full dose of Enron's regulatory agenda, some were hearing from the company that, well, grid owners should be left alone to do as they wanted. Those legislators, however, came from regions where Enron had managed to buy the transmission systems in question before the debate was settled. So officials from Texas, Louisiana, and various parts of South America in charge of the gas pipelines that Enron had bought were hearing one story while the rest of the political world was hearing another. 
That pattern of regulatory opportunism extended virtually everywhere, but perhaps no more so than on the environmental front. Enron, for instance, managed to pick up several near-bankrupt wind and solar power companies over the years and treated them like political lottery tickets. Wherever Enron went, pious campaigns for the virtues of renewable energy subsidies (in effect, subsidies for Enron) were sure to follow. 
Likewise, Enron saw spectacular business opportunities in the trading of greenhouse gas emission permits and accordingly argued for aggressive action to address global warming. And given that natural gas would be less disadvantaged by carbon emission controls than would competitor fuels like coal and oil, Enron was more than happy to link hands with nearly every environmental activist that crossed its path to undertake war against America's carbon-based energy economy. 
Whether it was de facto support of the Kyoto Protocol, the outspoken embrace of Clinton's proposed BTU tax (which would give Enron a competitive advantage in the marketplace), or the occasional attempt to secure a tax on oil imports (necessary back in the 1980s to save one of its pipelines in Florida), Enron was more than happy to hammer energy consumers with the power of government to fatten its own bottom line. 
While Enron was adept in putting together these coalitions to expand the regulatory state, it was no slouch at more conventional raids on the public treasury. Since 1996, for instance, Enron managed to bag $450 million to underwrite its investments in India, Brazil, and Guatemala through the auspices of the taxpayer-financed Overseas Private Investment Corporation. Another $135 million was liberated from the Export-Import Bank over that same period to underwrite Enron's investments in Venezuela. There was virtually nothing that the corporation did that wasn't worth a handout from the taxpayers, according to Enron lobbyists. 
On balance, Enron was an enemy, not an ally, of free markets. Enron was more interested in rigging the marketplace with rules and regulations to advantage itself at the expense of competitors and consumers than in making money the old fashioned way -- by earning it honestly from their customers through voluntary trade. Indeed, Enron would probably still be a small-time pipeline company were it not for the statist conceit that consumers are better off under the regulatory boot of government than with the invisible hand of the marketplace. There's a morality play here all right, but it's the opposite from that being readied for a political theater near you. 
--- 
Mr. Taylor is director of natural resource studies at the Cato Institute.

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

Financial Desk
THE ENRON INQUIRY Enron Refuels Energy Debate Politics: The power industry moves to fight growing skepticism of deregulation after the collapse of its most vocal proponent and the crisis in California last year.
EDMUND SANDERS; RICHARD SIMON
TIMES STAFF WRITERS

01/22/2002
Los Angeles Times
Home Edition
A-1
Copyright 2002 / The Times Mirror Company

WASHINGTON -- The nation's energy industry is mobilizing in the aftermath of Enron Corp.'s collapse against attempts to slow down or reverse deregulation of power markets, setting the stage for the biggest debate over the issue since the California energy crisis last year. 
Electricity suppliers and other energy players are talking with James J. Hoecker, former chairman of the Federal Energy Regulatory Commission and now a Washington lobbyist, about creating a coalition of deregulation proponents that will lobby Congress, testify at forthcoming hearings, file comments on proposed rules and, if necessary, take legal action to block efforts to re-regulate the industry.
"Our concern is that some people are now saying that Enron could not have amassed such an inflated stock value and done the things that it did if not for the fact that energy markets have become much freer in the last three years," said Hoecker, insisting that Enron's bankruptcy filing Dec. 2 instead appears to have been caused by accounting practices unrelated to energy deregulation. 
The national debate over energy deregulation was largely overshadowed by the Sept. 11 terrorist strikes. But Enron's collapse has reignited the issue, with critics of deregulation saying energy is too vital to the public good to be left to volatile markets. Some lawmakers are advocating a go-slow approach on further deregulation of energy markets. 
"There is a lot more skepticism about deregulation now," said Howard A. Learner, executive director at the Environmental Law & Policy Center, a Chicago-based advocacy organization that favors a hybrid model of competition and government oversight. 
Hoecker, who has been criticized by California leaders for not doing more to help the state during last year's energy crisis, said he expected a decision about the new coalition to be made shortly, but declined to identify specific participants. 
Some companies, such as Dynegy Inc., already have deployed their lobbying forces. 
One factor propelling the lobbying push was FERC's Jan. 15 announcement that it was moving quickly to hire a director for the newly created Office of Market Oversight and Investigations, which will be responsible for overseeing and auditing the nation's energy markets. 
FERC Chairman Patrick H. Wood III floated the new office last fall, but industry leaders fear that FERC may try to give the office sweeping new powers in light of the Enron debacle. 
Wood, a former Texas utility regulator appointed by President Bush, declined to be interviewed. 
FERC Commissioner Nora M. Brownell, another Bush appointee who favors deregulation and competitive markets, said the industry need not worry about punitive responses from FERC's new oversight division. She said the California energy crisis, in which some suppliers were accused of creating electricity shortages to inflate prices, highlighted the need for a greater federal role. 
"To make the markets work, you have to have a market oversight function that people believe in," Brownell said. "Before, there wasn't a place people could go. When the industry understands that this is going to be fair, they'll calm down." 
Enron Leaves Lobbying Void 
Houston-based Enron had been the most vocal supporter of deregulation, but its tumble into Bankruptcy Court has forced other industry players to step up to the plate to fill the lobbying void. 
"Enron was the 800-pound gorilla for deregulation," Learner said. "With Enron out of the picture, now everyone else in the industry can't piggyback on its political and financial juices." 
Enron grew from a small natural-gas pipeline operator into the world's largest energy-trading operation. At its peak, it handled one in four wholesale deals for electricity, gas and other energy products. 
Because Enron helped keep energy trading exempt from oversight by FERC and the Commodity Futures Trading Commission, deregulation supporters are bracing for an effort to bring the energy markets--and particularly online trading--under more government supervision. 
Energy companies also fear that an Enron-related backlash might cause some states to rethink their deregulation plans or prompt new federal regulations that would limit how much they can charge and what their access to different markets might be. 
California, for one, has taken a big step back from deregulation. 
To stabilize prices, the state purchased more than $10 billion of power for utility customers in the last year and won't be out of the power-buying business until at least 2003. 
What's more, the Legislature created a public power agency that is authorized to build more power plants if private industry fails to come through with adequate supplies. 
With these and other factors causing uncertainty, California politicians are debating whether the solution lies in more or less government regulation. 
State Sen. Steve Peace (D-El Cajon), who helped craft California's 1996 deregulation plan in the Legislature, said California politicians and business leaders must unite to fight Hoecker's agenda. The chief beneficiaries of the sort of "wild West" form of deregulation Hoecker's group espouses, Peace said, are bound to be big oil and gas companies based out of state. 
Peace argues that California's experiment with deregulation failed not because it was poorly constructed but because federal regulators in Washington, unduly influenced by companies such as Enron, refused to referee the market. 
Hoecker disagrees: "There's a big difference between reasonable oversight and re-regulation." 
Other energy lobbyists stress that Enron's demise was largely unrelated to its energy business. 
"The failure of Enron wasn't a failure of the competitive markets," said Dynegy spokesman David Byford. The Houston-based energy company, which abruptly called off a proposed purchase of Enron in November, is dispatching its lobbyists to Capitol Hill and regulatory agencies to urge Washington not to overreact to Enron's implosion. 
Rep. Christopher Cox (R-Newport Beach), a member of the House Energy and Commerce Committee, rejected the notion that Enron's meltdown should cause Congress to rethink deregulation. 
"Enron could have been in the Hula-Hoop business and done exactly the same thing," he said. 
Enron's swift demise last fall after disclosures of more than $600 million in losses and the existence of several complex, off-balance-sheet partnerships is being investigated by several federal agencies and members of Congress. 
Still, because of the California electricity crisis, further deregulation of energy markets was already in some trouble. Now critics of deregulation are pouncing on Enron's troubles to bolster their case. 
Rep. Henry A. Waxman (D-Los Angeles) has called an electricity deregulation bill the "One Last Gift for Enron Act." 
But deregulation supporters say that Enron's troubles have nothing to do with energy markets. 
A spokeswoman for Rep. Joe Barton (R-Texas), chairman of a House energy subcommittee, said her boss was pressing ahead on his electricity restructuring bill. 
Barton believes that "Enron's problems were Enron-based. They weren't demonstrative of a greater flaw in the energy markets or industry," Samantha Jordan said. 
Deregulation Push Expected to Lose Steam 
"We need to figure out how to prevent future energy collapses like Enron," Waxman said during a recent debate. "The answer will require more regulation and oversight and oversight of energy marketers--not more deregulation." 
Waxman contends that the theory advanced by deregulation proponents is based on a belief that large energy companies will always bet right in the energy market. 
But as Enron proves, that's not the case, he said, contending that some of the company's problems eventually will be traced to bad decisions about energy purchases. 
A spokesman for Rep. Edward J. Markey (D-Mass.), a member of the House Energy and Commerce Committee, expects the Enron collapse to damp enthusiasm for deregulation because lawmakers will want to sort out the implications of the Enron collapse for the energy markets. 
Although some in Congress argue that Enron's collapse has nothing to do with their core energy businesses or the energy markets, Markey spokesman David Moulton said he doesn't know how anyone can reach that conclusion without further study. 
"We don't know the full extent of Enron's 'book'--that is, the long-term energy contracts or derivatives that they entered into with other firms. It is quite possible that there could be issues with some of those other trades, but we won't know for sure unless we look," Moulton said. "We're opposed to taking the government out of the business of overseeing the electricity markets. You can't just take the government out of the business and expect to get a good result." 
Learner of the Environmental Law & Policy Center said the regulatory "black hole" may have enabled Enron to inflate the amount of revenue it was collecting from trades. 
The debate is likely to pick up Jan. 29, when Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, has scheduled a hearing on what Enron's collapse means for energy markets. 
More than $12 billion of investment in new power plants has been shelved in recent weeks as financial markets effectively raised the cost of capital and began more closely scrutinizing the debt and balance sheets of borrowers, energy experts say. Such cutbacks could lead to power shortages and higher costs for consumers. 
Enron Collapse Didn't Rock Energy Market 
But Craig Goodman, president of the National Energy Marketers Assn., and others contend that the Enron collapse proved that deregulation works because it did not result in immediate price spikes, trading hiccups or loss of confidence among energy traders. 
"The fact that Enron's demise caused literally no dislocation in the marketplace proves that deregulation can work," he said. "Indeed, dozens of new and old wholesale players, with huge amounts of real assets, not just paper assets, have stepped in to fill the void left by Enron." 
According to FERC's Brownell, "The markets worked with ruthless efficiency." 
* 
Times staff writer Nancy Vogel in Sacramento contributed to this report.

PHOTO: FERC Commissioner Nora M. Brownell said the industry shouldn't worry about punitive responses from FERC's new oversight unit.; ; PHOTOGRAPHER: Associated Press; PHOTO: Energy companies have been talking with James J. Hoecker, former chairman of the Federal Energy Regulatory Commission and now a Washington lobbyist, about creating a coalition.; ; ID20020122g5mqs6ke; PHOTOGRAPHER: Associated Press 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Properties Outside the U.S. Hit Auction Block
A Wall Street Journal News Roundup

01/22/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

SEOUL, South Korea -- Enron Corp.'s assets overseas are starting to go on the auction block. 
Tractebel SA, a Belgian energy and infrastructure company, has submitted a bid to buy Enron's 50% stake in South Korea's SK-Enron Co., which distributes natural gas and liquefied petroleum gas, said Marc Josz, president and chief executive of Tractebel Asia Ltd. in Bangkok. Enron invested about $240 million for the 50% stake in SK-Enron.
In India, creditors to Enron's $2.9 billion Dabhol Power Co. project are set to put it up for sale. 
The developments come after Houston-based Enron filed for Chapter 11 bankruptcy-court protection on Dec. 2, the largest such filing ever. The move shields Enron from creditors as the company seeks to pare debt and reorganize operations. 
In the Korean case, Tractebel's Mr. Josz said companies were invited in December to present their competitive strategies to Korean energy regulators; he expects a final decision on the bids in a week. He confirmed Korean media reports that Royal/Dutch Shell Group, the British-Dutch oil powerhouse, and Houston-based El Paso Corp. had bid. A Shell spokesman declined to comment. At El Paso, a spokesman said he had no knowledge of a bid for Enron's Korean assets. The other half of SK-Enron is owned by South Korea's SK Corp., an energy and chemicals company. 
SK-Enron, an energy holding company, holds about 25% of South Korea's natural-gas-distribution market and 50% of the liquefied-petroleum-gas-distribution market. 
In India, Industrial Development Bank of India is overseeing bidding for Enron's power plant, about 150 miles south of Bombay. The Overseas Private Investment Corp., a U.S. agency that financed the project with $340 million in loan guarantees and political risk insurance, is helping the creditor group find a new buyer. 
"People are trying to put together a bidding process, and we're working with everybody over there to make sure that happens," Lawrence Spinelli, an OPIC spokesman, said yesterday. He said creditors decided to launch the bidding at a Singapore meeting last month. 
The project has been the subject of political bickering, unpaid bills and unproven allegations of bribery since its conception in the early 1990s. In May 2001, the Maharashtra State Electricity Board stopped paying for power from the plant in a dispute largely about pricing. A few months later, with the board $240 million in arrears, Enron said it would gladly sell its stake in the project. 
Enron owns 65% of the project, General Electric Co. and construction company Bechtel Corp. each own 10% and the Maharashtra board owns 15%. 
Dabhol filed a $180 million claim with OPIC last month, arguing that the Maharashtra board's failure to pay its power bills was tantamount to expropriation -- an act that would be covered by the OPIC policy.

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

Accounting for Enron: U.S. Fought for Company's Project in India
By Michael M. Phillips
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- When Richard Celeste gave his farewell speech as President Clinton's ambassador to India, he lectured Indians about the sanctity of contracts. It was clear to the audience he was referring to Enron Corp.'s frustration trying to build a $2.9 billion power plant outside Bombay. 
After presenting his credentials this summer, Ambassador Robert D. Blackwill wasted no time in warning the Indians that Enron's problems were at the top of the Bush administration's commercial agenda.
"I want to be frank," Mr. Blackwill told the Indo-American Chamber of Commerce and the Indo-American Society. "These disputes have darkened India's investment climate." 
Across party lines and administrations, Enron has had an active ally in Washington throughout its battle with Indian officials over the Dabhol electric-power project. From the early 1990s, when Enron waded into its Indian quagmire, right up until it filed for bankruptcy protection last month, the Houston energy company counted on the U.S. government to argue its case. 
At least one energy secretary, four commerce secretaries, three U.S. ambassadors and Vice President Dick Cheney are among the senior American officials who prodded the Indians to resolve the Enron dispute. President Clinton assigned a senior aide to monitor the project. President Bush has a Dabhol "working group" to help Enron's cause. From conception to collapse, the U.S. government pushed the deal, financed the deal and attempted to salvage the deal amid political bickering, unpaid bills and unproven allegations of bribery in India. 
The administration's motives are muddied by Enron's close financial ties with senior members of both parties, including President Bush. Enron executives and employees have contributed nearly $6 million to politicians since the 1990 election cycle, 74% of it to Republicans, according to federal data compiled by the Center for Responsive Politics, a campaign-finance watchdog group. Enron and its executives gave $736,800 to Mr. Bush for his gubernatorial and presidential campaigns, as well as his presidential inaugural fund and election-recount war chest. 
U.S. officials uniformly explain their assistance as a natural extension of American foreign policy, unrelated to the considerable political clout of Enron or its chairman, Kenneth Lay. Both the Clinton and Bush administrations have encouraged developing nations to open their borders to U.S. companies, and Enron's is the largest investment India has ever received. 
Frank Wisner, U.S. ambassador in New Delhi from 1994-97, argued Enron's case frequently and vociferously, including with the staff of then-Prime Minister Narasimha Rao. After leaving India, Mr. Wisner became a director of an Enron-affiliated company, Enron Oil & Gas, and he is chairman of the U.S.-India Business Council. 
"I'd do it all over again," Mr. Wisner said of his advocacy. "It was the right policy. I only regret it didn't work, for India's sake as well as the investors." John Hardy, Enron's vice president of global finance, and Linda Robertson, head of its Washington office, didn't return calls seeking comment. 
Enron's power plant is a saga of failure that began when the Indian government invited foreign investors to provide electric power for India's growing economy. 
Mr. Lay joined then-Commerce Secretary Ron Brown on a trade mission to India in early 1995. Weeks later, Enron closed the initial funding on a deal that eventually would give it 65% of the Dabhol Power Co. General Electric Co. and Bechtel Corp. owned 10% each, and the local power company, the Maharashtra State Electricity Board, held the rest. The board also agreed to buy the electricity the plant would produce, an accord that became the heart of the project's downfall. 
Two U.S. government agencies, the Export-Import Bank and the Overseas Private Investment Corp., teamed up to provide Dabhol $642 million in financing guarantees and risk insurance. Both agencies describe the financing as exactly the kind of support they are supposed to give to American companies. Their money is in turn guaranteed by Indian banks, in the Ex-Im Bank's case, or the Indian state or central governments, in OPIC's case. 
But not long after the deal was signed, a Hindu nationalist party, Shiv Sena, took power in Maharashtra state and canceled the project. The party accused its predecessors and Enron of corruption and complained that Dabhol's electricity was too expensive for the state power company. Then-Energy Secretary Hazel O'Leary was among the U.S. officials who traveled to India at that time and warned authorities that India was tarnishing its reputation with foreign investors. 
Late in 1995, Enron and the state authorities struck a deal, with the company agreeing to lower rates. President Clinton had a senior aide monitor the project. At one point or another during the dispute, President Clinton's commerce secretaries -- Mr. Brown, Mickey Kantor and William Daley -- all took up Enron's case, according to Raymond E. Vickery Jr., who was assistant secretary for trade development under all three. "It was the leading U.S. foreign direct investment in India, and the status of the Dabhol power plant came up at virtually every mission," Mr. Vickery recalled. 
In May 1999, electricity began flowing and financing for an expansion arranged, but the project didn't run smoothly. In May 2001, the state electricity board stopped paying its Dabhol bills in a dispute largely about pricing. A few months later, with the board $240 million in arrears, Enron gave up and said it would gladly sell its stake in the project. 
Enron's contacts with the U.S. government, which by then meant the Bush administration, continued through that period. In June, Vice President Cheney raised Enron's concern about being paid for electricity generated by Dabhol in a meeting in Washington with Sonia Gandhi, leader of the Congress Party, which now controlled Maharashtra. Another party leader accompanying Ms. Gandhi told reporters of the conversation afterward, and the White House confirmed it last week. White House officials said the vice president brought the subject up because it was in briefing papers prepared by the National Security Council, and because OPIC had money in the project. 
"It is an important project to create jobs in America, and there's also a taxpayer exposure" through OPIC, White House spokesman Ari Fleischer said Friday. Indeed, Dabhol Power Co. filed a $180 million insurance claim with OPIC last month, arguing that the electricity board's failure to pay its bills amounts to expropriation. 
The Enron connections reached deep into the administration, however. OPIC released documents last week under the Freedom of Information Act revealing that the National Security Council leads an administration working group dedicated to Enron's cause in India; Treasury, State, Ex-Im and OPIC also are represented in the group. Mr. Fleischer confirmed a New York Daily News report that top Bush economic adviser Lawrence Lindsey had been told by the White House counsel to recuse himself from matters involving Dabhol because he had served a consultant to Enron. 
In July, Christina B. Rocca, assistant secretary of State, discussed India's investment climate at a meeting of the Confederation of Indian Industries and announced that "many of India's problems in this regard can be summed up in the five-letter word, Enron." 
On Oct. 15, as Enron was collapsing, Commerce Secretary Donald Evans hooked Mr. Lay up with Sig Rogich, a Las Vegas-based Republican public-relations man with connections to the Indian government. Mr. Rogich, an Evans friend, had been a special assistant to former President George H.W. Bush, and had worked on the Bush-Cheney campaign. The conversation was first reported in Newsweek. 
Indian officials wanted Mr. Rogich to help them improve the country's image in the U.S., and Mr. Evans suggested Mr. Rogich talk to Mr. Lay about Enron's woes. Mr. Evans called Mr. Lay, Mr. Lay called Mr. Rogich, and Mr. Rogich says he raised Enron's complaints last month with senior Indian officials, including the powerful home minister, Lal Krishna Advani. Mr. Advani visited President Bush and other officials in Washington this month, but it isn't clear whether the Enron debacle came up during his trip. 
Although Mr. Lay and Mr. Evans spoke about Enron's financial situation at the end of October, the Indian project apparently didn't come up between the two again until mid-November, when Mr. Lay called the secretary at his office to provide "an update" on Dabhol, according to Commerce spokesman Jim Dyke. A couple of weeks later Enron filed its bankruptcy-court petition. 
--- 
Jeanne Cummings in Washington and Eric Bellman and Sharad Singh in Bombay contributed to this article. 
WASHINGTON -- When Richard Celeste gave his farewell speech as President Clinton's ambassador to India, he lectured Indians about the sanctity of contracts. It was clear to the audience he was referring to Enron Corp.'s frustration trying to build a $2.9 billion power plant outside Bombay. 
After presenting his credentials this summer, Ambassador Robert D. Blackwill wasted no time in warning the Indians that Enron's problems were at the top of the Bush administration's commercial agenda. 
"I want to be frank," Mr. Blackwill told the Indo-American Chamber of Commerce and the Indo-American Society. "These disputes have darkened India's investment climate." 
Across party lines and administrations, Enron has had an active ally in Washington throughout its battle with Indian officials over the Dabhol electric-power project. From the early 1990s, when Enron waded into its Indian quagmire, right up until it filed for bankruptcy protection last month, the Houston energy company counted on the U.S. government to argue its case. 
At least one energy secretary, four commerce secretaries, three U.S. ambassadors and Vice President Dick Cheney are among the senior American officials who prodded the Indians to resolve the Enron dispute. President Clinton assigned a senior aide to monitor the project. President Bush has a Dabhol "working group" to help Enron's cause. From conception to collapse, the U.S. government pushed the deal, financed the deal and attempted to salvage the deal amid political bickering, unpaid bills and unproven allegations of bribery in India. 
The administration's motives are muddied by Enron's close financial ties with senior members of both parties, including President Bush. Enron executives and employees have contributed nearly $6 million to politicians since the 1990 election cycle, 74% of it to Republicans, according to federal data compiled by the Center for Responsive Politics, a campaign-finance watchdog group. Enron and its executives gave $736,800 to Mr. Bush for his gubernatorial and presidential campaigns, as well as his presidential inaugural fund and election-recount war chest. 
U.S. officials uniformly explain their assistance as a natural extension of American foreign policy, unrelated to the considerable political clout of Enron or its chairman, Kenneth Lay. Both the Clinton and Bush administrations have encouraged developing nations to open their borders to U.S. companies, and Enron's is the largest investment India has ever received. 
Frank Wisner, U.S. ambassador in New Delhi from 1994-97, argued Enron's case frequently and vociferously, including with the staff of then-Prime Minister Narasimha Rao. After leaving India, Mr. Wisner became a director of an Enron-affiliated company, Enron Oil & Gas, and he is chairman of the U.S.-India Business Council. 
"I'd do it all over again," Mr. Wisner said of his advocacy. "It was the right policy. I only regret it didn't work, for India's sake as well as the investors." John Hardy, Enron's vice president of global finance, and Linda Robertson, head of its Washington office, didn't return calls seeking comment. 
Enron's power plant is a saga of failure that began when the Indian government invited foreign investors to provide electric power for India's growing economy. 
Mr. Lay joined then-Commerce Secretary Ron Brown on a trade mission to India in early 1995. Weeks later, Enron closed the initial funding on a deal that eventually would give it 65% of the Dabhol Power Co. General Electric Co. and Bechtel Corp. owned 10% each, and the local power company, the Maharashtra State Electricity Board, held the rest. The board also agreed to buy the electricity the plant would produce, an accord that became the heart of the project's downfall. 
Two U.S. government agencies, the Export-Import Bank and the Overseas Private Investment Corp., teamed up to provide Dabhol $642 million in financing guarantees and risk insurance. Both agencies describe the financing as exactly the kind of support they are supposed to give to American companies. Their money is in turn guaranteed by Indian banks, in the Ex-Im Bank's case, or the Indian state or central governments, in OPIC's case. 
But not long after the deal was signed, a Hindu nationalist party, Shiv Sena, took power in Maharashtra state and canceled the project. The party accused its predecessors and Enron of corruption and complained that Dabhol's electricity was too expensive for the state power company. Then-Energy Secretary Hazel O'Leary was among the U.S. officials who traveled to India at that time and warned authorities that India was tarnishing its reputation with foreign investors. 
Late in 1995, Enron and the state authorities struck a deal, with the company agreeing to lower rates. President Clinton had a senior aide monitor the project. At one point or another during the dispute, President Clinton's commerce secretaries -- Mr. Brown, Mickey Kantor and William Daley -- all took up Enron's case, according to Raymond E. Vickery Jr., who was assistant secretary for trade development under all three. "It was the leading U.S. foreign direct investment in India, and the status of the Dabhol power plant came up at virtually every mission," Mr. Vickery recalled. 
In May 1999, electricity began flowing and financing for an expansion arranged, but the project didn't run smoothly. In May 2001, the state electricity board stopped paying its Dabhol bills in a dispute largely about pricing. A few months later, with the board $240 million in arrears, Enron gave up and said it would gladly sell its stake in the project. 
Enron's contacts with the U.S. government, which by then meant the Bush administration, continued through that period. In June, Vice President Cheney raised Enron's concern about being paid for electricity generated by Dabhol in a meeting in Washington with Sonia Gandhi, leader of the Congress Party, which now controlled Maharashtra. Another party leader accompanying Ms. Gandhi told reporters of the conversation afterward, and the White House confirmed it last week. White House officials said the vice president brought the subject up because it was in briefing papers prepared by the National Security Council, and because OPIC had money in the project. 
"It is an important project to create jobs in America, and there's also a taxpayer exposure" through OPIC, White House spokesman Ari Fleischer said Friday. Indeed, Dabhol Power Co. filed a $180 million insurance claim with OPIC last month, arguing that the electricity board's failure to pay its bills amounts to expropriation. 
The Enron connections reached deep into the administration, however. OPIC released documents last week under the Freedom of Information Act revealing that the National Security Council leads an administration working group dedicated to Enron's cause in India; Treasury, State, Ex-Im and OPIC also are represented in the group. Mr. Fleischer confirmed a New York Daily News report that top Bush economic adviser Lawrence Lindsey had been told by the White House counsel to recuse himself from matters involving Dabhol because he had served a consultant to Enron. 
In July, Christina B. Rocca, assistant secretary of State, discussed India's investment climate at a meeting of the Confederation of Indian Industries and announced that "many of India's problems in this regard can be summed up in the five-letter word, Enron." 
On Oct. 15, as Enron was collapsing, Commerce Secretary Donald Evans hooked Mr. Lay up with Sig Rogich, a Las Vegas-based Republican public-relations man with connections to the Indian government. Mr. Rogich, an Evans friend, had been a special assistant to former President George H.W. Bush, and had worked on the Bush-Cheney campaign. The conversation was first reported in Newsweek. 
Indian officials wanted Mr. Rogich to help them improve the country's image in the U.S., and Mr. Evans suggested Mr. Rogich talk to Mr. Lay about Enron's woes. Mr. Evans called Mr. Lay, Mr. Lay called Mr. Rogich, and Mr. Rogich says he raised Enron's complaints last month with senior Indian officials, including the powerful home minister, Lal Krishna Advani. Mr. Advani visited President Bush and other officials in Washington this month, but it isn't clear whether the Enron debacle came up during his trip. 
Although Mr. Lay and Mr. Evans spoke about Enron's financial situation at the end of October, the Indian project apparently didn't come up between the two again until mid-November, when Mr. Lay called the secretary at his office to provide "an update" on Dabhol, according to Commerce spokesman Jim Dyke. A couple of weeks later Enron filed its bankruptcy-court petition. 
--- 
Jeanne Cummings in Washington and Eric Bellman and Sharad Singh in Bombay contributed to this article.

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: LENDERS
2 Early Enron Lenders Didn't See the End Coming
By PATRICK McGEEHAN

01/22/2002
The New York Times
Page 1, Column 3
c. 2002 New York Times Company

Enron's modern era dates back to the mid-1980's, and throughout that period Citigroup and J. P. Morgan Chase have been there to lend with both hands. 
The two giant banks were the biggest lenders to Enron when it collapsed late last year, tacking a painful ending onto long-running and mutually beneficial relationships. Both were also around in the early days of Kenneth L. Lay's tenure as Enron's chief executive: J. P. Morgan Chase helped to finance the merger that created Enron in 1985 and Citigroup helped Mr. Lay pay off a corporate raider a year later.
Over the years, Enron and the partnerships it controlled paid Citigroup and J. P. Morgan Chase, and their corporate predecessors, for a variety of lending, investment banking and insurance services. Last week, Citigroup disclosed that its exposure to Enron easily exceeded $1 billion, making it one of the company's biggest lenders. J. P. Morgan Chase had even more exposure to Enron at the end. 
The ties have been so broad and deep that it is possible one or both of the banks will have made money from Enron even after the big losses they estimated they would suffer. Together, they took more than $680 million in charges against their fourth-quarter earnings to cover potential losses related to the company. 
Officials of both banks declined to discuss details of their relationships with Enron. 
Banking industry executives and analysts are not surprised the nation's two biggest and most aggressive banks were the biggest lenders to Enron, a company so active in deal making that some investment bankers described it as the ''fifth-biggest wallet on Wall Street.'' Indeed, some are not altogether surprised that two giant banks that pride themselves on being smart lenders did not seem to see the Enron debacle coming. 
''Banks have a habit of making mistakes,'' said Henry T. C. Hu, a professor of banking and finance law at the University of Texas. ''There's a long tradition there.'' 
Mr. Hu traced the banks' Enron mistakes in part to the way they are organized and the way they reward employees. In the minds of midlevel bankers, he said, the danger of missing out on doing business with a ''deal machine'' like Enron surely outweighed the risk that the company would implode. 
''When you're talking about making loan decisions and the like, especially when you're confronted with a client that is at least by outward appearance successful and rapidly growing, you as an individual banker hate to be the one who raises his hand and says the emperor has no clothes,'' Mr. Hu remarked. 
The banks' judgment may also have been clouded by the length of their relationships with Enron. Citigroup's bond was forged in 1986, when it helped the company fend off Irwin Jacobs, an aggressive Minnesota investor who was accumulating a big stake in Enron stock. Another financial company, Leucadia National, had bought a smaller stake. 
Enron had been formed in mid-1985 by the merger of Houston Natural Gas and InterNorth. Among the banks providing financing for the deal was one that later became part of what is now J. P. Morgan Chase. 
The presence of the two big investors as Enron stockholders was most unwelcome, coming as it did in Mr. Lay's first year as the company's chairman and chief executive. To fend them off, he and Enron's other directors decided to buy back the shares for more than they were worth, a practice known as Wall Street as greenmail. 
Enron paid $357 million to buy back 7.6 million shares, or 16.4 percent of those outstanding, from Mr. Jacobs and Leucadia. At $47 a share, Enron was buying its own stock at 6 percent above the market price, which had risen on speculation that Enron would be taken over. 
The company resold the shares to a newly created Enron employee stock ownership plan. The plan used $230 million Enron said was left over when it merged the pension plans of Houston Natural Gas and InterNorth. That drew criticism from T. Boone Pickens, another aggressive investor of the 80's who was chairman of Mesa Petroleum. ''Greenmail is a symptom of weak management, and Enron's executives have folded in a big way,'' Mr. Pickens said a week after the buyback. 
To help pay for the shares it bought, Enron borrowed more than $100 million from Citibank, now a unit of Citigroup, and another bank. The assistance that Citibank gave Mr. Lay then formed the cornerstone of the complex relationship between Enron and Citigroup in recent times. 
Citibank has since lent Enron large amounts for everything from working capital to building a power plant in India. Citigroup's investment banking unit, formerly called Salomon Smith Barney, has underwritten bonds the company sold and has advised it on acquisitions. 
Salomon Smith Barney was an adviser to the company on its failed effort to sell itself to Dynegy last fall. The firm also played a role in structuring and raising money for some Enron partnerships and invested more than $10 million of its own money in one named LJM2. 
A spokesman for the firm declined to discuss its role in creating the partnerships. 
Since J. P. Morgan Chase came up with some of the money for the merger that created Enron, the bank has also played several roles in the company's growth. It was the lead manager of a $500 million bond offering in 1999 and co-manager with Salomon Smith Barney on a convertible bond offering last year. 
J. P. Morgan also advised Enron on a series of acquisitions, including several in Brazil. In 1998, it advised Enron on the purchase of a controlling stake in Elektro Eletricidade e Servico, a state-run utility in Sao Paulo. In 1999, it advised a subsidiary, Enron Oil and Gas, on a purchase of its own stock from Enron. 
Despite all those connections and all of the smart investment bankers, commercial bankers and analysts who were charged with closely monitoring Enron's financial condition, the banks are stuck with big unpaid debts. Of all banks, Mr. Hu said, J. P. Morgan was supposed to be too smart for that. 
''What does this say about the quality of their risk management?'' he said. ''Banks have to compete with each other on the basis of their ability to provide good judgment.'' 
J. P. Morgan's pitch, Mr. Hu added, was that it was ''the one bank you could trust, not only unimpeachable but really smart and unassailable in terms of these credit issues.''

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

Accounting for Enron: Bankruptcy Court Filing Causing Ethical Quandary for Law Firms
By Richard B. Schmitt
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Enron Corp.'s filing for bankruptcy-court protection is posing a growing ethical quandary for law firms. 
As Enron's main bankruptcy counsel, for example, New York law firm Weil, Gotshal & Manges stands to earn millions in fees. But another marquee Weil Gotshal client, Arthur Andersen LLP, is rapidly turning into one of Enron's biggest adversaries. Last week, the energy company fired Andersen and is now believed to be considering a suit against its former auditor for malpractice or fraud.
Weil Gotshal says that because it won't be representing Andersen in any matter involving Enron, there isn't any conflict of interest. But the U.S. trustee in the Enron case has asked the law firm to disclose more information about its roster of clients, including Andersen. 
"We are trying to get sufficient information so people can determine whether the interrelationships are conflicts to be concerned about," said Carolyn Schwartz, U.S. bankruptcy trustee in New York. "Disclosure, while not a panacea, at least puts everything on the table." 
The dilemma shows how, like the regulators who once lobbied for Enron, or the politicians whose pockets were lined with campaign contributions from the company, law firms involved in the Enron mess are scrambling to avoid potential conflicts of interests. 
Such problems have become especially acute as law firms have grown and diversified in recent years, with the development of bankruptcy departments, once the purview of specialized legal boutiques, in large, full-service practices. The sheer size of the Enron case has made it almost impossible to find lawyers without some possible conflict. 
As a result, law firms are getting special waivers from clients in order to get a piece of the action. Others are establishing elaborate firewalls to avoid the sharing of confidential information. 
New York's Sullivan & Cromwell, which has done lobbying and commodities-regulation work for Enron, recently got special permission from the company to represent David Duncan, Andersen's former lead auditor on the Enron account, whom Andersen recently fired. 
Davis Polk & Wardwell, one of Andersen's principal outside law firms in the Enron case, is also acting as counsel to one of Enron's biggest creditors, J.P. Morgan Chase & Co. Christopher Mayer, a Davis Polk partner, said both clients were fully informed and have consented. 
Martin Bienenstock, a Weil Gotshal partner who is heading up the Enron case, said the firm isn't involved in examining any potential claims that Enron may have against Andersen. "All Enron-Arthur Andersen matters will be dealt with by other attorneys," he said. He notes that Weil disclosed that Andersen was and is a client in court documents when Enron filed for Chapter 11 bankruptcy-court protection in December. He added that the firm expects to make additional disclosures soon in response to Ms. Schwartz's request. 
Among other matters, Weil represented Andersen in connection with a bitter split with its Andersen consulting group a few years ago. The firm earned fees of roughly $11 million in that matter. Its revenue last year was $573 million. 
Ethics rules prohibit law firms from filing a lawsuit against an existing client. Separate bankruptcy-court rules require that lawyers for companies in bankruptcy proceedings be "disinterested." A hearing to consider court approval of Weil, Gotshal as Enron's law firm is set for next week. 
In 1994, Weil Gotshal had its fees slashed by a bankruptcy judge for failing to disclose potential conflicts in connection with its handling of the Chapter 11 case of apparel maker Leslie Fay Cos. The trustee in that case was Arthur Gonzalez, who is now the judge overseeing the Enron case.

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

Were Auditor and Client Too Close-Knit?
By Thaddeus Herrick and Alexei Barrionuevo
Staff Reporters of The Wall Street Journal

01/21/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

HOUSTON -- Big companies and their outside auditors often have close relationships, but few become as cozy as the ties that developed between Enron Corp. and Arthur Andersen LLP. 
Questions are being raised about whether they were so tight that they hindered Andersen from scrutinizing Enron's books as thoroughly and independently as it should have.
Indeed, the distinctions between the dozens upon dozens of Andersen workers assigned to the Enron account and Enron's own workers were so blurred that many at the energy-trading company's headquarters here couldn't tell the difference. 
Andersen auditors and consultants were given permanent office space at Enron headquarters here and dressed business-casual like their Enron colleagues. They shared in office birthdays, frequented lunchtime parties in a nearby park and weekend fund-raisers for charities. They even went on Enron employees' ski trips to Beaver Creek, Colo. "People just thought they were Enron employees," says Kevin Jolly, a former Enron employee who worked in accounting. "They walked and talked the same way." 
Many Andersen accountants in Andersen's Houston office, one of its biggest, eventually became Enron employees as the energy-trading company sharply increased its hiring of Andersen workers in the late 1990s. While other companies also hire talent from their auditors, so relentless was Enron's hiring that Andersen in the late 1990s grew uncomfortable and discussed solutions, including capping the number of people who could be hired, said a current Enron employee and a former Enron employee. 
Neither Andersen nor Enron will say how many Andersen employees were hired away. An Andersen spokesman declined to comment on such a cap, saying only that "it's not an issue that is addressed in one of our standard agreements" with a client. Enron spokesman Mark Palmer says he was unaware of a cap. 
Andersen's close ties to Enron raise a conflict-of-interest issue, says John Markese, president of the American Association of Individual Investors. Noting that Andersen-Enron relationship evolved into an informal alliance, an unusual arrangement for a Big Five accounting firm to have with a client when it is supposed to keep watch on the books, Mr. Markese notes, "All that closeness goes a long way toward breaking down barriers of independence." 
Andersen, while conceding errors in judgment in its handling of the Enron account, has defended its work, saying that Enron in some cases didn't provide Andersen auditors all the information they needed. Enron fired Andersen last week, days after Andersen officials disclosed that the firm's employees destroyed documents related to Enron's financing arrangements. 
Andersen has drawn fire for signing off on accounting practices related to Enron's partnerships, which allowed Enron to keep debt off its balance sheet and has made it the subject of a federal investigation. Another problem, critics say, is that auditors are reluctant to question their big clients' books too much because they earn such large fees, not just for the auditing work but for nonaudit services, such as consulting. 
Enron paid Andersen $27 million for nonaudit services, including tax and consulting work, compared with $25 million for audit services, making Enron one of its biggest clients. "We would marvel at the amounts of money we were spending" with Andersen, says a former Enron analyst, whose job was to streamline costs. 
Also, documents show that Andersen executives believed Enron's fees to the firm could eventually total $100 million a year, which would have made the energy trader Andersen's biggest client by far. 
Ties between Enron and Arthur Andersen stretch back to the late 1980s but became especially close in 1993 when Enron hired the accounting firm to undertake its internal audit. While that made some Enron employees uneasy, they became even more troubled by the hiring of Andersen employees, among them Richard Causey, Enron's chief accounting officer, and Jeffrey McMahon, the company's chief financial officer. 
"It was like Arthur Andersen had people on the inside," says Judy Knepshield, formerly director of accounts payable at Enron. "The lines became very fuzzy." 
Andersen's Houston office, which employs some 1,400 people out of the firm's total of 85,000 world-wide, was a sort of farm club for Enron. The Andersen employees wore Enron golf shirts, former employees say, and decorated their desks with Enron knick-knacks. 
David Duncan, the Andersen partner in charge of the Enron account, was a Texas A&M University graduate and recruited heavily from A&M for Andersen's Houston office. Many of the recruits landed jobs on the prestigious Enron account and were often hired by Enron itself, current and former employees say. In addition to graduating from Texas A&M, Mr. Duncan sits on the advisory council for the university's accounting department. The tight-knit crowd of A&M graduates "would take care of each other," says one former Enron employee. 
Mr. Duncan last week was fired by Andersen after revelations that he directed the document shredding; Mr. Duncan's attorneys have denied that he did anything wrong. 
Andersen ultimately became troubled by the number of employees it was losing to Enron, Enron employees and former employees say. When the company unveiled its so-called new power project in 2000, for example, it hired all 35 of the Andersen consultants who had helped develop the model, former employees say. 
But the hiring between Andersen and Enron worked both ways. In 1993, when Andersen took over Enron's internal audit operation, 40 people moved from the company's payroll to Andersen. Also in the early 1990s Enron's Thomas Chambers, the energy trader's vice president of internal audit, left Enron to run the Andersen group assigned to Enron's internal audit. 
A former Andersen employee now at Enron says the attitude was that rivals would handle an account of Enron's size similarly, so there wasn't a reason to raise issues. "Another auditor would have done the same thing anyway," the employee says, "So what's the point of losing all that money?" 
--- 
Jonathan Weil in New York and Elliot Spagat in Houston contributed to this article.

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

Jan. 22, 2002, 12:38AM
Routine 401(k) decision became costly flashpoint 
By ALAN BERNSTEIN 
Copyright 2002 Houston Chronicle 

Eleven months ago, Enron began looking for another firm to keep the records of its workers' retirement savings program, a bundle of 401(k) accounts then worth about $1.6 billion. 
What may have seemed a relatively routine decision at the time exploded when the change occurred in October, the point at which Enron collapsed. 
In the aftermath, the change has become a metaphor for class struggle. 
That is: While company officers made hundreds of millions of dollars in recent years selling Enron stock, a 401(k) "lockdown" prevented some 20,000 participants from doing the same when the share price continued a nose dive in the fall. 
The result has been a wave of vivid stories about employees losing their sizable life savings while the bosses cashed in big. The rags-vs.-riches contrast is fueling much of the controversy over the Enron collapse. 
But the story is far more complex. There are two competing versions of what happened, and the truth could lie anywhere in between. 
A lawsuit filed by several Enron workers says the bosses should have told employees more about the real prospects for the company's stock and lifted the lockdown and other restrictions when the stock price fell. Enron counters that such lockdowns are a routine and essential business practice, that the lockdown was, in fact, lifted early, and the changeover followed all federal rules governing 401(k) accounts. 
At Enron, those accounts were similar to those offered by many other corporations. The company contributed 50 cents worth of stock for every dollar of salary -- up to 6 percent -- that workers put in their 401(k)s. 
But the "matching" stock came with a string -- employees could not sell it until they turned 50, when they would be expected to start preparing for retirement. Some companies place no age restrictions on the sale of matching stock, experts say. 
Even so, 89 percent of the Enron stock that workers and ex-workers put into their retirement savings account did not come from the company match, according to the workers' lawsuit. It was stock the employees bought with their own money, and they were free to sell it regardless of their age. 
Thus, about $1 billion of the $1.6 billion total was in unrestricted Enron stock, according to the Gottesdiener Law Firm of Washington, D.C., which represents workers. 
Those numbers indicate many employees were violating theNo. 1 rule of financial planning -- diversify. 
"In the end, the employee has to determine where they put the money, and if they don't follow diversification, anything that comes along can hurt them," said Michelle Miears, a principal in the Houston office of Buck Consultants, which helps employers communicate with workers about benefits. 
But for the workers, Enron was an alluring investment, one that grew in value far more than other options. Their suit alleges that Enron executives also used psychology to get them to buy company stock and later hid the troubling truth about its future worth. 
"It is well-known," the suit says, "that the tendency of the worker to put their own contributions in company stock is stronger when the employer's matching contributions are automatically directed in company stock." 
Even while the stock price declined, Enron Chairman Ken Lay told employees it was vastly undervalued and urged them to buy more. 
Experts agree that there are good reasons why companies match employee contributions with stock rather than cash, starting with the fact that it costs less. 
"If a company is matching in stock, that is because it doesn't have the cash," said Alex Brucker, a Los Angeles lawyer who mostly represents employers in benefits cases and is a fellow of the American College of Employment Benefit Council. 
Matching with stock also allows the company a tax break, gives workers a feeling of ownership and puts stock in hands that are usually friendly in case of a takeover attempt. 
When Enron stock was flying high in early 2001, its 401(k) plan records were administered by The Northern Trust Co., based in Chicago. In February, Enron asked Northern's competitors to bid on the contract to manage the records. 
Employers commonly change plan administrators to obtain better service. That's increasingly important as workers refine their investments daily by telephone or computer, Miears said. 
Indeed, says Enron spokesman Vance Meyer, Enron sought the change to get better value and service for workers. 
Hewitt Associates, based in Lincolnshire, Ill., won the contract around the middle of 2001. Enron says it announced the change in an Oct. 4 letter to employees at their homes and followed up with e-mails. 
The notices included a warning that Enron's 401(k) accounts would be frozen starting Oct. 29 -- meaning no stock sales or other adjustments -- during the switch from Northern Trust to Hewitt. 
Enron said the switch was planned for months and had nothing to do with the fact that onOct. 16, the company announced a $638 million third-quarter loss and $1.2 billion reduction in shareholder equity. 
But that version of the story, and what happened next, are in dispute. 
The workers' lawsuit says some employees, former employees and retirees who would have sold their stock as the price fell never got the word about the freeze until it was too late, and that others had been told it would start Oct. 19. 
Some workers asked Enron to postpone the freeze when it became obvious that the value of employee-owned stock in the 401(k) was evaporating. 
Enron responded in an e-mail to employees that "we have been working with Hewitt and Northern Trust since July" and "understand your concerns and are committed to making this transition as short as possible." 
Brucker, the employee-benefits lawyer, said such freezes are routine when companies change administrators, but they are often postponed to work out procedural or other problems. 
Enron's switch may have been so far along that stopping it would have been complicated and difficult, he said, "but there are always ways to stop it." 
Hewitt declined comment on why the freeze was not postponed, referring questions to Enron, which also declined comment. 
Enron says it limited the freeze to 10 working days, six days less than expected. 
In the corporation's version, the stock, worth about $82 a share in January and $43 as late as August, was at $13.81 when the freeze began and $9.98 when it ended Nov. 12. 
That means that most of the stock decline that wiped out so much employee wealth took place long before the freeze. Seen another way, however, the stock lost about 28 percent of its value during the period when employees were unable to sell, regardless of whether they had bought it with their own money or got it through the 401(k) match. 
The workers' lawsuit contends that the freeze actually began on Oct. 19, and the stock price lost 60 percent of its value when it ended. 
Besides the 401(k) program, Enron provided workers with a benefit similar to a pension. Employees with the company for at least five years were entitled to 5 percent of each year's annual base salary, plus interest. 
The program is described in documents that every new employee got from the Enron benefits department, whose slogan, repeated on every page of the benefits manual, is "keeping pace with your lifestyle." 

Fight Looms Over Pension-Plan Changes --- Enron's Consequences Lead Legislators to Pursue Tightening Regulations
By Kathy Chen
Staff Reporter of The Wall Street Journal

01/22/2002
The Wall Street Journal
A2
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Businesses, consumer groups and organized labor are gearing up for a battle over efforts to impose new restrictions on retirement plans after Enron Corp.'s collapse, which wiped out the nest eggs of thousands of the company's employees. 
Enron's 401(k) retirement plan was heavily weighted with the company's shares, so when the stock plunged, the value of employees' 401(k) accounts did, too. Making sure that doesn't happen elsewhere is a top priority for many lawmakers as Congress returns tomorrow from a monthlong recess. Already, members from both parties have introduced bills and scheduled hearings.
A massive lobbying campaign is taking shape: The National Association of Manufacturers, which opposes far-reaching restrictions, is offering a primer for member companies on the more-limited reforms it supports. The American Benefits Council, which represents Fortune 500 companies on benefits issues, is meeting with high-level administration officials who are drafting recommendations for President Bush. The council also opposes sweeping regulation. But the Pension Rights Center, a Washington consumer group, believes the government must step in with far more protections for workers. It plans to launch a Web site and media campaign, and is organizing Enron employees to lobby Congress. 
The political pressure makes it likely that Congress or federal regulators will make some changes to the current system. This is "an opportunity to try and get real protections in the law for workers," says Shaun O'Brien, senior policy analyst for the AFL-CIO, which has put pension oversight near the top of its priority list. 
With national midterm elections coming up in November, the Enron case takes on some urgency for politicians, says David Wray, president of the Profitsharing/401(k) Council of America, a Chicago employer group. But "we'd like everyone to slow down here," he says. "Companies have been sharing ownership with employees for about 100 years, and we want to be real deliberative as we think about changes." 
Traditional pension plans -- known as defined-benefit plans because they spell out retirees' income -- are heavily regulated under the Employee Retirement Income Security Act of 1974, or Erisa. During recent years, growing numbers of employees have changed -- or been shifted by their employers -- to defined-contribution plans, such as 401(k) plans, whose payouts depend on how much an employee invests and which are more lightly regulated. 
One of the first bills introduced after the Enron debacle would impose a 20% cap on the portion of their employers' stock that employees can hold in retirement accounts. The measure also would limit to 90 days the amount of time employers can require workers to hold matching stock contributions; there is no limit in place now. 
Consumer groups like the legislation a lot. The Pension Rights Center, for instance, says it will push the bill, sponsored by Democratic Sens. Barbara Boxer of California and Jon Corzine of New Jersey, and may even seek stricter requirements for employers. The center is planning a grass-roots campaign, teaming up retirees' and women's groups with Enron employees and International Business Machines Corp. workers who are disgruntled about changes to their pension plan, says Karen Friedman, the center's director of policy and communications. 
The Senate bill, and a similar one in the House, alarms the business community. NAM, the manufacturers' trade group, is working with members to lobby lawmakers on pivotal committees, says Neil Trautwein, NAM's director of employment policy. U.S. Chamber of Commerce Chairman Thomas Donohue has been meeting with chief executives of some Fortune 100 companies to help craft their message to Congress, says Kathleen Havey, the business association's director of pension policy. 
Many companies are concerned that legislation could impose too many restrictions on the way they set up and administer their pension plans. General Electric Co., for one, says it imposes few restrictions on investment choices for employee 401(k) plans, yet workers still have chosen to put 75% of their 401(k) assets in GE stock. That is because "returns have been 20% a year in the last five years," GE spokesman David Frail says. "We'd be concerned if, in an effort to shield employees from risk, that legislation would go too far." 
Enron's bankruptcy filing also is giving new legs to old bills, including one that Rep. John Boehner first introduced in late 2000. A new version, which lets pension-fund managers and other fiduciary advisers offer employees investment advice as long as they disclose potential conflicts of interest, passed the House in November as Enron was unraveling. Mr. Boehner, an Ohio Republican, is chatting up the bill, trying to find a Senate sponsor. 
Bush administration officials, including Ann Combs, assistant secretary for the Labor Department's Pension and Welfare Benefits Administration, have backed the Boehner bill, and NAM calls it a "constructive approach." 
AFL-CIO officials, however, are scratching their heads and preparing to fight it. "It's curious Boehner is promoting it in the context of Enron," says Mr. O'Brien, the labor group's senior policy analyst. "Enron is a story of conflicts of interest."

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

Your Money Matters
Enron Isn't the Only Retirement Tale That Leads to Hard Lesson: `Diversify'
By Ellen E. Schultz and Theo Francis
Staff Reporters of The Wall Street Journal

01/21/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Enron Corp. workers whose 401(k) balances have evaporated amid that company's bankruptcy may find valuable lessons in a continuing lawsuit brought by former Morrison Knudsen Corp. employees who found themselves in a similar situation. 
For one thing, they will learn that when companies fail, there are stark differences between pension plans and 401(k)s. Pensions are protected, because companies must set aside money to pay the benefits workers have earned. And if the pension plan doesn't have enough money, the Pension Benefit Guaranty Corp., a federal agency, steps up to pay minimum pension benefits.
There is no similar safety net for the 401(k)s, profit-sharing plans and employee stock-ownership plans of companies that go bust. If money in the plan is lost because it was invested in employer stock that becomes worthless, that is tough luck. 
The only hope employees have of recovering their losses is if they can show that the company breached its fiduciary duty by not warning them that the stock was a poor investment. However, even if employees have a valid claim, they probably are still out of luck if the company slides into bankruptcy -- as Morrison Knudsen did, and Enron has -- because the bankruptcy proceedings ultimately could lead a trial court to dismiss the claim. 
The bottom line: To the extent possible, employees should diversify the investments in their retirement plans. Avoiding a concentrated stock position can be difficult when companies contribute their own stock to employee retirement plans. But in these situations, workers shouldn't add to their exposure by buying more company stock on their own, as many Enron employees did. 
Of course, the risk generally is lower when it comes to 401(k)s invested in mutual funds or other independent investments. Though the investments can lose value, their fate isn't tied to that of the company. 
Enron employees suing over losses in their 401(k) plan -- 47% of which was invested in Enron stock at the end of 2000 -- may find themselves in a replay of what happened at Morrison Knudsen, a Boise, Idaho, engineering and construction company that filed for bankruptcy protection in June 1996. During a four-year court battle, the Morrison Knudsen employees have received no compensation for company stock-related losses in their retirement and employee stock-ownership plans. 
In 1994, when Morrison Knudsen announced an unexpected loss, the stock dropped 25% the next day and kept sliding, from its 1994 high of $24 to about $2 on Feb. 19, 1996, when the company announced it would file for bankruptcy. The stock slump decimated the retirement savings of more than 3,500 employees, who had about $75 million invested in a 401(k) and an employee stock-ownership plan. The 401(k) was heavily loaded with company shares because the company's matching contribution was in Morrison Knudsen stock. In addition, employees were encouraged to contribute their own savings to Morrison Knudsen stock, because if they did so the company would match their savings with an equal amount in the ESOP. Both plans required them to hold on to the shares until they were in their 50s. 
Employees got an opportunity to diversify in 1995 when the company lifted restrictions on selling the shares. However, Morrison Knudsen was negotiating with banks to avoid bankruptcy for months before it told employees. Some employees filed suit on July 19, 1997, alleging that the company breached its fiduciary duty to the plan participants because it didn't tell them how dire the company's financial status was. 
John Blyler, an engineer with Morrison Knudsen in Boise for 22 years, had about $35,000 in both the 401(k) and the ESOP before the July 1994 announcement about the company's troubles. He lost most of it. "It's a crying shame," he says. 
Employees also sued members of the board, including Peter Lynch, then a vice president of Fidelity Investments' investment-management arm and a trustee of its funds who also was a director of Morrison Knudsen and chairman of its board's audit committee. Fidelity didn't respond to request for comment. 
When employees sued Morrison Knudsen, the company sought to have them held in contempt of court for bringing the suit, on the grounds that the bankruptcy court already discharged the company from any liability for the retirement plan. While the judge ultimately didn't agree, the employees were frightened. 
"You bet I was scared," Mr. Blyler says. "I lose my job, and my retirement money -- and I get sued." 
In November 1999, the federal district court in Boise ruled that Morrison Knudsen's 1996 bankruptcy reorganization plan had released the company's officers and directors from any obligations to the employees, and also had discharged the company's obligations to the plan. (Morrison Knudsen was acquired by Washington Group International Inc., which itself is reorganizing under bankruptcy-court protection. A spokeswoman for Morrison Knudsen declined to comment.) 
The court didn't dismiss claims against the trustees in the pending case, because they weren't debtors. T. Rowe Price Inc. was trustee for the 401(k), and Mellon Bank Corp. was trustee for the ESOP. Both Mellon and T. Rowe say they were merely custodial trustees, which means they were following the company's orders. T. Rowe says it also had no inkling of problems afoot at Morrison Knudsen. 
Enron employees have sued their employer, as well as retirement-plan trustee Northern Trust Co. and the auditors, Arthur Andersen LLP. Northern Trust, too, says it was a directed trustee without investment authority. "We held the assets and we kept the records," spokeswoman Sue Rageas said. Andersen declined to comment. 
How Enron workers will fare is anyone's guess. Employees sometimes prevail in such suits -- to a degree. ColorTile Inc. employees lost their 401(k) savings in 1996, because the Fort Worth, Texas, company invested 82% of the money in stores that held ColorTile leases. The employees sued and obtained a settlement of $4 million -- $3.1 million from plan trustee Texas Commerce Bank NA and $950,000 from Texas Pacific Indemnity Co., under a fiduciary liability insurance policy. That was a pittance compared with a total of $34 million in the plan. 
Some say the solution to the problems faced by employees at Enron, Morrison Knudsen, Polaroid Corp. and other companies in bankruptcy would be to prevent companies from loading up employee plans with their own stock and locking the employees into it. 
And the bankruptcy code would need to be modified so that if the fiduciaries broke the law, employees could recover money from the reorganized company. "A company in reorganization has profit-making potential, so future earnings ought to be available to refill the retirement plans, should employees successfully bring a case," says Brian McTigue, a Washington, D.C., pension lawyer who is representing the Morrison Knudsen employees.

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

Accounting for Enron: All Tied Up: Retirement-Plan Lockdowns At Lucent and Elsewhere Draw Questions
By Dennis K. Berman
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
C14
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -- The imbroglio surrounding rules in Enron Corp.'s retirement-savings plan, which prevented employees from selling their stock while the company's fortunes crumbled, is raising new concerns about the "lockdown" practices at scores of other companies. 
Some employees of telecommunications-equipment maker Lucent Technologies Inc. want answers to why the company's 401(k) savings plan was in a lockdown period when the company released financial information that cut its stock price by one-third in just one day.
On Oct. 10, 2000, Lucent said it would miss its previously stated estimates for the fourth quarter. The following day, the value of Lucent stock plummeted, closing down 32%, to $21.25. But the 114,000 participants in Lucent's 401(k) savings plan couldn't act on the news. They happened to be near the end of a 15-day "lockdown" period, in which they couldn't buy or sell assets in their plans, including their plummeting Lucent shares. 
"We were locked in as investors. We couldn't get out," says Paul Rinderle, a 65-year-old retiree of AT&T Corp., whose retirement plan was transferred to Lucent when the Murray Hill, N.J., company was spun off from AT&T in 1996. Mr. Rinderle said he had hoped to cash in his shares a few days earlier, as the stock price was then on the rise. But because of the lockdown he ended up losing $10,000 "in a heartbeat." 
Lucent locked down the plan because it had spun off its 34,000-person business-communications division, Avaya Inc., on Sept. 30. Lucent's plan administrator, Fidelity Investments, needed time to "balance the assets" of the retirement fund, says a Lucent spokesman. That entailed halting all 401(k) activity to make sure the assets between Lucent and Avaya were divvied up properly. The company warned employees of the move on July 28 and Aug. 31, and sent a brochure to their homes on Sept. 9. 
"It's standard required procedure for all major companies to restrict access to a plan when they go through a merger or spinoff," said Lucent spokeswoman Kathleen Fitzgerald, who noted that Lucent's 401(k) plan recently was named the nation's best by Treasury & Risk Management magazine. "We did it for the shortest time possible," she said. At the end of 2000, 17% of Lucent's $11.4 billion 401(k) fund was tied up in Lucent stock, the company says. Lucent also provides its employees with a pension. 
Ms. Fitzgerald said the company received word of the impending shortfall on Oct. 9, and disclosure regulations required that the information be released as soon as possible. 
Lockdowns typically occur when a company switches plan administrators (as in Enron's case), absorbs another firm in a merger or spins off a unit as a separate company. On any one business day, 96 company plans out of 350,000 that have 401(k) plans are in a lockdown, according to new research from the Profit Sharing/401(k) Council of America, a trade group representing employer plans. 
While lockdowns are legal, they have come under greater scrutiny because of losses sustained during a lockdown of Enron employees. (Lockdowns, temporary periods in which no employees can move their investments around, are not to be confused with other restrictions on selling stock. Most companies don't allow employees to sell employer stock the company has contributed to a retirement plan until age 50 or later.) 
Other companies that recently ended plan lockdowns include International Paper Inc. and Dow Chemical Co., which had locked down a plan with 13,500 participants as part of its merger integration with the former Union Carbide Corp. 
Representatives for employer groups say the down time is necessary for the plans to adjust. "These are highly complex systems," said Ed Ferrigno, vice president of the Profit Sharing/401(k) council. He said plan administrators need to freeze 401(k) activity so they can make software upgrades, check legal compliance and in the case of a spinoff, ensure all the right assets are going with the right people. 
Lucent employees had plenty of other time to sell the stock throughout 2000. A series of previous earnings warnings already had sent Lucent shares falling from $77 at the beginning of the year, to a spinoff-adjusted $27.01 at the close of trading on Sept. 27, the last day employees could trade before the lockdown began. When the lockdown was lifted on Oct. 13, the shares had slid to $21.81, a 19% drop from when the lockdown began. (At 4 p.m. Friday in New York Stock Exchange composite trading, Lucent shares were up 18 cents to $6.69.) 
Still, lawmakers and regulators examining lockdowns could ask why the periods last so long. "It's done by computer; it shouldn't take that long," said Louis Berney, of DC Plan Investing, a newsletter that covers the 401(k) industry. "I think it's inefficiency as much as anything. If the employees' best interests are at heart, it should be done as quickly as possible."

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

Accounting for Enron: Andersen Also Audited Qwest, Accounting Questions Surfaced
By Deborah Solomon
Staff Reporter of The Wall Street Journal

01/22/2002
The Wall Street Journal
C7
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -- Far from Houston where Arthur Andersen's accounting practice was by far the biggest of its peers serving the energy sector, the Big Five firm also was a significant presence auditing the books of emerging telecommunications companies, at least one of which has come under fire in recent months for its accounting practices. 
Allegiance Telecommunications Inc., Level 3 Communications Inc., Global Crossing Ltd., Qwest Communications International Inc., WorldCom Inc. and XO Communications Inc. all use Arthur Andersen as their auditors. None of the companies have felt heat anywhere approaching that of energy-trading firm Enron Corp., which filed for bankruptcy-court protection late last year shortly after restating its earnings going back four years by more than $500 million. But questions have swirled about the financial statements of some of the telecom companies, many of which achieved spectacular growth rates only to see their valuations crater in last year's stock-market decline.
Some of that spectacular growth came by immediately recognizing revenue from one-time, long-term contracts, rather than phasing it in gradually over the life of the arrangements. The biggest questions have centered on Qwest, of Denver. A Morgan Stanley report last spring contended the company tried to boost its earnings through certain accounting moves related to its merger with U S West. Qwest denied it did anything wrong but disclosed that the Securities and Exchange Commission had raised questions about its merger accounting. It said it answered those questions and the regulators subsequently closed the matter. The SEC has declined to comment. Investors raised more questions in September, when Qwest disclosed a complex contract that worked to boost revenue and meet growth targets; the stock fell to a 52-week low following the disclosure. 
Dave Tabolt, a spokesman for Andersen, declined to comment on any of the particular accounting issues in the telecom sector. He said the firm is aware of clients' concerns generally in the wake of the Enron collapse, saying they "are asking good questions. But when we talk to them, they've been extremely understanding and supportive. People are taking our measure. They want to know we're acting in good faith." 
Representatives of Qwest, WorldCom, XO, Global Crossing and Level 3 declined to comment about whether they are considering switching accountants. Thomas Lord, chief financial officer of Allegiance Telecom, said his company plans to stick with Andersen, which he said "has the highest level of accounting standards. They run Allegiance -- appropriately so -- through the wringer every year." 
Still, some investors interviewed recently said Enron's situation raises the question of whether Arthur Andersen has been allowing its telecom clients to engage in aggressive accounting tactics. "It's a bit of a red flag," said Dean Gekas, a principal for State Street Global Advisors, which owns shares of Qwest. Mr. Gekas said he plans to try and "identify whether or not there's some relaxation of controls going on [at Andersen] that hasn't gone on elsewhere." 
While companies may not dump Arthur Andersen, those companies' financial statements may come under heightened scrutiny -- especially if they faced any accounting questions in the past, said Jay Crandall, managing partner of Oak Hill Capital Management Partners LP, which owns shares of Qwest. Patrick McGurn, vice president of Institutional Shareholder Services, predicted investors "are going to look more closely at Andersen companies, figuring where there's smoke, there's fire." 
On the other hand, "they are probably the best auditor to have now to make sure everything's squeaky clean and to try and heal up their credibility," said Mike Allison, equity research analyst at Eaton Vance Management, which owns WorldCom shares.

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

Economy
Moody's Trains Eye on Data Off the Sheet
By Charles Gasparino
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
A2
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Under mounting criticism for failing to uncover Enron Corp.'s financial demise, a major ratings agency is turning its attention to Wall Street firms and other companies by asking for new information on the off-balance-sheet transactions and other obscure arrangements that could pose financial risks sometime in the future. 
The move by Moody's Investors Service, one of the nation's largest bond-rating agencies, is unusual, according to financial executives at several Wall Street firms who have been contacted by the company. In recent days, Moody's has sent notices to several Wall Street firms asking for new disclosures on "off-balance-sheet financial arrangements," as well as "partnership agreements," "financial contracts" and "agreements with third parties" that are affected by a downgrade in the companies' own bond ratings. After Enron was downgraded, it was forced to immediately accelerate payments on billions of dollars' worth of debt that the company kept off its financial statements.
"As part of our ratings process, Moody's is undertaking a comprehensive review of all ratings triggers contained in any agreements entered into," according to a Moody's notice reviewed by The Wall Street Journal. As part of the review, the agency also wants information on "the amount of debt involved and the possible effect" of these arrangements on the company's own fiscal health. 
Officials at Moody's say the request for information is being sent to as many as 4,200 companies that the firm rates. "It's a significant effort to gather detailed information on something that is very much on the minds of the capital markets," said Fran Laserson, a spokeswoman for the company. Ms. Laserson cited the 1994 bankruptcy filing of Orange County, Calif., as the last time the firm had asked bond issuers for such disclosures. 
But the move comes amid criticism that bond raters like Moody's failed to move quickly enough to spot Enron's deteriorating financial health. With $50 billion in assets, $13.15 billion in debt and billions more in off-balance-sheet debt, Enron's is considered the largest bankruptcy filing in U.S. history. On Dec. 2, the company filed for bankruptcy, but it posted a big third-quarter loss nearly two weeks before Moody's downgraded its bond ratings in late October. 
Over the years, Enron managed to amass billions of dollars in off-balance-sheet debt in partnerships -- a primary cause for the company's troubles -- without major red flags from the rating agencies. "It's good to see the rating agencies finally doing its homework, but unfortunately it comes too late for investors of such companies as Enron" says Lynn E. Turner, former chief accountant for the Securities and Exchange Commission, and professor of accounting at Colorado State University. 
It is unclear how much debt can be found in such off-balance-sheet arrangements, or which companies have the lion's share of such transactions. But a big focus of Moody's appears to be the brokerage sector, which like Enron, has a history of trading derivatives and other securities through these devices. "One big question is: Will the incremental scrutiny change the way business is done?" said one senior executive at a major Wall Street firm. 
Moody's isn't the only organization looking to more closely scrutinize off-balance-sheet arrangements. In recent weeks, the Securities and Exchange Commission, Wall Street's top cop, has begun asking companies to file additional information regarding "off-balance-sheet" items, according to Wall Street executives. An SEC spokeswoman declined to comment on the matter, but the SEC appears to be responding to a request by the nation's largest accounting firms for corporations to "to take immediate steps to improve their disclosures in three critical areas," including off-balance-sheet arrangements.

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

Credit Markets
Moody's and S&P, Singed by Enron, May Speed Up Credit Downgrades
By Gregory Zuckerman and Christine Richard
Staff Reporters of The Wall Street Journal

01/22/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Moody's and Standard & Poor's, stung by criticism that they were too slow to respond to Enron Corp.'s financial troubles, are considering big changes to enable them to cut credit ratings more quickly. 
While the shift could give investors a better sense of risk -- after all, both credit-rating companies kept Enron at investment grade until just five days before it filed for bankruptcy -- it also could add a new dose of volatility to the stock and bond markets.
Moody's Investors Service is considering making more-frequent ratings changes over a shorter period of time, shrinking the review periods for ratings and eliminating ratings "outlooks," says Christopher Mahoney, chairman of the credit policy committee at Moody's, a unit of Moody's Corp. Outlooks are intended to point toward the long-term direction of the rating over the next several years. 
Mr. Mahoney stressed that nothing has been finalized and that Moody's will soon release a paper on the topic, to be circulated to investors for comment. 
Standard & Poor's Corp., owned by McGraw-Hill Cos., also may take steps to accelerate the speed at which it makes ratings changes. If investor sentiment sours on a company, and its liquidity becomes an issue, S&P analysts may be more likely to cut a rating, rather than wait to see what happens with the company. 
"Criticism creates urgency but it's not Enron alone that's driving the issue of timeliness," said Clifford Griep, chief credit officer at S&P. "The market is concerned with" the speed that ratings are changed. 
A representative of ratings agency Fitch, a competitor of S&P and Moody's, couldn't be reached to comment. 
Until now, ratings agencies usually moved ratings down gradually, one notch at a time, while putting companies on notice that more downgrades may be forthcoming. But stock and bond prices often are down more quickly, making the last ratings-agency move anticlimactic. With the proposed changes, the ratings moves could come more quickly, or a few notches at one time, perhaps getting out ahead of the reaction on Wall Street. 
The credit agencies, like the Wall Street analysts who covered Enron, have been hit by criticism that they didn't cut their ratings fast enough. Critics, though, say analysts often face conflicts of interest that make them reluctant to criticize the companies they cover. While the ratings firms do get paid by the companies they rate, unlike analysts they don't have the opportunity to profit from investment banking or other business tied to the firms -- business that could be hurt by a negative analyst report. 
The trick for the ratings agencies is in balancing the need to warn investors against the potential damage if a rating downgrade triggers an avalanche of trouble for companies already on the edge. 
Even before the proposed changes, analysts say there already are signs that the Enron experience is prompting rating agencies to cut credit ratings more aggressively, especially in the energy sector. 
In late December, for example, Moody's cut Mirant Corp.'s rating by two notches and Calpine Corp.'s rating by one notch, both to Ba -- a below-investment-grade, or "junk," rating. 
In addition, the speed with which Moody's cut Kmart Corp.'s rating last week also drew attention among bond investors. Kmart was rated investment grade by Moody's as recently as Dec. 14. But after a series of sharp rate cuts, including a decline of five notches in under a week, the company is left with a rating of Caa1, a low tier of junk bond. 
Since the Enron bankruptcy, Moody's has announced that it will be more aggressive about alerting investors to the consequences of "triggers" in a company's capital structure. Triggers are events, such as a rating downgrade or a decline in profitability, that require a company to renegotiate borrowing terms with its bankers or accelerate repayment on bank or bond obligations. Such triggers can greatly exacerbate a company's problems by creating liquidity issues just when a company is least able to obtain new funding. 
Enron's various lending arrangements, including those relating to off-balance sheet debt, included a number of such triggers. 
Moody's also has stepped up its focus on off-balance-sheet debt, in light of Enron's problems. A report in yesterday's Wall Street Journal said Moody's in recent days has sent notices to several Wall Street firms asking for new disclosures on "off-balance-sheet financial arrangements," as well as "partnership agreements," "financial contracts" and "agreements with third parties" that are affected by a downgrade in the companies' own bond ratings. 
If the broader changes are implemented by the ratings agencies, investors could benefit. If a company hits tough times and the risks for bondholders suddenly rise, Moody's and S&P will feel free to rapidly slash the company's credit rating. In this way, bond investors will get a better sense of the risks involved in buying the company's bonds, and stockholders will also get a better idea of the company's health. 
But while stock and bond prices already move in anticipation of moves by credit-rating agencies, if the agencies begin cutting and raising their ratings more quickly, it will likely add a new dose of volatility to stock and bond prices. 
"We've had higher volatility on stocks when debt becomes an issue, and bonds already move ahead of the rating agencies," says J. Curtis Shambaugh, a corporate-bond strategist at Credit Suisse First Boston. "But this will add additional volatility." 
Louise Purtle, credit strategist at Deutsche Bank in New York, says the upshot of the Moody's changes would be a "dramatic increase in the volatility of ratings." 
That, in turn, could mean corporations will pay a higher price to tap the debt market. If rating agencies are quicker to move ratings, investors might begin to demand higher rates on corporate bonds relative to safe Treasurys, to compensate them for the higher risk, according to analysts. 
--- 
Mirela Vlad and Margot Patrick contributed to this article.

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

National Desk
The Nation COLUMN ONE Enron Case Raises the Bar in Texas A matter that's big even by the state's usual standards has the legal community in a frenzy, with lawyers hiring their own lawyers and others dodging conflicts.
DAVID STREITFELD
TIMES STAFF WRITER

01/21/2002
Los Angeles Times
Home Edition
A-1
Copyright 2002 / The Times Mirror Company

HOUSTON -- Even the lawyers here are hiring lawyers. 
The astounding collapse of Enron Corp. has devastated employees, infuriated shareholders, stung creditors and awakened the regulators. Everyone's upset. And everyone's headed for court.
"This case is the full employment act for Texas lawyers," said Richard J. Zook, who was the first to file a class-action lawsuit against the energy company, now operating under Chapter 11 bankruptcy protection. 
"There will be civil lawyers, criminal lawyers, securities lawyers, regulatory lawyers, bankruptcy lawyers, employment benefits lawyers and trial lawyers," Zook said. "Billions and billions have been lost. It's going be a long, detailed and exhaustive search for the guilty parties." 
So far, 51 lawsuits have been filed in U.S. District Court here naming former Enron Chief Financial Officer Andrew S. Fastow as a defendant. Fifty-six go after former Chief Executive Jeffrey K. Skilling. Fifty-three seek damages from Chairman Kenneth L. Lay. Dozens more suits go after the company itself. 
That's not all. Lawyers for Enron's 20,000 creditors are seeking restitution, and a group of Enron bondholders is suing the company's former auditor, Andersen, as well as the bonds' underwriters. 
Samson Investment Co., an oil exploration company that was an Enron partner, sued the auditor last week. Enron itself is making noises about suing Andersen, formerly known as Arthur Andersen. Other lawyers are focusing on the brokers who touted Enron's once-golden stock. Wendy Gramm, an Enron board member and the wife of Sen. Phil Gramm (R-Texas), has had 14 suits filed against her. 
Texans are fond of their superlatives, so few here are resisting the notion that the biggest bankruptcy filing of all time will spur the largest legal quagmire of all time. Yet that opinion is seconded by more distant observers, who nonetheless caution that the case is still unfolding. 
Resolution in Courts Likely Will Take Years 
"This involves civil actions as well as potentially criminal ones, private as well as public entities," said Stanford University law professor Deborah Hensler. "And it involves lots of money and has lots of political ramifications. Those are the ingredients you'd need." 
The legal actions are likely to go on awhile. 
Given the number of defendants and legal proceedings and "the potential of the criminal cases to delay the civil cases," said San Diego lawyer William Lerach, "it will take as many as six years to resolve this." 
Lerach, who represents shareholders who claim they lost fortunes because of Enron's deception, rejects assertions that the only winners will be lawyers. 
"Lawyers always do well whenever there's a disaster," he said. But he added that class-action lawyers "only get paid if they make a recovery for the class--and they only get paid a percentage of what they recover." 
All the more reason, then, to spread the legal net as wide as possible. The juiciest target could be Andersen, which stands accused of failing to present Enron's true financial picture. The Chicago-based company has deep pockets and, unlike Enron, is not shielded by U.S. Bankruptcy Court. 
Marvin Isgur, a Houston bankruptcy lawyer, estimated that at least 40 Houston firms were involved in the case. Others, like Isgur himself, were talking to potential clients. 
"Everyone that touched Enron is going to need legal advice," he said. 
Although Enron lawsuits are being launched all over the country--the bankruptcy case is being heard in New York, and the Samson complaint was filed in Tulsa, Okla.--by far the greatest concentration is here, in the energy company's hometown. 
The cases are so plentiful that questions are starting to be asked about conflicts of interest, and the lawyers themselves are wondering what their own best interests are. Sooner or later, everyone is going to have to take sides. 
In the good old days, there was only one side for Houston lawyers. Everyone sat on charity boards with Chairman Lay, shopped at the Galleria, lived in swank River Oaks and dined on the truffle-scented baby hen at Tony's. 
"The royalty of Houston were either Enron bosses or on the board of Enron," said Gerald Treece, associate dean at South Texas College of Law. 
The tight relationships--and Enron's big footprint in this town--are leading to conflicts. Two of the 18 U.S. District Court judges here, Nancy Atlas and David Hittner, had to recuse themselves from Enron cases. An Atlas assistant said the judge would not comment; an assistant to Hittner said his decision was prompted by his ownership of Enron stock. 
Their cases were assigned to U.S. District Judge Lee H. Rosenthal, who disclosed last month that she had "long-standing friendships" with two defense lawyers. One of former CFO Fastow's lawyers was godfather to one of Rosenthal's children, the judge said in a court filing. Another lawyer representing Enron defendants was best man at Rosenthal's wedding. The judge said she was "fully capable of disregarding these relationships." 
Ten days ago, without explanation, Rosenthal recused herself from her 46 Enron cases. 
"The problem is Enron is everywhere and Enron executives are everywhere," said Elizabeth Freeman, a lawyer for Enron creditors. "Most of the judges were practitioners here. They might have represented Enron or an Enron competitor." 
Cases Consolidated Into 3 Categories 
Underscoring that point, the U.S. attorney's office in Houston, which was conducting a criminal investigation of Enron, was recused from the case Jan. 9 by the Justice Department, in part because staffers are related to Enron employees. 
For instance, U.S. Atty. Mike Shelby's brother-in-law worked for the energy company. Because many Enron employees are bitter over the collapse of their company savings plans, there was the possibility the government lawyers would be accused of seeking vengeance instead of justice. 
Although the number of lawyers is multiplying, the number of active cases is shrinking for the moment. That's because they are being consolidated on three tracks: employee benefits, shareholder class actions and so-called derivative suits, in which shareholders sue a corporation's officers to force them to restore to the company money they allegedly stole from it. The docket sheet for the class-action suit Newby et al vs. Enron Corp. takes 15 pages to list all the lawyers involved. 
Yet for all of the frantic legal activity, there's a sense that this might only be the beginning. 
"We haven't gone to Defcon 1 yet," said Treece, the law school dean. "When Enron filed for bankruptcy, it scared a lot of lawyers away. They thought the chance of getting big money evaporated." 
Some have a different reason for staying away. 
"One thing about Texans, they think loyalty means something," Treece said. 
By spreading its work around, Enron bought a lot of loyalty in the Texas legal world. This is a trick the law firms seem to have learned themselves. When Vinson & Elkins, Enron's main law firm, was named as a defendant in two of the class-action lawsuits, it promptly sought out Joseph Jamail, the most famous litigator in Texas, to represent it. 
Jamail won a $10.5-billion verdict in 1985 against Texaco for his client Pennzoil, a case that was the previous high-water mark for Texas litigators. He did not return a call to comment, but anyone expecting him to take on Enron in similar fashion is likely to be disappointed.

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

Accounting for Enron: Company's Swift Collapse Reverberates Throughout Political Circles in Texas
By Elliot Spagat
Staff Reporter of The Wall Street Journal

01/21/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Political repercussions from Enron Corp.'s collapse are beginning to be felt in its home state of Texas, where the chairman of the state's Public Utilities Commission, a former Enron executive, resigned because of his ties to the company. 
Max Yzaguirre, who headed Enron's Mexico operations, was named to the Public Utility Commission in June. The next day, Gov. Rick Perry received a $25,000 donation from Enron Chief Executive Kenneth Lay. The governor, a Republican who replaced President Bush, has said the timing was coincidental.
Mr. Yzaguirre's appointment had become an issue in the governor's race and he cited the intensity of the debate in his resignation letter. Candidates vying for the job have repeatedly criticized Mr. Perry, who is running to keep his job this fall, for making the appointment. 
As it did in Washington, Enron, based in Houston, and its employees lavished Texas politicians and lobbyists with millions of dollars of donations. Mr. Perry received $212,000 from Enron during the last two election cycles, second only to former Gov. George W. Bush among state officeholders, according to Texans for Public Justice, a nonpartisan group that tracks campaign donations. 
Attorney General John Cornyn, a Republican candidate for governor, earlier this month withdrew from his office's inquiries into the company. Mr. Cornyn received $183,000 from Enron during the last two election cycles. 
Some -- but only a few -- Texas politicians are returning Enron money or donating it to charity, including Comptroller Carole K. Rylander and Greg Abbott, a former state Supreme Court justice and candidate for attorney general. Both are Republicans. 
Enron and its employees gave more than $1 million to state candidates and political action committees during the 1998 and 2000 elections and paid lobbyists as much as $4.8 million, according to Texans for Public Justice. State lawmakers say the company's top legislative priorities were to deregulate the state's electricity markets, which became law Jan. 1, and exempt old power plants from tougher emission controls, another successful effort. 
Enron also has been one of the biggest contributors to state judges, who run in partisan elections. Texans for Public Justice says Enron gave $134,058 to state Supreme Court justices since 1993, including $97,358 to seven of the nine current justices. 
The Supreme Court sided with Enron in five of six cases it handled involving the company since 1993, the group says. 
Enron's large lobbying force -- its 15 Texas lobbyists were paid between $535,000 and $945,000 total last year -- allowed the company to better argue its positions with lawmakers, said state Rep. Pete Gallego, Democratic chairman of the House General Investigating Committee. Still, he added, "My perception is they got nothing concrete other than access." 
Democratic Rep. Steve Wolens said that Mr. Lay was a forceful advocate of free markets but that his lobbyists were less successful negotiating details of deregulation. For example, legislators rejected an Enron-backed proposal to award retail customers to energy companies via a lottery, he said. 
Mr. Wolens said that the state's accounting regulator accepted his petition to investigate whether Arthur Andersen LLP and accountants at Andersen, which was Enron's accountant, and Enron violated state auditing standards. Violating accounting standards can lead to a loss of one's license to practice in the state.

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

National Desk; Section A
ENRON'S COLLAPSE: THE POLITICIANS
Enron Spread Contributions on Both Sides of the Aisle
By DON VAN NATTA Jr.

01/21/2002
The New York Times
Page 13, Column 1
c. 2002 New York Times Company

WASHINGTON, Jan. 20 -- Senator Joseph I. Lieberman embodies how the Enron Corporation's collapse has tied the capital in political knots. 
Already, Mr. Lieberman, the Connecticut Democrat who will strike the gavel on Thursday to open the new year's first Congressional hearing on Enron, has been buffeted by criticism from both sides of the aisle for his stewardship of one of the many Congressional committees investigating Enron's spectacular fall.
Republicans complain that Mr. Lieberman should recuse himself because his former chief of staff, Michael Lewan, was a lobbyist for Enron. Others have raised questions about campaign donations to Mr. Lieberman and political groups close to him from Enron and its accounting firm, Arthur Andersen. And some fellow Democrats are expressing dissatisfaction that Mr. Lieberman, who harbors presidential aspirations, has not made the Bush administration his prime target. 
The bipartisan criticism of Mr. Lieberman reflects how deeply Enron, its campaign money and its deregulatory agenda have become imbedded in Washington's money culture these last dozen years. 
Like many Fortune 100 companies, Enron, a Houston energy-trading company, spread largess all over Washington. Although it gave more money to Republicans, it gave plenty to Democrats, too, including Senators Charles E. Schumer of New York, Jeff Bingaman of New Mexico and John B. Breaux of Louisiana. 
Enron has written campaign checks to three-fourths of the senators, and nearly half of the members of the House. Perhaps because of those donations, Democrats and Republicans have promised to aggressively investigate Enron's financial problems and their impact on thousands of employees for fear of looking soft on the company. 
''They are all living in a glass house,'' Mary Matalin, the counselor to Vice President Dick Cheney, said of lawmakers on Capitol Hill. ''How far are they going to go with guilt by contribution?'' 
Everyone agrees Enron's decision to seek bankruptcy protection, the biggest in American history, is a corporate scandal. While most politicians say it has the classic elements of a political scandal, too, they insist it is still too early to declare it one. Many elected officials on Capitol Hill are proceeding cautiously as they embark on lengthy and complicated inquiries. 
''I think they are being cautious because they don't know all the facts,'' a Republican strategist, Charles Black, said. ''This is a very complex thing. And there is no evidence that any elected official or government official did anything untoward. So they are right to be cautious.'' 
Mr. Lieberman was asked by a legal watchdog group to recuse himself because a group he co-founded, the New Democrats Network, had received $25,000 from Enron. Critics have also pointed out that Citigroup, Enron's largest lender, is Mr. Lieberman's top donor, giving his campaigns $112,000 since 1997, campaign records show. A longtime Republican strategist put it this way, ''Lieberman's problem is simple -- Enron's biggest creditor is his campaign's biggest contributor.'' 
For his part, Mr. Lieberman has promised to conduct a fair and thorough inquiry that will not become ''a witch hunt.'' 
Enron, Arthur Andersen and Vinson & Elkins, a Houston law firm, are among the most generous contributors to Mr. Bush's 2000 presidential campaign. Enron has given more than $700,000 to Mr. Bush since 1993; no company has given him more. In addition, Enron's chairman, Kenneth L. Lay, was one of the ''pioneers,'' raising more than $100,000 for Mr. Bush's campaign, and he and his wife gave a total of $10,000 to Mr. Bush's Florida recount fund. Enron and Mr. Lay also contributed a total of $200,000 to Mr. Bush's inaugural festivities. 
While Enron's accounting problems worsened last September, Mr. Lay continued to raise money for candidates. He was host of a luncheon for Elizabeth Dole, who is running for United States Senate from North Carolina, at the Four Seasons hotel on Sept. 20. The event raised about $20,000 for Mrs. Dole's campaign, but she has pledged to donate Mr. Lay's contribution -- about $5,000 -- to the Enron employees' fund. Other candidates, lawmakers and campaign committees are busily returning Enron donations. 
The Congressional panels are focusing on the reasons for Enron's collapse. They intend to investigate an array of issues, including retirement fund management, the oversight of energy trading markets and financial accounting and auditing. 
The Senate Government Affairs Committee, whose chairman is Mr. Lieberman, will look at whether regulators could have done more to monitor the company's practices. The House Energy and Commerce Committee, led by Representative Billy Tauzin, Republican of Louisiana, has been the quickest out of the gate, with an investigation focusing on Enron and Arthur Andersen. Last week the committee released a letter from an Enron vice president, Sherron S. Watkins, that warned Mr. Lay last August about enormous losses and possible illegalities in several Enron partnerships. 
Mr. Tauzin received campaign money from Enron and Arthur Andersen, but committee investigators have aggressively sifted through more than two million documents. 
Congressional committees have sent out hundreds of subpoenas, causing concerns among Justice Department lawyers who say they are worried that key executives at Enron and Arthur Andersen may compromise any future prosecutions. 
The hazard lies in any grant of immunity to the witnesses testifying before any of the Congressional committees investigating them. Prosecutors would then have to show they did not use any of this testimony to find witnesses or to gather evidence against them. 
This hurdle for the government became clear in 1991, when an appeals court reversed a conviction in the Iran-contra case of John M. Poindexter, the former national security adviser, and caused the independent prosecutor to drop all charges against Oliver L. North, saying prosecutors would not be able to show that the testimony used to convict Mr. North had not been affected by his testimony to Congress. 
Brian Sierra, a Justice Department spokesman, said, ''We're not going to comment on potential trouble down the road. We're aware of the need for Congressional oversight. We are going down the road of a criminal investigation. We'll work with Congress on this issue. If a problem presents itself, we'll work those problems out.'' 
On the political front, Representative Henry A. Waxman of California, the ranking Democrat on the Government Reform Committee, has posed questions about Enron's contacts with several administration officials, including Mr. Cheney and Lawrence B. Lindsey, the president's economic adviser. But the committee chairman, Representative Dan Burton, Republican of Indiana, does not intend to hold hearings on Enron, a spokesman for Mr. Burton said. 
The Congressional inquiries will focus mainly on accusations of corporate malfeasance, but investigators for several of the committees looking into Enron's political contacts can be divided into three general areas of inquiry, President Bush, Vice President Cheney and Texas legislators. 
At a White House question-and-answer session with reporters, the president said that Mr. Lay had supported his opponent, Ann Richards, when he ran for governor of Texas in 1994. It is true that Enron had given money to both sides, but Mr. Lay and Enron gave more than three times more money to Mr. Bush than to Ms. Richards. 
For years, Mr. Bush affectionately called Mr. Lay Kenny Boy, but recently at the White House the president referred to him as Mr. Lay. 
In response to questions from Mr. Waxman, the vice president's counsel revealed that in 2001 Mr. Cheney met once with Enron executives and members of his staff four times to discuss energy policy. 
Mr. Waxman released a report that identified 17 areas of the administration's energy plan, drafted by Mr. Cheney's task force, that had also been advocated by Enron. 
Ms. Matalin, Mr. Cheney's aide, said that none of the provisions were given to the administration by Enron. 
''Just because someone endorsed it, doesn't mean someone put it in there,'' she said. ''This is just good energy policy.'' 
Enron's financial problems have reignited a push for Mr. Cheney to release a list of people who met with the energy task force last year. The White House has declined to release the list. The General Accounting Office will decide next month whether to go to court to require the administration to release it. Ms. Matalin said the administration was withholding the list ''on principle'' to protect the participants' privacy. 
Representative Tom DeLay, whose district is in Houston and its suburbs, near Enron's headquarters, received $28,900 since 1989 from the company. 
Enron also hired as lobbyists two influential members of Mr. DeLay's inner circle, Ed Buckham and Karl Gallant. And Enron and Mr. Lay were also contributors to the Republican Majority Issues Committee, a group close to Mr. DeLay. 
The Enron dealings of Senator Phil Gramm, Republican of Texas, and his wife, Dr. Wendy Gramm, a member of the Enron's board of directors and former head of the Commodities Futures Trading Commission, have also drawn scrutiny because of their involvement in regulatory issues affecting Enron. 
But Enron also gave $42,750 to Representative Ken Bentsen and $38,000 to Representative Sheila Jackson Lee, both Texas Democrats.

Chart: ''Enron Hearings on Capitol Hill'' SENATE COMMITTEES Banking Feb. 12, 10 a.m. Will hold an oversight hearing to look into accounting and investor protection issues in connection with Enron and problems with other public companies. Commerce Feb. 4, 9:30 a.m. Subcommittee on Consumer Affairs will look at consumer fraud questions and also whether Enron's lobbying affected deregulation of energy markets. Enron's chairman, Kenneth L. Lay, is scheduled to testify. Energy and Natural Resources Jan. 29 (tentative) Will focus on the effect on energy markets: competition, government oversight and energy trades. Finance No date set Will investigate whether regulation of retirement plans should be strengthened and examine Enron's compliance with tax laws, in particular its use of tax shelters. Governmental Affairs Jan. 24, 10 a.m. Will consider whether federal regulatory agencies could have done more to prevent the Enron failure, and focus on possible conflicts of interest among directors, accountants and banking firms. Governmental Affairs Subcommittee on Investigations No date set Will look at Enron's internal affairs, its executives and their relationship with the outside auditor. Health, Education, Labor and Pensions Feb. 7, 10 a.m. Will concentrate on Enron's handling of its 401(k) plan. HOUSE COMMITTEES Education and the Work Force Tentatively set for week of Feb. 5 Will examine Enron's benefits plan and its compliance with laws on employer-sponsored pension plans. Energy and Commerce No date set Will conduct a review of S.E.C. oversight of Enron and the accounting questions involving Arthur Andersen. Jan. 24, 9:30 a.m. The Subcommittee on Oversight and Investigations will conduct a review of the destruction of Enron-related documents by Andersen personnel. Financial Services No date set Will attempt to re-evaluate the regulation of the accounting industry, the impact on commodity markets, and potential securities fraud. (Sources: Committees; Congressional Quarterly) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

National Desk; Section A
ENRON'S COLLAPSE: FIVE UNCERTAIN YEARS
A Bankruptcy Freezes The Settlement of Claims In a Puerto Rico Explosion
By MIREYA NAVARRO

01/21/2002
The New York Times
Page 12, Column 1
c. 2002 New York Times Company

SAN JUAN, Puerto Rico, Jan. 20 -- To this day, Ruben del Valle said, he battles depression and insomnia. One day, the 73-year-old shoe salesman said, he came home so sullen he took his revolver and locked himself in his garage for half an hour, until a group of relatives, neighbors and police officers lured him out to safety. 
Justina Rivera said her family was not doing much better. Her 37-year-old daughter is ''like a zombie,'' she said, and is under psychiatric treatment. Ms. Rivera herself spent much of last month's holiday season secluded in her bedroom, she said.
Ms. Rivera lost a 31-year-old daughter, and Mr. Del Valle lost his boss and three co-workers, in a 1996 explosion at a shoe store here that killed 33 people, injured 80 others and dealt an economic blow to a major commercial hub. And, in lawsuits, they and hundreds of other plaintiffs blame the Enron Corporation for the blast. An Enron wholly owned subsidiary, the San Juan Gas Company, was found by federal investigators to have failed to prevent the tragedy because of inadequate employee training and unsafe conditions in its propane gas pipeline system. 
Now the explosion's victims, already reeling from human as well as financial losses, are feeling the ripple effect of Enron's enormous financial collapse. Enron's bankruptcy case has frozen settlement negotiations and the first scheduled trials for hundreds of them, plaintiffs' lawyers say, threatening payment of some of the most serious claims. 
Nearly 800 plaintiffs -- more than half of the more than 1,400 who filed about 500 lawsuits against six Enron-related companies and other defendants in both federal and Puerto Rican courts over the explosion -- have settled their suits, according to bankruptcy court papers filed by Enron lawyers. The settlements, which the Enron lawyers said had been covered by indemnity insurance, total about $60 million, plaintiff lawyers estimated. 
But more than 700 plaintiffs still have pending claims that their lawyers and other parties in the case said could reach another $50 million in payments. Pedro J. Saade, Ms. Rivera's lawyer, said the number of claimants in the case was high because it included people who were passing through the area at the time and who are seeking damages for emotional distress. Also, he said, in Puerto Rico, relatives or friends of those affected directly can sue if they, too, can prove to have suffered harm. 
Among the many victims hurt by the fall of Enron, these litigants have a particularly emotional claim against the company -- they hold it and its subsidiary accountable for not only financial loss but for wrongful death, personal injury and post-traumatic stress disorder. 
''I feel like these people have no conscience, that for them this meant nothing,'' said a tearful Ms. Rivera, who filed her lawsuit in 1997 and has found the settlement offers given to her so far to be inadequate. 
When her daughter, Maritza Ramos, was killed in the Humberto Vidal explosion -- named after the shoe store where it occurred -- she was entering the store with her 4-year-old and 3-year-old daughters, Ms. Rivera said. Survivors described a scene similar in certain horrific details to the World Trade Center catastrophe: structures transformed into a mess of twisted metal, dazed people covered in dust, bodies strewn about. 
The two girls survived, Ms. Rivera said, and they and their father have filed a separate legal action. 
''I'm not selling the death of my daughter,'' Ms. Rivera said, ''but I believe there should be just compensation for my other two children, who are destroyed. It's been five years. How much longer are they going to keep us reliving this agony?'' 
In 1997, the National Transportation Safety Board, which handles gas pipeline safety, determined that the probable cause of the November 1996 explosion, which occurred in the basement of the Humberto Vidal six-story store and office building in the Rio Piedras section, was propane gas that leaked from San Juan Gas's underground pipeline system. In the seven days leading up to the explosion, the board said, the gas company had responded repeatedly to complaints from building occupants of a strong gas odor, but its workers failed to find the gas leak. 
The safety board's report found fault with Enron for failing to ''oversee adequately'' the operation of its San Juan subsidiary. (It also faulted the Puerto Rico Public Service Commission and the United States Transportation Department for lack of oversight.) The report said that the company ''did not oversee employees' actions enough to identify and correct unsafe practices'' and that it had known for more than 10 years before the explosion that its gas subsidiary did not comply with pipeline safety requirements and recommended industry practices. 
The report said, ''Enron Corp. had begun before the explosion to correct some deficiencies in the gas company's operations, but its attempt was neither timely nor sufficient.'' 
Enron disputed the findings and did not admit responsibility for the explosion. A spokeswoman for San Juan Gas said at the time that the transportation board had not found forensic evidence showing that the explosion was attributable to propane. 
But in 2000, San Juan Gas, other defendants in the case and the plaintiffs agreed not to litigate the cause of the explosion and instead to proceed with the cases to determine damages and the size of awards. 
Among the suits waiting for a trial date is that of Humberto Vidal, which is claiming $25 million in compensatory damages for the explosion. The business, which was the target of lawsuits itself over the incident, paid $900,000 toward settlements and lost five employees, one store and its corporate headquarters in the explosion. It had to demolish the structure, which has been replaced by a smaller, two-story commercial building. 
Humberto Vidal Jr., vice president of the family business, said that the chain was still operating in the red because of the negative publicity and that Enron and San Juan Gas had made matters worse by disputing the safety board's findings and fighting the suits for years, only to agree later to pay damages. 
Calls to Enron's lawyers handling aspects of the explosion-related litigation in both Puerto Rico and Houston were not returned. A company spokesman, John Ambler, confirmed some background information, but he said the lawyers were not at liberty to discuss the case. 
The explosion plaintiffs can be compensated by Enron's insurance liability coverage, say their lawyers. The lawyers have filed a petition with the United States Bankruptcy Court in Manhattan, asking that the pending cases be allowed to go forward. 
The lawyers say the insurance coverage applicable to their case is about $600 million, more than enough to settle the rest of the suits. 
But in an objection filed with the court earlier this month, Enron's lawyers opposed the move as a distraction from the company's bankruptcy reorganization efforts. 
They said it would be a precedent that could attract other claimants without giving the company ''a reasonable opportunity to develop an overall strategy for processing these claims.'' They also said the applicable insurance coverage called for the insured to pay first and then be indemnified by its insurers, a point that is disputed by some of the plaintiffs' lawyers. 
A hearing on the matter is set for March 7. 
The timing of Enron's collapse could not have been worse for the Puerto Ricans. Five years after the explosion, the first trials had been scheduled for last month. 
Some lawyers are reassuring clients that this is just a temporary setback, but there is enough uncertainty for some to be worried. At the very least, said Jorge Ortiz Brunet, a lawyer here who is handling 30 of the cases, the suits will be delayed further, and Enron will probably be less willing to settle and more eager to go to trial because it no longer fears staining its name. 
''We're in a dark tunnel,'' said Jose J. Torres-Escalera, one of Mr. Vidal's lawyers. ''Nobody knows for certain if anyone will ever recover damages. Each day it gets worse. Enron could end up in total bankruptcy.'' 
Some plaintiffs, like Maria Teresa Otero Soto, 28, seem indifferent to what happens. She said that the one pursuing the case was really her husband, a plaintiff in her suit who alleges ''loss of consortium.'' 
Ms. Otero Soto, a 22-year-old student at a beauty school near the shoe store at the time of the explosion, said she had walked out uninjured but could not erase from her mind the carnage she had seen. 
But many other plaintiffs are more passionate about their claims, convinced of the negligence of Enron and its San Juan company. 
''This will always stay with me,'' said Jose Santiago, 36, a San Juan Gas worker who was testing for the gas leak at the time of the explosion and who is now a driver for a Head Start program at half his old salary. No longer, Mr. Santiago said, can he bear the sound of hissing gas.

Photos: Maria Teresa Otero Soto, 28, was a student at a beauty school near the shoe store where the explosion occurred. She says she escaped physical injury from the blast but is haunted by the memory of the disaster. (Laura Magruder for The New York Times); Humberto Vidal Jr., whose store was destroyed in the blast, is still seeking damages from the Enron unit that was found to be responsible. (Laura Magruder for The New York Times); An explosion in 1996 at a shoe store in San Juan killed 33 people and injured 80. It led to hundreds of lawsuits against Enron-related companies. (Associated Press) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

National Desk; Section A
Enron's Woes Revive Debate On Campaigns
By ALISON MITCHELL

01/22/2002
The New York Times
Page 16, Column 1
c. 2002 New York Times Company

WASHINGTON, Jan. 21 -- The Enron debacle is proving to be an unexpected windfall for the effort to overhaul the nation's campaign finance laws. 
As politicians scramble to return contributions from Enron, the failing energy trading company, the advocates of limiting money in politics say their cause has been reinvigorated. They predict that once Congress returns on Wednesday, they will swiftly gain the support needed to force the campaign finance issue to the House floor.
''It's a huge development,'' said Representative Christopher Shays, the Connecticut Republican who, with Representative Martin T. Meehan, Democrat of Massachusetts, is a leading sponsor of the bill to ban the unregulated and unlimited contributions to political parties known as soft money. 
Tales of Enron's largess -- the company spread $6 million across Washington and both parties in the last decade -- come just as the drive to overhaul the campaign finance law is at a juncture, promising the possibility of the most wide-ranging change in it since the Watergate era. 
The re-energized push for an overhaul will still meet stiff resistance from Republican House leaders, who have stalled the bill and support a less stringent measure. 
The campaign finance issue is not the only one affected by Enron. Enron's collapse could alter the debate over energy legislation, retirement legislation and even the negotiations on an economic stimulus bill. 
The Senate approved an overhaul of campaign financing last year, after years in which the bill died in Republican filibusters. The bill would ban soft money and rein in advertising by advocacy groups. 
In the House, the legislation has stalled. Its backers have been in a petition drive to push their bill to the floor for debate over the objections of the House Republican leadership. By December, they had 214 of the 218 signatures needed to prevail. 
Now Representative Corrine Brown, Democrat of Florida, says she will sign, in part because of Enron. ''To me, this is the people's House,'' Ms. Brown said in an interview. ''The influence that the big dollars have, we need to limit it.'' 
Representative Richard E. Neal, Democrat of Massachusetts, has promised to provide the final signature if 217 other members sign. That leaves the coalition backing the measure just two votes short. 
John P. Feehery, a spokesman for Speaker J. Dennis Hastert of Illinois, said he was not sure whether the Enron situation had changed the political outlook for the measure. 
''Enron's a different subject, really, from campaign finance,'' Mr. Feehery said. 
Mr. Hastert would have to permit a vote on the bill if the petition drive succeeded, he said, adding, ''Obviously, the rules of the House require you to follow the rules of the House.'' 
Mr. Hastert remains opposed to the Shays-Meehan bill, and with the House whip, Representative Tom DeLay of Texas, who has been an implacable foe of the bill, he has been promoting alternative legislation sponsored by Representative Bob Ney, Republican of Ohio. 
An array of advocacy groups -- including Common Cause, the League of Women Voters and the Sierra Club -- have been running phone banks for the past week to put pressure on a target list of 25 House members to sign the petition. 
Representative Richard A. Gephardt of Missouri, the House minority leader, said at the Democratic Party's winter meeting over the weekend, ''We are going to clean up politics in this country once and for all.'' 
Mr. Gephardt's aides say he will personally press Democratic holdouts to deliver the last signatures for the petition. 
Legislation similar to the Shays-Meehan bill passed the House in previous years, so there is optimism among the bill's backers that if they can get the legislation to the floor they will win passage. Other House members say the vote will be close. 
For the many Republicans who contend that a ban on soft money would weaken the national political parties and abridge free speech, the Enron situation is galling. They contend that the phone calls of the Enron chairman, Kenneth L. Lay, to President Bush's senior aides and cabinet members this fall did not bring help for the collapsing company. 
''If anything, Enron shows that money doesn't buy special influence,'' said Representative Thomas M. Davis III, who heads the House Republicans' re-election committee. 
But John Weaver, a strategist for Senator John McCain, the Arizona Republican who put the battle against special interests at the center of his losing presidential run, compared the current frenzy to the one that swept the Capitol after President Bill Clinton pardoned Marc Rich, a fugitive commodities trader, whose former wife, Denise, was a major contributor to Democrats. 
''Just like the Marc Rich pardon changed the environment a year ago and helped secure passage in the Senate,'' Mr. Weaver said, ''we feel the washing of Enron money all around Washington will do the same thing in the looming House debate.'' 
Indeed, so toxic have the Enron donations become that all four of the Congressional campaign committees are returning contributions they received -- either to the company or to funds that have been established to help employees who have watched their retirement savings dry up. 
Three of the committees -- those for the Senate Democrats, the Senate Republicans and the House Republicans -- received $100,000 apiece from Enron this fall, as the company's fortunes rapidly fell. The fourth, the Democratic Congressional Campaign Committee, received $2,050. 
Individual lawmakers, too, are racing to return money. Enron wrote campaign checks to nearly three-fourths of the senators and half the representatives over the years. 
The Democrats are seeking to use Mr. Bush's close ties to Mr. Lay to underscore their theme that Republicans stand with special interests. The Republicans say they are prepared to fight back with their own choice examples of Democratic connections to Mr. Lay, like the case of Thomas F. McLarty III, the Clinton White House counselor who monitored the progress of an Enron power plant project in India; in 1996, just days before India approved the project, Enron gave $100,000 to the Democratic National Committee. 
The charges and countercharges will keep the issue of political contributions alive, which is what the advocates of change want. 
''In all the years of lobbying on this issue,'' said Meredith McGehee, senior vice president of Common Cause, ''we're used to having to go out and make the case that this is a problem.'' 
''Now,'' Ms. McGehee said, ''you go out there and people make the case to you.'' 
Even if the coalition gets 218 signatures on its petition -- a majority of the House -- there are still ways for Republican leaders to delay a vote. 
Under the complicated rules for such a petition, the legislation it forces to the floor can be considered only on certain Mondays. Often the House is not working on Mondays. So the debate could be delayed until April or May. 
Once the Shays-Meehan bill goes to the floor, it will be subject to efforts to amend it and will have to compete against rival bills.

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE ANALYST
Man Who Doubted Enron Enjoys New Recognition
By JOHN SCHWARTZ

01/21/2002
The New York Times
Page 8, Column 5
c. 2002 New York Times Company

HOUSTON, Jan. 20 -- Of all the Enron mementoes, John Olson might have the best one. Mr. Olson, an analyst who has been a longtime skeptic of the energy company's once-stratospheric stock price, has a handwritten note that the Enron chairman, Kenneth L. Lay, sent last June to Mr. Olson's boss, Donald Sanders. 
''Don -- John Olson has been wrong about Enron for over 10 years and is still wrong,'' Mr. Lay wrote. ''But he is consistant [sic]. Ken.''
Consistently right, actually. Mr. Olson, who follows the energy industry for a small investment firm here, has finally been proved correct where just about every other Wall Street analyst who followed Enron was wrong. But he can take only a grim kind of satisfaction in his prescience. ''I would like to be able to gloat,'' he said, ''but this thing is just too damaging, too unhappy, to do anything like that.'' 
Mr. Olson, who calls himself an old-fashioned analyst who does not own individual stocks himself, is now a Houston celebrity. A recent talk he gave at the Petroleum Club on the fall of Enron drew a standing-room-only crowd. 
''He's a very sharp analyst,'' said George P. Mitchell, founder of the Mitchell Energy & Development Corporation in Houston. ''When you have 16 out of 17 analysts'' promoting the stock, he said, ''that's pretty tough opposition. But he stuck to his guns, and he did it early.'' 
Mr. Olson's moment in the sun comes at the end of a lonely time. Wall Street, he said, was dazzled by Enron's high-technology gloss, and did not scrutinize the business. That, he said, has been the sad trend of the analyst community during the years of the dot-com bubble, when companies with no profits and few prospects of earning them could get glowing reviews from analysts like Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley. 
''Henry Blodgett might be a nice young man, but . . .'' he said, trailing off into silence. 
''On Wall Street,'' he said, ''the worst thing you can be is a schnuckel,'' which he said was the Yiddish word for dupe. ''We were schnuckled on Enron,'' he said. ''It was gloriously overvalued.'' 
His rough command of Yiddish -- the likely word he was referring to was ''schnook'' -- came from his adolescence in Larchmont, N.Y., where he said the fathers of Jewish girls he dated used choice Yiddish terms to insult him. ''Yiddish is a marvelously slanderous language,'' he said. 
A sardonic man, six feet tall, thin and weathered, he looks like a Giacometti statue in pinstripes. He describes himself as ''a basset hound with a 25-watt personality.'' 
After receiving an M.B.A. from the Wharton School of Finance at the University of Pennsylvania, he worked as an analyst covering the oil, gas and electric power industries for firms including Merrill Lynch, Drexel Burhnam Lambert and First Boston. He is currently director of research for a boutique firm here, the Sanders Morris Harris Group. 
His small corner office, on the 31st floor of one of Houston's many downtown office towers, has a splendid view of Enron Field, the city's new baseball stadium. The wood-framed note from Mr. Lay hangs near a wire sculpture of an oil derrick and a silver yo-yo. 
The note was scrawled in the margins of a story from U.S. News & World Report in which Mr. Olson was quoted as saying, ''They're not very forthcoming about how they make their money.'' He went on to say: ''I don't know an analyst worth his salt who can seriously analyze Enron.'' A messenger delivered the note from Mr. Lay the next day by hand. 
When Mr. Sanders, his boss, showed him the note, Mr. Olson recalls shrugging. ''You know that I'm old and I'm worthless,'' he said, ''but at least I can spell 'consistent'.'' 
In Houston, opposing Enron was a little like being against the city itself, said Stephen L. Klineberg, a professor of sociology at Rice University. ''You could make a case that it was especially hard in Houston to be a skeptic on Enron,'' he said, because ''Ken Lay and Enron were very much at the center of Houston's sense of positioning itself for success in the post-oil age'' of trading and high technology. 
The cost of such pessimism could be high, Mr. Olson said. ''They are a very combative culture over there,'' he said. ''They always played to win.'' 
Those who did not join the chorus of praise for Enron, he said, could be punished. ''There was a strong mandate, unwritten, unspoken, at Enron that if you the investment banking house ever wanted to do business with Enron, your analyst had to have a strong buy on the stock,'' he said. ''I was continually at war with investment bankers.'' 
His consistency, however, has not been complete. He did recommend Enron stock when its troubles first drove the price down to $27 a share last September. ''I thought it was a real bargain at the time,'' he said. The slide, of course, continued as Enron headed toward bankruptcy. 
Surprisingly, he does not believe that Enron is finished. He said that he believes Enron can, and should, recover because of its trading prowess. ''They were the best of the breed,'' he said. ''Trading did not bring them down. It was a rogue financing operation.''

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

The Outlook
Enron Fallout May Cut Stock Prices in General
By Steve Liesman

01/21/2002
The Wall Street Journal
A1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

New York -- Are all investors -- even those who didn't hold the stock -- paying for the collapse of Enron Corp.? 
That's the question that some economists are pondering as they try to figure out whether the bankruptcy filing of the country's seventh-largest company has broader market implications.
The $63.39 billion failure (judged by the assets in its most recent quarterly report) itself is small potatoes for an economy the size of the U.S., where 2001 gross domestic product exceeded $10 trillion. In fact, the value of Enron's business equaled about 55 hours of output for the entire nation. 

But more widespread economic loss could show up in a more indirect way: through a loss of investor confidence that lowers stock prices. In theory, equity prices reflect a built-in premium that varies depending upon the perceived level of risk. The higher the risk perception, the lower the security price to allow for greater returns. "If investors think financial information is somehow distorting and not portraying the underlying economics of a company, common sense says they will exact a premium," says Jim Leisenring, a U.S. member of the International Accounting Standards Board. 

The most obvious additional risk is that investors now have a new notion of how large is large enough to be considered immune from bankruptcy. Enron's bankruptcy filing is almost as large as the two next biggest failures combined: Texaco Inc. in 1987 ($35.89 billion) and Financial Corp. of America in 1988 ($33.86 billion). There's more risk because the size of a company that is "too big to fail" has suddenly become larger, says Peter Bernstein, president of Peter L. Bernstein Inc., an economic consultant to institutional investors. 
Enron's collapse is unique in the way it has so publicly and comprehensively highlighted risk for investors in every part of the market's supposed safeguards. "The Enron debacle has relevance beyond just Enron," says Byron Wien, senior investment strategist at Morgan Stanley. "It has made investors more apprehensive about investing and part of the malaise the market has experienced in the last several weeks is a reflection of that." 
Internal company memos show that the board and the office of Chairman Kenneth Lay approved the off-the-books partnerships that ultimately led to Enron's fall. Twice the company waived its code of ethics to allow Enron's former chief financial officer to head several of these partnerships. So add some risk for the integrity of executives and directors. 

Revelations that Arthur Andersen was aware of the partnership structures, acted as both external and internal auditor and shredded documents have made even the most skeptical investors rethink what little faith they placed in accountants. There's even a joke among traders that the next great investment play will be shorting a basket of stocks audited by Andersen. So add some risk for the integrity of the accountants. 

A look back at the reports from stock analysts before the company's downfall makes clear that the stock analysts, supposedly highly qualified in corporate finance, didn't understand much of the way Enron earned its money and kept debt off its balance sheet. Worse, even after Enron's problems came to light, several analysts from top investment banks continued to recommend the stock while acknowledging the enigma had yet to be fully unraveled. Lehman Brothers analyst Richard Gross called Enron a "strong buy" while noting that as a result of an "opaque business, a complicated balance sheet and low returns on capital Enron trades as a matter of faith." So add some risk for the financial acumen of stock analysts. 
It has also become apparent that the Financial Accounting Standards Board, which sets the accounting rules, has been working for 20 years to create a simple standard for disclosing these off-the-books transactions. But because of pressure from corporate interests and accountants, it hasn't succeeded. And it's now known that the Securities and Exchange Commission gave Enron waivers from two regulations that would have prompted detailed financial disclosures. So add some risk for the regulators. 
That doesn't leave much for investors to rely upon. 

To be sure, all of these problems have surfaced in scandals past. And there are those who argue that Enron is an isolated incident because it was the only company of its kind: a utility company creating new markets for electricity and broadband trading that engaged in sophisticated finance. 

But is that really so unique any more? Corporate balance sheets increasingly look like those of financial institutions, with the use of derivatives, vendor financing loans, third-party equity stakes and stock options. In fact, because of the way companies use stock for employee compensation and, in the case of Enron and others, to guarantee corporate obligations, stock has transformed from a reflection of management's performance to a tool of management to enhance performance. So now, investors must judge whether managers are good widget makers and good bankers and investors. "As the firm becomes more complex," says Roger Ibbotson, finance professor at the Yale School of Management, "we are less able to understand easily what goes on." 
And if investors can't trust the directors, executives, accountants or analysts to come up with good numbers, then everyone will pay a price -- or rather, a lesser price for stocks.

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

Global View
Steel's Shakedown Attempt Will Test Bush's Resolve
By George Melloan

01/22/2002
The Wall Street Journal
A21
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Democrats and the New York Times have been trying mightily to establish some guilt-by-association link between George W. Bush and those hapless tycoons at Enron. Not much luck there. Ken Lay called the government for help but the Bush administration didn't answer. 
Now, there is another tycoon on the phone yelping for a taxpayer bailout. If George Bush decides to gratify his demands, there will be no complaints from the Dems. Quite the contrary. The tycoon is U.S. Steel CEO Thomas J. Usher and he will have plenty of Democrats backing him up. Indeed, the spokesman for his lobby is former Clinton press secretary Joe Lockhart.
Mr. Usher's demands on the American taxpayers are limited, but only in the sense that a limited amount of water flows over Niagara Falls every day. All he wants is for the federal government to take over the retiree pension and health insurance obligations of the big integrated steel producers, so that U.S. Steel can buy up its competitors free of those burdens. That will only cost $12 billion or so, admittedly cheap compared to what it might have took to make Enron whole. 
But there's another demand, for new tariffs of up to 40% on 16 types of imported steel. That one gets a bit expensive. It will raise the price of steel to U.S. manufacturers, making them vulnerable to further market inroads from foreign competitors. It also will raise the hackles of U.S. trading partners, giving them justification to retaliate against U.S. products. 
The European Union has just won a World Trade Organization ruling allowing it to punish the U.S. with $4 billion in trade sanctions until the U.S. abolishes foreign sales corporations, exporters exempted from corporate income taxes. Europe doesn't much want to retaliate, because it would raise prices in Europe, and there is an important question of what business the WTO has deciding tax policy, anyway. Europe might be willing to call it quits if the U.S. chooses to forego any new steel tariffs. If the U.S. gets such an offer, it should take it. A nasty issue with the potential of further gumming up trade relations could be swept under the rug, with benefits all around. 
But will the Bush administration stand up to Big Steel? Various political advisers argue that refusing the industry's demands might cost Republicans control of the Congress next fall. A collapse of the richly rewarding retirement benefits system granted by the companies to the United Steelworkers Union in fatter times could sow discontent in places like Indiana and Pennsylvania. Republican congressional candidates could lose in these and other "battleground" states. 
Mr. Usher's argument is that if the industry can get this bailout, it can consolidate and make itself more competitive against big competitors in Asia and Europe. He is seconded by Bethlehem Steel CEO Robert Miller, Jr., whose knowledge derives from his role in arranging the 1980 government rescue of Chrysler Corp. The idea is to meld Bethlehem, a Chapter 11 bankrupt, with U.S. Steel and some other failing integrated producers, like National and Weirton. But that can't happen, they say, unless the government assumes their worker retirement obligations, which represent a cost that in some cases is higher than the value of the companies themselves. The government also would have to waive antitrust objections, but that would be no big deal. 
With this help, it's claimed, the U.S. could have one big happy integrated producer and all would be well. But is that really true? The U.S. government has been protecting steel companies for decades through import quotas and the like, and the result has been a worsening of the industry's sickness. The integrated producers start with a cost disadvantage in that they maintain the expensive blast furnaces that convert iron ore into pig iron to be converted into steel. So-called minimills, which use electric arc furnaces to smelt scrap, can make steel much cheaper and have been taking over more and more of the market. Many foreign producers, unburdened with expensive labor contracts like those the Steelworkers have won, can undersell as well. In a market where demand hasn't grown significantly for years, the integrated producers are the odd man out. 
Yet the real issue before the Bush administration is whether it wants to continue taking extreme measures to keep this crippled industry on its feet, or whether it wants to cut its losses. If the busted mills simply liquidate, retired steelworkers won't go hungry. The younger ones have recourse to the government's Pension Benefit Guaranty Corp. and indeed are still of working age. The older ones also have access to Social Security and Medicare. That's not to say they would suffer no loss, but is it really fair to ask taxpayers who have survived on much less generous pay and benefit packages to support steelworkers at their present levels? 
More to the point is the example a steel bailout sets for industry in general. Does the Bush administration want to establish a precedent that the government will assume the obligations of every declining industry in an attempt to arrest that decline? One of the great strengths of the American economy has been its adaptability. The promise of a bailout simply tells managers and workers they won't have to adapt to changing market circumstances. More insidiously, it tells them that they can get through politics what they couldn't get through hard work and adroit management of their enterprises. 
The worst effect of all is what bailouts say to the rest of the world. They say that the great proponent of free trade has feet of clay. The Bush administration is striving hard to preserve America's free trade bona fides by asking Congress to restore the President's fast-track authority to negotiate trade agreements that Congress must vote up or down, without crippling amendments. That authority is essential if the new round of trade negotiations launched by WTO trade ministers in Qatar last fall is to bear fruit. 
Reductions of trade restrictions have been the engine driving the growth of the world economy since the Kennedy Round was launched in the 1960s. It has allowed many millions of the world's people to move from a subsistence existence into the cash economy and to rise out of poverty to income levels that provide them with creature comforts and human dignity. This is not a small thing to risk for the meager returns that will result from keeping a small group of U.S. companies on life support for a few years longer.

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

Science Desk; Section F
The Urge to Punish Cheats: It Isn't Merely Vengeance
By NATALIE ANGIER

01/22/2002
The New York Times
Page 1, Column 4
c. 2002 New York Times Company

Over the last couple of weeks, as the Enron fiasco has played itself out like a louche fusion of Shakespeare and the old ''Dewey, Cheatum & Howe'' routine, Americans have been transfixed by the story, united in a nearly seamless sense of outrage. 
Regardless of whether any laws were broken in the spectacular collapse of one of the nation's largest companies, citizens of all political pipings have voiced disgust at accounts of top Enron executives selling off their stock in time to enrich themselves handsomely, while ordinary Enron employees were later forced to sit by in impotent desperation as their retirement savings evaporated.
In the ferocity of the public outcry, and the demand from even those with no personal stake in the Enron collapse that ''justice'' be done, some scientists see a vivid example of humanity's evolved and deep-seated hatred of the Cheat. The Cheat is the transgressor of fair play, the violator of accepted norms, the sneak who smiles with Chiclet teeth while ladling from the community till. 
Human beings are elaborately, ineluctably social creatures, scientists say, and are more willing than any other species to work for the common good -- to cooperate with nonkin and to help out strangers, sometimes at great cost to oneself, as the death of hundreds of rescue workers at the World Trade Center only too sadly showed. 
Such a readiness to trust others, to behave civilly in a crowd, to share and empathize, to play the occasional Samaritan -- all the behaviors that we laud and endorse and vow to cultivate more fully in ourselves -- could not have evolved without a corresponding readiness to catch, and to punish, the Cheat. 
Only recently have researchers realized that a willingness, even eagerness, to punish transgressors of the social compact is at least as important to the maintenance of social harmony as are regular displays of common human decency. And while the punitive urge may seem like a lowly and unsavory impulse, scientists point out that the effort to penalize cheaters is very often a selfless act. 
In an article titled ''Altruistic Punishment in Humans,'' which appears in the Jan. 10 issue of the journal Nature, Dr. Ernst Fehr of the University of Zurich and Dr. Simon Gachter of the University of St. Gallen in Switzerland offer evidence that people will seek to punish a cheat even when the punishment is costly to them and offers no material benefit -- the very definition of altruism. The researchers propose that the threat of such punishment may have been crucial to the evolution of human civilization and all its concomitant achievements. 
''It's a very important force for establishing large-scale cooperation,'' Dr. Fehr said in a telephone interview. ''Every citizen is a little policeman in a sense. There are so many social norms that we follow almost unconsciously, and they are enforced by the moral outrage we expect if we were to violate them.'' 
Dr. David Sloan Wilson, an evolutionary biologist at the State University of New York at Binghamton, said, ''People are used to thinking of social control and moralistic aggression as forms of selfishness, and that you must be punishing someone for your own benefit. But if you look at the sort of punishment that promotes altruistic behavior, you see that it is itself a form of altruism.'' 
In their new work, Dr. Fehr and Dr. Gachter put 240 students through a series of ''public goods'' experiments with real monetary stakes, always a good incentive for cash-strapped young scholars. 
Each participant was given an initial lump sum of 20 ''monetary units'' and allowed to play a series of games with rotating groups of three other participants. By the rules of the game, the members of each group independently decided how much of their sum to contribute to a community project, which in turn determined how much would be divvied up to participants in the end. The more generous each contributor, the better the group did as a whole, but there was always the risk of a participant's trying to freeload off the contributions of others. 
From one round to the next, students were kept apprised of the investment decisions by others in their group. In some cases, there was nothing they could do about their teammates' behavior. In other cases, though, participants were allowed to ''punish'' freeloaders and skinflints after the round was through: one monetary unit from them would cost the shirker three monetary units. Hence, cooperators had to pay out of their own pocket to express their disgust at another's selfish behavior. 
The outcome of the study was striking on two fronts. One was the popularity of punishment when it was permitted: 84 percent punished defectors at least once, 34.3 percent took punitive action five times or more and almost 10 percent punished the stingy 10 times or more. And all this, remember, involved the doling out of mad money from people who really needed it. 
The second significant result was that when the game was carried out under no-punishment conditions, cooperation among group members quickly broke down, and participants contributed progressively less to the public kitty as the rounds went on. But when the opportunity to punish and be punished was applied, individual contributions to the collective fund jumped sharply, and cooperation among group members grew stronger rather than weaker from round to round. 
The researchers also asked participants to describe their feelings toward free-riders on a seven-point scale, from ''no big deal'' to ''very angry,'' and about 84 percent ranked themselves a five or higher. A sense of emotional outrage is very easily evoked, said Dr. Fehr, and sometimes it feels almost good to indulge and stoke it. 
Perhaps part of the reason it feels good to rail against the sinner is that not to do so seems irresponsible, if not cowardly. ''Once you think of punishment as a form of altruism, then the kind of person who doesn't punish emerges as a kind of freeloader too,'' said Dr. Wilson, author with Dr. Elliott Sober of ''Unto Others: The Evolution and Psychology of Unselfish Behavior.'' 
The emotional palette behind the effectiveness of social control is a rich one, composed not only of a sharp sense of moral indignation and a fear of being punished, but embarrassment and shame when one violates social norms. 
Dr. Wilson said that when he and his children, nonbowlers all, recently went bowling, they were mortified when others gently scolded them for failing to observe common bowling etiquette, like taking turns with bowlers in neighboring lanes. ''My ears were burning with shame, and we fled as soon as we could,'' he said. 
And sometimes the severity of the emotion far outstrips that of the transgression. Dr. Fehr cited a case during the oil crisis of the 1970's that led to long waits at gas stations, when one motorist shot another to death for attempting to butt into line. Some of the most odious of human behaviors, including torture, public stonings and lynchings, may all be examples of the meting out of altruistic punishment run amok. 
The drive to punish selfish transgressors seems to be a basic human predilection. Paradoxically, it stems from something normally associated with rosy-eyed utopianism: according to most anthropological evidence, traditional hunter-gatherer societies have always been highly egalitarian. 
In such cultures, there are no kings or commanders, and the bounty of a good hunt or forage is generally shared with the entire community. If one person doesn't like or trust another, the person may walk away, or articulate that distrust with the tip of a spear. 
''Hunter-gatherer societies are scrupulously egalitarian, but not harmoniously so,'' said Dr. Herbert Gintis of the University of Massachusetts, a co-author on a commentary that appears with the current Nature research report. ''They're violently egalitarian.'' 
Despite its antiquity, the strength and expression of the urge to scourge is clearly shaped by culture. Anthropological studies by Dr. Fehr, Dr. Gintis and others have shown considerable cross-cultural variation in the ardor with which people seek to punish shifty noncooperators. As a rule, said Dr. Fehr, the more closely a society's economy is based on market rather than kinship ties, the more prevalent the use of altruistic punishment to bring others into line. 
In other words, the more likely a person is to be negotiating with nonrelatives, and hence the higher the chances that selfish freeloaders will seek to infiltrate the system, the more important it becomes that everybody play by the rules. Or else.

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

California; Editorial Pages Desk
Commentary Enron Got Its Money's Worth Look no further than the national energy plan.
ROBERT SCHEER

01/22/2002
Los Angeles Times
Home Edition
B-11
Copyright 2002 / The Times Mirror Company

One of the major falsehoods being bandied about by apologists for the Bush administration is that while Enron may have bankrolled much of the president's political career it got nothing for those bucks once George W. occupied the White House. 
That is nonsense.
The administration's energy program, developed by Vice President Dick Cheney in secret meetings--six of them with Enron officials--could have been written by lobbyists for the now failed company. 
At the behest of Rep. Henry Waxman (D-Los Angeles), the minority staff of the House Committee on Government Reform has prepared a devastating analysis of 17 major concessions made to Enron that gave Kenneth L. Lay, Bush's intimate friend and Enron chief executive, just about everything he wanted. The report concluded that "it is unlikely that any other corporation in America stood to gain as much from the White House plan as Enron." 
Those Bush administration concessions to Enron included finishing the job of deregulating the electricity market begun by Bush's father. The senior Bush's actions had paved the way for the company's meteoric growth. 
George W.'s energy plan also made it even easier for Enron to sell energy derivatives in the commodity market and pursue other financial shenanigans that had been a major source of profit. The unregulated selling of energy derivatives, an Enron specialty, was celebrated in the Bush energy plan as "sophisticated and customizable." We now know that practice was so sophisticated that it was the major source of Enron's paper profits. 
Oddly, given that Republicans are presumed to favor leaving power with the states, the Bush energy plan emphasized increased federal power over utility pipelines that forced local utilities to carry Enron's product. This was an expansion of the "open access" powers granted in the 1992 Energy Policy Act, passed in the first Bush administration. That law undermined the power of local authorities and regional utility companies for the benefit of Enron. In 1999, Enron had defined "open access" as the company's "single-most important initiative." 
Two years later, George W. delivered. Fortunately this subversion of the political process had a short life because Enron went belly up before Bush could save the company from itself. 
But the question remains why Bush, as governor and president, wanted to foist the example of such a despicable corporate player upon the American people as a model for business behavior. 
Surely the Enron alums who occupy key positions in the administration knew that the president's model corporation had avoided paying federal income taxes for four out of the past five years. 
Enron even claimed $382 million in government refunds. How dare this president collect taxes from ordinary Americans after touting a company that created 881 offshore dodges to avoid taxes. Few taxpayers can open subsidiaries in the Cayman Islands pretending to do business, but Enron had more than 700 there. 
The IRS and Treasury Department under the Clinton administration had attacked the use of such tax dodges and attempted to eliminate them. Bush, however, sought to reward a company that, far more than any of its competitors, took advantage of offshore loopholes. Dynegy, Enron's lead competitor, had no offshore tax havens, suggesting that it is possible to do business honestly. 
But how would Bush know of his pet company's chicanery, his apologists howl--particularly the talk radio right-wingers who spent eight years skewering Bill Clinton over the most minor transgressions? Bush should have known because his top economic advisor, Lawrence B. Lindsey, who was paid $50,000 in 2000 for consulting work for Enron, went straight from that gig to being head of the White House's National Economic Council. In the latter capacity, Lindsey wrote a rosy report on Enron's emerging problems and presented it to the president shortly before the company's collapse. 
Were he and the other Enron alum who hold high positions in the administration lying to the president, or did Bush not want to hear any bad news about his once-favorite company? Either way it smells. 
* 
Robert Scheer writes a syndicated column.

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

California; Editorial Pages Desk
Down and Out, Enron Can't Count on Friends

01/22/2002
Los Angeles Times
Home Edition
B-10
Copyright 2002 / The Times Mirror Company

Re "Donations Could Taint Probe on Capitol Hill," Jan. 18: Perhaps the politicians, instead of puffing up like indignant bullfrogs over the "outrage" of victimized employees and retirees, should place all of their Enron political contributions in a fund to assist those victims. 
This would clear the way for a reasonable public review of the problem without accusations of conflict of interest. Also, they might be more inclined to freeze the assets of the perpetrators, "pending investigation," if they didn't feel so spotlighted by their own ethically questionable, even if perfectly legal, gains.
Tim Arehart 
Villa Park 
* 
Re "Enron: A Scandal So Good That It Hurts," by John Balzar, Commentary, Jan. 18: The culpability for the Enron-related crimes also rests with a majority of average U.S. citizens, who admire (or did) people like Ken Lay as American heroes of commerce. Maybe after the U.S. press wakes up and exhibits more courage (a column like this is a start), so too will enough U.S. citizens. 
Before we can begin to demand more accountability from politicians, we have to take a hard look at the rot that has taken hold in our culture. Then, after we begin electing accountable politicians, they will in turn enforce more accountability and transparency in U.S. business culture. At least for a while, until the pendulum swings back (again) to our current free-for-all business ethics. 
Stan Burnitt 
Sao Paulo, Brazil 
* 
Balzar seems to imply that greed and avarice are phenomena of the 21st century (and of the Bush administration in particular). He appears to be suffering from an extreme form of historical myopia. He apparently has forgotten the market crash of 1929, the robber barons of the Progressive era and any number of financial and moral scandals that have been a part of this country's history from its inception. 
But this is not to imply that American history alone is typified by these events. It is a characteristic of the history of human events in general. I am by no means endorsing this behavior or excusing it. I agree with Balzar that the current moral and ethical climate in our country is a sad state of affairs. I only take issue with his implication that we have somehow fallen from some mythical state of grace and that this fall is somehow tied to the current Republican Bush administration. 
Melody Bacon 
San Juan Capistrano 
* 
Of the three congressional investigating committees, 51 of 56 members of the House Energy and Commerce Committee, 49 of 70 members of the House Financial Services Committee and two-thirds of the Senate Governmental Affairs Committee all received campaign contributions from Enron. 
If ever there were a justification for campaign finance reform, this is it. To quote Balzar, "Maybe, finally, at long bloody last, things will get bad enough to make them right." 
Trent D. Sanders 
La Canada 
* 
Re "Enron Could Have Used 'Can't Do' Advisors," Commentary, Jan. 17: George Will has produced a list of excuses for Enron that rivals the tobacco industry's effort at debunking science. His article represents a compendium of talking points to be used by Republican spin central. By the time this is over the Republicans may well need special help defending their central doctrine of getting the government off of the back of business and deregulation. 
David L. Eastman 
Costa Mesa 
* 
Re Will's column: Perhaps it is foolish to think that the executive branch of our government can have forthright, quality deliberations on matters of national interest without having them in secret. 
Eric Hilger 
Venice

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

Thinking Things Over: I'm OK, You're OK! Enron's OK?
By Robert L. Bartley

01/21/2002
The Wall Street Journal
A13
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Not even the most ardent advocates of capitalism claim it can abolish pride, greed and the rest of the seven deadly sins. Sinners do get flushed out by recession, however, and we find that Enron, a darling of the mid-1999 to mid-2000 blowout, was a house of cards. Maybe, though the jury is not yet even impaneled, a crime. 
Such spectacles are occasion not only to pursue the miscreants but also to keep the larger picture in mind. For all of human failing, capitalism as an economic system has emerged triumphant from the long trials of the 20th century, providing the developed world once unimaginable prosperity and, not so incidentally, historically unprecedented personal freedom.
As we try to prevent another Enron, it will pay to keep in mind that the success secret of capitalist economies is decentralized decision-making. When a multitude of buyers and sellers meet in a marketplace, the vagaries of human judgment even out, facts prevail and true values are reached. Over the centuries since the first money-changers, this principle has been applied to wider and wider economic spheres, reaching its highest expression in today's international financial markets, directing the investment of capital around the world. 
Capital markets are particularly good at funding innovation, providing investment in promising ventures where government technology priming consistently picks losers. Market-driven economies also have great recuperative power; far from buckling from the shocks it has received over the last year, the U.S. economy has stabilized and is probably already recovering. Too, advanced capitalism has developed mechanisms, pension systems and mutual funds in particular, for sharing the bounty through a deep middle class. Peter Drucker has observed that with shares of big corporations predominantly held in pension funds, workers do own the means of production, just as Karl Marx wanted. 
Results can of course be disrupted by market imperfections, for example when one buyer or seller knows things others do not. Perhaps also by the passion of the crowd, though as history unwinds "bubbles" and "panics" often turn out to have rational explanations after all. Whatever the exceptions, though, year in and year out market-determined decisions outperform even the best-informed and most brilliant individual mind. 
A capitalist economy does not arise spontaneously from the anarchy of piracy and war. Government plays an absolutely essential role in establishing a rule of law, protecting property rights, enforcing contracts and providing sound money. But it is also true that over history the greatest threat to property is government itself, acting through immoderate taxation, stifling regulation and even outright seizure. 
These minefields suggest some care in designing arrangements to head off human folly; the system works because people are allowed to fail, indeed to make fools of themselves. It will not be an advance if we charter some group of brilliant and well-informed mandarins to head off human folly. In reality, worse, the mandarins would soon be marching to the tune of some or another batch of politicians feeding this or that narrow constituency. 
How then to curb the seven deadly sins? Surely the law plays a part, and as we learn about the inner workings of Enron venality seems more and more likely. If it comes time to indict, I hope prosecutors will not rest with a safe case turning on some never-before-enforced provision Congress in its wisdom has declared a felony. To satisfy what's on everyone's mind, they need to see whether they can make the case that top executives set out to steal from their shareholders. 
What is particularly disturbing about Enron, though, is that failures run far beyond individual executives. Directors suspending their ethical guidelines to allow self-dealing partnerships. Accountants and lawyers studiously looking the other way, even to the point of personal jeopardy. Wall Street analysts failing in their principal duty of correctly evaluating share prices. This systemic failure is being blamed on "conflicts of interest," an explanation that strikes me as, well, jejune. 
The systemic failure is not a matter of economic arrangements, but of the societal collapse of standards and morality over the last three decades or so. As a society we seem increasingly incapable of sitting in judgment of each other -- certainly not on the behavior of prominent entertainers, sports figures or presidents. We have a legal profession that tolerates and even promotes abuse of the legal system in class action suits -- in the current Microsoft claims settlement enriching lawyers while not even trying to give a cent to supposedly injured plaintiffs. What kind of behavior can an "I'm OK, you're OK" society expect from its professionals or business leaders? 
Since accountants are bearing the first wave of recrimination, a few special words: They're vulnerable because their exercise is so artificial. The "earnings per share" figures they grind out and argue over have only a vague relation to economic success and market value. Another of Peter Drucker's insights is that "profit" is best defined as that portion of cash flow the government has decided to tax. Dividends are not a tax-deductible cost, for example, though in economic terms they are interest on the capital shareholders have advanced. 
Thus any good economic principles course will distinguish between accounting profits and economic profits. On the latter, mainstream economists take one of two views: Some follow Frank Knight, seeing profits as the reward for bearing uncertainty. Others follow Joseph Schumpeter, seeing profits as the reward for innovation -- the monopoly return to an original product, quickly vanishing as imitators arrive. One way to look at Enron's problem is that its economic profits went away, and it sought to substitute accounting profits. 
It's fine to close this particular barn door, to crack down on obscure financial footnotes, to have more rules against conflict of interest. But the seven deadly sins do not ultimately turn on economic arrangements. The real answer to Enron is likely to be found in, say, the little sermons on vice and virtue that make William J. Bennett so tiresome to our I'm OK, you're OK sophisticates.

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





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